From the sound of it, you might not be financially very literate, so, let me explain how loans work; say, you want to borrow $1, and your credit history is worse than poor, judging from your defaulting on previous debts, and have just gone through bankruptcy along with a debt clearing 7 step programme. With such background, you could not go to the open lending market for a loan at a decent rate, and instead you go to the
loan sharks with exuberant, if exploitative rates. Here, the risk of your repaying the loan is greater, therefore your rate of borrowing is proportionately greater. For example, if a nation with a good credit standing along with robust internal control systems could fetch a loan at, say 3%, the best rate for a struggling creditor would be in the 20% - 30% rate band.
To put this in context, of the $1 you wanted to borrow, 1/3rd would go towards surcharges whereas you would only get less than 2/3rds before the debt is even released (
0.67 cents of the dollar to be precise; this accounts for the rate of interest, servicing, and security the loan: these are standard rate charges, and are very conservative, for the rate is most likely greater, but shall suffice for this exercise).
Now, let us put this into perspective: in the case of .So, say, you want to borrow 1 billion US, from a loan shark,
the likes of IMF. You would only get 710 million with a monthly payment of 8.3 million over a 10 year period.
Bear in mind, .So is
NOT borrowing to invest in revenue generating projects, but to keep its head above water. Your own admission to pay salaries of soldiers, which you consider an investment worthy project.
Does it make financial sense to borrow? Now, before you answer, think about the hard numbers, and the next 10 years.
One more thing: ponder if a poor nation with no functioning institutions goes to an exploitative 3rd party to borrow, say Sri Lanka borrowing from China. Are you familiar with the case?
Whilst at it, read these articles as to how IMF operates. Pay close attention to the cases of Brazil, and Argentina.
Transcript of a CEPR event titled, βIMF Surcharges: A Necessary Tool or Counter-Productive Obstacle to a Just and Green Recovery?β
cepr.net