MALE, Maldives—Around this Indian Ocean capital, Chinese loans are helping to pave paradise, stacking high-rises on artificial islands reclaimed from the ocean and tarring roads and a landmark bridge to connect the archipelago.
For the country’s almost two-week-old government, the infrastructure-building spree presents a problem. The country’s foreign loans and sovereign guarantees now total at least $2.65 billion, equal to 60% of gross domestic product, the new finance minister said. Chinese funds account for the largest share.
“We need to talk to China,” Finance Minister Ibrahim Ameer said in an interview. “We will discuss our options, try to renegotiate the repayment periods.”
These financial details were shrouded in secrecy under the previous president, Abdulla Yameen, who lost September’s elections. Officials were instructed not to publish figures that showed the extent of loans, largely to Maldivian state-owned companies, that were guaranteed by the government, according to finance ministry officials.
Mr Ameer said some China-financed projects appeared to have been built at inflated costs. But construction is underway in many cases, limiting the government’s options for renegotiating loans, he said.
“We have to start planning now if we want to avoid trouble in a few years” when loan repayments begin, he added.
The Maldives’ difficulties trace a now-familiar pattern among a number of nations that signed up to China’s Belt and Road infrastructure program. Unable to repay its loans, Sri Lanka last year gave up control of a port to a Chinese state-owned company. Pakistan is grappling with a financial crisis fueled in part by Chinese debt. Malaysia has cancelled or deferred China-backed projects worth more than $20 billion. Myanmar is pushing for better terms from Beijing for a planned port project.
In the Maldives, an archipelago home to 400,000 people that sits astride major shipping routes, Mr Yameen, the former leader, had hoped Chinese financing would help transform the capital region into the Singapore of the Indian Ocean. Hundreds of millions of dollars in Chinese loans flowed to the government and Maldivian state-owned companies, bringing giant Chinese construction companies with them.
China’s foreign ministry said in a faxed statement that projects it implemented in the Maldives in recent years were based on that country’s wishes and development needs, but were also commercially feasible and “can stand the test of time and history.”
“China pays attention to the debt sustainability of the Maldives, and the relevant loan program is meant to avoid the Maldives taking on an excessively heavy debt burden,” it said.
Mr Yameen’s plans were rooted in a policy shift that aligned his country with China, forsaking decades-old ties with neighbouring India and alienating Western governments. He veered toward autocratic rule, stifled free speech and jailed opponents and judges to tighten his grip on power.
Relations with New Delhi became so frosty that Mr Yameen told India to withdraw two of its helicopters stationed in the Maldives for search and rescue operations. Indian workers struggled to get visas and permits, Maldives and Indian officials say. Government officials were restricted from attending Indian embassy events.
For Indian officials in Male, “it felt like being in enemy territory,” according to a person familiar with the matter.
Meanwhile, Mr Yameen signed a free-trade agreement with China and signed up for the Belt and Road program, fueling India’s fears about China’s growing presence in the Indian Ocean. Chinese President Xi Jinping visited the Maldives, while Indian Prime Minister Narendra Modi stayed away.
The Maldives wasn’t a priority for Washington, but closer ties with India under a new Indo-Pacific strategy designed to counter China’s rise had led to greater coordination between the two on security issues.
In the run-up to the elections, the U.S. and U.K.—urged on by Indian officials in private discussions according to the person familiar with the matter—denounced Mr Yameen’s crackdown. The two countries called for a fair vote in strongly worded statements and tweets, shining a spotlight on elections that may have otherwise escaped international scrutiny.
In Male, Indian officials and their families grew fearful about their safety. They worried they could be targets of street stabbings or other attacks made to look like a regular crime, two people with knowledge of the matter said. The capital’s narrow streets, swarming with motorbikes and pedestrians, “began to feel like a mousetrap, with nowhere to run if something happens,” one said.
After Mr Yameen was voted out, the Maldives’ foreign policy changed overnight. Prime Minister Modi flew in for the government’s swearing-in. The new foreign minister visited New Delhi this week to ask for $250 million to $300 million in immediate financial support to tide over a budgetary crunch. The decision to return helicopters has been reversed.
“We have a neighbours-first policy,” Defense Minister Mariya Didi said in an interview in Male. “China is far away, and it has a different political philosophy.”
Officials face tough decisions about the future of Mr Yameen’s projects, many of them already underway. The former leader, who couldn’t be reached to comment, envisioned a population shift with at least two-thirds of the country’s residents living in the capital area, which he vowed to develop into a major metropolis.
Work began on a sprawling plan for a suburban island, Hulhumale, that would host government-subsidized housing and luxury towers, shopping malls, a financial district, cruise terminals and tourist resorts. The government has already reclaimed land from the ocean and built roads.
A Chinese company is constructing 16 high-rises, financed by loans from a Chinese bank to a state-owned Maldivian company. The local company’s chief financial officer said the government would have to pitch in to repay the loan because the thousands of apartments, part of a social housing development, would be sold to Maldivians at subsidized rates.
Chinese companies succeeded in winning contracts, the officer said, because they were able to easily tie up with Chinese state-owned banks to facilitate financing, while companies from other countries struggled or took longer. Other Maldives officials said loans from China moved much faster than those from multilateral banks and other countries, making Beijing-backed projects popular with leaders eager to show results.
The country’s new infrastructure minister, Mohamed Aslam, said he hopes to dial back big projects that are in the pipeline. He plans to focus instead on investing in sewage, transport and health care to develop the country’s outer islands—projects where countries like India and Japan could help out, he said.
“But what has already been done can’t be undone,” he said.
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