IMF agrees loan to Congo after China pushes debt payments into the future

  • $449 million of loans agreed but no reduction in debt principal owed
  • Debt negotiations with private commodity traders are still ongoing

 The IMF has agreed $449 million of loans to the Republic of Congo over three years. In response to the debt crisis in the country, the IMF has made a restructuring of external debts a requirement of the loans, particularly on debts to China and to commodity traders Glencore and Trafigura. This is to prevent IMF loans simply being used to pay off previous lenders, creating a moral hazard where lenders are incentivised to act recklessly.

The IMF loan agreement was finalised after a debt restructuring was agreed with China. It is believed that the restructuring with China spreads debt payments over an additional 15 years. However, a third of the debt still needs to be paid by 2021, and there has been no reduction in the debt principal owed.

The M’Boundi oil field in the Republic of Congo, owned by Italian multinational company ENI (Flickr / jbdodane, January 2014)

No agreement has yet been reached on the higher interest debt to the private commodity traders. These loans were hidden until 2017. Negotiations on restructuring them are ongoing. Under IMF rules the IMF is only able to lend into debt situations it has defined as unsustainable if there is a debt restructuring during the course of the loan programme. However, it also requires debtors to “negotiate in good faith” for a debt restructuring. The problem for debtors is if creditors are not willing to negotiate in good faith they just need to default, and so such defaults should be supported by the IMF.

In this case, the IMF has stated The recent agreement to restructure the Republic of Congo’s bilateral debt should be accompanied by continued good-faith efforts to restructure commercial debt. It should add that it supports a default if the private creditors are not willing to significantly restructure the debt.

In Chad, a restructuring of the debt to commodity traders, which was again a requirement of an IMF loan programme, only reduced Chad from in debt default to at “high risk” of debt default. Instead, restructurings should reduce debt default risk to at least moderate.

In the Republic of Congo case, the IMF has not yet published its updated debt risk analysis following the Chinese debt restructuring. The negotiations with private creditors need to be concluded before it is known whether the restructurings have done enough to resolve the Congo’s debt crisis.

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