Well shy of the winter holidays of charity and good cheer, much of the world is now in a spirit of generosity and forbearance toward debt – all in response to the unprecedented impact of the pandemic on vulnerable people and countries.
On Wednesday, 20 of the world’s richest nations agreed to freeze the debt obligations of about a quarter of humanity that live in the poorest 76 countries. The Group of 20 encouraged private creditors to also provide short-term relief.
A couple of days earlier, the International Monetary Fund announced an immediate standstill for debt owed by 25 developing countries. The IMF will rely on a special $500 million fund for “catastrophe containment and relief.”
Within countries, both elected leaders and private lenders are stepping up to ease the financial obligations of such groups as small businesses, renters, or people saddled with student loans.
In the United States, for example, many car companies are letting borrowers defer repayments on auto loans. Under a program from Freddie Mac, landlords with multifamily housing are allowed to defer loan payments for 90 days. And the federal CARES Act passed last month has forgiveness of new loans written into many provisions as well as forbearance toward existing loans.
Because of the magnitude of the COVID-19 emergency, perhaps never before has the world had to come to grips with the nuanced difficulties of debt relief on such a large scale. By one estimate, 1 in 5 emerging market countries will default on debt obligations because of the financial damage from the coronavirus.
“No region can win the battle against COVID-19 alone,” stated European countries in an appeal to provide debt relief for poor nations.
The necessity of mass debt relief is not new to global leaders. After World War II, Germany was granted generous relief on old debts which resulted in a strong economy today that is an anchor for Europe’s stability and prosperity. Starting in the 1980s, one debt crisis after another forced fresh thinking about the benefits and hazards of forgiving or deferring the debt of financially troubled countries. Will debt tolerance only encourage risky behavior in the future?
As commerce has become more global, so too has understanding of the need to sometimes go easy on debt enforcement while still ensuring repayment at some point. In a closely knit world, the benefit of debt relief flows both ways.
“Forgiveness is truly the grace by which we enable another person to get up, and get up with dignity, to begin anew,” says South Africa’s Archbishop Desmond Tutu. With those less well off in the world hit hard by the pandemic, debt relief is on the global agenda, demanding a renewed focus on patience and forbearance as necessary tools to defeat COVID-19.