@Nilgiri From whom does india usually borrow from? For its infra projects?also, do they require some sort of collateral?
India often borrows internally/domestically in first place. Either a private company takes a loan from a bank....or govt issues bonds on the domestic side of bond market etc....depending on if its private or public oriented project (or combination like PPP) etc....or non-infra to begin with too. How much collateral again depends, credit ratings for banks, companies, govts etc etc and any source/extractor of liquidity really has their collateral baked in if they are large enough. If they are medium or small etc, the availability of the scale is thus automatically restricted (till they prove themselves in some way by quantity or quality of footprint/experience/history etc). The market standards are quite omnipresent globally in this regard.
When we are talking about foreign debt (topic of this thread), situation is like this:
https://dea.gov.in/sites/default/files/External Debt (English)_0.pdf
As you can see (pages 2 - 13, but esp pg 7 is quite relevant), there is both major institutional (18% of debt source) and non-institutional (82% of debt source) lending going to both Indian govt (about 20% of the stockpile and flow) and non (direct) govt sector (80% of stockpile and flow).
The latter is further broken up into:
a) Direct private sector (say an Indian privately owned company taking loan from foreign entity)
b) Finance sector (basically Indian banking + stockmarket...which will route this down into larger Indian economy, either through a further credit flow, investment etc)
c) Public sector (govt owned company doing the same as (a) )
How these split up in amounts is something you can see on that table on page 8.
It is interesting to note that NRI deposits (incl yours truly hehe) make up a large portion of the lending to the Indian financial sector. Short term debts mostly finance the trade India engages in. There is an interesting analysis on the ECB trends that follow that.
Regarding, chinese debt traps, it seems most of the projects were poorly researched, so after construction,they generated scanty revenues so they couldn't make payments, thus they were "sold off", right? isn't that the standard practice when the borrower 'defaults'?
This is indeed what happens. This is the loansharking I am referencing. This is basically an "externality" process outside the market forces to large degree imo. Ms. Lagarde seems to be coming to a similar conclusion:
https://www.google.ca/search?q=IMF’...bt&aqs=chrome..69i57&sourceid=chrome&ie=UTF-8
https://www.ft.com/content/8e6d98e2-3ded-11e8-b7e0-52972418fec4
As you can see in the map:
BD is not specifically exposed to the potential BRI debt bubble, but the specific BD stuff (originating from Chinese loan buffet) will need a specific analysis I would say....and that is where I was referring to the most recent release on the ramp shown in the WB debt stats combined with no real improvement in BD finance/banking sector reform (which would reflect imo first in a credit rating improvement well before say a bond market/market cap expansion). The chicken is very clearly before the egg in that particular instance for EMs from what I have studied....so BD govt should take heed....and do the hard stuff (reform) than substitute easily and piecemeal with the easy "free" stuff.....because its not good for the long term.
@Anubis @Zabaniyah @Gibbs
That being said, some aspects of chinese soft loans does seem a little 'shady' (like every thing, materials to workers has to be from china, no fair bidding process, etc) but i guess they need to get something out of the deals in the short term.
Yup the "externality" part of it. How it gets done in a pure market process is quite different, given all the risks/rewards are baked into what is offered for say a major visible project. When market is under cut, the slack comes from somewhere obviously....both in short term (specific employment arrangements, biddings etc) and long term (potential loansharking).
How does these practices compare to other lending institutions like WB,ADB,IMF? AFAIK, they too also impose strict terms on the borrowers(though they claim its for the greater good of the project)
WB is largely the most credible "market driven" global liquidity bank (I can still fill up pages of why they aren't...but they are least bad option overall to me), IMF is 2nd best (but have to seriously watch out, they can be quite treacherous). ADB and other regional ones are variable, more by what they have physically on offer rather than intent.
But they all have a heritage and go by certain standards and procedures that follow the earlier bretton woods system which Keynes and his team influenced and helped to set up.
This is in quite contrast to the current new player (China) (and earlier entities like Soviet lending, Gulf oil lending and cpl others to different degrees) that dont care about the market fundamentals too much, given they simply feel loansharking/physical forced buyback can be sustainable too if it comes to that. Basically they are playing more high stakes in the less conventional spots of the globe. Some countries simply want to lap up the liquidity (they otherwise would not get, they not even allowed into the buffet room largely) but they are not good at handling it (esp when they don't have the proper institutions or even hard power to counter-bargain with) is the problem brewing up now.
@Joe Shearer
. Now imagine the same since 2015. And I'm not trying to show him as if you are losing it, because you are, no need of another guy to point it out. You don't confront him with facts. And you can't agree with what he brings up.
This is a cyclic process.
