From His Book, Confessions of an Economic Hit Man, to Today’s Debt Diplomacy: Debt as a Weapon Dan J. Harkey

Summary

The thesis that won’t die In ‘Confessions of an Economic Hit Man’ (2004), John Perkins, a former economic consultant, claims he worked to sell developing countries oversized infrastructure loans that would enrich contractors, overstate growth, and leave borrowers dependent. This, he alleges, was part of a system that used debt to shape nations’ choices. The book became a bestseller and lightning rod, with many readers seeing it as an insider’s account of “corporate imperialism.” However, critics questioned gaps and corroboration, and several former colleagues disputed aspects of his story.

Overview:

Whether one treats Perkins as a whistleblower or a polemicist, the core idea—that debt can function as geopolitical leverage—has not lost its relevance. It simply has more channels now: IMF programs with social spending floors and structural benchmarks; bond markets that can shift from feast to famine overnight; and China’s Belt and Road Initiative (BRI), whose confidentiality clauses and collateral practices have transformed the legal architecture of sovereign lending.

Debt 101 in 2025: the world has changed—and so have the lenders

Low - and middle-income countries owe a record $8.8 trillion externally (as of end-2023), with $1.4 trillion paid in foreign debt service last year alone; interest costs reached a 20-year high. For the poorest economies, interest payments have quadrupled over the past decade, crowding out essential services such as health and education.

The creditor mix has shifted. In comparison to the 1990s, today’s borrowers rely more on private creditors and China, alongside multilateral institutions. This diversification brings options—but also opacity and coordination problems when things go wrong. World Bank debt statistics and IMF regional work indicate that China is now a major lender in Africa (and globally). At the same time, private bondholders hold a substantial—and complex—share.

IMF conditionality: from “structural adjustment” to social floors (and critics)

The ‘Washington Consensus era’, a period in the late 20th century, linked crisis lending to liberalization, privatization, and fiscal consolidation. For many borrowers, this meant recession, social unrest, and delayed recoveries. The IMF and World Bank institutionalized conditionality during this time to drive policy change, which critics argued privileged creditors and ideology over outcomes.

To its credit, the IMF has tried to reform. Guidance notes and policy papers since 2018 have called for social safeguards and social spending floors in programs, and a 2024 operational note instructs staff on integrating health, education, and safety net adequacy into program design. Still, civil society research alleges these floors are often non-binding or opaque, and that austerity bias persists. The Fund’s 2025 conditionality review faces pressure to prove programs no longer default to premature consolidation.

Bottom line: IMF programs are not the 1980s—but the debate over whether they effectively protect the vulnerable remains unresolved.

China’s BRI: from “debt trap” rhetoric to contract reality

The headline case for “debt‑trap diplomacy” is Sri Lanka’s Hambantota Port—leased for 99 years in 2017 after debt stress. It is often framed as Beijing’s deliberate gambit: lend considerable funds, trigger distress, and seize a strategic asset. But detailed research complicates that story. Chatham House and other scholars show that Sri Lanka proposed the project, domestic governance and fiscal choices drove distress (including non-Chinese debts), and the lease was not a debt-for-equity swap but a cash-raising concession; Sri Lanka retains sovereignty and naval control. None of that absolves risks, but it weakens the straightforward “trap” narrative.

The sharper critique comes from contracts, not headlines. AidData’s landmark review of 100 Chinese loan agreements reveals unusual confidentiality, lender-controlled revenue accounts, cross-default clauses, and “no Paris Club” clauses, among other features that elevate Chinese seniority and restrict borrowers’ options in times of crisis. These clauses can complicate coordination with different creditors, discourage transparent disclosure, and limit policy flexibility during the restructuring process. In short: not a cartoon trap—but a muscular, legally sophisticated lending model designed to get repaid first.

At the same time, macro studies show that Chinese development finance can boost short-term growth, and Beijing’s lending has evolved—fewer mega-projects, more selectivity following defaults and the COVID-19 pandemic. The effect is heterogeneous: helpful where projects are commercially sound; harmful where debt loads and governance are weak, highlighting the nuanced Impact of Chinese development finance.

Bottom line: the BRI is neither pure benevolence nor singular malice; it’s a lender with commercial leverage and political interests, operating in Borrower environments that vary widely.

Case study #1: Zambia—what restructuring looks like in the multipolar era

Zambia defaulted in November 2020, after years of heavy borrowing from multiple sources (Chinese policy banks, Eurobonds, and others). It became an early test of the G20 Common Framework, which aims to align the interests of China, Paris Club creditors, and private bondholders. It took more than three years of intense negotiation to secure an official bilateral deal co-chaired by China and France and to finalize restructuring with bondholders. This ordeal exposed transparency gaps and friction over the comparability of treatment.

By late 2024, Zambia’s IMF review assessed the debt as “sustainable” under the reworked terms, although risks remain; the deal includes both baseline and contingent treatments linked to performance, a novel attempt to share upside and reduce the likelihood of repeat crises. The drawn-out process, however, kept investment on ice and underscored how complex coordination has become in a world with diverse creditors and confidential contracts.

Lesson: The problem isn’t just who lends; it’s how to restructure when a mosaic of lenders with different paperwork, incentives, and domestic politics must agree, underscoring the complexity and challenges of the debt restructuring process.

Case study #2: Ghana—IMF anchors, domestic pain, and a path back

Ghana lost market access in late 2021 and launched a comprehensive restructuring in 2022, starting with a domestic debt exchange, followed by deals with official creditors under the Common Framework and an agreement‑in‑principle with Eurobond holders that implied ~37% nominal haircuts for some instruments. The IMF approved a $3 billion ECF in May 2023. By June 2024, the second review was completed, citing stronger-than-expected growth and rapid disinflation—while acknowledging the ongoing debt distress status pending full restructuring completion. Subsequent staff work in 2025 flagged continued progress and a tentative macro turnaround.

Lesson: An IMF anchor plus credible domestic measures can stabilize a crisis country—even with tough trade-offs for banks, pensions, and households—if external creditors move in tandem and social protections are factual, not rhetorical.

Where Perkins still fits—and where he doesn’t

Perkins’ central claim—that large, opaque loans can subordinate sovereignty—maps uncomfortably onto today’s realities: confidentiality, collateral accounts, and cross-default clauses are tools for leverage; debt overhang forces policy concessions. But the cast is broader than his 1970s universe. Multilaterals impose conditionality in crisis; private markets can raise spreads overnight; China uses contract design to secure priority. In practice, many countries are less trapped by one puppeteer and more by a systemic triangle: high global rates and commodity shocks, weak domestic fiscal capacity and governance, and lenders (both old and new) protecting their own balance sheets.

Moreover, the straightforward “debt trap” narrative collapses under scrutiny in key cases, such as Hambantota, where local political economy and non-Chinese liabilities were decisive. Yet it’s equally naïve to deny that contracts and debt structures can and do create leverage—and that leverage gets used.

The new playbook: how debt becomes power in 2025

· Contractual seniority & secrecy. Clauses that restrict disclosure, exclude Paris Club treatment, or pledge project cash flows to lender-controlled accounts give creditors a first claim in a crunch and reduce policy space.

· Program conditionality. Fiscal and structural benchmarks can open markets and improve efficiency—or compress social spending if floors are weak or non-binding. Outcomes depend on design and enforcement.

· Market veto power. Once spreads blow out, policy autonomy narrows; even credible reformers must buy time with IMF anchors or FX controls while they restructure their economy. Ghana’s path illustrates the sequence.

· Restructuring bottlenecks. Fragmented creditors mean slow deals; during the wait, investment stalls, foreign exchange evaporates, and social stress rises—as Zambia has learned.

What borrowers can do: a practical sovereignty toolkit

· Publish everything. Prohibit confidentiality clauses that hide loan amounts, terms, or even the existence of debt. Transparency raises borrowing costs only when terms are predatory—and it strengthens domestic accountability. The World Bank’s debt transparency push is not just box-ticking; it’s a bargaining tool.

· Standardize contracts. Insist on Paris Club comparability, fair‑arbitration venues, and limits on lender-controlled accounts. If Chinese or private lenders resist, price the risk—don’t pretend it’s free. Evidence shows Chinese contracts are negotiable but systematically designed to protect the lender first.

· Stress‑test projects. Borrow only for cash-flowing infrastructure with realistic demand forecasts; use independent reviews. Studies find that Chinese projects can boost near-term growth, but white elephants can blow up balance sheets regardless of who funds them.

· Build domestic buffers. Strengthen tax administration and medium-term fiscal frameworks to prevent downturns from triggering emergency borrowing. The cost of not doing so is evident in the World Bank’s grim debt-service arithmetic for poor countries.

· When a crisis hits, move fast. Secure an IMF staff-level agreement to catalyze concessional flows, while hard-wiring binding social floors and ensuring transparent reporting. Civil society critiques on floors are a feature, not a bug—use them to drive better program design.

· Coordinate creditors early. Pre-wire comparability principles with bilateral and private creditors; consider GDP-linked or commodity-contingent features to align risk sharing (Zambia’s “contingent treatment” is a start).

The narrative that matters

The “economic hit man” story is powerful because it names a felt reality: policy choices constrained by debt, with winners offshore and losers at home. But the modern version is not a trench-coated conspirator; it’s a spreadsheet: confidential term sheets, cross-default clauses, non-Paris‑Club language, austerity targets, DSAs, and bond prospectuses. The antidote is equally prosaic: transparent contracts, better project screening, competitive procurement, credible social protection, and restructuring frameworks that can actually deliver—fast.

If there is a single policy takeaway, it is this: sovereignty today is a function of contract design plus fiscal resilience. Countries that borrow transparently for projects that pay for themselves retain choices. Those that don’t—whatever the flag on the lender’s building—will find themselves negotiating under duress, with limited room to protect citizens from the consequences.

Dan J. Harkey

Master Educator | Business & Finance Consultant | Mentor

From His Book, Confessions of an Economic Hit Man, to Today’s Debt Diplomacy: Debt as a Weapon

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