The global economy cannot afford the collapse of a major economy. Sri Lanka is a tiny country in which big countries have less interest. Still it should have been a collective responsibility of nations in the interest of the global economy to protect economically collapsing Sri Lanka. China had an interest in the island nation. But it is not as beneficial as it was thought, which led to a loss in China’s interest. China does not believe in long term investment.
For India, Sri Lanka is an opportunity as well as a responsibility. India can see it as an opportunity that china has left and can play a smart role by giving it a helping hand. The responsibility is absolutely business as a capitalist country like other big economies. That way, India can be an investor in Sri Lanka, which depends on India for various needs.
India is keen to make its economy stronger. There are many Indian companies present in the island nation. Protecting the interest of the Indian companies is also the responsibility of the Indian government. There is a chance of political interference too from India as the situation demands it. Apart from this, for India’s long term safety and overall growth, we need economically and politically stable neighbours. Pakistan, Bangladesh, Sri Lanka, Nepal and Bhutan, hence need to be stable socially, politically and economically.
A modern economy is essentially integrated with the global economy, thanks to the World Trade Organization (WTO). A WTO member cannot stay isolated. It is a give-and-take business, because of interdependence. It works in a chain and shows a chain reaction when something goes wrong. That increases the responsibility of large economies, which have a larger interest in the global economy.
Most of the countries at present do their transactions in dollars and some in euros. All of a sudden with this kind of opportunity there may be a shift in currencies used for global trade. That may impact the dominance of the popular currencies.
Large economies like India with their neighbouring country in a debt trap can play a strategic role. When Sri Lanka needs to be rescued from the debt trap, especially from a moneylender like China, India can bail it out with a margin of swap. Though IMF loans for the low-income economy are cheaper, money lenders like China lending under strict conditions can prove to be disastrous for the hapless borrowers. Capitalist economies, especially developing economies, can swap the local currency against the dollar so that the swapped local currency can be reinvested in the economy so that the incumbent gets multiple benefits. The investing country also will get better realisation against the dollar that goes to the indebted country for its loan repayment. That way the host country gets a new friendly investment and the investor gets a better realisation of money through the swap, interest-earning on the swap margin and investment opportunities.
The US and Europe used to do this method for expanding their clouts. Along with this, their large corporations also used to follow the strategy of expansion, especially in countries where there is a huge consumer market. But the large economies and their transnationals gradually control the prices much to the shock of the consumers.
The Sri Lankan crisis is a lesson. Let this be a lesson to Kerala, which is hell-bent on over a trillion rupees K-rail project called Silverline with massive borrowings. Making a big project by taking any loan from the global market by a state will create trouble for the state and the natives. The commercially viable project with a huge debt burden can resemble the Sri Lankan crisis that emerged out of the government’s mismanagement of borrowed money. Sri Lanka made a bet on non-productive assets with the borrowed money. From the government, people expect a condition for a better life. But the government chases big business and foreign investment. It created highways with fewer vehicles and airports for no passengers. Such a big project renders not only a financial burden but also adds to the environmental damage.
In the last decade, we saw Greece falling on debt burden with the government bonds receiving junk status. Two decades before the fall of Greece, Argentina passed through a great depression. Since the beginning of the last decade, Europe saw a massive sovereign debt crisis, which was known as the Eurozone crisis. Besides Greece, Portugal, Cyprus, Ireland and Spain saw the governments’ inability to repay their debts. The results of the unlimited borrowing carry a lesson for those economies resorting to public borrowing. Each country with a changing government wants to serve their interests. They realise their interest through as much public borrowing as each one could. On the other hand, people are deprived of indigenous resources.
Globalisation in the name of synergy has brought immense adversities to many small economies, which are burdened with huge debts. The ultimate solution for them apparently is to shed their aspiration for globalisation. That is a tough call, but essential. The Sri Lankan crisis may not be a crisis for Sri Lanka alone. As I mentioned in my earlier blog, no economy is too big to remain insulated against any economic crisis.
Sri Lanka was a victim of misinterpretation. It was not organic farming that dragged its feet, but the wrong propaganda of the global inorganic fertiliser industry that cut its throat. It is tough to win against a dominant force. None’s huge investment will go into the drain so long as the lobby is strong enough to plant stories that serve their interests.
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