Equal Treatment before Payment: Chinese Debt Restructuring Deals and UN Votes

• In Event: UN Voting and the Security Council

Abstract

Zambia's current debt restructuring negotiation is seen as a weather bell on how future restructuring in Africa and elsewhere will be carried out. In particular, this is a test for the role that China, the world’s largest bilateral lender, will play in the debt restructuring process where many international lenders are involved. The role of a debt restructurer is distinctly different from that of a loan issuer, the former of which China have preferred to carry out independently through the past twenty years. However, the role of a debt restructurer will require China to reach an agreement with other bilateral, multilateral, and private lenders. Throughout Zambia's debt re-negotiation process, top bilateral lenders such as China and France have emphasized that the only restructuring deal acceptable is one where all lenders accept an equal repayment haircut. The insistence of bearing equal burden is a uniquely political request; after all, equal haircut does not necessarily guarantee the highest new present value overtime. The demand from China and other bilateral lenders for equal treatment suggests that the decision to offer debt restructuring is primarily a political decision, not an economic decision like the issuing of loans. As such, countries who are counting on China for debt restructuring may be inclined to cooperate with China politically, such as through voting in agreement with China at the UN. This study will investigate whether debt restructuring agreements that involve China as a bilateral lender are correlated with debtor states voting in agreement with China at the UN. The research will utilize existing public data on debt restructuring worldwide, complimented by the author’s fieldwork in Zambia in Autumn 2023.

Author

• Jyhjong Hwang, Ohio State University