The recently launched G20 initiative to provide debt relief for poorer Emerging Markets (EM) countries may be well-meaning, but it is also seriously misguided. In particular, the proposal fails on two counts.

First, it does not recognise a crucial difference between sovereign bonds and bi/multilateral loans.

Second, the proposal does not address the underlying cause of the problems facing poorer EM countries, namely so-called sudden stops. In its current form, the G20 proposal therefore risks setting back the financial development of poorer EM countries by years, hurting rather than helping them.

There is a better way.