US senators seek to block IMF bailouts for China’s allies

WASHINGTON: A cross-party group of 16 US senators has urged the Trump administration to block the International Monetary Fund (IMF) from bailing out the countries that have obtained loans from China under its infrastructure development plan.

The letter to Secretary of State Michael Pompeo and Treasury Secretary Steve Mnuchin mentions Pakistan, Sri Lanka and Djibouti among the countries that have accepted billions of dollars in loans from China but are unable to repay.

“We write to express our concern over bailout requests to the IMF by countries who have accepted predatory Chinese infrastructure financing,” the senators wrote.

They mentioned that in 2016, the IMF agreed to a $1.5 billion bailout loan with Sri Lanka due to unsustainable debts to China. “Recently, it has been reported that the incoming government of Pakistan will pursue an IMF bailout in part due to rising current-account deficit and external debt obligations caused by the China-Pakistan Economic Corridor (CPEC). These financial crises illustrate the dangers of China's debt-trap diplomacy and its Belt and Road Initiative (BRI) to developing countries, as well as the national security threat they pose to the United States,” the letter reads.

It said the Centre for Global Development has estimated that of the 68 countries currently hosting BRI funding protects, 23 are at risk of debt distress, and in eight of those countries, future BRI-related financing raises serious concerns about sovereign debt sustainability. “It also found that Chinese behaviour as a creditor has not been subject to the disciplines and standards that other major sovereign and multilateral creditors have adopted collectively, and in the process, debt levels and dependence on China are rising. As financially strapped countries negotiate with China to free themselves of mounting debt, Beijing has extracted onerous concessions, including equity in strategically important assets,” the senators said. Further, they said, Beijing has repeatedly used economic pressure to affect foreign policy decisions.

The letter mentioned that in Djibouti, China has provided more than $1.4 billion in infrastructure funding, equivalent to 75 percent of Djibouti's GDP. “Most of that capital comes in the form of loans from the Export-Import Bank of China. The most recent IMF assessment stresses the extremely risky nature of Djibouti's borrowing programme, noting that in just two years, public external debt has increased from 50 to 85 percent of GDP, the highest of any low-income country. As Djibouti increases its dependence on China, there are fears that China will gain control of the Doraleh Container Terminal, further consolidating China's influence in the critically strategic region,” it said.

Similarly, it said, last year, the Sri Lankan government, unable to repay over $1 billion of Chinese debt for construction of the Hambantota Port, granted a Chinese state company a 99-year lease on the facility. “There are concerns that given Pakistan's growing Chinese debt, the same could happen at Gwadar Port in Pakistan. In China's ‘String of Pearls’ strategy for the Indo-Pacific, Gwadar and Hambantota are important footholds that if converted into naval bases will enable the PLA Navy to maintain a permanent presence in the Indian Ocean.”

The letter said Beijing's attempt to weaponise capital is not just limited to Asia and Africa but also extends to Europe. In 2014, it said, Montenegro and China came to an agreement on the construction of a highway that links the Port of Bar and Montenegro's transport network with Serbia and other Balkan countries. The Chinese Export-Import Bank agreed to finance 85 percent of an estimated $1 billion cost for the first phase of the project, with the second and third phases likely to lead to default if financing is not provided on highly concessional terms.

“In light of the IMF's potential bailout of Pakistan in the coming months, we respectfully request a response to the following questions:

How do you plan to raise the dangers of Chinese infrastructure financing through BRI with the IMF?

Do you believe that additional countries will ask for a bailout from the IMF due to BRI? Which countries?

As the largest contributor to the IMF, how can the United States use its influence to ensure that bailout terms prevent the continuation of ongoing BRI project, or the start of new BRI project?

How can the United States work with allies and partners to educate countries about the risks of Chinese infrastructure loans?

How can the United States work with allies and partners to assist countries struggling to repay duets due to BRI?

How can the United States work with allies and partners to present an alternative to developing nations regarding investment and infrastructure funding?”