MPs have criticised the Government for ruling out a consultation on proposed laws to force private creditors to take part in debt relief efforts in low-income countries.
The International Development Select Committee said the current approach of focusing on market-based solutions to the problem is “not good enough” and stronger intervention is needed.
The cross-party group of MPs recently published a report recommending a consultation on strengthening support for low-income nations facing debt distress.
This would include examining proposals to enshrine in law a requirement for private lenders to participate in debt relief programmes, it said.
Debts to private creditors have become one of the main barriers to progress in easing the financial burden faced by developing nations in the last decade.
Research by Debt Justice – a UK charity asked to provide evidence to the committee – suggests private lenders account for 42% of external debt payments by poor nations, with 33% to multilateral institutions and 25% to other governments.
MP Sarah Champion, chairwoman of the committee, told an event hosted by the Centre for Global Development: “It’s chilling how much we are – and I use the word deliberately – shackling countries around the world to private investors at the expense of their education, their healthcare, their economy full stop, to be honest.”
The Government has said it is committed to encouraging private creditors to participate in debt restructuring agreements on “comparable terms.”
But in its response to the committee’s report, it said a legislative approach would be “complex” and could have “unintended consequences in terms of access to finance for developing countries”.
Ms Champion said: ”The UK Government is refusing to accept the one – virtually cost-free – intervention that would make the biggest difference to the poorest countries.
“The Government dismisses our proposal to bring private creditors to the table as ‘complex’, and says it may lead to unintended consequences.
“The Government’s preferred approach of relying on ‘market-based solutions’ is not working, and it is not good enough.
“Now we see the US moving in this direction and the UK must not falter.
“The UK has a strong reputation in this area and must continue the drive for action, breaking down barriers and chivvying international partners towards consensus on how to alleviate the debt burdens which prevent progress on the everyday necessities such as health and education. The UK must stay in the driving seat.”
The Government also rejected the committee’s call to encourage international bodies such as the World Bank to discuss cancelling the debts of developing countries, saying they “must continue to be a much-needed source of flexible and tailored finance” that was “cheaper than commercial lending”.
The Centre for Global Development supported this decision.
Senior policy fellow Clemence Landers said: “The priority must be ensuring the MDBs (multilateral development banks) are able to continue providing support to countries in debt distress, not just writing off past loans.
“The report has a number of good recommendations but it’s clear it’s taking a moderate approach – not calling for an overhaul of the existing debt relief architecture.”
A Government spokesperson said: “The Government recognises the challenging debt situation facing many low-income countries, and is working with international partners to explore options and directly address rising debt vulnerabilities to ensure these countries can meet their development goals.
“The UK, alongside international partners, expect private sector creditors to participate in debt restructurings on terms at least as favourable as country creditors and we remain focused on delivering UK-led contractual reforms to enhance private sector participation.”