In a recent interview, U.S. Treasury Secretary Janet Yellen stressed that global economies need to accelerate debt relief for low- and middle-income countries. She bluntly criticized China's opaque lending practices, pointing out that it is not conducive to solving the root causes of the global debt problem.

On the eve of the annual meeting of the International Monetary Fund (IMF) and the World Bank, this remark undoubtedly set off a new round of global economic topics. The annual meeting brought together economic policymakers from all over the world to jointly cope with the current complex economic environment. Although global inflation has eased slightly, the situation in the Middle East has led to turbulence in the energy market, and high interest rates still have a profound impact on the economies of developing countries. Due to the heavy debt burden, many key development projects in these countries have been forced to shelve, affecting global sustainable development.

The complexity of the global debt problem and China's role

Yellen pointed out that many low- and middle-income countries face huge debts, which hinder their investment in areas such as climate change, epidemic prevention and control, and infrastructure construction. In her view, China's lack of transparency in lending practices has not only made it more difficult for these countries to repay their loans, but also hindered the international community from taking concerted action on debt reduction. She believes that global debt is a problem that must be solved faster, not just by providing assistance to individual countries that default on their debts.

Current situation of the IMF and the World Bank

In recent years, the IMF and the World Bank have been criticized for being slow to address debt issues, partly because their assistance is often accompanied by strict economic reform requirements, such as cutting public spending, which has led to increased social unrest in some countries. After the Biden administration came to power, it increased financial support for these international institutions to accelerate their lending capacity and shorten project approval time. Yellen will affirm this in her upcoming speech.

However, the latest IMF data shows that global public debt is expected to exceed $100 trillion this year, a record high. The World Bank warned that the severe blow of the epidemic has slowed the pace of global poverty reduction. Currently, about 700 million people in the world live in extreme poverty and are in urgent need of further assistance.

Kenya and the United States' new debt assistance framework

Yellen specifically mentioned the "Nairobi-Washington Vision" framework reached by the Biden administration and Kenya in May this year. This plan aims to provide a multi-party coordinated assistance program for countries interested in investing in clean energy. Yellen explained that high interest rates have increased the debt pressure on developing countries, making it difficult for them to make necessary investments in the field of climate change, and future funds for epidemic prevention and control are also quite tight.

She pointed out that China, as the world's largest creditor, often "delays" in the process of debt reduction, especially debt restructuring negotiations with Zambia, Ghana and Sri Lanka, which have never made progress. She said that although China is one of the countries with the largest lending in the world, it continues to borrow from the World Bank and said that this practice "should stop." As of August 2023, China still owes the World Bank $15 billion while still receiving loans for clean energy projects. She called for China to stop borrowing from the World Bank in view of its current economic status.

The game between the United States and China in international financial institutions

Under the leadership of the Biden administration, the United States attaches importance to balancing China's influence in the international loan market through the IMF and the World Bank. Yellen revealed that the United States will increase its support for these institutions in the future to address climate change, improve infrastructure, and promote efficient agricultural technologies. President Biden appointed Ajay Banga as the president of the World Bank last year, strengthening the institution's climate change policy while also trying to bring in more private capital to support its development projects.

Despite the Biden administration's strong support for international financial institutions, global uncertainty remains, especially in the context of the upcoming US election. If former President Trump is re-elected, global trade policy may become more confrontational and the US's international financial policy may also undergo major changes. Group of Seven (G7) officials hope to finalize a $50 billion loan package to aid Ukraine at this anniversary meeting, which will be funded by Russia's frozen central bank assets. It is generally believed that this loan will be an important "financial lifeline" for Ukraine if the United States stops supporting Ukraine.

The future of international institutions and the role of the United States

Recently, some conservative groups have proposed the "2025 Plan", calling on the United States to withdraw from the IMF and the World Bank and switch to a bilateral aid model, which has exacerbated people's concerns about the direction of US global economic policy. In response, Yellen expressed opposition, believing that the United States' leadership in international institutions is crucial. If the United States withdraws, the balance of the global economy will further tilt towards China.

"Withdrawing from these institutions would be a serious mistake," Yellen stressed in the interview. "This is the stage for the United States to demonstrate global leadership. If we withdraw, China's influence will further expand."