Economic Crisis In South Asia

Economic Crisis In South Asia

Economic Crisis in South Asia into a new wave of political game problems

We can see that the economic crisis in South Asia countries has been very much noticed. Starting from Sri Lanka, it has asked for help from both the International Monetary Fund (IMF), the World Bank and the Asian Development Bank (ADB) to pay off debt from foreign creditors. Recently, Sri Lanka has as much as 51 billion US dollars in foreign debt. But this enormous debt yet another country that suffers the same problems as Sri Lanka is Pakistan, India’s rival country. By 2021, Pakistan’s debt will exceed $100 billion. The more concern that these countries may not be able to pay such debts

Let’s see how the economic crisis in South Asia is. So will South Asian countries be able to get out of this great crisis?

Economic Crisis In South Asia Is Not New

In fact, the Sri Lanka-Pakistan economic crisis may not be the first time since the two countries have borrowed money from the International Monetary Fund (IMF). Pakistan, from 1958 to 2018, has borrowed 21 times from the IMF, while Sri Lanka has borrowed 16 times since 1965.

The problem of these two countries who want to borrow money is in order to stabilize the currency of the country itself due to low international reserves. There is less income from abroad and both countries have similar characteristics. That is to borrow money or raise funds from abroad. especially the issuance of bonds and high interest rates. Because the risks of these two countries are greater than other countries.

However, Pakistan and Sri Lanka Instead, these debt problems were not solved in any way. Even worse, if there is an economic downturn, the IMF will always seek help.

 

Economic Crisis In South Asia
Economic Crisis In South Asia

 

When these countries want to turn the economy around and China is the solution

This latest economic crisis in South Asia, the main reason is from the wrong investment planning. Although there is a good goal. Want to make the country’s economy change by leaps and bounds. The answer to this question is to invest in large projects.

These projects if you want to use a loan from the World Bank or even ADB to build any project. It often takes a long time to determine if these projects are appropriate. Does the government of a country that wants to borrow money have the ability to manage its debt to transparency whether there is any corruption in these projects or not.

What you get if you want to borrow money from these organizations: That’s a low interest loan. Or a country that is a debtor is able to pay installments in the long term, for example 20-30 years, making the country’s fiscal problems not very poor.

But what we see is a country like Sri Lanka and Pakistan instead chose to borrow money from China. Because during the past 7-8 years, China has had the One Belt One Road (OBOR) Silk Road project, causing many countries to think that China will help bring these prosperity in. Although many countries, especially Western countries, have warned both of them that they may fall into debt traps. 

Economic Crisis in South Asia and China

We can see that borrowing money from China does not have the same conditions as borrowing like ADB or even World Bank, but the price that must be paid is the interest rate paid to China is more than 2-3 percent. And the loan was not made to the Chinese government. but mostly with China’s Export-Import Bank (Exim Bank).

Plus, the big problem that follows South Asian countries like Sri Lanka and Pakistan that are not underestimated is the spread of COVID-19. The more the investment in large projects In Sri Lanka and Pakistan, it was even worse. due to lower incomes in the country but still have to pay debts to China as usual including the situation where Ukraine was invaded by Russia As a result, everything looked even worse. Whether it is a problem of energy prices or higher food prices. At the same time, the currencies of these two countries have depreciated sharply. causing more debt to pile up

Such failures intensify the crisis that makes these two countries. must move back to international organizations such as the IMF or the World Bank, including ADB again

Economic Crisis in South Asia: An unyielding political game

It’s not just international organizations that have to think hard about aid. But this economic crisis in South Asia is also a matter of international politics especially in the case of Sri Lanka. This is because Sri Lanka, as well as Pakistan, is a key point in China’s Silk Road map.

Pakistan has relied on China. to counter the power of India And the return of the IMF for help in this round has made Pakistan even perceived as borrowing money to pay off its debts to China.

Meanwhile, Sri Lanka is close to India. As a result, India itself has to rush to help Sri Lanka more than $4 billion. For the reason that if India does not help Sri Lanka It may make Sri Lanka to rely on China. And that could shake India’s security. In addition, Japan, which is Sri Lanka’s main creditor, is also watching this crisis. As India and Japan are also partners in QUAD (Quadrilateral Security Dialogue), if India’s security is shaken from China’s creditor to Sri Lanka would cause Japan to worry as well.

The solution of these two South Asian countries

For the exit of these two countries may need a major economic restructuring after this whether the tax increase. Gradually bringing state-owned enterprises to private companies (Privatization) the exchange rate adjustments of these two currencies, as was the case with Thailand during the Tom Yum Kung crisis. Including the need to adjust the investment in various investment projects. Of the two countries after this, that good investment is not just a big project alone. But it must be a project that people can use widely, such as building roads or even railroads. Unlike Sri Lanka or Pakistan where large ports are built. But to the point where the cargo ship did not pass Or even Sri Lanka’s new airport, but it doesn’t have infrastructure like roads or trains. Connect these airports causing it to become inactive until it became an abandoned airport

But there is one more possibility when the Washington Post editors suggested the idea that The United States, considered the mainstay of the IMF, could use that role in restructuring the debt of South Asian countries. Including loan assistance from QUAD in order not to fall victim to the Chinese debt trap.

After this, we have to see how these two countries will solve these problems including various countries. Whether it’s the side of QUAD or China that plays an important role in the region. All of them are quite interesting to follow.

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