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Address the debt crisis

Soaring debt is now taking its toll. World leader who are supposed to meet in London have a one-point agenda and that is how to tackle the issue of bankruptcy that is knocking on their doors.

Debt servicing and footing the bill in development and non-developmental expenditures are what bothers all and sundry, and even the prosperous Western countries are not immune to it. But the biggest problem facing the world leadership, especially that of the industrialised G-7 countries, is that of striking a balance between spending, widely known as stimulus deal, and practising austerity. The West and the donors are sharply divided over it. At the same time, there is a renewed rethinking to evaluate whether the tailor-made prescriptions of austerity and bailouts are working for the ailing economies or not. Finance ministers of the G-20 who met in Washington over the weekend were groping in the dark, struggling to rein in debt levels in order to ward off the dangers of crippling recession.

The focus of the debate, however, is what amounts of bailouts are sanctioned, and what should be the benchmark for negotiating a deal. The experiment of funnelling in cash in European economies, especially for Italy, Greece, Cyprus and the Irish Republic, has proved that liquidity is not the answer to problems faced by recession-hit countries. The fact that they lack institutional decorum to meet eventualities — irrespective of the fact that they boast one of the most democratic and accountable organisations — is an enigma. That is why the European Central Bank now advocates a period of reduced spending and cautious borrowing to calm markets and control debt levels. To what extent this new thinking can be accommodated by the corporate and government executive is difficult to guess.

The point is that the donors, especially the World Bank and the International Monetary Fund, are not on board when the ailing economies post their concerns. These mighty lenders harass such economies to impose stringent cuts and taxes. It may be pointed that it has been widely debated during the Asian and African financial crises that until and unless big powers and the lenders agreed to writeoff much of the debt of non-performing economies and agreed on a comprehensive package to give them a new kick-start, the world economy will remain under the shadows. Bilateral write-offs, however, have hardly made an impact. World leaders meeting in June shouldn’t waste much time on pleasantries and photo-ops, but and get down to rewrite a new deal.