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A debt trap for developing states?

The recent statement of US Assistant Secretary Alice Wells has triggered a debate about the ways China is extending help to developing countries in infrastructure and other projects. In a recent speech, the top US diplomat for South Asia also cast doubts over the benefits of the China Pakistan Economic Corridor. The speech drew a quick reaction from Islamabad and Beijing which rejected the claim of Washington’s senior official.

Addressing a gathering of diplomats, scholars and journalists at a Washington think tank last Thursday, Ms Wells also quoted specific examples from the project to substantiate her arguments. The US diplomat claims that “CPEC’s most expensive single project is upgrading the railway from Karachi to Peshawar. When the project was initially announced, the price was set at $8.2 billion. In October of 2018, Pakistan’s railways minister announced that they had negotiated the price down to $6.2 billion, a saving of two billion. And he explained Pakistan is a poor country. We cannot afford this huge burden of these loans. But recent media reports claim the price is now risen to $9 billion.”

It seems that the US and some Western countries are wary of China’s Belt and Road Initiative that is being described as the biggest financial initiate by many analysts. The supporters of the BRI argue it is transforming country after country, attracting much-needed investment in developing world where infrastructure has been in a shambles for decades.

The BRI is an ambitious plan with around $1 trillion investment, covering more than 60 countries with over 2.5 billion population. The alacrity with which China is carrying out the projects has stunned the Western world. For instance, some projects in Africa were accomplished before the scheduled time. In Kenya, the first stage of a major railway connecting the capital Nairobi and the Indian Ocean port city of Mombasa was completed 18 months ahead of its schedule. It is the largest infrastructure project in over 50 years. Projects like this are a source of concern for Western policymakers who believe that with such projects Beijing is likely to make inroads in states that have been under the domination of Western capitalist countries.

It is not the first time that we saw an American official expressing reservations over Chinese investment in less developed states of the world. On the eve of his first (and only) official visit to Africa, former US Secretary of State Rex Tillerson drew a sharp contrast between US aid and lending in Africa and that of China. Tillerson had said, ““The United States pursues, develops sustainable growth that bolsters institutions, strengthens rule of law, and builds the capacity of African countries to stand on their own two feet. This stands in stark contrast to China’s approach, which encourages dependency using opaque contracts, predatory loan practices, and corrupt deals that mire nations in debt and undercut their sovereignty.”

Before going further let us discuss what debt-trap diplomacy is. Debt-trap diplomacy is where a creditor country intentionally lends excessive credit to a smaller debtor country, with the intention of extracting economic or political concessions when the smaller country cannot service the loan. Despite the reports of several Western institutes suggesting that Beijing is not involved in this heinous game, the Western ruling elite continue to hurl such allegations. For instance, according to a report of the Lowy Institute titled ‘Ocean of Debt?’, the evidence suggests that China has not been engaged in problematic debt practices in the Pacific as to justify accusations of debt trap diplomacy, at least not to date.

China is a rising global power, attaining the status of the second largest economy just a few years ago. The BRI, which has been declared responsible for adding to the debts of developing states, is also not an old project either. But the debt issue has been haunting the less developed states of the world for decades. For instance, the total stock of external debt for all developing countries stood at approximately $4 trillion in 2010, much before the ambitious BRI was launched. Most of this loan was lent by the West and international financial institutions that are believed to have been serving the interests of the Washington-led global order for decades.

The states that have been under American influence saw a phenomenal rise in their external debt liabilities. For instance, Brazil’s external debt reached $567.1 billion in Sep this year, the national debt of Mexico was around $661.25 billion in 2018 and that of Argentina was around $280.62 billion. Every student of history knows under whose influence these states have been for the last several decades. It is not only these three countries of the Americas; other states of this hapless region also suffered because of the harsh terms and conditions of Western-backed financial institutions. Beijing, it could be said, has nothing to do with this pile of mammoth loan.

Western countries gifted Africa with slavery and ruthless exploitation in the past as well as armed military dictators and belligerent groups in the post-Independence era. For instance a few years ago, the UK supplied arms to a dozen African states with the worst human rights record. Beijing is said to have pumped around $86 billion into the continent, most of which is being invested in infrastructure and development project while it has also pledged another $20 billion to the cash-starved continent. The continent has witnessed some of the largest infrastructure projects in decades that many African analysts believe is transforming the lives of millions. Beijing is helping strengthen the manufacturing capacity of African states by shifting some of its industrial units.

Logically, debt could be used as a tool to further political and strategic interests. America and its Western allies have extensively used this. They withhold all investment in a country where they do not have a government of their liking. In several cases they toppled the governments that dared to defy Western hegemony. The government of Mossadegh in Iran, Arbenz in Guatemala, Allende in Chile and Sukarno in Indonesia are some of the worst examples where the US and its Western allies first tried to cripple the economies of these states by putting a halt to all type of investment and later toppling governments to teach lesson to other states.

One may criticise China but so far it has not helped stage any military coup nor has it sown the seeds of chaos by imposing regime change on developing states. Its stated policy has been to respect the sovereignty of other states. The same cannot be said about Washington or its Western allies that are accused of helping military dictators topple elected governments in more than two dozen states. The US itself militarily intervened more than 223 times since its establishment as the bastion of democracy. Even today it has more than 700 military bases in over 150 states. Compare it with Beijing which is said to have only one military post in Djibouti where a number of other global powers also have this facility as well.

This does not mean there are no reservations of independent-minded people towards the way China is investing in developing countries. Beijing has been accused of making opaque contracts with developing states. It has also been blamed for turning a blind eye towards the human rights situation in the states where it is heavily investing. Beijing’s own treatment of minorities is also being debated in many independent circles. Therefore, it is important that the country come up with strong evidence proving that these allegations are incorrect instead of debunking them as mere Western propaganda.

Abdul Sattar, "A debt trap for developing states?," The news. 2019-11-27.
Keywords: Economics , Economic Corridor , Media role , Social impact , Political concessions , Debt practices , National debt , Financial institutions , Developing projects , China , Pakistan , America , CPEC