Debt and diplomacy and a balancing act

By The Editorial Board 26 February 2020, 10:45PM

The debate about the extent of our indebtedness to China has emerged again this week. 

Some 38 per cent of our more than $1 billion national debt is owed to China. How significant this is depends on whom you ask - and their assumptions about China’s motivations.

On one reading, we are falling into a ‘debt trap’, one that could far exceed our ability to make future repayments and, inevitably, result in our ceding national assets to the very sponsor meant to bolster our development. 

The signal case cited for this interpretation comes from China’s infrastructure debt-financing in Sri Lanka, where that Government, some $8 billion in debt to China, handed the Hambantota port to the Chinese Government. 

(Similarly China’s long standing aid programme in Africa has been, according to its critics, a means of shoring up its access to that country’s natural resources). 

But others say Samoa has been able to take advantage of a generous concessional line of credit which has financed infrastructure and other programmes while maintaining our independence. 

As a sovereign nation, is more than capable of conducting the financial analysis and due diligence required before taking on loan packages from China.

This perspective was advanced by National University of Samoa lecturer Peniamina Muliaina, in Tuesday's edition ("Academic questions China's 'debt trap' diplomacy fears"). 

“The accusers [of debt trap diplomacy] are the U.S., Australia and other institutions which are concerned about China’s true intentions behind its programme. The debt trap diplomacy argument is both one-sided and short sighted,” he said. 

Mr. Muliaina’s argument is persuasive. 

We do not doubt that Samoa’s top civil servants lack the technical capability to analyse the terms of these loans and whether we can make the repayments; but two caveats are worth noting. 

Our economy is heavily dependent on tourism; it was the single sector credited with propelling us back into substantial economic growth last year after two years in the doldrums. But our main industry is also more vulnerable to economic shocks than most, as the recent downturn prompted by measles and cruise ship cancellations has shown. 

And Governments running for re-election can also have their ability to consider the long-term implications of a policy clouded by the short-term imperatives of becoming re-elected; worldover, thoughtful financial administrators become less so as polling day approaches. 

Nonetheless, Mr. Muliaina’s argument does highlight an important point: what side of this debate observers fall on owes much to their prior assumptions about what really motivates these aid and loan programmes. 

China (and all other donors’) aid and loan programmes are doubtlessly benign - but it would be naive to suggest they are motivated by selflessness; aid packages are instruments to complement their foreign policy. 

But even if we accept that doomsaying scenarios of Samoa’s infrastructure becoming repossessed by China are overblown, there are still risks inherent to becoming too dependent upon one power. 

Samoa’s key geostrategic location has for centuries, served as a magnet for great powers seeking a foothold in one of the world’s most strategically important regions in the “great game” of international relations.

It’s important that we manage this interest delicately - and to our advantage. 

In 1889 the world’s colonial powers famously converged upon Samoa to fight for a piece of territory they regarded as internationally critical, before, famously, the heavens intervened. 

Their guises may be different but we are seeing a similar convergence at play today. 

Scarcely a month went by last year without the unveiling of a significant global power’s new policy for engaging with the Pacific region, be it Australia’s Pacific Step Up, New Zealand’s Pacific Reset, or Britain’s “Pacific Uplift”.

The United States Army last month flagged its intention to next year develop a new base in the region on an island “east of the Philippines” to improve its cyber intelligence and missile capabilities. 

Rhetorically our Prime Minister, Tuilaepa Dr. Sa'ilele Malielegaoi, says Samoa is not throwing its lot behind any particular side, declaring: “their enemies are not our enemies”.

It is, after all, in Samoa’s national interest to continue to remain neutral. 

But juggling such alliances is not easy. 

And the state of Samoa’s books tells a different story to the Prime Minister’s rhetoric about independence.

On average Pacific Island states have just 12 per cent of their outstanding debts to China. 

But we are the Pacific’s second-most indebted country to China and have taken on debts three times greater than average. 

That alone sends a significant symbol to many of Samoa’s other longer-term development partners, especially Australia and New Zealand. 

(While China’s aid and loan spending in the region has increased rapidly in recent years, to reach $1.1 billion in the decade to 2016; Australia spent $5.2 billion over the same period). 

Distressingly, Australia announced this week that it was slashing its health aid to Samoa by 36 per cent, the Guardian newspaper reported, just months after its emergency medical team played such a crucial role in our response to the measles epidemic.

Foreign policy is, more than anything, the art of balance. There is a legitimate question to be asked about whether we are striking it.

By The Editorial Board 26 February 2020, 10:45PM

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