Ignore  BBC’s  Report  on  Debt  Crisis:  Borrow  from  the  West  Like  There  is  No  Tomorrow

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Yonas  Biru,  PhD

This  is  a  back  of  the  envelop  analysis  on  international  debt  to  show  BBC’s analysis of Ethiopias debt crisis  is  rubbish.  Our  intellectuals  are  better  advised  to  spend  their  energy  in  making  sure the  loans  in  question  are  used  properly  rather  than  doing  their  #NoMore  አቶቶ ቡቱቶ on  US  and European  streets.

 

 

Ethiopia  should   borrow  from  Western   countries,   the   World  Bank   and  IMF   like   there  is   no tomorrow.  These  are  loans  that  come  without  collateral.  Countries  such  as  Ethiopia  get  a  near zero interest rate loans with a five-year grace period and 30-year term. PM Abiy was right to say “Borrowing  from  the  IMF  and  the  World  Bank  is  like  borrowing  from  ones  mother.”  The  only loan  we  should  worry  about  is  from  China.

 

 

Why  Ethiopia  Needs  to  be  Wary  of  Taking  Additional  Loans  from  China

 

 

When  it  comes  to  development  loans,  China  uses  a  pawnshop  strategy.  Pawnshops  make  money from  desperate  individuals  who  turn  over  custody  of  their  valued  possessions  such  as  wedding rings  and  computers  with  valuable  data  as  collateral for  the  loan.  China  follows  the  same  strategy except for the fact that its borrowers are nations rather than individuals. Its collaterals come in the form  of  geopolitical  seaports,  flagship  national  airports,  oil  fields  and  strategic  rare  earth  mining projects.

 

 

Once  it  traps  vulnerable  nations,  China  takes  advantage  of  Africa’s  economic  woes,  seeking  new collaterals as a condition to restructure debts at risk of defaulting. When Zambia owing China over

$6  billion  had  difficulty  servicing  its  payment,  China  wanted  the  nation’s  mining  assets  as  new collateral  to  restructure  its  loans.  As  Financial  Times  noted,  the  Zambian  government  was  “alleged

to have diverted donor funds meant for social sector spending to make debt repayments.”

 

 

China’s  debt-trap  strategy  has  four  signature  schemes  that  makes  it  different  from  other  bilateral or  multilateral  loans  that  developing  countries  rely  on.

 

First,  it’s  loans  to  developing  countries  are  kept  confidential.  They  are  neither  reported  to  nor recorded  by  international  institutions  such  as  the International  Monetary  Fund  (IMF);  the World Bank;  or  the  Paris  Club,  an  organization  of  creditor  nations.

 

Second,  China’s  preferred  clients are countries with rampant  corruption.  A study by the Brookings Institution  shows  that  of  the  50  most  indebted  countries  to  China,  25  are  from  Sub  Saharan  Africa (SSA).  A  closer  look  at  the  data  indicates,  of  the  25  SSA  countries,  23  are  listed  in  the  top  half  of Transparency Internationals corruption ranking, including South Sudan, the Republic of the Sudan and  Angola,  ranked  second,  forth,  and  fifth  most  corrupt  nations  in  the  world,  respectively.

 

 

Third, data  from  the  IMF  shows  China’s  loans  are  geared  toward  countries  that  have  historically been  vulnerable  to  debt  crises.  Of  the  50  countries  in  the  Brookings’  above-noted  list,  a  large majority of them were countries who suffered debt crisis in the 1990s and received international

debt  forgiveness.

 

 

Fourth,  Chinese  loans  are  based  on  market  rates  with  short  payment  periods,  leading  to  larger annual  repayments  and  resultant  defaults.  By  contrast,  traditional  loans  by  institutions  such  as  the World  Bank,  IMF,  and  members  of  the  Paris  Club  carry  near  zero  interest  rates  and  are  further buttressed  with  generous  grace  periods  and  long  payment  plans  of  up  to  30  years  to  make  them easier  to  service.

 

 

This  is  what  happens  when  you  borrow  from  the  West/World  Bank/IMF.

 

 

They  lend  you knowing  full  well  that  you  will  not  be  able  to  pay  it  back.  Then  they  lend  you more, so you can service your outstanding loans. If you still cannot pay it, they will lend you once again.  That  is  when  it  gets  interesting.  Self-anointed  members  of  the  West’s  moral  police,  who see  themselves  as  the  conscious  of  the  West,  start  to  speak  up  against  international  debt  burden on   poor   countries.   They   use   pictures   of   starving   African   children   and   shame   the   West   for demanding   debt   payments.   We   are   talking   about   Liberals,   Millennials,   Gen   Zs,   International Development  NGOs,  and  Religious  Activists.  Sometimes  even  communist  leftovers  sneak  in  as  a moral  voice.  They  start  making  noise  calling  for  debt  forgiveness or  debt  restructuring.

 

 

Debt  forgiveness  and  debt  restructuring  allows  nations  facing  financial  problems  to  eliminate, reduce  and/or  renegotiate  their  delinquent  debts  to  improve  their  credit  worthiness  so  they  can continue  to  borrow  more. That  is  when  the  West  and  the  World  Bank  and  IMF  come  with  more generous  loans with  near  zero  interest  rates,  five-year  grace  period  and  30-year  term  loans.  As

 

long  as  Liberals,  Millennials,  Gen  Zs,  Religious  Activists  and  Communist  Leftovers  exist,  the  cycle will  repeat  itself.

 

 

The good thing for countries such as Ethiopia is that Gen Zs are even more liberal than Millennials. Trust  me  I  know  this  firsthand.  My  youngest  is  a  member  of  the  Gen  Z  generation.  She  makes her  older  siblings (Millennials  and  high-octane  liberals)  look  like  Trump  supporters.

 

 

In  conclusion,  we  should  not  prepare  complicated  economic  tables  and  graphs  to  link  debt  with economic stagnation and being dependent on Western nations.  Just keep on borrowing until they stop  lending  you.  Do  not  complicate  a  very  simple  thing.  Take  all  the  loan  they  give  you  and  file for  a  new  loan  the  next  day.  Spend  your  energy  to  make  sure  the  loan  money  is  used  for development.

Addis Insight
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