As prepared for delivery to G20 Finance Ministers and Central Bank Governors Meeting
Thank you, Deputy Prime Minister Aso and Governor Kuroda for inviting me to speak here today during this session on Development Finance.
Deputy Prime Minister Aso laid out a bold and ambitious vision of what Japan hoped to achieve during its G20 presidency. One of the areas that especially resonated with me, and with members of the Institute of International Finance, was how to address rising debt vulnerabilities in low-income countries, and the importance of joint efforts made by borrowers and creditors, both official and private, to enhance debt transparency and ensure debt sustainability.
Global debt is rising.
It is now getting close to $250 trillion, or approximately 317% of global GDP. It has risen by some $70 trillion since the crisis, and nearly half of that is due to governments taking on more debt.
I do not want to sound alarmist, but these are the facts.
Now there’s nothing wrong with debt per se, as long as private debt can earn its cost of capital and public debt offers a public good or a social return in excess of the cost or capital or for counter-cyclical reasons.
Moreover, given the long decline in long-term rates, sub-par growth in many parts of the world and the desperate need for capital formation, especially infrastructure, more debt sometimes makes sense. But how much and by whom matters and for markets/bankers to fully assess credit worthiness and sustainability we need transparency.
We must avoid the kind of debt accumulation that we have seen in previous cycles that became unsustainable, unserviceable, a drain on often desperate, poor populations and ultimately written down or written off.
We, the IIF, representing the global financial services industry want to be part of – and to help drive – the next wave of growth and prosperity, and we want this growth to be sustainable and the prosperity to be broad-based… to lift tens of millions more out of poverty, to support the rising global middle class.
That is why -- over the past eighteen months or so -- we have worked with our member firms, civil society, and public sector authorities to craft a set of “Principles”, which will help usher in a new era of greater transparency in private credit and capital flows to borrowing countries.
The Latin word for “transparency” is transparentem, which means “see light through.” And that’s what we hope these Principles will accomplish – not add burdensome, duplicative, onerous reporting requirements on financial institutions or be so inflexible and sclerotic that they are unable to adapt with both time and circumstance – rather the Principles are designed to shed additional light on private sector lending, particularly to the most vulnerable low-income countries. Greater transparency will in turn facilitate good governance, aid in the fight against corruption, and support debt sustainability – a goal of every country in this room.
I am confident that we all want a world with more inclusive, sustainable growth. At the same time, we all want to avoid bone jarring debt burdens that could ignite a crisis if current favorable conditions take a different turn.
It is our view that addressing transparency is our best possible contribution to improving debt sustainability. Debt sustainability cannot be a “standalone” issue for a diverse group of private sector creditors across a range of jurisdictions. Sustainability and transparency are two halves of the same whole. If there is a lack of transparency, a lack of disclosure, a lack of accountability, there will be debt sustainability problems and innocent parties will suffer.
We should all want to be part of the solution.
Therefore, we ask for the G20’s official support and partnership here today.