Debt Trap 2.0 and The End of Fukuyama

publicerad 6 september 2023
Francis Fukuyama and Mike Bennon
Francis Fukuyama and Mike Bennon.

ANALYSIS. Francis Fukuyama, who famously proclaimed (and last year retracted) the End of History in 1989, has now brought his omniscient insight to the international debt arena, with the article, “China’s Road to Ruin: The Real Toll of China’s Belt and Road,” published in the new issue of Foreign Affairs, the magazine of the Council on Foreign Relations (CFR).

By Michael Billington, Asia desk editor of Executive Intelligence Review magazine (Washington D.C.) and Hussein Askary, Vice-Chairman of the Belt and Road Institute in Sweden | This article was previously published on

The piece China’s Road to Ruin co-written with Michael Bennon, manager of the Global Infrastructure Policy Research Initiative at the Center on Democracy, Development, and the Rule of Law, would appear to be the Western establishment’s answer to the explosive growth and influence of the BRICS (Brazil, Russia, India, China, and South Africa), and its development outlook.

The desperation of the collapsing Western financial system shows in the fact that almost every “insight” that the authors profess to have, has already been debunked by someone else during the past several years. Their “conclusions” seem to be new … but are not original.

Our own research and series of articles on the “debt trap” and its fallacies in cases like Sri Lanka and Zambia are among the most widely circulating and factually accurate refutations of this narrative. We have also explained the origins of this narrative, going back to an operation “commissioned” by the U.S. State Department in 2018.

However, there is a new game or narrative in town now, as we will explain.

Although Fukuyama and Bennon acknowledge the inaccuracy of the “debt trap” meme, employed over the recent years, the two nonetheless insist that, in fact, Xi Jinping’s Belt and Road Initiative (BRI) has done nothing but spread debt around the developing world.

Their insight is that the debt is actually “hidden debt”—not reported on the balance sheets that countries are required to reveal to the IMF during restructuring (“debt relief”) negotiations—but written in some unknown way into each and every BRI contract.

This unseen—yet obvious to them—deception has put the IMF at a disadvantage, they argue, and the IMF needs to “reform” itself to compensate for this obvious advantage of the sneaky Chinese.

To drive home their point to wary banksters, they assert that this has allowed Western money to go to China:

“Under some recent IMF programs, borrowers have continued to service BRI debts through their state-owned enterprises while receiving sovereign debt relief [Western bailout cash] at the national level.”

Our own research shows that this argument, which is not original to Fukuyama and Bennon, originates from the U.S. Treasury Department, in a new version of what we have called “Debt Trap 2.0”, and was applied in collusion with the International Monetary Fund in Sri Lanka and Zambia.

This new narrative is related to the financial crises of many countries (which have many other causes but not China or the BRI) and the alleged effort by Western powers to carry out “debt relief”. Our conclusions can be summed as follows:

Facts and falsehoods

There are, first of all, several fallacies in these statements:

  1. Magnifying the Chinese role is absurd, since Sri Lanka’s debt obligations to China are a mere 10% of the total external debt of the country, as we revealed in a groundbreaking report on the Sri Lankan debt crisis in June 2022, while Western private bonds holders such as American investment fund BlackRock and British Ashmore hold 47%, Japan-based Asian Development Bank 13%, Japan 10%, the World Bank (9%), and the Paris Club and other multilateral and bilateral lenders, including India, hold 12% of the external debt of Sri Lanka. So, 90% of Sri Lanka’s debt belongs to Western or pro-western institutions but the emphasis is made on China’s 10%, which reveals the absurdity of the allegations.
  2. The Chinese Export-Import Bank has reportedly announced that it will issue a debt moratorium for Sri Lank for two years, meaning that the Sri Lankan government will not have to pay either the principal or interests for the years 2022 and 2023 of the US$ 3,8 billion owed to the EX-IM Bank by Sri Lanka. The EX-IM bank is the single largest Chinese lender to Sri Lanka for infrastructure projects. The Ex-Im Bank did the same in the case of Montenegro in 2021.
  3. One of the real elephants in the room is what to do with the short-term, high-interest loans of the Western private creditors. China’s debt is long-term, low interest, and is directed at improving the real economy of Sri Lanka.

Real story 1: bail out Western bondholders!

The IMF’s “staff level agreement”, regarding Sri Lanka, referenced by U.S. Undersecretary of State Victoria Nuland during her visit to the country earlier this year, was very clear in stressing that the country must make a settlement of its debt to international private sovereign bondholders before the IMF extends any assistance to the country.

“Financing assurances to restore debt sustainability from Sri Lanka’s official creditors and making a good faith effort to reach a collaborative agreement with private creditors are crucial before the IMF can provide financial support to Sri Lanka,” said the IMF Staff report after visiting Sri Lanka last September.

As in the case of U.S. Treasury Secretary Janet Yellen’s demanding that China bail out Zambia’s creditors, Victoria Nuland faced the same response from China regarding Sri Lanka, that China has its own bilateral mechanisms for debt relief with such countries in distress.

Yellen, before leaving Davos, Switzerland, for Africa made a statement whose credibility was very doubtful, saying that Chinese Vice-Premier Liu He, assured her during their talks in Davos of China’s support to the U.S. efforts.

But the Chinese embassy in Lusaka, the Capital of Zambia, issued a very sharp statement the day Yellen arrived, debunking these statements and scolding the U.S. for contributing to the financial and debt crisis in the world through its inflationary policies and raising interest rates.

The embassy’s statement basically stated that the U.S. should worry about its own debt crisis, which has raised U.S. debt to 31 trillion dollars, making it a disadvantageous position to dictate how other nations should solve their own problems.

China, the statement stressed, is contributing to debt relief and restructuring bilaterally and through well-known processes, such as Zambia’s Official Creditor’s Committee under the G20 Common Framework.

Real story 2: Keep China out!

It has become clear in the case of Zambia that the second goal of the U.S. drive-in collusion with the U.S. and Western-controlled IMF is to undermine China’s development cooperation with African and other developing nations under the umbrella of the Belt and Road Initiative (BRI).

The most important result of the agreement between the IMF and Zambia’s government to get a zero-interest loan of $1.3 billion with a grace period of five-and-a-half years, and a final maturity of 10 years, was indicated in the reports of the IMF staff.

To receive the financial support Zambia had to accept specific conditionalities to reduce government spending, but most emphatically to stop borrowing for infrastructure projects.

The IMF staff report in September 2022 stated clearly:

“Zambia is dealing with large fiscal and external imbalances resulting from years of economic mismanagement, especially an overly ambitious public investment drive that did not yield any significant boost to growth or revenues.”

It asserts that “rapid debt accumulation on the backdrop of deteriorating economic fundamentals has led to unsustainable debt levels and subsequent accumulation of arrears. Debt contracted has mainly been for infrastructure projects in sectors such as roads, education, health and defence.”

This is outright sophistry since the most poisonous part of the debt was accumulated through borrowing in the global bond markets from mainly British and American sources.

China’s credits were long-term and focused on improving the physical economy and productivity of Zambia.

The other elephant in the room, as we reported in a previous article on Zambia, is that almost all the natural wealth of the country, mainly copper and cobalt, is controlled, produced, and shipped abroad by British companies that have given next to nothing back to the Zambian economy.

This point is never taken up in the international discussion about the financial and economic woes of countries like Zambia.

Fukuyama not original

When Fukuyama and Bennon come to the question of Zambia, they are borrowing these arguments of U.S. and IMF officials, playing the role of the advocate of the U.S. government and Western financial interests, not being objective original researchers.

It was in Zambia, which the authors call the most recent case of “debt reform,” that was the first case in which China notably prevailed over the “Paris Club” of Western debt stakeholders.

Fukuyama and Bennon insist that it was China’s nefarious intent to use the “hidden” language of debt contracts to give itself the upper hand during the supposedly inevitable bankruptcy negotiations.

After spending pages trying to prove a non-existent problem, then adding a mere two paragraphs on “options” available for the West to pursue, they suggest “forming an anti-China ‘debt club.’”

The IMF would tighten the “rules” for loan qualifications, and they would “require borrowers to identify” all hidden obligations before any restructuring takes place. “Let them eat their BRI contracts,” they said, seriously.

Most likely, however, this latest “end of history” pronouncement will be swept away even more quickly than the first, as the “BRICS spirit” of global development sweeps such relics into the “historical” dustbin—the “end of Fukuyama”!

General notes on typical ”BRI deb trap” fallacies

There are three main fallacies in the ‘debt-trap’ narrative when examined closely:

First, in terms of the cause of the debt, countries in debt distress today were often in a debt trap before the BRI came on the scene. The reasons are the economic and financial crises caused by natural disasters, terrorism, wars or civil wars, and pandemics, and massive exploitation by former colonial and neo-colonial powers.

Then comes the mismanagement of the finances of these countries often in cooperation with the International Monetary Fund and the World Bank, with conditionalities, such as austerity, reducing public investment, and privatization of state assets and utilities.

Second, in terms of debt ownership, BRIX’s research showed that 80 per cent of Sri Lanka’s, 70 per cent of Pakistan’s, and 77 per cent of Zambia’s external debt is owned by Western private and public institutions, while China’s share in 2022 was 10 per cent, 15 per cent, and 17 per cent, respectively for the three countries.

Furthermore, both Sri Lanka and Zambia defaulted upon payments of “sovereign bonds” owned by Western private corporations, not upon Chinese loans.

Third, in terms of the nature of the debt, while Western loans are often short-term with high-interest rates and lead to unsustainable cycles of indebtedness, China’s loans to developing countries are long-term and low-interest credits contributing to improved infrastructure, which in turn lead to increased productivity and economic growth, thus to greater wealth and income for these countries, enabling them to service their debt comfortably.

Therefore, there is a ‘qualitative’ difference between Chinese and Western loans. Chinese loans should be considered a ‘debt-relief’ not a ‘debt-trap’,”

By Michael Billington, Asia desk editor of Executive Intelligence Review magazine (Washington D.C.) and Hussein Askary, Vice-Chairman of the Belt and Road Institute in Sweden

Du kan stötta Newsvoice via MediaLinq