P.M. and Samoa must tread carefully

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Dear Editor,

Re: P.M. rubbishes claims about debt to China 

Is it Chinese Aid or Debt Entrapment?

I hope our Prime Minister prayed and thought hard about what he is doing? I hope he thought about the consequences and the outcome of his decisions? For him to put our small Island Nation into so much debt is irresponsible, foolish and negligent. It may seem like easy money with no strings attached but we all know there is no such thing. 

The Dragon is on a mission to establish itself as a world superpower by increasing its presence in strategic locations including the Pacific. We would be naïve and ignorant to think that China has no hidden agendas. 

Splurging out billions in Aid with no strings attached is just another way China holds political leverage and using sovereign debt to bend other states to its will. China’s economic and diplomatic footprint in the region is nothing new but in the last 10 years it has increased dramatically through its Aid programmes. 

Just look at Fiji, Tonga, Kiribati and other pacific countries including our own to see government buildings, hospitals, stadiums going up with ‘Made in China’ signs. Some of these white elephants are vacant with no maintenance programs in place.

My concern is the massive O.D.A. loans from Exim Banks our government uses to fund some of its infrastructure and building projects. These contracts have clauses or conditions that the projects are to be built largely by Chinese companies and labour. 

So who benefits more out of these so-called Overseas Development Aid or Assistance? Why the Chinese themselves of course, they provide the loan, import the materials and provide the labour. And what do we get? A few nice shinning white elephants and a massive debt that we may or may not be able to repay. With these O.D.A. loans some recipient countries have experienced debt distress, local business frustration, poor aid management, quality complaints and high-level corruption. China’s assistance is largely through soft or concessional loans that could offer an interest-free period of 3 to 8yrs and then low rates for up to 20 or 30 years. All nice and dandy if using the right funding source, how and whether it is funded through the.

Private Sector - Consortium or syndicated loans are put together by financial institutions and if it’s defaulted the loans will be worked out through loan restructuring.

Bilateral - these are put together after country to country agreements and normally take the form of Exim bank credits or O.D.A. (overseas development aid). 

When default occurs the creditors move in and gain control of assets using debt-reduction strategies like swapping debt with equity just like the port in Sri Lanka when the country couldn’t repay its loan, it turned out to be a white elephant, but the Chinese don’t care because they now have a port where their naval ships can drop anchor and project maritime influence in the Indian Ocean. Another port is Darwin, the Chinese gained control and signed a AUD$506m 99-year lease deal. Kenya under threat of loosing its busy port of Mombasa, the gateway to East Africa, to China.

Multilateral - these are from institutions like IMF, World Bank, and Asian Development Bank. The good part is the borrower is tied to strict terms of accountability, transparency and legalities. But when default occurs you can be sure of some economic recovery programs like austerity that will do more damage than good and the International Financial Institution’s status as preferred creditor means payments to them must be given first priority, over private and bilateral debt. 

And another downside is their by-laws prohibit them from granting debt relief or writing off debts unlike Private and Bilateral creditors. Governments do have special incentive to stay current with their multilateral debts, since I.F.Is determine the credit score of countries, until the IMF gives its stamp of approval, which usually requires adherence to the economic policies it recommends, the poorer countries generally cannot get credit or capital from other sources. This type of economic policy is where the A.D.B aligns to the government in regards to the L.T.R.A. 2008 recommendations.

And there’s the issue with Chinese businesses sprouting up everywhere. Some say there’s nothing wrong with that it’s good for Samoa and we should see Chinese investments as a valuable and alternative source of income. They bring competition and help drive the cost of living down with cheap imports. But those things don’t always benefit us and the local businesses; especially when foreign businesses get special privileges, yes we’ve all heard about the green lane at Matautu wharf. I’m not saying all Chinese investors are bad, there are a lot of honest Chinese investors that want to help our country and make a profit at the same time. Nothing wrong with that too. It’s not all negative though, I mean China has funded projects that has economic benefits and health benefits to our country like government building built in the 90s, our National 

 

Hospital in Moto’otua a sprawling modern complex paid for with a NZ$42m concessional loan from Beijing. China also signed a further agreement of economic and technical cooperation, worth NZ$23m, to build a new police academy. Also the much needed infrastructures like the bridges and wharf on the books to be built in the near future.

So I guess my point is Samoa should tread carefully when it comes to these big O.D.A. loans. Do we want to gain economic development and prosperity in the short term but later loose it all to the ones providing the loans? What will our government use as collateral? Land? Infrastructure? Can you picture a nice new Toamua/Vaiusu wharf and then in 5 years time we default and lose control to the Chinese? Mind you they know the importance of Samoa’s strategic location in the centre of the Pacific, it’s probably already on their radar. 

So what China really want is commercial penetration into the Pacific, Central and South America plus strategic diplomatic presence in key locations. China could also encourage Pacific Nations to shift allegiances away from traditional Western powers. Again nothing wrong with that just don’t take our lands and wharf.

 

Oi Sole

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