Written by Lathika V, a second year international affairs student.
Edited by Atasi Sarkar, final year economics student.
Credit: Shutterstock
Introduction
In 2017, Indian geostrategist Brahma Chellaney coined the concept of “Debt Trap Diplomacy” with respect to China’s Belt and Road Initiative (BRI). The concept premised that the Chinese government, in extending loans that governments in the Middle East could not hope to repay, aspired to garner political and economic benefits in lieu of loan repayment. This argument has since gained traction in the political world with projects like the Hambantota Bay being cited as validating the politico-economic phenomenon.
However, academics have begun pointing out serious flaws in the argument by noting instances of China going as far as to forgive the loan repayments in debt-stricken countries, such as it did in African nations and then Iraq in 2007. This essay argues that the forgiving actions of China involved transactions that sought to secure perks for Beijing, perks that weren’t necessarily part of a formal bilateral treaty and arose as a result of political manoeuvring and covert coercion. Thus, the essay aims to establish that Debt Trap Diplomacy (henceforth DTD) does exist but may not be as visible an extractor of economic and political benefits as is traditionally believed.
What is Debt Trap Diplomacy?
Economics defines debt traps as circumstances in which the borrower’s debt obligations far exceed their ability to repay, forcing them to borrow more to settle their existing debts. This conventional definition acquires a new meaning in the sphere of global politics – instead of having to borrow more to repay, borrowing countries are forced to enter into agreements tailored to benefit the lending countries. Contemporary political analysts term this as Debt Trap Diplomacy, in which the unpayable debt is exacted in the form of political and economic benefits.
Instances of debt trap diplomacy
The concept of DTD entered the lexicon of global affairs with respect to China and its Belt and Road Initiative. Political analyst Brahma Chellaney suggested it formed “part of China’s geostrategic mission”, and gradually world leaders like Mike Pence absorbed the term into routine political discourse. Through DTD, China pushed its geographical boundaries across seas and borders, often having autonomous units of sovereignty well within another nation’s territory such as the Hambantota Bay and the Gwadar Port. Analysts argue that China uses the leverage of monetary non-repayment to coerce nations to participate in and contribute to its imperialist mission of territorial expansion and power consolidation, as well as to side with it in the UN general Assembly and reduce the West’s sphere of influence.
However, DTD predates the existence of the Belt and Road Initiative. A closer look at the actions of institutions such as the IMF in the aftermath of the Soviet Union’s collapse indicates that DTD has existed for a while in practice if not theory. From the 1960s, communist states in Eastern Europe such as Romania and Hungary began to increasingly depend upon foreign credit to sustain “much needed technologies” and economic development. By the 1970’s, credit seeking practices from Bretton Woods institutions such as the World Bank and IMF were cemented as established practices, and the volume of Western debt held by the nations became an area of marked concern. Credit activism by the World Bank and the relative ease and cheapness of loan acquisition from the IMF and IBRD entailed that East European nations had to acquiesce to terms that were, according to Comecon reports, reminiscent of global imperialism.
The debate surrounding Debt Trap Diplomacy
Analysts argue that terming China’s loan advancing actions as forming a part of a DTD scheme is obsolete given that the country has endeavoured to restructure the terms of loans, and indeed even forgiven the outstanding amounts of interest free loans to nations. For instance, the China Africa Research Initiative at the Johns Hopkins University (School of Advanced International Studies) explored in detail China’s actions of restructuring and forgiving debts in the nations of the African Continent, Iraq, Indonesia, Cuba, and most interestingly the Hambantota Port in Sri Lanka.
In the case of Sri Lanka, the working paper noted that it “was not a Chinese debt-equity swap, as it is often portrayed[……]The Sri Lankan Treasury used the foreign exchange they received from the port to strengthen their foreign reserves and plug gaps in their budget deficit”. In Iraq, following the Paris Club’s USA backed model for writing off Iraq’s debt, China in 2007 cancelled all ‘official bilateral debt’. The paper, in stating that three years later China also forgave 80% of the $8.5 billion debt that Iraq owed to Chinese companies, noted “Beijing likely had to allocate budgetary resources to cover the write-off of company debts.”
At the same time, yet another narrative has been propounded from other analysts, media outlets, and government agencies. In denouncing Western attempts to question the intent behind the loan granting initiatives, China has endeavoured to dispel the myth of debt traps through actions such as unconditionally waiving the 23 interest free loans it had advanced to 17 African countries. Narratives suggest that it is China’s attempt to discourage closer looks at its DTD scheme, bolstered by the strong international condemnation that its economically engineered traps have drawn.
The underlying implications of debt traps
This paper advances two premises: one, that Debt Trap Diplomacy does indeed exist, and two, that Chinese attempts to forgive DTD loans arise from wanting to pull the nations closer through goodwill and diplomatic obligations. By publicizing the benevolence behind the forgiven loans, China aims to secure two objectives: dispelling international condemnation regarding debt traps while maintaining the closer economic and political relations that come with DTD without the claims of the so-called engineered traps shadowing them.
Relations between countries have shown considerable growth post debt forgiving gestures. For instance, Chinese imports of Iraqi oil accounted for just 1 million tonnes in 2006; by 2015, China imported over 3.4 million tonnes in January alone. The China National Petroleum Corporation in 2008 re-entered a joint venture with the Iraqi government to develop the Ahdab oil field. Subsequently, Chinese firms began acquiring greater stakes and contracts to develop Iraqi oil and gas fields. These firms, alongside the government, have also stepped into diverse sectors such as infrastructure, construction, government services, and tourism.
Parallelly, Iraq has also extended considerable support to Chinese interests and ventures. The nation was one of the 50 countries that backed China’s stance regarding the administrative practices in the Xinjiang Uygur Autonomous Region. Iraq, along with 52 other nations, also supported the enactment of the Hong Kong National Security Law in the United Nations.
Thus, it is evident that DTD postulates cooperation from countries even after loans are forgiven. China has been securing greater access to the coveted Iraqi oilfields, while at the same time pushing the nation to enter into other agreements including the BRI. Ridden with political conflicts and facing Western scepticism, Iraq on its part has been driven closer to the Chinese sphere of influence. Chinese conceptualisations of debts, thus, aim to secure benefits even upon being restructured or written off and bring the debtor nations even closer to their Eastern creditor.
China’s present strategy being tantamount to that of Western institutions in the late 20th century further fortifies the validity of the argument. In 1981-82, the International Monetary Fund purported a rescheduling of Romania’s debt. Further, following the collapse of the Soviet Union in 1991, the notion of writing off the debt that newly independent regimes had inherited was contemplated by Western governments. This was done to discourage East European nations from resuming a socialist courtship and encourage a complete transition to the Western Capitalist system. Hence, it is evident that the argument of debt write-offs furthering the credit traps of lender institutions and nudging the debtors in directions of the former’s choosing is well supported in both historical and contemporary narratives.
Conclusion
Contemporary Chinese actions, and even Russian tendencies to forgive debts in return for economic and geopolitical benefits, echo Western governments’ efforts to influence economic development in East European economies in the 20th century through credit institutions. However, only Chinese actions have been subjected to intense scrutiny. In From Colonial Administration to Development Studies: A Postcolonial Critique of The History of Development Studies, Uma Kothari (2005)[i] notes that “development is a ‘neo-colonial’ project that reproduces global inequalities and maintains the dominance of the South, through global capitalist expansion, by the North”. While this reproduction of global inequalities is also (in this particular context) demonstrated in the East European experience, the severe scrutiny afforded to non-Western nations attempting on a Western path of economic expansion is notable. Thus, while extending due wariness to Chinese actions, it is also worth keeping in mind that nations and institutions raising accusatory fingers at the Eastern nation have also gone through a similar process of economic expansion and development, and it is a development level that they seek to appropriate solely for the Western world.
References
https://link.springer.com/chapter/10.1007/978-3-030-48794-2_13#citeas
https://www.voanews.com/a/china-cancels-23-loans-to-africa-amid-debt-trap-debate-/6716397.html
https://thediplomat.com/2015/12/china-and-iraq-announce-strategic-partnership/
https://www.mei.edu/publications/china-iraq-relations-poised-quantum-leap
https://www.wired.com/beyond-the-beyond/2019/07/pro-xinjiang-contingent/
https://www.axios.com/2020/07/02/countries-supporting-china-hong-kong-law
https://moderndiplomacy.eu/2020/09/18/forgiving-old-debts-russias-diplomatic-maneuver/ [i] Kothari, Uma. "From colonial administration to development studies: a post-colonial critique of the history of development studies." A radical history of development studies: Individuals, institutions and ideologies (2005)
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