Treasury Secretary Janet L. Yellen criticized China’s “opaque” lending practices and urged global financial institutions to expedite debt relief for low- and middle-income countries in an interview on Monday.
Her remarks precede the annual meetings of the International Monetary Fund (IMF) and the World Bank, where global economic policymakers are convening in Washington during a critical period for the world economy. While inflation has eased, ongoing conflicts in the Middle East threaten to disrupt energy markets. High interest rates continue to burden poorer economies that are struggling with significant debt loads, hindering essential development initiatives.
Yellen emphasized that the debt burdens faced by low- and middle-income countries can impede investments in sustainable development and efforts to address pandemics and climate change.
The IMF and World Bank have faced criticism for their slow response to aiding struggling economies and for advocating economic reforms, such as sharp spending cuts, that have led to resistance and social unrest.
In a speech scheduled for Tuesday, Yellen will recognize progress made by multilateral institutions, including the expansion of lending capacity and expedited project approval under the Biden administration.
Despite calls for broader international debt relief initiatives, global debt remains a pressing issue. The IMF projected that global public debt will exceed $100 trillion this year, while the World Bank warned that efforts to reduce poverty have stalled due to weak growth in the most affected nations.
Currently, nearly 700 million people live in extreme poverty, with projections indicating a decline to 622 million by 2030, though the pace of alleviation has slowed compared to the decade preceding the pandemic.
Yellen highlighted a framework introduced this year between the United States and Kenya as a model for reimagining and expanding debt relief and economic aid efforts.
In May, the Biden administration announced the “Nairobi-Washington Vision,” which encourages coordinated aid packages for countries aiming to invest in clean energy.
She noted that high interest rates have constrained many countries' abilities to invest in climate initiatives or prepare for future health crises.
Efforts by the Group of 20 to assist poorer nations in avoiding loan defaults have struggled due to resistance from China, which has been accused of delaying debt restructuring discussions for countries like Zambia, Ghana, and Sri Lanka.
Yellen stated that “China’s lending tends to be opaque,” making it challenging for countries to restructure their debt effectively.
Although China is the largest global lender, it also borrows from the World Bank, a practice Yellen believes should cease. As of August, China owed the World Bank $15 billion while still receiving loans for clean energy projects.
The U.S. has prioritized strengthening international financial institutions to counteract what many economists describe as China's “debt traps.”
In her upcoming speech, Yellen will urge policymakers to intensify efforts to help countries prepare for disasters, improve infrastructure, and adopt more efficient agricultural technologies. She is also optimistic about the potential for the U.S. to introduce a new financial package to replenish the World Bank fund for the poorest nations.
Global institutions have faced multiple challenges over the past four years due to the pandemic, geopolitical tensions, and rising inflation, all of which have impacted global economic output.
As discussions commence in Washington this week, political uncertainty looms. A potential victory for former President Donald J. Trump in the upcoming U.S. election could lead to heightened trade tensions and a significant shift in America’s priorities concerning the World Bank and IMF.
Officials from the Group of 7 are working to finalize plans for a $50 billion loan for Ukraine, backed by earnings from frozen Russian central bank assets. This funding is viewed as a crucial support mechanism for Ukraine amidst the evolving political landscape.
Concerns persist that a future Trump administration could withdraw support from international institutions, which have been integral to global economic stability for the past 80 years.
Yellen refrained from commenting on electoral politics but cautioned that any retreat from organizations like the World Bank and IMF would diminish U.S. global influence and enhance China’s position.
She stated, “This is a place where American leadership is critically important, and if we got out of these institutions, China would assume greater influence.”