Friday, August 10, 2018

China's debt-trap diplomacy and Belt and Road Initiative (BRI) under scrutiny in U.S. Senate

Chinese plant flag in Gunjur beach 
A powerful bipartisan group of United States senators has written a letter to the Secretaries of the Treasury and State accusing China of weaponizing capital by luring unsuspecting debt distressed African and Asian countries into contracting infrastructure loans that are, in the eyes of the US lawmakers, predatory.

The alarm bells sounded in the halls of the US Congress when loan bailout requests to the International Monetary Fund (IMF), where the US is the single largest shareholder, started to mount. And the senators would like to know how the Treasury Secretary plans to address the dangers of the Chinese infrastructure financing issue with the IMF, among a host of other concerns that have national security implications. 

Sri Lanka became the first victim of China's predatory lending practices that led to unsustainable levels of debt for the country requiring a $1.5 billion bailout loan from the IMF.

The incoming Pakistan government of Prime Minister Imran Khan is reportedly poised to also request a bailout loan from the IMF because of mounting current account deficit and external debt obligations caused, primarily, by the China - Pakistan Economic Corridor.  It is the expressed view of the sixteen Republican and Democratic senators who signed a letter addressed to the Treasury and State Secretaries that the financial predicament of these countries is as a result of,  what they refer to as "China's debt-trap diplomacy" and its Belt and Road Initiative (BRI) to developing countries in Asia and Africa.

As countries find themselves trapped in debt at unsustainable levels, and in their attempt to extricate themselves from the burden, the letter states, China always extract "onerous concessions, including equity in strategically important assets."

In country after country, from Djibouti with its increased dependence on China, strategically located on the Horn of Africa, has increased the likelihood of China controlling the country's only Container Terminal in addition to a Chinese military base already in operation, to Sri Lanka where the government's inability to repay over $1 billion of Chinese debt for the construction of the Hambantota Port, granted a Chinese state company a 99-year lease on the facility. 

The aggressive foreign policy posture of the Chinese, coupled with a development assistance program that ignores a country's debt exposure, makes African countries like the Gambia highly susceptible to China's debt-trap diplomacy. 

In the specific case of the Gambia Port Authority's (GPA) Port Expansion Project, given the pattern emerging elsewhere what would prevent the Chinese from demanding equity in the Gambia Ports Authority facilities similar to what they were able to extract from Sri Lanka should GPA finds itself unable to service the Chinese loan, reported to be in the region of $177 million - a country that is already staring in the face of a debt to GDP ratio of 130%.   Some food for thought.