Assessing National Debt Problems

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J. Soedradjad Djiwandono
J. Soedradjad Djiwandono, Emeritus Professor of Economics, Faculty of Economics and Business, Universitas Indonesia, and Adjunct Professor of International Economics, S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University (NTU), Singapore.

Jakarta, IO – In the past, discussion about issues related to national debt almost always referred t o underdeveloped or developing economies. In the 1980s, considerable discussion was devoted to apparently unsustainable levels of national debt, mostly regarding the countries of Latin America. Once a while, a “special case” arose, when a sovereign state was forced to declare bankruptcy, admitting that its central bank was unable to continue paying interest due on its respective government bonds. Argentina was a case study of such an event; following Latin America, Russia suffered a similar fate. Then, in the 1990s Japan endured a decade of “no-growth economy”, with its national debt soaring until it surpassed 200 per cent of the island nation’s GDP. This period became sadly dubbed “the lost decade”.

We have recently read news about the People’s Republic of China facing similar problems, arising from failures in infrastructure projects in different countries, allied to its ambitious “Belt and Road Initiative”, or BRI. 

I do not intend to be the one to “cry wolf” here, but it is important to bear in mind that in our own national drive for development we should always be wise, acknowledging that it is never proper to live beyond our means. 

The recent experience of China’s ambitious program to build “a New Silk Road”, with the BRI launched in 2003 by President Xi Jing Ping, is a glaring example of what I meant by this. Admittedly, there are several, such as the one connecting Istanbul and Ankara in Turkey and one or two projects in Africa, which have enjoyed success. Despite looming budget overruns, our Jakarta-Bandung fast train project will hopefully be completed in the near future. 

It is important to observe how others have been abandoned, along with newer projects in trouble and more likely doomed to suffer the same fate, as failures. It has been reported that China is currently scrambling to organize a consortium to rescue infrastructure developments in trouble or abandoned in various countries. Whether the PRC can afford to see these be written off is not the issue here; nevertheless, a waste is a waste. Among the ambitious ventures, some have become “white elephants”; an expensive example is Hambantota Port in Sri Lanka. True enough, China has the right to operate this port, but that was certainly not their original plan. Even if the financial drain can be easily borne by China’s fat purse, it must be considered in the context of recent subdued GDP growth. Forget about double digits: even single-digit growth is in the small numbers. Generally, it looks that efforts to bring back the glorious olden days is unreachable, if not impossible, for the major players: China with their New Silk Road or BRI, Putin with his obsession of reviving the Old Soviet Union (or even becoming a modern-day Peter the Great), and former President Trump, with MAGA.