What The Pandemic Teaches Us About Debt

Colombia is a prime example of how overspending and indebtedness leave little room for error, and why it's important to take a new approach moving forward.

A vendor sits in a store awaiting customers in Bogota, Colombia.
A vendor sits in a store awaiting customers in Bogota, Colombia.
Miguel Villa Uribe


BOGOTÁ — Since the pandemic began, the subject we keep hearing about is the harm it is doing to the economy. Markets have ground to halt, unemployment is spiraling out of control, businesses are closing down and oil — that engine of the world economy for the past 100 years — has dropped in value to below $30 a barrel. It is something between the grotesque and fictional: It means producers are paying customers to take their oil, as they have nowhere to keep it since consumption is limited. How can the economy's interruption for a few months have such a great impact?

The essential problem is the amount of worldwide debt, both public and private. Data from the International Monetary Fund (IMF) put total planetary debt at around $190 trillion. The World Bank separately puts the world's GDP at around $80 trillion a year. Which means we are all in deep debt, and the health care crisis is further complicating our situation. We are not just having to deal with what we owe, but must wait until we are earning money again first to survive, then finance our lifestyles.

The same applies to countries: The worst-hit are developing states because their indebtedness is to supplement basic needs through infrastructures that would allow them to emerge from backward conditions. Even a short halt to the economy has a great impact, as states cannot even meet the basic needs that generated their debts.

We are all in deep debt, and the health care crisis is further complicating our situation.

The big economies, as we have seen, have already injected around $8 trillion to stabilize their markets following the crisis. Countries like the United States are strongly indebted (about $22.7 trillion right now) and will now incur another $4 trillion, but in the long term, they owe this money to themselves. That makes it easier for them, unlike emerging economies that owe their debts to the big economies. In simple terms, Colombia, for example, borrows to put a roof and drainage on its house while the United States borrows to remodel its guest house and change the mosaics in its pool. Their budgets are substantially different.


People sleeping on benches in Bogota, Colombia, as the rest of the country remains under quarantine— Photo: Antonio Galante/VW/ZUMA

Another aspect of the crisis widely affecting economies like ours, in a mainly oil-exporting country, is indebtedness itself. You might imagine oil producers have no debts. In fact, the opposite is true. They incur large debts in order to boost exploration, production or refining capacities, and borrow in principle on the back of stable production forecasts. So if oil becomes worthless for a while (like now), the country loses its principal revenue, though evidently not its debts.

Ecopetrol, for example, owes $1.6 billion, which is itself a destabilizing threat to our economy. In these conditions, oil producing countries recently gathered to see how they could cut production in order to stabilize the price of every barrel of crude. Their efforts have proved futile so far, as there has been a production cut of six million barrels from a total daily production of 80 million barrels. Overproduction is the source of the price collapse we see, but there are two reasons for it. One is the excess debts of oil producers and firms. The second is closing and then reopening the taps is extremely costly, which means producers prefer to keep the oil flowing.

We borrow money to maintain lifestyles that cannot withstand situations of turmoil.

The same applies to any individual who owes money for rent, a car, phone services or credit cards. Obviously, if these are your debts you will have few or no savings, so if you were to lose your job now, you may find yourself out of your flat by the end of June, with the bank looking to repossess your car, no working phone service and an irreparably damaged credit reputation. If we still had the consumption habits of our grandparents, we would be spending our savings now on food and possibly rent. Our spending habits have complicated the problem of debt.

I am a firm believer in capitalism, but it seems to have laid us a trap here. We borrow money to maintain lifestyles that cannot withstand situations of turmoil. We need to be producing all the time just to keep afloat. We must start becoming more intelligent with our spending, as that constitutes freedom rooted in stability. Expect to find your back to the wall when you spend money carelessly. The economy will probably resume its course eventually, but I sense this crisis will change our consumer habits for the better.

For the coming weeks, Worldcrunch will be delivering daily updates on the coronavirus pandemic from the best, most trusted international news sources — regardless of language or geography. To receive the daily Coronavirus global brief in your inbox, sign up here.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!

Erdogan And Boris Johnson: A New Global Power Duo?

As Turkey fears the EU closing ranks over defense, Turkish President Erdogan is looking to Boris Johnson as a post-Brexit ally, especially as Angela Merkel steps aside. This could undermine the deal where Ankara limits refugee entry into Europe, and other dossiers too.

Johnson and Erdogan in NYC on Sept. 20

Carolina Drüten and Gregor Schwung


BERLIN — According to the Elysée Palace, the French presidency "can't understand" why Turkey would overreact, since the defense pact that France recently signed in Paris with Greece is not aimed at Ankara. The agreement covers billions of euros' worth of military equipment, and the two countries have committed to come to each other's aid if they are attacked.

Although Paris denies this, it is difficult to see the agreement as anything other than a message, perhaps even a provocation, targeted at Turkey.

Officially, the Turkish government is unruffled, saying the pact doesn't represent a military threat. But the symbolism is clear: with the U.S., UK and Australia recently announcing the Aukus security pact, Ankara fears the EU may be closing ranks when it comes to all military issues.

What will Aukus mean for NATO?

Turkey has long felt left out in the cold, at odds with the European Union over a number of issues. Yet now President Recep Tayyip Erdogan is setting his sights on another country, which also wants to become more independent from Europe: the UK.

Europe's approach to security and defense is changing dramatically. Over the past few months, while the U.S. was negotiating the Aukus pact with Britain and Australia behind the EU's back, a submarine deal between Australia and France, which would have been worth billions, was scrapped.

The EU is happy to keep Erdogan waiting

Officially, Turkey is keeping its cards close to its chest. Addressing foreign journalists in Istanbul, Erdogan's chief advisor Ibrahim Kalin said the country was not involved in Aukus, but they hope it doesn't have a negative impact on NATO. However, the agreement will have a significant effect on Turkey.

"Before Aukus, the Turks thought that the U.S. would prevent the EU from adopting a defense policy that was independent of NATO," says Sinan Ülgen, an expert on Turkey at the Brussels think tank Carnegie Europe. "Now they are afraid that Washington may make concessions for France, which could change things."

Macron sees post-Merkel power vacuum

Turkey's concerns may well prove to be justified. Outgoing German Chancellor Angela Merkel always argued for closer collaboration with Turkey, partly because it is an important trading partner and partly because it has a direct influence on the influx of migrants from Asia and the Middle East to Europe.

Merkel consistently thwarted France's plans for a stricter approach from Brussels towards Turkey, and she never supported Emmanuel Macron's ideas about greater strategic autonomy for countries within the EU.

But now she that she's leaving office, Macron is keen to make the most of the power vacuum Merkel will leave behind. The prospect of France's growing influence is "not especially good news for Turkey," says Ian Lesser, vice president of the think tank German Marshall Fund.

Ankara fears the defense pact between France and Greece could be a sign of what is to come. According to a statement from the Turkish Foreign Ministry, the agreement is aimed "at NATO member Turkey" and is damaging to the alliance. Observers also assume the agreement means that France is supporting Greece's claims to certain territories in the Mediterranean which remain disputed under international law, with Turkey's own sovereignty claims.

Paris is a close ally of Athens. In the summer of 2020, Greece and Turkey were poised on the threshold of a military conflict in the eastern Mediterranean. Since then, Athens has ordered 24 Rafale fighter jets from France, and the new pact includes a deal for France to supply them with three frigates.

Photo of French President Emmanuel Macron and Greek Prime Minister Kyriakos Mitsotakis on September 27 in Paris

French President Emmanuel Macron and Greek Prime Minister Kyriakos Mitsotakis on September 27 in Paris

Sadak Souici/Le Pictorium Agency/ZUMA

Erdogan’s EU wish list

It's not the first time that Ankara has felt snubbed by the EU. Since Donald Trump left the White House, Turkey has been making a considerable effort to improve relations with Brussels. "The situation in the eastern Mediterranean is peaceful and the migrant problem is under control," says Kalin. Now it is "high time" that Europe does something for Turkey.

Erdogan's wish list is extensive: making it easier for Turks to get EU visas, renegotiating the refugee deal, making more funds available to Turkey as it continues the process of joining the EU, and moderniszing the customs union. But there is no movement on any of these issues in Brussels. They're happy to keep Erdogan waiting.

Britain consistently supported Turkey's ambition to join the EU

Now he is starting to look elsewhere. At the UN summit in September, Erdogan had a meeting with British Prime Minister Boris Johnson at the recently opened Turkish House in New York. Kalin says it was a "very good meeting" and that the two countries are "closely allied strategic partners." He says they plan to work together more closely on trade, but with a particular focus on defense.

 Turkey's second largest export market

The groundwork for collaboration was already in place. Britain consistently supported Turkey's ambition to join the EU, and gave an ultimate proof of friendship after the failed coup in 2016. Unlike other European capitals, London reacted quickly, calling the coup an "attack on Turkish democracy," and its government has generally held back in its criticism of Turkey.

At the end of last year, Johnson and Erdogan signed a new free trade agreement, which will govern commerce between the two countries post-Brexit. Erdogan has called it "the most important treaty for Turkey since the customs agreement with the EU in 1995."

After Germany, Britain is Turkey's second largest export market. "Turkey now has the opportunity to build a new partnership with the United Kingdom and it must make the most of it," says economist Ali Kücükcolak from the Istanbul Commerce University.

Erdogan is well aware of this, as Turkey is in desperate need of an economic boost. Inflation currently stands at 19%, and the currency's value is consistently falling. Turks are feeling the impact on their daily lives: food and rent are becoming increasingly expensive, while salaries remain unchanged.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!