Every now and then gigantic offers of loan from financial institutions like the World Bank, International Monetary Fund (IMF), or other development partners as well as "friendly" countries, become headlines in the media.
People usually perceive these loans as a supportive gesture to the people of a credit receiving country.
But a critical analysis of outcomes for countries in debt reveals loans are more of a trap than an opportunity.
The logic of debt is simple: one must repay more in the future than one is receiving now.
The advent of money has made it possible for a credit system to work.
Debt originated with a promise of repayment in future.
The amount of global debt has increased to more than $257 trillion in 2020.
Debt and capitalism expand, facilitating each other.
In this process, collaterals of assets typically guarantee the promise of returning the debt.
Debt is a powerful means of control in today's neoliberal world.
Control through financial mechanisms has historical roots, as the extraction of tribute is an old imperial practice.
If entrepreneurs in developing country try to borrow money from abroad, the existing rules require the state of the borrower to have sufficient foreign currency reserve.
Hence, the borrower countries need to invest, for instance, in US treasury bonds, as US dollar is the dominant currency of the world at present.
This practice gives an unfair advantage to the dominant countries at the expense of the developing countries.
Imperial centres of the time gain increased financial inflow because of the difference in the interest rates between the money borrowed and the money deposited as collateral.
While the borrowing country has to pay for example 12 percent interest on any loan, they get only four percent interest on the deposits which serve as the collateral of loans.
The compounding debt sometimes becomes too much to repay.
As the popular saying goes, "debt is not bad but a debt you cannot repay is bad".
Unpaid debt creates another opportunity for imperial control.
With debt forgiveness of a certain portion, the financial establishments can enforce institutional reforms in the debt-ridden countries – popularly known as the structural adjustment programmes.
The outcome: the peso crisis in Mexico in 1995, the Brazilian crisis of 1998, the collapse of the Argentine economy in 2001, and the Greek economic fallout in 2009.
The world has transformed into a lender-friendly entity.
Powerful states with their regulations support the financial institutions.
Hence, David Harvey in A Brief History of Neoliberalism (2005) argued, "the debt trap" is a primary means of accumulation by dispossession.
Crisis creation, management, and manipulation are ways to extract wealth from the economic periphery to the imperial centres.
IMF and World Bank's structural adjustments always shift the concentration of means of production towards the "capitalist" class.
For instance, in the 1980s, Bangladesh had undergone the World Bank and IMF-led structural adjustment programmes and reforms were aimed at trade liberalisation, decentralisation, and privatisation.
The first wave of reform occurred in the early to mid-1980s, when subsidies on agricultural inputs were reduced and trading of agricultural inputs was liberalised.
The second wave of reforms started in the late 1980s and early 1990s, facilitating liberalisation of imports, private trading in grain markets, and major reductions to longstanding programmes for public distribution of grains.
Since 1986-87, privatisation of agricultural inputs, irrigation facilities, and machines had increased the cost of cultivation and led to the indebtedness of poor peasants.
The means of production were concentrated in the hands of the rich, and peasants were pauperised.
Poor men who had been cultivators turned into wage-labourers either to survive or to complement their income.
Debt in the modern world is a reason and cause of uneven geographical development at the global level.
Debts create a vicious cycle that keeps the poor dependent on the rich, spreading pervasive forms of inequality.
Moreover, debt is a way of integrating yet peripheral countries into the global circle of capitalism by creating investment opportunities of surplus capital – a process that David Harvey has termed "spatio-temporal fix" in the book The New Imperialism (2003).
China's Belt and Road Initiative (BRI) is one such project that reveals the need of continuous expansion of capitalism and the role of debt in this system.
China took this project aggressively after the global financial crisis of 2008.
Earlier, China used to buy US-denominated assets overseas to get rid of its surplus into some forms of profit generation.
With investments from China, the US could issue ever-greater internal debt.
For China, the Chinese-surplus-US-deficit, a mutually useful relationship, proved doubly beneficial as their investment funds flowed back into China as export demand from consumers in the US and other countries.
Government spending surged in China since the economic recession of 2008 reduced export incomes.
China undertook unprecedented government-funded projects.
The scale was enormous.
During 2011-2013, China consumed nearly 45 percent more cement than the US had consumed in the entire preceding century.
What did this frenzy of construction entail?
With governmental credit support, Chinese companies had undertaken mega projects such as the Silk Road, high speed railways, mega bridges, ever larger cities etc, which employed people who had lost their jobs due to the financial crash.
Moreover, the suppliers of these mega projects had spread an economic rush all over the world.
All these efforts were debt-financed.
In 2020, China's formal debt reached 317 percent of its Gross Domestic Product (GDP).
However, China is in a better position than Greece or other debt-ridden countries as the debt is in its own currency.
There is no prospect of foreign intervention in this regard.
Ever more debt and ever more capital accumulation forced China to find external solutions to avoid the crisis of over accumulation and to maintain growth.
China came up with the ambitious BRI project across Southeast Asia, Central Asia, and Sub-Saharan Africa.
This will also create an opportunity to lead developing countries to finance infrastructure projects which would in turn employ Chinese experts and raw materials over the years.
The BRI – an $8 trillion plan to create infrastructures linking Asia, Africa, and Europe - will run through 64 countries and establish direct link of China with more than 100 countries of the world.
Around 7,000 individual infrastructural development projects will support this unprecedented megaproject.
Many people fear that these Chinese funded projects will become spirals of long-term debt trap.
At the moment, Kenya is at risk of losing control of its main port – Mombasa, over defaulting repayment of loans to the Chinese financers.
In December 2017, Sri Lanka was forced to hand over the control of their newly built port of Hambantota to Chinese companies for recovering from Chinese debt.
Control of these ports gives China an economic and strategic upper hand in their race to becoming the new imperial power of the world.
We can argue debt is a trap because often debt goes to the people, communities, countries, and regions that find it hard to repay.
Debt has become a medium of socio-economic-political control and is vitally important for capitalism's expansion globally.
Before getting a loan we must all keep in mind what David Graeber in Debt: The First 5000 Years (2011) eloquently phrased, "One has to pay for one's debts."
Mohammad Tareq Hasan, an anthropologist and teaches at the University of Dhaka. This is second part of a two-part series on Money, Debt, and Human Society.