Our Bretton Woods institutions are key to debt diplomacy

For some years now, we have been having a debate in this country and among our allies about the influence of China and this vexed, significant issue of debt diplomacy.

This is an issue. If we look at the countries that did not support the UN resolution on Russia, we see that, on average, they owe five times more debt to China than the countries that supported the resolution.

The key issue now is that the debt in many of these countries and others is about to fall over and the G20 common framework process, which we have held up as the great saviour of debt sustainability, has been so successful that precisely zero countries have engaged in it. It ain’t working and we need a different approach.

We could be restructuring developing country debt using both IMF and World Bank resources. The World Bank has just committed $170 billion to an emergency programme that we could be using to restructure the debt of vulnerable countries around the world and rich countries could be pooling their new Special Drawing Rights to help.

Chinese debt & natural resources: There does seem clear relationship between Chinese lending and the wealth of a countries natural resources

The big point is this: if we do not want to live in a world where China is the lender of last resort to countries around the world, then lets use the Bretton Woods institutions that we set up in 1944.

In the midst of a big war, in 1941, the Atlantic charter was signed, and its story is extraordinary. Our Prime Minister at the time, Mr Churchill, was on the other side of the Atlantic with President Roosevelt and the draft of the charter was sent to Downing Street. Clement Attlee was in the Chair and he convened the Cabinet at two o’clock in the morning in order to review the draft and make one vital change. He added article 5, which said that one of our war aims would be that the victors would

“desire to bring about the fullest collaboration between all nations in the economic field with the object of securing, for all, improved labor standards, economic advancement, and social security”.

Three years later, at Bretton Woods, President Roosevelt, welcomed delegates from 44 countries from around the world with these words:

“the economic health of every country is a proper matter of concern to all its neighbors, near and distant.”

As we begin to think about what the new world looks like, those are wise words to guide us.