This is an archived version of the PW Sources newsletter from Saturday, April 29. Sign up to receive PW Sources directly to your inbox here.

G20 COMMON FRAMEWORK

The G20’s Common Framework is meant to help poor countries restructure their debts following the expiration of Covid-era measures like the Debt Service Suspension Initiative (DSSI). The Framework notably sought to coordinate debt relief between “Paris Club” creditors and states like China and India. 

Zambia is one of only a few countries to request relief under the Framework, but negotiations have stalled. LAYNA MOSLEY and PETER ROSENDORFF highlight the voluntary participation of private creditors as a central factor. 

From their article:

“Progress on the Common Framework requires the participation of private creditors, which may—as the DSSI experience suggests—be even more difficult to obtain than the cooperation of official creditors. Private lenders account for the largest share of Zambia’s external debt, holding approximately 46 percent of the total. More than half of the Sri Lankan government’s outstanding debts are owed to bondholders, many of them US- and European-based institutional investors. In its current form, the Common Framework’s sequencing arguably leaves these private creditors out in the cold. Commercial creditors are only informed of the size of the haircut (the loss imposed on creditors in a debt restructuring) after official creditors have reached an agreement among themselves. Private creditors may question the debt sustainability analysis’s assumptions, as they did with Zambia’s in September 2022. They may not want to share the costs of debt restructuring and relief, despite their involvement with a sovereign borrower. Their motives typically differ from those of official creditors, which may have strategic reasons to offer relief and worry less about material returns. A voluntary mechanism such as the Common Framework faces real difficulties in compelling these private creditors to act.” 

+  Stephen Connelly, Celine Tan, Karina Patricio Ferreira Lima, and Chris Tassis examine the role of commercial creditors in the DSSI. Link. And Andreas Kern and Bernhard Reisberg on Chinese lending and IMF bailouts. Link. 

+  “Between 2008-2021, emerging market and developing economies’ sovereign debt increased by 178 percent.” Cited in a proposal for “Debt Relief for a Green and Inclusive Recovery,” by Luma Ramos, Rebecca Ray, Rishikesh Ram Bhandary, Kevin Gallagher, and William Kring. Link.

+  Two PW events on sovereign debt and IMF reforms: a Polycrisis conversation after the close of COP27, and a discussion on IMF and the legacy of Bretton Woods. Link, link. 

NEW RESEARCHERS

Small Firms in Mexico

DIANA SVERDLIN LISKER is a PhD student in economics at the Massachusetts Institute of Technology. A recent paper co-written with Daniel Ramos-Menchelli examines the prevalence of small firms in Mexico.

From the abstract: 

“The retail sector in developing countries is dominated by small firms. We explain this fact with a spatial model in which high transport costs lead to small effective market sizes and, consequently, the proliferation of smaller and lower-quality firms. We show that low costs of entry are key for this result. With a new, confidential panel of firm-level data surveying the universe of mom-and-pop shops in Mexico, we test the predictions of our model. We exploit the deregulation of the Mexican gasoline market in 2017 as an exogenous shock to consumer transport costs. Where gas prices increased, the number of mom-and-pop shops differentially increased while their average size and quality fell. We provide evidence of fragmentation as the mechanism driving these effects. With our estimated model, we evaluate the welfare consequences of a licensing program that increases costs of entry for mom-and-pop shops. We show that the presence of fewer stores in the market yields a 1.4% welfare gain.”

+ + +

+  “While they do render the market more transparent, the rulings may also destabilize equity markets in the coming years.” In her second PW post on market microstructures, Elham Saeidinezhad examines the new SEC rules on retail trading. Link. 

+  “The sudden popularity of neomercantilist policies—typically characterized by forms of trade protectionism and activist economic policy—has been deeply disorienting to economic liberals whose preferences for free trade and free markets have dominated global politics in recent decades.” Also new on PW, Eric Helleiner on the revival of neomercantilism. Link. 

+  “The Municipal Bank of Los Angeles can harness a small but growing slice of Los Angeles’ financial and economic might and direct it toward socially productive, democratically accountable ends.” The first report in a new joint series by JFI and the Berggruen Institute, by Halah Ahmad, Paul Katz, and Yakov Feygin. Link. 

+  Luke Patey examines EU reliance on China’s rare earth minerals. Link. And see Jojo Nem Singh’s PW essay on the EU’s critical raw materials strategy. Link. 

+  Alain Chaboud, Dagfinn Rime, and Vladyslav Sushko on rapid growth in the global foreign exchange market. Link. 

+  “The World Bank’s opacity allows it to obscure much of its fossil fuel funding.” By Heike Mainhardt. Link.

+  Tomicah Tilleman and Chris Lehane on America’s approach to digital assets. Link.

+  “Cross-border bank credit causes higher domestic activity in emerging market economies and looser financial conditions.” By Iñaki Aldasoro, Paula Beltrán, Federico Grinberg, and Tommaso Mancini-Griffoli. Link.

+  “The fact that colonizers also struggled to control night soil reveals an important facet of hygienic modernity. In Hong Kong from the late 1860s through 1911, British hygienists’ dreams of instituting flush toilets were repeatedly thwarted. Colonial officials instead sold licences for dry public toilets to the highest bidder and gained some revenue, but Chinese toilet entrepreneurs enjoyed far greater returns on their investment. This granted them sufficient political clout to become ‘strategic partners of the state’ and enjoy a near monopoly. Despite a terrible plague epidemic in 1894 during which tests showed plague bacillus in the contents of some public toilets, the Sanitary Board lacked the regulatory power to ensure proper cleanliness of the facilities. In Tianjin, from 1907 through 1933, Chinese night-soil porters retained sole control in the Japanese concession and thwarted colonial authorities’ sewage-system plans, despite the latter’s conceit that they had a higher standard of cleanliness.'” By Nicole Elizabeth Barnes. Link. 

Each week we highlight research from a graduate student, postdoc, or early-career professor. Send us recommendations: editorial@jainfamilyinstitute.org