Debt-trap diplomacy refers to a situation in which a powerful lending country or organization tries to impose debt on a weaker one in order to exert more influence over it. Indian researcher Brahma Chellaney first coined the term “debt trap diplomacy” in early 2017.
Excessive credit by the creditor country is supposed to be used to extort economic or political concessions from the debtor country when the debtor country is unable to meet its repayment obligations, according to the notion of debt-trap diplomacy. The terms and circumstances of the loans are typically not made public, and are often tailored to the lender’s advantage. Contractors and materials sourced in the creditor countries are often paid with borrowed money. The International Monetary Fund (IMF) and the People’s Republic of China (PRC) have both been referred to be “neoliberal” entities (PRC). Chatham House and academic Deborah Bräutigam have questioned this claim against the Chinese government and its state-owned lending banks. Beginning with the Trump administration, the United States government has used the term “debt trap diplomacy” in official papers. In the 2020 report “The Elements of the China Challenge,” the United States Department of State mentions it several times.
What is debt trap explain with an example?
If the borrower is unable to pay back a previous loan, this is the circumstance. It’s known as a “Debt Trap.” If Ram can’t pay off his son’s school fees because he borrowed the money, he would take out another loan to cover the difference.
What is China’s debt trap diplomacy?
Development and lower-income countries have a lack of infrastructure investment, which has been progressively occupied by China.
What is the main reason of debt trap?
It is a circumstance in which the quantity of debt that you owe becomes uncontrollable. When you spend more than you make, you find yourself in this scenario. However, life does get in the way. Unforeseen circumstances, a decision to continue your education, or a lack of foresight can cause you to accrue debt that will be difficult to repay.
What do you know about debt trap?
However, what exactly is a “debt trap”? A debt trap is a situation in which a person is unable to get out of debt because they owe a lot of money to multiple institutions or people. The decision to take out a loan in order to gain financial advantage is a good one. Debt traps are something we never want to find ourselves in. There is nothing more appealing than financial freedom to those who are trapped in debt. There are a few ways to get out of this situation completely.
What is debt trap Upsc?
China has been using the financial tool of debt to build influence around the world and gain significant authority in India’s neighboring countries, increasing the country’s exposure to political and security challenges.
This is a circumstance in which a borrower is unable to keep up with their loan repayments and is forced into a loop of re-borrowing, or rolling over, their debt payments. High interest rates and short durations are the most common triggers for these snares.
With a nefarious motive, debt-trap diplomacy is used in bilateral ties between countries. Debt traps are induced purposely by the creditor country, which gives excessive credit to a debtor country.
- China gives billions of dollars in concessional loans to developing countries, mainly for large-scale infrastructure projects, in a bid to acquire quick political and economic ascendency around the globe.
- When low- and middle-income countries are struggling to keep up with repayments, Beijing has a chance to seek concessions or advantages in exchange for debt relief from these countries.
Debt relief from China requires a number of concessions or advantages.
- For 99 years, China has been in charge of the Hambantota port project in Sri Lanka because of the country’s large debt. China gained a strategic foothold along a vital commercial and military waterway by gaining control of a crucial port on the doorstep of its regional competitor, India.
- China built its first military facility in Djibouti in exchange for humanitarian aid. Angola, on the other hand, is using crude oil to pay off a multibillion-dollar debt to China, which is causing serious economic challenges for the country. Preliminary examinations for the UPSC (IAS) Debt trap diplomacy by China
What is debt trap in public finance?
In a debt trap, you are forced to take out new loans to pay off the debt you already owe. When you have more debt than you can afford to repay, you’re likely to find yourself in this scenario.
What is debt trap Brainly?
A debt trap occurs when a borrower is unable to keep up with the repayments on a loan’s principal because he or she is unable to afford the repayments on the interest. Short-term interest rates and high interest rates are the most common causes of these traps.
How do a country get rid of debt trap?
Getting re-elected after accomplishing our goals is a problem that we all share.
• Jean-Claude Juncker, Luxembourg’s prime minister and Eurogroup president
Governments have tried hundreds of different strategies to avoid falling into the Debt Trap throughout history. Argentina has done everything it could think of to get out, and I believe it has been the most inventive (and least effective) country to do so. No matter what it tries, the Argentine administration can only bring more misery and suffering to the country. It’s possible for a country to escape from the Debt Trap by allowing its economy to develop out of debt or by defaulting on its debts or by printing money to pay for them.
Will Sri Lanka default?
It has been decided that the deficit objective for 2021 will be 11.1 percent. In a briefing, Rajapaksa said, “Sri Lanka has never defaulted in its history, and that record will be maintained.”
What is debt trap Why is it more extensive in rural areas give reasons?
A debt-trap is a circumstance in which a borrower is unable to repay a loan after taking one out.
I A borrower pays back a loan by selling agricultural products, but this is not always enough to cover the loan’s principal and interest.
A high rate of interest is the norm for rural borrowers who rely on informal lenders. In some cases, the amount of money they owe may exceed their monthly income.
Since loans from banks always contribute to increase people’s earning potential, it can be concluded.
What is debt trap How do the small farmers fall into it?
Loans from money lenders or cooperative banks can be obtained by small farmers in order to increase their yields. Farmers will not be able to make a profit if their crops are destroyed by natural disasters or poor rainfall. Consequently, they were unable to make the repayments on their loan.
