The international monetary Fund (IMF) managing Director Christine Lagarde said that the growth of debt in Asia and Africa – in the Wake of China-led strips and road initiative creates risks for the world economy, as small countries may be borrowing more than they can repay.
Christian rose — the international monetary Fund (IMF) warns, several countries, primarily Mainland China — against the excessive leverage of unprofitable businesses and expensive infrastructure projects. The Fund said that in the current global economic reality, which carries the risk of trade disruptions, and political instability, the accumulation of debt in the most prudent macroeconomic strategies.
The managing Director of the IMF Christine Lagarde said, the project of Chinese-Led ‘belt and road’ could threaten the rapid accumulation of debt in many regional economies. This, she noted, can cause concerns about the financial stability of the less diversified economies in Central and South-East Asia.
Lagarde spoke at a joint press conference in Beijing where she met with the people’s Bank of China (PBOC), the newly appointed Governor Yi gang, who had previously pledged to hold a series of radical macroeconomic reforms in the country, to make it more sustainable by reducing the impact from foreign trade.
“The first task is to make one belt and one road only travel where it is needed,” Lagarde warned. “With any large-scale spending, there is sometimes a temptation to use project selection and tendering. Experience worldwide shows that there is always a risk of potentially failed projects and misuse of funds”.
Belt and expensive project China-led trade and infrastructure investment projects aimed at the development of economic cooperation in Asia. Many American and European scientists are criticizing a belt and one road for the alleged attempts by China to achieve its political influence, including in the form of so-called ‘yuan diplomacy’.
Lagarde said that one of the main risks is that China’s attempts to establish and strengthen its commercial ties with Europe, Africa and the rest of Asia could drive the impoverished country deeper into debt. It’s like the mandate of the IMF is to provide financial stability around the world; the smaller third world countries are the main concern of the Foundation.
The IMF chief’s remarks partly shares the concerns of American officials, who said that in the case of some countries will collapse under the burden of its debt to China, the IMF is largely funded by the United States and other advanced economies to provide financial assistance that politicians in Washington don’t want to do.
“We are concerned about the credit growth in China, one belt, one road around the world,” US Treasury Secretary Steven Mnuchin. “We are interested in certain areas where the country may not repay the loans.”
Lagarde also urged Beijing to carefully manage the bidding process, the allocation of its development funds for projects considered to be beneficial and sustainable in the future. This, said the head of the IMF, it is important for the subsequent that the investment will not be lost due to the financial stability of small countries.
This comes as China faces increased leverage their risks. According to the Bank for international settlements (BIS), the total debt of non-financial sector of China hit 256.8 percent of GDP in the 3rd quarter of 2017. This, in combination with the practice of shadow lending and leverage in the financial sector, stirred concern among investors that talk about insolvency in small countries who borrow from China may start a Domino effect and will tip over and the Chinese economy.
In addition, there are growing concerns in the trade sector, which could undermine the ability of small countries to service their obligations, Lagarde warned. Many of China’s investments in Asia and Africa depend on exports of a narrow range of goods, and the fall of global prices of raw materials, or a full-scale trade war could cripple prospects for growth, revenues, and debt solvency of these countries.
“In countries where public debt is already high, careful regulation of the financial conditions is crucial,” said Lagarde. “This will protect both China and partner countries from entering into agreements that will cause financial difficulties in the future.”
In other words, the head of the IMF urged China to introduce that in terms of personal and corporate Finance is considered the tightening of underwriting rules — means that Beijing should invest only in specific projects in certain countries, knowing their investment has a higher chance of repayment, if the risks have already been priced in.
Lagarde also said the IMF is ready to provide recommendations for Chinese officials to improve public finances and the management of assets and minimize the risks of corruption and embezzlement. It also urged China to increase transparency of investments, to eliminate corruption.
Chinese President XI Jinping has previously dismissed concerns about the belt and lending practices of the road.
“Belt and not the way the Marshall plan after the Second World War, no intrigue from China. This, if anything, plan for sun,” said XI Jinping at the Boao forum for Asia, the regional counterpart to the Davos forum.
Critics of the IMF head said the Fund may be seeking to prevent a sovereign lending practices of China around the world to contain its growth of presence around the world.
However, although this may be part of the bigger picture, the issues of debt and bankruptcy is rarely good against third countries (such as USA) or the world economy as a whole, as shown by the recent debt crisis in Greece.
In light of the recommendations of the Lagarde transparency and accountability, including calls for China to work as ‘single window’ for stakeholders and other individuals — are considered to be macro-economic, not political.
Sourse: sputniknews.com
