economic recovery in the post COVID era – rich & powerful vs poor & weak
The powerful countries will be printing money as means of jump-starting their economies as part of the post COVID-19 economic recovery. And it makes sense! Folks need to make major investments in infrastructure and human capital development in order to get things moving again. What else are they supposed to do?
But it seems that many of the world’s poorest countries will not be allowed to even borrow modest amount of money to make any kind of investments. Our international partners will tell us that we can’t borrow because it might put us in moderate or high “debt distress” as shown by our DSA (debt sustainability analysis). They will tell us that there is a “speed bump” that we can’t cross over even if it means that our people will suffer and die. I am not sure what other options are there for us.
Our “development” partners will define debt in all sorts of ways just to ensure that our countries do not borrow any money to make the investments required to move our economies forward. When the COVID recovery is over, the gap between the rich countries which borrowed multiple times their GDP and poor countries which did not borrow anything and therefore could not make any investments will be wider than we have ever seen.
The debts of the rich and powerful can hit any limit but poor and weak are not allowed to borrow to do anything. Some of the poor countries are not even able or allowed to print their own currencies to replace mutilated notes.
The argument from our “development” partners is that we don’t have the “absorptive” capacity. I really have never understood what this meant. That if you built roads and power plant we will not be able to use (absorb) them? Because the monies that these countries want are for critical infrastructure needed to unlock the growth potentials in their economies. If these “binding” constraints are not removed, these countries will never make any progress. With poor infrastructure, there is no foreseeable way that these countries can escape the “poverty trap.”
The partners do not even want to have a conservation about which projects these countries want to undertake. All the partners care about is that these countries shouldn’t borrow. What if they want to borrow to build a power plant so that value-addition and light manufacturing can begin? The partners don’t care. For them, once you don’t have the money, you don’t deserve cheap power or better roads.
The partners don’t want us to borrow against future income. For them, it is against the rule of development. For them, you must have the money in hand (appropriated in your budget) before you can even begin the procurement process for anything. They say, it is irresponsible to borrow against future income. Really? I thought that was what the smartest business people did: borrow to invest and when the return comes, you pay back the debt.
If a country is expecting $100 million in future income over the next 20 years ($5 million per year) and the country wants to build a bridge that cost $80 million with a 2 year construction period. The partners demand that the country can’t borrow the $80 million to build the bridge in 2 years. Instead, the country should construct $5 million worth of the bridge every year until it is complete. This means that it may take 16 years to complete the bridge. Don’t you think that the portion of the bridge that was constructed in year one would be structurally challenged before we get to year 16?
I really have never understood the logic behind the argument of the partners. For me, the bridge in 2 years might even open up more opportunities such that we might not even miss the $5 million per year. Lots of other economic and social benefits would have accrued over those years.
Some times it makes me to wonder what the motives of these “development” partners are? Do they not care that these countries perish or they care that these countries perish? Seems that either way, these countries are perishing….