The almighty debt trap

June 28, 2022
Tuesday

Good evening ladies and gentlemen, boys and girls.

Today, I am here to write on 'how countries fall into a debt trap?'

When a country's government starts putting its benefit rather than its citizen's benefit first, that is precisely the first step toward nudging one's country, into a catastrophic situation. And, if this keeps on building, the economy of a country rather than prospering, starts deteriorating from the core. Corruptions, bribery, crimes, and nepotism keeps growing while, security, transparency, accountability, and effectiveness of a government and administration keep on decreasing.

One situation that could happen is- Citizens of that country might get angrier and decide to oust the government from the power by striking against the government and also using some violative forces to achieve this result. This may oust the government from the power but also hurts the economy more but it is important to lose a little for a greater outcome.

The other situation that could happen is- The corrupt and ineffective government of that country seeks a loan from the world bank and International Monetary Fund for salvaging the country. These institutions are happy to help these countries and are willing to give a loan to the respective country at a lower interest but, these institutions propose some very harsh conditionalities to the government like privatising many sectors or giving up various subsidy programs on essentialities that the country provides and also putting an end to various social welfare schemes.

One thing to notice here is, whether those corrupt and ineffective government's public welfare scheme was actually helpful to the disadvantaged sections of the society or whether it was providing greater opportunities for the officials to favour themselves financially more than it was uplifting the poor. In the former case, it would be horrifying to put an end to those public welfare schemes but in the latter case, it would be better to end up those schemes and programs.

Well, I am not an economist so I do not have an insight on which section is at a greater advantage, the elitist or the one for whom these schemes are meant to be rolled out.

Another alternative in the second situation can be- To seek a loan from a different country that is willing to help. In this case, the helping country might not impose such conditionalities but, it will provide the loans at a higher interest rate and also tries to seek some strategic terrain as collateral that can be economically or militarily advantageous for the lending country. This seems an easy option for the government to seek a loan and thus proceed forward.

In the shorter run, the government can use this loan to salvage its country from this catastrophic economic situation but in the long run, it would end up accumulating more interests, and since we already are aware of the fact that this government is already corrupt and ineffective so they wouldn't try to put more energy into salvaging their country from the core. And, this will give the lending country an easy pass to exploit and capture the strategic terrain aforementioned in the contract.

And, this is how a country falls into a debt trap.