COMMENT | Debt is not necessarily bad. If deployed in the right way, debt can indeed enhance the human capital; not unlike how a responsible government invests in a good education system to produce more talent.

Not surprisingly, some of the most advanced countries, such as Singapore and Japan, do take on quite a bit of debt often exceeding the size of their gross domestic product (GDP).

To be sure, while not every Singapore dollar or Japanese yen is invested by both of them in their schooling systems, suggesting potential waste too, their spending habits have generally been accountable, which in turn makes for lesser abuse. In politics, almost no institution is perfect.

Rather it is perfectly imperfect. A lot depends on checks and balances, without which nothing of importance can be produced.

This is why former prime minister Najib Abdul Razak was wrong to argue, invariably by analogy, that since other advanced countries were highly leveraged on national debt, there was nothing wrong if and when Malaysia did the same.

Najib's argument did not take massive fraud into consideration, which makes his defence flawed almost from the beginning.

But beyond the issue of fraud, the huge national debt incurred is a liability that has a generational effect if Malaysia does not turn the economy around or create a business model to stay ahead of the global game.

In this sense, it is not enough that Malaysia tries to overcome its national debt. Rather, Malaysia has to urge all countries that are exposed to humongous debts to look at the sustainability and structure of their own debts too.

The basic premise of globalisation is that the affairs of other countries can - and do - cascade to affect all.

Research by McKinsey Global Institute has shown that global debts have increased from US$142 trillion in 2007 to US$199 trillion in 2014.

In less than a decade (2007-2014), the thirst to borrow has almost increased by US$57 trillion alone. Do they know how to build the right business/economic models to sustain these debts? No one knows for a fact.

What McKinsey Global Institute found out was this: government debt has grown faster than the global economic growth, which means it is global debt that is driving economic growth rather than productivity gains. This is how the world spins into a global recession time and again when good money is thrown after bad.

Indeed, now that the world is in mid-2018 and global debts have crossed the threshold of US$200 trillion, of which the national debt of Malaysia alone occupies nearly 0.15 percent of this debt pile, it goes without saying that Malaysia is vulnerable to any perturbations in the international financial and world trading system. Especially when the US and China are engaged in a tit-for-tat trade war.

If the law of averages applies, some 200 member states of the UN now owe close to US$1 trillion apiece. Some debts weigh down on a country like a millstone when the economic juggernauts begin to fight.

The economies of the European Union, while growing, are doing so at less than two percent on average, making the 27 member states of the European Union equally vulnerable.

A financial abyss

In the case of Malaysia, an austerity drive and rationalisation process, which the likes of the International Monetary Fund (IMF) and the World Bank like to perform anyway, mark the beginning of an economic therapy without which Malaysia is looking down a financial abyss.

Sri Lanka has shown that it cannot even afford to repay the US$7 billion which it took from China that led to the 99-year lease of the Port Hambantota to Beijing. Elsewhere in the Maldives, the inability to repay their Chinese debts, too, is mounting.

While China has promised not to militarise any part of the port, 99 years is a long time for any country to keep a promise without any wavering. Debt incurred can, therefore, change the geopolitical balance to make everyone feel a bit more delicate in the world - just as Malaysia and China are caught in a web of debt diplomacy which we must disentangle from.

As things are, Malaysia is not in any immediate problem as yet. Malaysia has close to US$110 billion in foreign reserves at hand, which according to Chandra Muzaffar, a seasoned political scientist, is enough to last 7.7 months of retained exports.

At close to half of what we owe, not counting the numerous land banks and exclusive maritime economic areas that Malaysia is entitled to, it goes without saying that Malaysia is capable of handling the national debt.

But as Prime Minister Dr Mahathir Mohammad recently said, "selling land" is not a good idea since the whole process will lead to Malaysian land becoming the colony of another country. But it isn't enough to handle the debt by retiring some of them with cheaper Japanese foreign loans.

Malaysia has to take the lead to create an international conversation on the pluses and minuses of growing national debts. Globalisation can only be meaningful if all countries don't kick the proverbial can down the road.

When the Council of Eminent Persons expires after the 100-day reform, they should be talking to the UN, the International Monetary Fund, the World Bank, Asean and indeed the Organization of Economic Cooperation and Development (OECD) and the East Asian Summit too on how to stop the global debt explosion.

As things are, the European Central Bank (ECB) has decided to reduce its bonds buyouts for the first time since 2014. Thus, incipient efforts to reduce debts have begun in slow but tentative steps in Europe.

In the US, the reduction of debt has been seen through the option of reducing the size of the large trade deficit with China, which has led to an imposition of a 25 percent tariff on US$50 billion worth of goods. China will retaliate with the same scale and intensity.

When the new foreign minister of Malaysia comes to be, she or he has to understand the global debt explosion in connection with Malaysia's own national debt. Without such an awareness, the economic rationalisation of Malaysia risks being upended by a global debt tsunami.

PHAR KIM BENG is a Harvard/Cambridge Commonwealth Fellow, a former Monbusho scholar at the University of Tokyo and visiting scholar at Waseda University.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.