Depending where one comes from, the choice of favourite words and phraseology is exercised. For some it is 'culture', for others it is 'ethnic identity' or 'secularism'. Still for others it is 'religious identity'. The list can be added to. This text is about finance, debt and indeed the principles of operationalising international aid--a veritable ocean, indeed.
Many would agree that finance is not only the sinews for the corporate or the nation but indeed to the very act of living. Be it exchange in barter or Bictcoin, some principle or the other of finance is evoked. Wherever there is financial exchange, there is bound to be the 'giver' and 'receiver' of funds. In the language of finance, they could be called 'creditors' and 'debtors'. The month of December, 2017 has been significant in many manifestations of global finance.
In the neighbourhood (read Pakistan), the much tom - tommed, China - Pakistan Economic Corridor (CPEC) has run into foul weather. Reportedly, Beijing is unhappy with the operational financial mechanism there and there is suspicion of what South Asia is well known for : money being utilised for purposes for which it was not meant. The Chinese having such self - generated wide flung financial responsibilities, globally, do not have the luxury of exposing themselves to such a situation. The choice has been obvious. The Chinese Government has opted for a new financial mechanism in CPEC, with little reference to Pakistan, and scrapped the previous one. So much for parity amongst sovereign states!
Now to the other component of the financial order. The obverse of creditor, is debtor. The world is dotted with debtors. Some will recall Donald Trump's recent recognition of the fact that Puerto Rican bonds will perhaps be never paid for. The worth of these bonds is put at US $ 75 billion. If the US island territory can no longer afford to pay it, obviously the debt would need to be written off. That stage has not been reached yet. It is another matter that, that step cannot be avoided for all times, either.
Back to South Asia, it is obvious that it is an ingrained part of Chinese foreign policy to pursue its financial aids that cause deep indebtedness in the concerned sector of the recipient country. Where financial indebtedness creates the pit, the diplomatic manoeuvres step in. Consider the case of Hambantota Port in Sri Lanka. Unable to pay its debt to Chinese firms, this port has been given to China on a 90 year lease in early December 2017. It virtually creates a fresh Chinese out - post in an area where, it had none.
Clearly, this is not an isolated manoeuver. Recently, China has been more than visible in the Indian Ocean. Gwadar is only a much referred and over hyped example. How far Pakistan will gain out of granting Gwadar control to China, remains a moot point. The important thing is, China has gained. In India, we are still struggling to amend the act which determines the governance of the so called major ports. That is another story.
Gwadar is also not an isolated example, any more than Hambantota is. Investing billions of dollars, strengthening the maritime trade route, as part of 'One Belt One Road' doctrine of China is the more important part of the story.
Sri Lanka owes more than US $ 8 billion to state - controlled Chinese firms. Obviously, there is some resistance for this kind of policy in Sri Lanka. What is equally obvious, is, that this resistance is not strong enough to negate it. The process begun during the time of Mahindra Rajapaksa is now beginning to flower. Chinese presence in Sri Lankan infrastructure projects is well known. The China Merchants Port Holdings Company has played a sterling role in this.
The Indian counterpart of this approach looks somewhat still born.
Getting back to the story of finance and debts, the debt levels are on the rise around the world. Tobias Adrian, Head of IMF's Monetary & Capital Markets Division has been flagging these phenomena. The truth is that, the weight of debt service has also jumped in several leading economies. Unless the Central banks in US and Europe tighten monetary conditions, the risks over time from sharp increase in interest rates, is going to be far beyond expectations.
External commercial borrowings are going to be problematic, if this trend continues. Clearly, a lot of re-think is needed on indebtedness and rates of interest.
In the meanwhile, China with its unusual economic theories and practises seems to be settled well in the arena of international finance.