If action is not taken promptly, more countries will soon face serious debt problems and likely defaults, World Bank president David Malpass said Tuesday, calling for debt restructuring and a focus on inequality and investment in the “post-COVID- economy”.
Why it matters: Malpass is the latest to issue a stern warning about the state of the global economy, calling on creditors such as China and the Paris Club’s group of wealthy nations to share the burden.
Where it is: Malpass, a former Treasury Department official under President Reagan and Bear Sterns economist nominated by President Trump, called the current debt burden in many countries “unsustainable” and said that a growing number are currently on “red alert” for defaults. .
- “Given the sharp decline in short and long-term interest rates, we need to find ways to adjust the debt burden process so that the debt burden for people in poorer countries can be drastically reduced.”
What we hear: In addition to the risk of increased defaults and increasing poverty in emerging economies, the World Bank’s goal of increasing median incomes in countries “is not being met under the current circumstances,” Malpass said.
- This is “in part because the incentive mechanisms out there work to concentrate wealth rather than add wealth from below,” Malpass told Axios during a question and answer session with reporters.
- “One thing that I think is important is that we recognize that creative destruction is important, that is, small businesses going out of business because of the severity of the recession. But more importantly, the creation of new small businesses is innovation.”
He went on: “And that means that countries actually let that process happen and not simply work through their large structures to provide funding to large companies.”
One level deeper: “The risk is that it could take years for people at the lower end of the income scale to see sustained improvement in their conditions.”