America, China, the Strong Dollar, and Bankrupt Countries
Antony Blinken, the U.S. Secretary of State, recently hosted his Sri Lankan counterpart. The newly formed government in Sri Lanka came into power after a long period of political tension and conflicts stemming from deep public dissatisfaction with the country’s economic and living conditions. The resignations of previous government members and the emergence of the new government have sparked a slight hope for improving the country’s situation among the people. The story of Sri Lanka is one that could unfold for many other countries.
Crippling Debts
Many countries around the world are facing high debts. Countries like El Salvador, Tunisia, Egypt, and Ghana are on the brink of entering a critical situation. The inability to repay debts, reduced income, and ultimately depleting foreign reserves during the COVID-19 pandemic have worsened the debt situation of countries. There are solutions for these countries, such as controlling budget deficits and implementing anti-corruption policies to prevent currency outflow and delay the crisis at least. On the other hand, creditor countries have established structures in recent years to review and forgive some debts with the G20 countries’ program, but this structure is facing problems due to an important force.
China, the Major Creditor
China has not even joined the structure created by the G20 to address the debt crisis of countries. The Chinese, through massive investment plans and endless loans to poor and developing countries, have made them indebted. The main condition of many investment contracts is the confidentiality of the contract terms and China’s control over the interaction process regarding capital cycles in these countries. China itself seeks to ‘solve’ the debt crisis of poor countries and even after reaching agreements with countries about the debts they owe, it does not disclose the details. This is a warning for countries like Iran, which, due to agreements with China, might soon face problems and instability.
Poverty and Political Instability: The Danger of the Next Decade
The International Monetary Fund has identified 40 countries as fragile economies. The Economist magazine, based on standard definitions, has classified 53 countries as fragile. However, the important point is not the dispute over the number of countries. The debts of poor countries are expanding. The prices of food, energy, and essential healthcare are rising globally, and the struggle of poor countries to meet the needs of their citizens becomes increasingly futile as their foreign reserves are depleted due to high debts. The International Monetary Fund has released new statistics indicating that countries with fragile economies are home to one billion people worldwide. These one billion people are grappling with rising prices of all items, and just the increase in food prices, which has grown by 23% in the past year, is enough to understand the danger.
America, the Dollar, and Debtor Countries
China, which has ensnared many countries with dollars, capital circulation, and lending, like other investors and creditors, is reaping maximum benefits from a unique shift. The dollar is at its strongest, and it shows no signs of stopping. The U.S. dollar is considered the best investment option under normal conditions, and now, with the Federal Reserve’s actions and the increase in interest rates, which makes access to the dollar more expensive, the dollar in the investment market has risen even higher. The stronger the dollar gets, the heavier the debt burden becomes for debtors, who are inevitably indebted in dollars. Poor countries are pinning their hopes on the aid and agreements of wealthy and creditor countries for debt review and forgiveness. Antony Blinken’s visit to Africa, as well as his negotiations with the Sri Lankan foreign minister and his statements, indicate the Biden administration’s serious intention to help countries with fragile economies. However, the threat of fundamental political crises due to public dissatisfaction in poor and fragile economy countries remains the main threat to international politics. You remember the bank hostage-taker in Beirut, don’t you?
