70 Finance & economics The Economist February 26th 2022
leaving the fund with an ever-growing
share of the tab.
In the past the imfused its convening
power to cajole richer members into forgo-
ing some of the money they were owed. In
2020 its efforts yielded the Debt Service
Suspension Initiative, through which 73
low-income countries became eligible for
a temporary moratorium on debt pay-
ments. By the end of the programme in De-
cember last year nearly 50 countries had
opted to make use of it, freeing some $10bn
they could use to meet urgent needs. Sepa-
rately, the imfalso suspended some debt
payment on loans it had made itself to 29
very poor countries.
But such suspensions do not make un-
derlying debt loads more sustainable, be-
cause the delayed principal and interest
payments remain due. Thus a new g20 ini-
tiative, referred to as the “common frame-
work”, was rolled out in November 2020.
Its utter failure to gain traction—so far
only three countries have sought relief un-
der its auspices, and none has completed
the process—illustrate the new political
pickle the imffinds itself in.
The framework was intended to provide
a broad set of principles which could be ap-
plied to individual countries in need of
debt relief. Crucially, it was meant to ex-
tend beyond lenders from the “Paris
Club”—rich-world governments which
have long co-operated in cases of sover-
eign insolvency—to include private credi-
tors and countries like China, India and
Saudi Arabia. These, however, have largely
refused to play ball. That is a big problem.
Whereas a decade ago Paris Club members
still provided the bulk of credit to poor-
country governments, China is increas-
ingly bankrolling them: its disclosed lend-
ing (which probably understates the true
total) amounts to roughly half the money
they owe to other governments.
Restructuring such debt is extremely
hard. Views differ within China as to
whether and how much debt relief to pro-
vide to overextended borrowers. Many dif-
ferent Chinese institutions are involved in
foreign lending, not all of which are keen
to help. And many poor countries are re-
luctant to seek relief from China, lest they
cut themselves off from future access to
Chinese financing or otherwise antagonise
the Chinese government.
Yet without participation from other
lenders, the imfis in a bind: under pres-
sure from rich-world politicians to do
more to help struggling economies, yet
often unable to provide programmes that
put countries on a path towards stable fi-
nances. Some critics suspect that the fund,
squeezed in this way, has occasionally in-
dulged in excessive optimism about coun-
tries’ prospects in order to justify its lend-
ing. In January Kenneth Rogoff, a former
chief economist of the imf, wrote that thefund’s permissiveness risked transform-
ing the institution into an aid agency. A re-
cent, tentative agreement between the imf
and Argentina, to refinance $45bn owed to
the fund, drew widespread criticism for
the vagueness of the path it sketched for
eventual repayment of the loan.
The fund lacks good alternatives. Fail-
ure to reach a deal with Argentina might
well have meant financial disaster for that
country and lost the imfbillions. Its lead-
ers could perhaps be more vocal in calling
for China to be more lenient. But the West’s
reluctance to increase the country’s 6%
voting share at the imf, to a figure match-
ing its new economic might, has made Chi-
nalesswillingtolisten.Andthewindow
forgettingChinadeeperintothetenthas
probablyclosed,becauseitsrelationswith
theWesthavedeterioratedsomuch.
Inthe1990stheimfandtheWorld
Bank,capitalisingonamomentofinterna-
tionalbonhomie,marshalledtheHeavily
Indebted Poor Countries Initiative,
throughwhichlumpsofdebtowedby 37
economieswereforgiven—withmostof
thefundingcomingfromcreditorcoun-
tries.Thesumsneededtodayarenothuge,
butgettingtheworld’sbigcountriesto
agreeonanythingseemseverharder.On
February18thag 20 meetingendedwithno
firmcommitmenttoexpanddebtrelief.
Thatbodesillfortheimf.Withoutglobal
co-operation,itisfastbecomingashadow
ofitsformerself—justliketheeerilyquiet
districtwhereitsofficesstand.GolddemandinIndiaKarat and stick
C
ovid-19 hitIndia hard, leaving mil-
lions jobless and struggling to get by.
Yet Sachin Rana, who runs a jewellery stall
in New Delhi’s Malviya Nagar market, says
sales have been booming since lockdowns
ended. After months in isolation, consum-
ers were keen for a blowout during Diwali,
a festival in November. A bumper wedding
season has followed, creating plenty of oc-
casions to wear jewellery or give it as a gift.
The pandemic has proven that “Indians
will never stop buying gold”, says Mr Rana.
Pent-up demand for pendants and parties
pushed bullion sales to the highest on re-
cord in the last quarter of 2021, reckons the
World Gold Council, an industry body that
has tracked consumption since 2005. Indi-
ans picked up around 340 tonnes of gold
over the period, equivalent to the weight of
five healthy Indian elephants every week.India’sspecialrelationshipwith gold
predates covid-19, of course. It is the
world’s second-largest market for the yel-
low metal, behind China, though it pro-
duces almost none at home. This is partly
driven by tradition. Brides are given jewel-
lery as part of their dowry and it is deemed
auspicious to buy bullion around certain
religious festivals. It is a handy store of un-
declared wealth, too, often stashed in
wardrobes or under the mattress.
But the pandemic has also affirmed an
investment advice passed on over genera-
tions: park savings in gold as a rainy-day
fund. In the past two years many families
have made ends meet by selling jewellery,
ornaments, bars and coins at pawn shops
and informal markets. Others have bor-
rowed against the stuff. The three largest
non-bank financial companies offering
gold loanssaw their assets jump by 32%,
25% and 61% year on year, respectively, in
2020.Gold’s appeal as a safe haven is only
rising: as tensions escalate in Ukraine, its
price is approaching records.
This insatiable appetite is a worry for
policymakers. Vast gold imports can desta-
bilise the economy. During the 2013 “taper
tantrum”, when India’s foreign-exchange
reserves were lower than they are now, a
rush of gold imports helped push the cur-
rent-account deficit to 4.8% of gdpand fu-
elled worries of a currency crisis.
Savings stashed away as idle gold could
be put to more productive use elsewhere.
Indian households hold 22,500 tonnes of
the physical metal—five times the stock in
America’s bullion depository at Fort Knox
and worth $1.4trn at current prices. The av-
erage family has 11% of its wealth in gold
(against 5% in financial assets).
The government has tried using sticks
to push people away from bullion. Import
duties hover around 10%, even after cuts in
last year’s budget aimed at keeping smug-
gling in check.
It is also experimenting with carrots
that lure savers away from physical gold.
The central bank has ramped up issuance
of sovereign gold bonds, which are denom-NEW DELHI
India’s booming demand for bullion is
worrying the governmentBooming business, rain or shine