Is the Belt and Road (BRI) debt trap similar to issues with the IMF?
No. Loans to these areas or counties usually works like this:
- poor countries means high risk of default, so the loan comes with a high interest. No matter what the country does, it needs to pay this interest.
- NGO intentionally give some loans to “help”, so the loan comes with either low or zero interest. But to ensure the country can repay the debts, the are forced to made certain policies.
The first usually eventually collapse into something like the second, if not something worse. But the thing is, let alone the fact that we don’t have a uniform formula for development, the “recommended” policies from these NGOs are usually not as beneficial as they claim them to to be. The fact is that usually these instructions benefited more other advanced countries:
“Oh, you need to build transportation, like an airport. What? You don’t have skilled labor to do the construction? Sure, we’ll find you one in Europe (way above your financial ability). You need more loan for that? Sure. What? The locals are too poor and no one takes flight? Not our problem. We advice you to increase tax to pay your debts. Oh, it will make the people poorer? Let’s talk about another loan.”
But China and OBOR initiative usually come with less loans but more business:
- low interest rate, but without forcing you to do anything. If you think you are not going to pay back, we will run the infrastructure and take its profits for the first say 20 years. You still benefit from using it and it’s externalities, and after 20 years it’s all yours.
- zero interest rate, but you cut us a discount on exportting price of your natural resources or raw materials. You still make money on both, expect less, and you still get the projects done of course.
Because China will run many of these projects, it is certainly necessary and will be used by the majority and thus will produce positive externalities. Also, during the running of these projects they hire more local and increasingly more in the future—they send Chinese team there but for training also to ensure the local are well-prepared when they take over.
The construction of these project is different. China still have a comparative cheaper labor force and more skilled labor. And they also train the locals to do the jobs in this process. The next time they come to do other project, they may employ more and cheaper local labors.
China doesn’t hesitate to tell that it wants to make money from you, but it also tell you how much money and profit you can get. And if you agree on the term, this will be how exactly it will be carried out. It is not free, as nothing is, but it is clear. For these countries, unlike the others who approach with aids attached by strings, China gives them business, and with that, respect and decency.