GT Voice: The United States is about to worsen the global debt crisis, it cannot shift the blame
The US Federal Reserve in Washington, DC, USA Photo: Xinhua
Brent Neiman, adviser to US Treasury Secretary Janet Yellen, urged China to “participate in coordinated debt relief for vulnerable countries to avoid the specter of a systemic sovereign debt crisis,” Bloomberg reported. Wednesday.
This adds to growing rhetoric from Washington aimed at blaming the debt crises in some developing countries that were partially caused or exacerbated by the United States’ abuse of its dollar hegemony and policies. irresponsible money.
Ironically, Neiman’s remarks came just before the US Federal Reserve was to hold a meeting to prepare to raise interest rates again. Neiman, as an economist, is highly unlikely to fail to understand the potential hit caused by another Fed rate hike on these already struggling emerging economies. Yet all he did was repeat clichéd claims and point fingers. It’s unprofessional, irresponsible and illogical.
While many Western politicians and media are keen to point the finger at China, a close look at how the debt problems of some developing countries have emerged and worsened shows that the United States is the real source and the real creator of their predicament. Since the 1980s, expansionary US monetary policy and the strong appreciation of the dollar have been at the root of every cycle of debt crisis in the developing world, such as the Latin American debt crisis and the Asian financial crisis. And this time is no exception.
Essentially, the United States is using its dollar hegemony to make the world pay for its irresponsible monetary policies. The reason the Fed adopted a strong dollar policy to control inflation is that the United States’ indiscriminate and unlimited money-printing program aimed at maintaining “prosperity” had the inevitable consequences of high inflation. .
Due to the impact of the COVID-19 pandemic, many developing countries are already facing significant downward economic pressures. But it was against this backdrop that the Fed began its aggressive interest rate hikes aimed at curbing domestic inflation that has reached a 40-year high. As a result, the US dollar appreciated strongly against other currencies, with the US dollar index reaching its highest level in 20 years, thus accelerating currency depreciation and international capital outflows in developing countries. . For many countries facing debt problems, the Fed’s strong dollar policy could be the straw that broke the camel’s back.
Since most of the debt held in the international financial market is denominated in dollars, an appreciation of the dollar directly increases financing costs and the debt service burden of developing countries.
In addition, a strong dollar indicates a depreciation of other currencies, making imported goods more expensive for developing countries. And higher imported inflationary pressure has limited the ability of these countries to adopt policy stimulus, increasing the risks of an economic downturn and further weakening their ability to service debt.
In addition, the United States has abused unilateral sanctions and long-arm jurisdiction, endangering the stability of global supply chains and industrial chains, further exacerbating the debt service capacity of some developing countries. .
In this sense, the United States is largely responsible for the debt problems facing emerging economies. The assertions and accusations of American politicians and media against China are based on the ulterior motive of scapegoating China and evading their own responsibilities.
China has the right to handle the issue of debt relief at its own pace and on a case-by-case basis. China’s efforts to provide debt relief to developing countries are consistent and effective. Last month, China announced the waiver of 23 interest-free loans for 17 African countries that matured at the end of 2021. On Monday, Ecuador said it had reached an agreement to restructure its debt with Chinese banks, offering a relief of approximately $1.4 billion. until 2025. The United States has no right or qualification to point the finger at China’s debt relief efforts to help other developing countries.
Finally, as a further interest rate hike in the United States would further aggravate the debt crises in some countries, they will have the growing urgency of needing more coordination on debt settlement in others. currencies to break the dominance of the dollar in global financial markets.