Illustration: Tang Tengfei/Global Times
A recent article published in the New York Times by Sri Lankan writer Indrajit Samarajiva touched on the root causes of the country’s economic collapse. Behind the unwarranted accusations of China by the United States and the West lies a serious problem for which the Western-dominated neoliberal system is responsible.
Sri Lanka’s economic and political implosion may be just the beginning. Recently, a number of developing countries have experienced economic difficulties and high debt risk. There are both current and historical reasons for this.
From a historical point of view, these countries are characterized by a relatively homogeneous economic structure and a high degree of external dependence. Accordingly, the problem of debt crises emerged in developing countries many years ago and has been criticized and rethought accordingly. From the 1970s and 1980s, developing countries increasingly paid attention to and called for the reform of the unequal and irrational international economic order. Many voices then emerged to criticize the exploitation of developing countries by the modern international economic system, especially by the entire laissez-faire market economy oriented global trading system under the neoliberal system.
However, a series of calls from developing countries at that time did not solve their problems, in particular the heavy external dependence of the financial system. Yang Xiyu, a senior researcher at the China Institute of International Studies, told the Global Times that these problems that have been accumulating for years have led to economic crisis or even collapse in low- and middle-income countries like China. Sri Lanka. It is also the inevitable result of the long-standing unequal position of these countries in the international exchange system.
The West’s neoliberalism is to get these developing countries to abandon the construction of their national economic system and rely heavily on the international market, said Bai Ming, deputy director of the international market research institute. at the Chinese Academy of International Trade and Economic Cooperation. . “But the international market is volatile. When the fluctuations are too strong and the prices of oil or raw materials are too high, the foreign exchange reserves of these countries are difficult to pay, which leads to imbalance and consequently to default. .”
The World Bank, International Monetary Fund and other international organizations often lend money to developing countries with the selfish intention of “exerting Western influence”, demanding that developing countries follow the Western model of reform and abandon government intervention in their economies. Furthermore, the economic model of many low- and middle-income countries is still one of exporting cheap labor and resources and importing expensive finished goods, placing them in a state of unequal exchange of exploitation.
As for the current situation, Sri Lanka represents a country with a fragile and homogeneous national economic structure, and has long been exploited by the Western world, with increasing external dependence. Under such circumstances, developed countries generally implemented quantitative easing policies after the outbreak of the COVID-19 pandemic, leading to an influx of liquidity, severe inflation and soaring prices. Faced with such problems, developed countries began to raise interest rates and implement austerity measures.
According to Yang, due to the dominant position of developed countries in the international monetary and financial system, their policies will lead the majority of developing countries to take corresponding measures. When the monetary policy of developed countries, especially the United States, swings from one extreme to another, the shock of such ups and downs will be a disaster for developing countries that are highly dependent on foreign countries and whose structure debt is fragile.
In the last century, there is a very popular theory among developing countries, namely the “center/margin” theory, according to which the flow of foreign direct investment to the developing country can lead to the control of the economy of the host country by multinational corporations. (MNEs), and this annexation by MNEs has made developing countries a marginal band of developed countries.
This inequality has not changed structurally, and none of the problems which, at the time, greatly annoyed developing countries have been resolved. Yang pointed out that the current problems in Sri Lanka are nothing but a repeat of history, a repeat of events like the Latin American debt crisis in the 1980s. And the root cause of the crisis – the neoliberal system – still persists in today’s world.
However, China’s economic cooperation in developing countries in recent years is fundamentally different from these countries’ economic dependence on the West. Yang argued that first, China’s own aid cooperation and construction has no political conditions. Instead, Western countries, which claim to prioritize the role of the free market, place special emphasis on the role of government in foreign economic cooperation and intervene politically.
Second, China’s cooperation with these developing countries follows both market forces and local socio-economic development needs. Compared to profit-oriented investment, China insists on inclusive development-oriented cooperation that seeks a balance between equity and efficiency, so that benefits can accrue to all people of all groups in all regions. With this concept, China will continue to act as a mediator and facilitator to promote the role of multilateral organizations to jointly find solutions to the debt problems of developing countries.