Saturday, July 4, 2020 | ePaper

Debt Trap

Inconsistent Chinese Response To Repay

  • Print


Farazi Azmal Hossain :
China is accused of luring developing or underdeveloped countries to borrow money for infrastructure projects and later controlling them if they fail to pay off their loans in time. CFGD, a research organization, analyzed that Eight nations will find soon themselves vulnerable due to China's loan. They are Djibouti, Kyrgyzstan, Laos, The Maldives, Mongolia, Montenegro, Pakistan and Tajikistan.
In this regard, Sri Lanka may be recalled as better experienced. When the previous Sri Lankan government invited China to invest in Sri Lanka as part of an ambitious port development project, little did they realize that they would end up coughing out a strategic port in Hambantota as part of debt recovery. In 2015, Sri Lanka had to lease out the port and 15,000 acres of land around it for 99 years as it was unable to keep up with the repayment schedule with China. Now Djibouti, home to the US Military's main base in Africa, looks about to cede control of it's key port to a Beijing-linked company and undoubtedly US is not happy with this move.
Similar instances of countries' being forced to do away with strategic assets like ports, railway links and mines have been reported in countries like Kyrgyzstan, and Maldives. The Chinese debt is ruthlessly designed to lure the beneficiaries in the beginning and then lead them to the vicious lending-default-borrowing-lending cycle. The Chinese loan carries higher interest rates and shorter maturities, requiring refinancing in every two years or less where strategic national assets are used as collateral. Those features enabled Chinese state-controlled banks to lend to poor countries.
Actually the Chinese modus operandi is designed to encourage developing countries into a spending spree on various infrastructure projects. Chinese investments are like the prophetical Trojan horse that enters the national economic structure under guise of developmental projects and then takes the country to a never-ending debt. It is widely known as `debt trap'.
In another word, offer the honey of cheap infrastructure loans, with the sting of default coming if smaller economies can't generate enough free cash to pay their interest down. As a result their debt increases by many folds. For example, Djibouti's debts to China increased by more than 80 percent of its annual economic output. Ethiopia's debt to China is estimated at around 20 percent of its annual output. In Kyrgyzstan, the amount is believed to be 40 percent.
Pakistan appears to be heading in the same direction. PM Imran Khan envisaged a vision of 'New Pakistan' and introduced a strict anti-corruption drive by bringing in stringent laws to punish the corrupt in Pakistan, whom he squarely blamed for the current economic state of the country. The people of Pakistan applauded him for his initiatives. Significantly, however, Khan seems to be silent over the allegations of massive corruption and malpractices in the projects under the China-Pakistan Economic Corridor (CPEC). Slated as an ambitious project, CPEC was signed between the Chinese government and the former PM Nawaz Sharif. Apparently, 'Panama Papers' even mentioned Nawaz Sharif receiving huge kick back money from the Chinese companies. Inputs suggest that the all-powerful Pakistan Army, which is largely responsible for bringing Khan to power also has a huge role to play in forcing him to look the other side on CPEC projects. In practice China never hesitates to corrupt the people concerned, to achieve their goals.
The $62 billion CPEC, which was believed to pull Pakistan out of its dire economic straits has recently run into controversy after the Independent Power Producers (IPP) enquiry reports were made public. The IPP enquiry was commissioned by Khan to bring out irregularities in the power distribution and tariff system. It has come out with a report that has incriminating evidences of gross mal practice and over payment to few companies. Notable amongst them are, two Chinese funded projects under CPEC, namely the Huaneng Shandong Ruyi (Pak) Energy (HSR) or the Sahiwal and the Port Qasim Electric Power Company Limited (PQEPCL) coal plants.
For these two projects, worth $3.8 billion, the enquiry committee found overpayment of Rs.483.64 billion or approximately $3 billion. This includes overpayment of Rs. 376.71 billion to HSR and Rs. 106.93 billion to PQEPCL on account of excess set-up cost, excess return due to excess set-up cost in 30 years, and excess return due to miscalculation in Internal Rate of Return (IRR).
Prime Minister Khan in a public message on 21 April, applauded the enquiry committee and went on record stating that he would take the strictest actions against the perpetrators. Moreover, a month has passed since his claim and the report still remains unheard of in Pakistani media. Incidentally, the Chairman of CPEC Lt Gen Asim Saleem Bajwa has been appointed the Media Advisor to the PM. Bajwa, the ex DG of the Public Relations wing of the Pakistan Armed Forces seems to have brought in his present role to further regulate the media on stories related to IPP reports on Chinese malpractices.
The developing countries are no alien to the Chinese arm-twisting diplomacy. It is believed that the Chinese ambassador to Pakistan called on the Pakistani Foreign Affairs minister Shah Mahmood Qureshi and warned him strictly against the report findings going public or against any action initiated to harm the reputation of the Chinese projects. Pakistan understands that Beijing will not take kindly to any criticism of President Xi's pet project BRI of which CPEC is an integral part. It is also aware of its vulnerability when it has already requested China for a debt restructuring plan due to the global economic slowdown post the Coronavirus pandemic.
China has characterized its "Belt and Road" initiative as a win-win for its aspirations to become a global trade leader and developing economies' desire to fund transportation infrastructure. It has certainly filled the vacuum created by a shrinking American presence in global institutions. But as with Western internationalist projects, China is also facing accusations of imperialist behavior when its debt plans go wrong.
The Center for Global Development, a non-profit research organization, analyzed debt to China that will be incurred by nations participating in the current Belt and Road investment plan. Eight nations will find themselves vulnerable to above-average debt: Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Montenegro, Pakistan, and Tajikistan.
Beijing "encourages dependency using opaque contracts, predatory loan practices, and corrupt deals that mire nations in debt and undercut their sovereignty, denying them their long-term, self-sustaining growth," said former US Secretary of State Rex Tillerson.
The researchers note that they did not estimate how this debt would effect growth, and that they needed to assemble much of their data from media reports. But they still say their evidence should raise concerns about economic distress stemming from debt that would undermine development efforts altogether. In the past, China responded to the debtors inconsistently and hasn't followed best practices adopted by international lenders working with poor countries. Sometimes, the debt has been forgiven; other times, disputed territory or control of infrastructure has been demanded as recompense.
They argue that China should work to bring other countries into their investment programs to spread debt more equally, and adopt stricter standards and more transparency about how sustainable its support for developing economies really is. Some countries aren't waiting on China to take action: Pakistan and Nepal turned down Chinese infrastructure loans last year in favor of other sources of funding.
(The writer is a journalist)

More News For this Category

Appeal of Nobel laureates for vaccine to be available to all

NOBEL laureates including Prof Muhammad Yunus have issued an open call to the people of all strata to sign a pledge declaring the Covid-19 vaccine to be a common

Govt is in such an inactive state that money spent on development is essentially money for corruption

PROGRESS in implementation of annual development projects is quite low at 57.37 percent in 11 months of the just concluded fiscal 2020, media report said. It is not unexpected

#rohingyalivesmatter

#rohingyalivesmatter

Shah Muhammad Shirajis Shadik :A public uprising is shaking the world right now, being originated in the USA, spread through the borders, amid a highly communicable COVID-19 pandemic, from

Char-lands

Char-lands

Shishir Reza :Bangladesh observes severe exposure to climate risks because of its geo-morphological, demographic and socio-economic temperament. Agriculture in haor and char region is also remarkably affected by climatic

Lack of divers can`t make the rescue team fully functional

CURRENTLY, only 50 divers are employed with the FSCD --- Bangladesh Fire Service and Civil Defence, an important unit for rescuing victims in waterways accidents. The unit has remained ill-equipped

Readers’ Forum

Respect To Frontline FightersI, as an ordinary citizen, feel immensely proud of all the workers on the frontline serving our nation diligently ever since the pandemic broke out. Healthcare providers,

Healthcare Bitter Experience In This Covid Time

Now we are passing through hardship, suffering, agony and uncertainty. Everyday the ongoing pandemic over the living planet piles the heap of unexpected deaths and most of the relatives of

Retailers Should Be More Humane To RMG Workers

Retail has reopened across the UK and the world, bringing an end to the strict lockdowns that came at a particular human cost to retail workers, many of whom are

Fee for Covid test in public health facilities is not a good idea

THE government has shifted its stance from free testing to fee testing at public health facilities that would not help anybody except making the contagion viral to low-income people. The

Bankers‘ concerns are not unfounded

IT is really unexpected that the implementation of the government stimulus package designed to help recover the economy and restore employment in affected businesses and industries due to prolonged impact