Is the “debt trap” a geo political trap?

Is the “debt trap” a geo political trap ? (CPEC )My Country
Is the “debt trap” a geo political trap ? (CPEC )My Country

Is the “debt trap” a geo political trap ? (CPEC )My Country

Ali Farmandeh

During the past few months the news and clashes upon Belt & Road and specially CPEC has come to an era of intensifying. It is surfacing especially with the tariff conflicts between USA and China and then interest by Gulf countries for CPEC projects that usually are strong allies with USA and in the eyes of US administration they are not doing right thing by turning towards East, no matter it is China or Japan.

On the other side, CPEC project is the flagship of Belt & Road and therefore all eyes are on this project. For both those who are in favor or against BRI. Pakistan has therefore is the center for many conflicts and clarifications of different parties. Thus talking about or accusing CPEC as the debt trap for Pakistan is only a political trap for pubic to be convinced that CPEC is nothing but trouble and a signal to global public that “watch out” for the danger of BRI.

Debt trap as a phenomena is not a CPEC issue but the real debt trap can be a financial and economic phenomena that can happen in many parts of the world. The Trap can actually come with anyloan if you cannot cover the gap in finance you have and looking for a short term solution to an otherwise a systematic wrong structure of govt. finance.  This phenomena has been a case for many financial crises before CPEC and BRI and will be even outside BRI as long as loan is just filling the gap and is due to expenses of government that with interest rates of prior loans deepening the financial crises.

If you study true Debt trap cases in Africa, Asia and even in Europe, you can find a common ground why these countries go to the trap and it is hard to pull them out. Some of the common points of this process are:

Loan without aimed project investment to governments, governmental high expenses with low income from taxes and other sources, high interests and delayed payments. In a rough language the case can be explained as when a government has taken loan after loan in order to cover its own expenses without any investment or minimizing the expenses. These are all common factors for all countries trapped to the debt, no matter they are in Europe, Asia or Africa. The case is the same.

So, what we can learn from these living cases is, debt in itself is not a trap but it can be a trap when it is not aimed at an investment leads to production or creating a source of income. Because, only getting loan to expend, is like getting a monthly pocket money. You do not have money left at the end of month and you should wait for the next month pocket money from your parents. It is different if you invest your pocket money in a business and by that, you may get an income source by the profit it brings to you.

Pakistan’s problem therefore is not CPEC or any loan in itself but what it has be done with the loan. And in addition to the loan, if there have been any plan to minimize the expenses and increasing the income by production or creating a source for income. In this case the problem has started many years back before CPEC when the loans had taken and now it is about billions of US dollar.

When it comes to BRI financing, among others even in CPEC case, it differs totally from financial institutes’ way. Why is it so? Well, financial institutes mostly are loan and credit providers only. They do not come as joint venture partner in implementation or responsible as counterpart in agreements for technology and expertise. This means the loan taker has full responsibility for the outcome of its loan and is obligated to pay interests by the terms both parties agreed upon. Therefore As “risk takers”they have high interest rates for the loan they provide.

Comparing BRI’s loan as the same as financial institutes or the relationship between the provider and the taker as the same as between parties in BRI projects, is a huge mistake and in some cases as we see now is just a geo political trap for public to believe CPEC is a true debt trap. China as one party in BRI projects is not a classic financier. First of all a part of finance in BRI mentioned in agreements between two countries is credit for Chinese companies as undertakers to be engaged in implementation and construction. Secondly, another part of finance as loan consider and related to something I call it for Aimed Project Investment. This means that the loan is aimed at the very beginning where it will be invested with clear outcomes. A very limited part of loan can go direct loan to the government for the purposes the government decide itself with an interest rate which is usually much lower than any established financial institute can offer.

In this matter, therefore with eyes of business and economics, BRI and CPEC cannot be a debt trap we are known of, and the issue of “debt trap” is just a geo political trap for public eyes to take away the rival China’s possibilities to play a role in new markets usually “belonging” to US and Europe. The issue of discussion is not about lack of facts about truth or reality of BRI agreements or CPEC terms of conducts, but a full awareness about the fact in details but diverting it to a debt issue to win a geo political game and cover the reality of financial institute actions towards countries like Pakistan and what they are doing in years in Asia and Africa.

CPEC and both parties have decided by agreements to provide opportunities for future generations of Pakistan to be independent and an industrialized nation. This is hard to accept that country after country decide and get actions towards development and independency by working with infrastructure as a very step for industrialization. BRI loans and credits are investments because all aimed towards particular infra projects that by finish, bring income to the government and public. At the same time new administration of Pakistan decided even taking right steps to minimize the expenses of the government and plans for additional income. These parallel processes ends up in one point, i.e., production, welfare, infrastructure of connectivity and will result independency and bright future for generations.

All this will not automatically happens, because these are potentials, these are possibilities, it is a goal and not yet result. China and Pakistan should do their best, together with their people to make this opportunity a reality. With a geo economic eyes, all these are possible and both parties are on right path. Remains are hard work, cooperation, trust and clear vision for better of mankind no matter in which country you are born or live.

The author is the Chairman at China Sweden Business Council (CSBC) and Executive Manager at Belt & Road Initiative Executive Group Sweden (BRIX)

Is the “debt trap” a geo political trap ? (CPEC )My Country