Borrowers, Big and Small

By N Sathiya Moorthy

The US national debt now stands at a record $ 29 trillion, up from, $ 23.4 trillion. According to Congressman Alex Mooney, the figure stood at  $ 23.4 trillion, or $ 72,309 upon the head of every American. Higher the debt now at $ 29 trillion, “that is even more debt owed per citizen,” he said.

According to him, “There is a lot of misinformation about where the debt is going. The top two countries we owe the debt to are China and Japan (each at $ 1 trillion) not actually our friends,” Congressman Mooney said. He also said that the US, the world’s largest economy owed Sri Lanka’s Indian neighbour $ 216 billion and once back-and-beyond Brazil, $ 258 billion.

Ironically, at a time when successive administrations in Washington, cutting across the nation’s two party symbols, are wooing India in particular, Mooney said, “The people who are loaning us the money we have to pay back are not necessarily people who have our best interest at heart.”

Advocates of debt-driven economy nearer home can take heart. Their sympathisers can even argue in favour of more debt for Sri Lanka, taking the US as the prime example. But there are some issues, especially for Sri Lanka to make the kind of borrowing that the US of A indulges in – even if only in terms proportionate to the sizes of their economies.

Problem number one and the immediate: No rating agency seems to be bothered about the US’ debt, for the creditors to worry about, or even refer to. That is not the case for Sri Lanka. Two, and more important in overall terms, the US alone can print US dollars. Nations like Sri Lanka, whether a debtor or creditor nation has to earn those American dollars.

Taking ‘u’ out of ‘colour’

Third and flowing from and leading to the earlier two findings, is the fact that the US dollar is the global currency. Under the Bretton Woods scheme, designed specifically with American interest uppermost in the global North’s mind, after the Second World War. This was West Europe’s way of thanking the US for fighting with them and for them, to put out Nazi Germany for good. It was also their way of letting America earn back the bucks that it had burnt in the War – with interest, which seems to have remained unquantified and unqualified.

Today, more of America’s dollars are outside the country, in private hands and those of different governments. This possibly among the reasons that encourages – or, at least does not discourage – the all-American profligacy. Like the American size ice cream, milkshakes and pop-corn pockets, even American debt has to be out of proportion with what the rest of the world is holding.

If the British Commonwealth countries have to stick to left-hand and left-of-the-road drive, Americans have to do the exact opposite. If the British colonial master of the US had to stick to a 210 W power-connection for domestic use, the one-time colony has to be different. It is 120 W, instead, in the US. That way, the American has to take ‘u’ out of ‘colour’, and spell it, ‘color’.

It is this tendency to stand out from the rest, and thus prove a point beyond the inherent advantages, capacities and capabilities that has made America different and great. It has also made nations and peoples believe that they too have to be America, or else….

Sri Lankan characteristics

Sowing the all-American dream in the national vision of others has been the twentieth century success story of America, call it packaging strategy or marketing mantra or whatever. The dictum, ‘If you can’t beat them, join them’, seems to have worked with much of the rest of the world. The hopeless among those nations had identified themselves with the socialist Soviet camp in its time, and with China, where Deng Xiaoping coined the phrase, ‘Capitalism with Chinese characteristics’.

It is precisely here that present-day Sri Lanka finds itself. In ushering in market capitalism as the nation’s economic policy in 1978, President J R Jayewardene hoped that the nation would one day become another Singapore. Sri Lanka at the time was bigger than Singaporean economy, yet he wanted to rediscover that very thing, all over again.

JRJ succeeded in one way, but not in the crucial department where he wanted to ape and beat Singapore. He introduced a quasi-authoritarian model of government through the Executive Presidency scheme. It was closer to what Singapore was, but with the limitations imposed by a multi-party democracy that the colonial master had instilled in the nation  On the economic front, the nation is far away from Singapore, which JRJ said it would become.

Blame it on successive governments, blame it on the ethnic war, blame it on the Easter blasts-driven fall in tourism, and blame it on Covid-19 pandemic. Today, the nation has been reduced to a debt-to-mouth existence. Despite President Gotabaya Rajapaksa’s hopes and promises to change this situation for the better, it is not going to happen any time soon.

Profligacy is the name of the crime, sin or sickness, and successive governments have been afflicted by it, especially since the first Mahinda Rajapaksa regime of 2005. It goes beyond the JRJ model, which he, successor Ranasinghe Premadasa and rival Chandrika Bandaranaike-Kumaratunga as President practised for nearly thirty years.

Hambantota would have made better sense in the early eighties than when it did nearly thirty years later. Citing war and violence, and also the upcoming Second JVP Insurgency, whose early signs were visible, no ruler of the time, ever dreamt of high-spending infra projects – that too on borrowed money.

Granting that Hambantota, without the debt-equity swap-deal under the predecessor Sirisena-Wickremesinghe team would have made sense, what was the need for that government, too, to borrow more, again from China, to build more express ways and such other grandeur constructions? Transporting the American dream to your backyard is one thing, having the American financial heft to borrow more is another.

As the saying goes, when a rich man borrows big, it is in the interest of the lender to ensure that the borrower remains solvent. If it takes the lender to finance the borrower more than already, so be it. But if a small-time borrower borrows less and is in a tight-spot, the lender chases him, and bleeds him red. That is the how the financial world works, be it nations, be it industries, be it individuals. The US-Sri Lanka parallel fits the bill.

Today, the nation is out to borrow S 2.2 billion more from China. If it is not China, it has to be someone else, but borrowing, the nation cannot avoid, escape from. And no one is thinking, hence talking about repayment. Such borrowing goes against the grain of President Gota’s economic mantra – not to borrow, but to invite investments. With this loan from China, he may have already broken his own vow to the nation, whatever the compulsion, whatever the circumstances.

While converting the Chinese credit for Hambantota into equity, Prime Minister Wickremesinghe blamed it on the ‘debt-trap’ into which the Rajapaksas had pushed the nation into. Entering the election fray in 2019, the Rajapaksas blamed the economic crisis on what has become the predecessor regime now. So, both are to blame – and so will be the future rulers.

Who then is going to find a way out, and when?

(The writer is Distinguished Fellow and Head-Chennai Initiative, Observer Research Foundation, the multi-disciplinary Indian public-policy think-tank, headquartered in New Delhi. email: sathiyam54@nsathiyamoorthy.com)

Disclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Colombo Gazette’s point-of-view

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