By David Lawder
BENGALURU (Reuters) - U.S. Treasury officials said on Wednesday they expect G20 discussions over debt relief for distressed countries to be "difficult" this week, but it was important to remove roadblocks to keep the issue from becoming a systemic problem for the global economy in coming years.
The officials, speaking to reporters ahead of a meeting of G20 finance leaders this week, said that a key challenge for the group to overcome is China's demand that the World Bank and other multilateral development banks (MDBs) participate in debt relief by taking "haircuts" alongside bilateral creditors.
"The debt issues are challenging, I would say. They have been difficult the last several meetings and I expect they'll continue to be," one of the Treasury officials said.
The meetings in Bangalore will launch a new global sovereign debt roundtable aimed at breaking through roadblocks to debt restructurings for Zambia, Sri Lanka and other distressed countries.
Participants include the United States, China, India, Saudi Arabia and other G7 countries, along with private sector creditors, and six debtor countries: Ethiopia, Zambia, Ghana, Sri Lanka, Suriname and Ecuador.
The roundtable talks are aimed at trying to agree on common standards, principles and definitions for debt treatments, not to negotiate specific terms of stalled restructurings, such as for Zambia, according to the International Monetary Fund.
The Treasury officials said they will seek to persuade China that multilateral development banks provide highly concessional finance and grants to debtor countries that achieve the same goals as reduction of debt principal.
"If (China's) goal is an MDB taking a haircut on debt, that's something that we wouldn't support. If their goal is MDBs being a positive part of the solution, we think they already are," a second official said, adding that it was likely that senior Chinese officials would participate in the discussions virtually.
The officials also said that while the debt overhang in low-and middle-income countries is not yet a systemic threat to the global economy, it could become one in coming years if the debt restructurings are not resolved and more countries fall into debt distress.