Rescue, but no relief? | Sunday Observer

Rescue, but no relief?

23 April, 2023

The government of the most powerful country on earth forked out to the tune of approximately 400 billion dollars to rescue a bank in Silicon Valley that went under a few weeks back. There was a similar rescue operation that was launched by another European country to keep a European bank afloat.

This means that the world is awash with money when necessary, and that’s something to be celebrated. For scale, the reader could compare the 3 billion rupees that this country got the nod for recently, as a bailout from the International Monetary Fund.

When the hard currency is needed it’s there and of course, Sri Lanka is not directly of particular concern to any of the countries named above, which is why we did not qualify for a bailout from any of these countries.

So international debt has various dimensions and at the moment it’s really a bad time for international debtor nations as so many columnists have pointed out, including one in a left-leaning British newspaper the Guardian. This same columnist had, however, asked why rich countries do not have money to do something about debtor nations among whom are many countries of Asia and Africa for instance. He was pointing to the recent massive bailouts given to the Silicon Valley bank and the European bank that collapsed.

There are several aspects of debt and there is the business aspect of private debt. But most observers and commentators would say there is no mercenary aspect to country to country bilateral debt.


Of course, no loan for middle-income countries has come interest free and this means that there is an aspect of debt that is tied to money.

If debt is a business transaction, it means it would be treated as such. This is the hard truth for instance with commercial debt that is granted to private individuals by banks in this country — or any country — for instance.

Some banks in this country are quite cavalier about the fact that they’d rather have the customer default on a loan. If he or she does, the bank would end up owning the collateral.

This same dynamic operates when it comes to a great component of our international debt, and this seems to be what the Guardian columnist was stating when he wrote that the rich countries have enough money to be generous, and drag countries out of debt if they really want to.

But debt is a business transaction and when countries are in debt they are in most instances caught up in extraordinary circumstances. The unexpected economic repercussions of Covid-19 made it impossible for some countries to keep to their debt-commitments and it seemed default was the only option. But even private banks in most countries even if they may have not wanted to were made to offer concessions to debtors because of the conditions that were created by Covid.

So, it was acknowledged the world over that there was an economic crisis that required bailouts. But this was not exactly an acknowledgment that resonated with creditors that held onto large debts that had been incurred by developing countries.

The countries caught up in debt were caught up with their own politics, and hardly anyone was focusing on getting debt written off or restructured under the circumstances.


Compared with some of the bailouts that were given to the private banks that collapsed, the debt of our country or counties similar to ours could be called peanuts in contrast.

But our people suffered under the weight of that debt. As has been stated by this columnist and many other columnists and commentators many times over, the debt that had been incurred by governments had little or nothing to do with ordinary citizens.

They didn’t ask for such debt to be incurred. If there are excessive subsidies granted to ordinary citizens, these were not subsidies that they clamoured for.

Ergo from a humanitarian angle the debt-crisis faced by debtor nations is something that needs humanitarian attention. But it’s a crisis that has often been entirely blamed on governments of the debtor nations and yes, of course, successive governments are indeed to blame for incurring excessive debt.

But as far as the creditors are concerned, they have to from a humanitarian standpoint if nothing else, factor in the reality that people who had nothing to do with incurring the debt in developing countries suffer as a result of excessive debt.

If the recent case of the Silicon Valley Bank and the other bank that collapsed is to be taken into account, the money infusion to save these banks is not being called a bailout. Apparently, the rich shareholders of these banks got nothing from these cash infusions which targeted the customers of these banks who stood to lose their deposited cash if the banks collapsed. The State came up with the cash to ensure that people didn’t lose money, we are told. The rich investors in these banks got nothing as a result of the new injections of cash and that way, it’s certainly was not a bailout, it’s being said.

It’s good that ordinary people as opposed to wealthy investors are being thought about. It means that debt and similar issues dealing with banking etc. are being looked at through the prism of humanitarianism.

People should not be deprived of their hard-earned money. That’s laudable and whether the cash infusions are called a bailout or not the thought of saving the depositor — never mind the investor — is praiseworthy.

The people in the developing world need some empathy on those lines too. They are not to blame for what their governments did. Even when they enjoyed subsidies it was because politicians gave away these subsidies as they thought that’s the best way to keep getting elected.

The people were never told about the complications of how much debt was incurred, and what the component of interest was. These issues never played a part in election manifestos for the most part. Keeping countries debt-ridden is not a good proposition in any event. Take Sri Lanka. There are no car imports.


Who is losing? To an extent at least, it’s the countries that export cars. It’s better to keep customers in banks liquid and working, so that they keep taking loans at least, and keep paying them!

That may be the height of cynicism, but that’s the way most banks operate. They keep customers paying the loans and for that they should keep them from financially going under.

Be that as it may, the debt-restructuring for developing nations ought not to be punitive but more than ever there is a need to discipline the habit of indebtednesses. For that the onus falls on us.

No country is necessarily going to keep us from falling into debt. It could be said that it is financially imprudent for them to do so; at least the cynics might say so. We have to ensure that our debt is manageable and only we can do it.

Today most developing countries find it hard to secure loans on the financial markets because their debt-history on the record is murky.

However, no country wants to get a clean credit record so that in the future it can fall into more trouble borrowing more from creditor nations, making their debt even more unsustainable than it once used to be.

Developing nations will not get massive bailouts as some banks did. Those banks are considered part of the systemic financial components of creditor countries. We are not part of that equation. Some may perceive that there is little justice in this because people’s lives are at stake, and those people never sanctioned the debt of developing nations. But the reality is that debt and debt-relief is not yet on the global agenda in any big way. We are a country not a bank. Our debt remains very much our problem.