Debt forgiveness: China appears to be ahead in making friends and influencing people in the developing world
 In today's era of profligate public spending in the Covid crisis, it is harder to criticise the massive financial mismanagement in the third world that again spawns calls for debt forgiveness.
One notion that gained a brief currency 20 years ago when it last came up as an issue was "sovereignty foreclosure". It was assumed that debt forgiveness was a licence to re-borrow as the mega projects that occasioned the debt in the first place would have to be abandoned unless borrowing was renewed. But this time, attached to renewed loan agreements would be the loss of national sovereignty until the debt was fully and finally re-paid and such strictures would be embedded in the conditions of renewed borrowings.
While that idea died a death in welter of sneers and jeers of "neo-colonialism" with much talk of the evils of "predatory lenders", one can now see the concept potentially reborn in China's massive third world loan forgiveness programme, of which Africa is the chief beneficiary.
China, Africa’s largest bilateral lender, has waived debt owed by 17 countries in the continent for 23 interest-free loans that were due in 2021.
Beijing’s intention is that Africa is henceforth to think of China as its preferred long-term development partner, especially “in the face of the various [read Western] forms of hegemonic and bullying practices,” in the words of Chinese Foreign Minister Wang Yi. This is a clear challenge to the West's traditional role in this area.
China's massive spate of debt forgiveness potentially comes with sticks as well as carrots. As was the case 20 years ago when the debt forgiveness issue was last mooted, China can now induce a vast bloc of developing nations to toe Beijing's line in the areas of trade and diplomacy. The status of Taiwan being only one issue.
Already, Chinese financiers and African governments have signed over 1,180 loan commitments worth US$160 billion between 2000 and 2020, according to the China Africa Research Initiative’s (CARI) database. Two thirds of this concerns transport, power and mining projects with Angola, Zambia, Ethiopia, Kenya and Cameroon that have borrowed the most.
Mr Yi also pledged funds for the "Great Green Wall" against climate change, providing food assistance to 17 countries, and increasing Chinese imports from Africa. “China will continue to support solving African issues in the African way. We oppose interference by outside forces in African countries’ internal affairs, and oppose stoking confrontation and conflict in Africa,” said the foreign minister.
China vis-a-vis the West has a distinct edge here. Traditionally, Western development assistance financing is contingent on recipient states living up to moral standards of the West, involving questions of democratic practice, rule of law, anti-corruption measures, even touching on gender equality issues. Such strictures block funding, thus reducing Western involvement in the development in the third world. China makes no such demands on recipients. To Beijing it's strictly a cash-and-carry business with few if any pre-conditions.
The big August announcement came at a follow-up meeting after last year's the Forum on China-Africa Cooperation in Senegal. At the same time, China reduced its financial aid pledge to Africa by 33 per cent and in a show of concern for Africa’s indebtedness, compensated with a massive debt forgiveness programme against the backdrop of slowing Chinese economic growth.
Specifics of the announced relief are not known as the beneficiaries and amounts involved were not disclosed. China cancelled debt due to interest-free loans worth $113.8 million that matured in 2020 for 15 African countries including Botswana, Burundi, Rwanda, Cameroon, the Democratic Republic of the Congo and Mozambique.
Mr Yi emphasised other points of political agreement between China and Africa, the result being that Africa has received infrastructure and humanitarian investments funded by China, from the Foundiougne Bridge which opened in Senegal this year and the Nairobi Expressway in Kenya, to emergency food assistance to Djibouti, Ethiopia, Somalia and Eritrea.
In June 2020, CARI (China African Research Initiative) released “Debt Relief with Chinese Characteristics”, charting China’s debt relief practices from the 1980s to 2019 with a focus on Africa. Since the pandemic, China’s debt relief has fallen into four categories: official bilateral creditor debt relief, as part of the G20 effort; continued cancellation of interest-free loans that matured in 2020, under the FOCAC (Forum on China-Africa Cooperation) programme; ad-hoc debt relief provided by Chinese commercial banks and contributions to the IMF’s Catastrophe Containment and Relief Trust.
In April 2020, China joined the G20's launch of the Debt Service Suspension Initiative (DSSI) to respond to debt and economic distress expected from the Covid crisis. The G20 effort allowed low-income countries that are not in arrears with the World Bank or IMF to apply for a suspension of interest and principal payments on their official bilateral external debt. This marks the first time China joined a multilateral debt relief programme.
The DSSI suspension originally applied only to the last eight months of 2020 and required repayment of the suspended debt over three years, after a one-year grace period. In October 2020, the G20 extended the DSSI from January until June 30, 2021 and allowed these amounts to be repaid over six years, also with a one-year grace period.
What emerges in the plethora of financing schemes, both bilateral and multilateral, is that China, because of its straitened circumstances, is reducing its financial aid pledge to Africa by 33 per cent, yet in compensation, forgiving debt that might never be repaid in any event.
If such a move is accompanied renewed lending, third world states - principally in Africa - may well surrender sovereignty incrementally to keep funds flowing. In this, the West with its higher standards of probity demanded of recipients may well be falling behind China in influencing the third world, which is not as poor as it once was and therefore should now be regarded as less as a liability than a future asset to itself and the world. In this China seems to be ahead of the game. |
