For decades, the success story behind emerging markets was simple: borrow, build, grow. Debt was a stepping stone, never entirely stable, but still a way to develop and grow. Today, that story holds no value. In the current landscape, debt is not just a tool for development; it silently redefines the boundaries of control.

Call it ‘debt diplomacy 2.0.’ The pathways to achieve growth have evolved, the instruments are more advanced, and the effects are perhaps more profound, but not that obvious. Emerging economies once operated within a relatively predictable system. The key players were known and outcomes were often foreseeable. When international lenders stepped in, Western financial institutions restructured debt, while governments accepted austerity in exchange for stability. It was disorganised, but still somewhat planned.

Today, the market is fragmented, and debt is spread across a network of state-owned lenders, bond markets, private funds and bilateral deals. Not a single state has complete control. And that is precisely the real challenge. The ‘bright shining’ strategy of modern development is infrastructure financing. Across Asia, Africa and Latin America, governments have borrowed heavily to finance power plants, highways and ports. On paper, these development schemes show growth and progress. However, in practice, they often get lost in heavy paperwork or in the dynamics of geopolitics. This shift reflects a broader change in how influence is exercised. Where debts once revolved around interests and returns, it is now linked to foreign policies and strategic relationships. When repayment becomes difficult, which often happens, negotiations extend beyond balance sheets.

Taking advantage
Historically, control was gained through wars and battlefields. Today, there are far more calculated approaches. Rather than directly taking over small economies, it is more beneficial to take advantage of their financial situation: holding power to influence decisions, limiting opportunities, or dictating terms that are suitable only to them. And hence, options are further reduced. Over the last decade, developing economies have welcomed international bond markets. Borrowing in dollars required less effort due to global liquidity, higher interest rates and weak currencies. However, that environment has now shifted. Financial resources are becoming more limited, and as a result, debt servicing costs are crossing new highs every year. The outcome of this situation is a gradual squeeze.

Governments are trying their best to avoid default by adjusting their annual budgets and making space for repayments. Public investment slows and social spending becomes increasingly limited. Individually, none of this reaches the news, but collectively, it is reshaping priorities in a significant way.

So, who really owns emerging markets? The answer is not straightforward. China has shown immense growth and Western economies have a long history of influence. Yet the reality is more complex. Everyone seems to have a stake, and at the same time, no one has sole control. Power is fragmented. A country seeking debt relief may struggle to meet the demands of bondholders in New York, the deadlines of multilateral organisations in Washington, and the expectations of bilateral lenders in Beijing. Coordination fails due to long delays, and because of that, economic momentum stalls.

Limited capabilities
The core issue lies in the absence of a system capable of handling this complexity of modern debt. Current debt processes were not built for this level of fragmentation. While G20’s Common Framework is a positive initiative, they remain insufficient in addressing the structural gaps. The burden, meanwhile, falls on borrowers whose capabilities are already limited. Some economies are becoming more cautious, avoiding large-scale debts, forming strategic partnerships carefully, and scrutinising hidden costs. Others continue to invest, hoping that growth will surpass liabilities. In a world where capital is expensive and external shocks are frequent, that is a dangerous bet.

The key issue isn’t just financial; it is strategic. Emerging markets are being pushed to operate in a system where capital often comes with hidden conditions. The real challenge is not to avoid debt altogether, but to negotiate terms that ensure long-term autonomy. In ‘debt diplomacy 2.0,’ control is rarely explicit.

Markets are controlled through agreements, refinancing conditions, and limited options. To move forward, emerging markets will need to diversify their creditors, organise obligations more effectively, and draw a clearer line between economic necessity and political independence. That may well define the next decade: not whether countries can grow, but whether they can do so on their own terms.