India’ Prime Minister Narendra Modi shouldn’t help the Maldives pay its debts to China. It isn’t in India’s own economic and geopolitical interests, at this point.
After Sri Lanka and Pakistan, the Maldives has fallen into China’s ‘debt trap.’ The small tropical nation in the Indian Ocean owes Beijing a lot of money—around $8,000 for every inhabitant of the archipelago!
That’s according to a Reuters report, which claims that China has handed the Maldives government an invoice for $3.2 billion.
The loan is money the Maldives owes to China for infrastructure projects undertaken by Chinese construction companies. Like the China-Maldives Friendship Bridge, which connects Malé’s eastern edge to the western corner of the island of Hulhulé. The project was launched back in 2015 and opened to traffic last August.
“(Abdulla) Yameen sold his country’s future to Beijing,” says Washington-based global strategist, Jeffrey Borda. “The Maldives is waking up with a loan it can’t pay and its sovereignty as collateral.”
Bridges and other infrastructure projects serve a very important cause in every country. They create a great deal of jobs and income while the construction lasts. And they improve the quantity and quality of life once they are completed.
But infrastructure projects built by Chinese construction companies and financed by loans from Beijing to the country’s government serve another cause. They are part of China’s One Belt One Road (OBOR) initiative — an ambitious project to expand Beijing’s influence in Asia, Europe, and Africa.
Beijing has already pursued similar infrastructure projects in Pakistan and in Sri Lanka to connect western China with the Middle East and Africa. The trouble is that some of these projects financed with Chinese loans are too expensive for some countries to afford. That’s when Chinese loans end up being a “debt trap” to advance China’s hidden agenda.
“China’s foreign infrastructure investment is guided by a predatory expansionist strategy,” says Borda. “Whether it is in the emerging markets of Asia or Africa, China uses debt obligations to enhance influence, create power projection platforms and ultimately undermine a debtor’s sovereignty. China preys upon countries that lack strong institutions that require transparency in government transactions and demand accountability for corruption.”
That’s what happened in the case of Sri Lanka. When the county couldn’t pay its loans to China, Beijing converted them to equity and ended up in control of Sri Lanka’s key ports.
The same may eventually happen in Pakistan, too, which has taken loans from China to build the China-Pakistan Economic Corridor (CPEC). That country is already in a debt crisis and has asked assistance from IMF to cope with the situation. “The Chinese motivations are always the same and, as usual, they use the same methods: they lend huge amounts of money, knowing in advance that they couldn’t be paid back. Let’s not forget that China also lent $400M to the Maldives in 2012, which is the equivalent of 25% of the Maldivian GNP,” says Jean-Francois Fiorina, Vice Dean, Grenoble Ecole de Management.
While it’s still unclear whether the Maldives will end up handing key country assets to Beijing or knocking on the door of IMF, one thing is clear. The Maldives is a too small and too weak an economy to deal with a debt of such magnitude—see table. Its economy is roughly 5% of the size of Sri Lanka’s and 1,5% of Pakistan’s.
And it lives beyond its means. Its current account deficit is a whopping 17.1% of GDP, double that of Pakistan’s and six times that of Sri Lanka.
|GDP||$4.6 billion||$87 billion||$305 billion|
|GDP Annual Growth||6.9%||3.70%||5.79%|
|Current Account to GDP||-17.1%||-2.6%||-8.2|
|Government Debt to GDP||25.60%||77.6%||67.2%|
|Foreign Currency Reserves||9812 MVR Million||1386167 LKR Million||$16370 Million|
Source: Tradingeconomics.com 11/22/2018
Then there’s the nature of Chinese funding, which concerns Borda. “The situation in the Maldives reflects the nature of Chinese funding. In the Maldives, the previous regime made deals for China’s support in secret and without regard for the long-term impact on the country. The strategic ramifications for the Maldives, as well as the region, are troubling.”
The China’s growing presence in the Indian Ocean, that is.
Meanwhile, the Maldives’ new government is appealing to India’s “generosity” to help to cope with the situation, according to a piece published in The Times of India.
“We hope that India will be generous enough to help us with the initial management of any shortfall we might face,” Maldives foreign minister Abdulla Shahid is quoted as saying. In fact, India has already offered the Maldives $1 billion to repay China debt, according to Nikkei Asian Review.
But bailing out the Maldives isn’t in the economic and geopolitical interests of India at this point, for an obvious reason. Beijing wants to turn the Indian Ocean into China Ocean – which is why it has been turning the Maldives into another trading outpost by acquiring land there and signing a free trade agreement.
To complicate matters, Maldives has a free trade agreement with both India and China, which means that Beijing can send products to the Maldives first, and then re-export them to India.
Meanwhile, China wants to encircle India by turning trade outposts into military outposts, as has been the case with Sri Lanka. Chinese submarines have begun suddenly and repeatedly showing up in the Chinese-operated South Container Terminal in the port of Colombo.
That’s in spite of India’s high-profile protests, which included joint naval exercises with America, Japan and Australia.
While it is unclear whether China will succeed in turning the Indian Ocean into the China Ocean, one thing is clear: India shouldn’t bailout China in the Maldives.
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