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World’s poorest countries pushed to brink of collapse under China debt

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(Last Updated On: May 25, 2023)

At least a dozen poor countries are buckling under the weight of hundreds of billions of dollars in debt, most of which is owed to China. 

A recent analysis, carried out by the Associated Press, found that for a dozen countries, paying back their debt is consuming a growing amount of their tax revenue needed to keep basic services going.

Among the countries analyzed was Pakistan, Kenya, Zambia, Laos and Mongolia and it was found that paying back their debt is also draining foreign currency reserves that these countries use to pay interest on the loans – leaving some with just months before that money is gone.

AP reported that behind the scenes is China’s reluctance to forgive debt and its extreme secrecy about how much money it has loaned and on what terms, which has kept other major lenders from stepping in to help. 

According to World Bank data analyzed by Statista recently, countries heavily in debt to China are mostly located in Africa, but can also be found in Central Asia, Southeast Asia and the Pacific. 

And, Statista reports that the new Belt and Road Initiative, which finances the construction of port, rail and land infrastructure, has created much debt to China for participating countries, specifically poor countries.

As of March last year, 215 cooperation documents had been signed with 149 countries on the initiative.

Countries in AP’s analysis meanwhile had as much as 50% of their foreign loans from China and most were devoting more than a third of government revenue to paying off foreign debt. 

Two of them, Zambia and Sri Lanka, have already gone into default, unable to make even interest payments on loans financing the construction of ports, mines and power plants.

In Pakistan, millions of textile workers have been laid off because the country has too much foreign debt and can’t afford to keep the electricity on and machines running, AP stated.

In Kenya, the government has held back paychecks to thousands of civil service workers to save cash to pay foreign loans. The president’s chief economic adviser tweeted last month, “Salaries or default? Take your pick.”

The study also found that since Sri Lanka defaulted a year ago, a half-million industrial jobs have vanished, inflation has risen by 50% and more than half the population in many parts of the country has fallen into poverty.

The study found that experts predict that unless China begins to soften its stance on its loans to poor countries, there could be a wave of more defaults and political upheavals.

AP’s report stated that a case study of how it has played out is in Zambia, a landlocked country of 20 million people in southern Africa that over the past two decades has borrowed billions of dollars from Chinese state-owned banks to build dams, railways and roads.

While the loans boosted Zambia’s economy, they also raised foreign interest payments so high that there was little left for the government, forcing it to cut spending on healthcare, social services and subsidies to farmers for seed and fertilizer.

In the past under such circumstances, big government lenders such as the U.S., Japan and France would work out deals to forgive some debt, with each lender disclosing clearly what they were owed and on what terms so no one would feel cheated.

But China didn’t play by those rules, AP reported. It refused at first to even join in multinational talks, negotiating separately with Zambia and insisting on confidentiality that barred the country from telling non-Chinese lenders the terms of the loans.

By late 2020, Zambia was unable to pay the interest and defaulted, setting off a cycle of spending cuts and deepening poverty. 

Since then, inflation in Zambia has increased by 50%, unemployment has hit a 17-year high and the nation’s currency, the kwacha, has lost 30% of its value in just seven months. AP also found that 3.5 million Zambians are now not getting enough food. 

AP reported that a few months after Zambia defaulted, researchers found that the country owed $6.6 billion to Chinese state-owned banks, double what many thought at the time and about a third of the country’s total debt.

China’s unwillingness however to take big losses on the hundreds of billions of dollars it is owed, as the International Monetary Fund and World Bank have urged, has left many countries on a treadmill of paying back interest, which stifles the economic growth that would help them pay off the debt.

For Pakistan, its foreign cash reserves have plunged more than 50%, according to AP’s analysis, while in nine of the 12 countries analyzed, foreign cash reserves have dropped on average of 25% in just one year. 

Based on this, Pakistan for example has only two months left of foreign cash to pay for food, fuel and other essential imports if it does not get a bailout. Other countries, such as Mongolia, have eight months left. 

AP found that last month, Pakistan was so desperate to prevent more blackouts that it struck a deal to buy discounted oil from Russia, breaking ranks with the US-led effort to shut off Vladimir Putin’s funds.

In Sri Lanka, rioters poured into the streets last July, setting homes of government ministers aflame and storming the presidential palace, sending the leader tied to onerous deals with China fleeing the country.

China has however disputed the idea that Beijing is an unforgiving lender and said in a statement that the Federal Reserve was to blame. 

It said that if it is to accede to IMF and World Bank demands to forgive a portion of its loans, so should multilateral lenders, which it views as US proxies.

“We call on these institutions to actively participate in relevant actions in accordance with the principle of ‘joint action, fair burden’ and make greater contributions to help developing countries tide over the difficulties,” the statement said.

But China’s approach to lending is widely considered more transactional and criticized as “opaque” and analysts see Beijing’s desire to access oil, minerals and other commodities as the driving force behind Chinese lenders being less prone to applying strict conditions in helping governments finance roads, bridges and railroads – so as to unlock those resources.

Just last month, US Treasury Secretary Janet Yellen told lawmakers: “I’m very, very concerned about some of the activities that China engages in globally, investing in countries in ways that leave them trapped in debt and don’t promote economic development.”

“We are working very hard to counter that influence in all of the international institutions that we participate in,” she said. 

Since 2017, China has become the world’s largest official creditor, surpassing the World Bank, IMF and 22-member Paris Club combined, Brent Neiman, a counselor to Yellen, said late last year. 

Politico meanwhile reported earlier this month that China’s financing of projects in other countries between 2000 and 2017 totaled more than $800 billion, most of that in the form of loans.

But for some poor countries struggling to repay China, they now find themselves stuck in a kind of loan limbo: China won’t budge in taking losses, and the IMF won’t offer low-interest loans if the money is just going to pay interest on Chinese debt.

 

World

Moscow targeted by drone attack, no casualties

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(Last Updated On: May 30, 2023)

Moscow was targeted by a drone attack on Tuesday morning causing “minor” damage to buildings, the city’s mayor said.

“This morning, at dawn, a drone attack caused minor damage to several buildings. All the city’s emergency services are on the scene … No one has been seriously injured so far,” Moscow’s mayor Sergei Sobyanin said.

Russia’s defense ministry blamed Ukraine for a “terrorist attack,” saying it had intercepted all of the eight drones aimed at Moscow.

Moscow, located more than 1,000 kilometers from Ukraine, has rarely been targeted by drone attacks since the start of the conflict in Ukraine, even though such attacks have become more common elsewhere in Russia, AFP reported.

Images posted on social media showed traces of smoke in the sky. Others showed a broken window.

The attack follows a similar assault on Ukraine’s capital of Kyiv, carried out by Russian drones overnight and leaving at least one person dead, according to the city’s mayor Vitali Klitschko.

Russian forces fired missiles at Kyiv on Monday, sending panicked residents running for shelter in an unusual daytime attack on the Ukrainian capital following overnight strikes.

In early May, two drones were shot down over the Kremlin in an attack blamed on Ukraine.

Ukraine on Tuesday said it had downed 29 out of 31 drones, mainly over Kyiv and the Kyiv region, in the latest Russian barrage, the third in 24 hours.

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Philippines, US, Japan to hold first-ever joint coast guard exercise

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(Last Updated On: May 29, 2023)

The coast guard of the United States, Japan and the Philippines will hold a trilateral maritime exercise in the South China Sea this week, the first such maneuvers between them as a time of growing concern about China’s moves in the region.

The June 1 to 7 exercise in waters off Bataan province was an initiative of the United States and Japan, while Australia would join as an observer, said Philippine coast guard spokesman Armand Balilo on Monday.

Four Philippine vessels and one each from the United States and Japan will participate in exercises designed to improve search and rescue collaboration and law enforcement, Balilo said.

The Philippines was approached by Japan and the United States about holding joint maritime exercises in February, the same month when Manila accused China of aggressive activities in the South China Sea, vast stretches of which Beijing claims as its territory, Reuters reported.

“This is a usual routine activity among coast guard agencies,” Balilo told a press conference.

“There is nothing wrong with holding exercises with your counterparts.”

Japan, Australia and the United States have frequently condemned China’s militarisation in the South China Sea and have sought to engage closer with U.S. ally the Philippines since Ferdinand Marcos Jr took over as president last year from pro-China predecessor Rodrigo Duterte.

Philippine ties with the United States have gained ground under Marcos, who has been increasingly vocal about China’s conduct, including over its alleged use of a “military-grade laser” against a vessel supporting a navy food re-supply mission.

It has also complained about large numbers of suspected militia lingering near Philippine-held features in the disputed Spratly islands. China maintains the actions of its coast guard are legal and in its waters.

Balilo said the upcoming maritime exercise will include counter-piracy simulations, and possibly an interception exercise involving a vessel carrying weapons of mass destruction.

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Turkey’s Erdogan prevails in election test of his 20-year rule

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(Last Updated On: May 29, 2023)

President Tayyip Erdogan extended his two decades in power in elections on Sunday, winning a mandate to pursue increasingly authoritarian policies which have polarised Turkey and strengthened its position as a regional military power, Reuters reported.

His challenger, Kemal Kilicdaroglu, called it “the most unfair election in years” but did not dispute the outcome.

Official results showed Kilicdaroglu won 47.9% of the votes to Erdogan’s 52.1%, pointing to a deeply divided nation.

The election had been seen as one of the most consequential yet for Turkey, with the opposition believing it had a strong chance of unseating Erdogan and reversing his policies after his popularity was hit by a cost-of-living crisis, read the report.

Instead, victory reinforced his image of invincibility, after he had already redrawn domestic, economic, security and foreign policy in the NATO member country of 85 million people.

The prospect of five more years of his rule was a major blow to opponents who accused him of undermining democracy as he amassed ever more power – a charge he denies.

In a victory speech in Ankara, Erdogan pledged to leave all disputes behind and unite behind national values and dreams but then switched gears, lashing out at the opposition and accusing Kilicdaroglu of siding with terrorists without providing evidence, Reuters reported.

He said releasing former pro-Kurdish party leader Selahattin Demirtas, whom he branded a “terrorist,” would not be possible under his governance.

Erdogan said inflation was Turkey’s most urgent issue.

Kilicdaroglu’s defeat will likely be mourned by Turkey’s NATO allies which have been alarmed by Erdogan’s ties to Russian President Vladimir Putin, who congratulated his “dear friend” on his victory, read the report.

U.S. President Joe Biden wrote on Twitter: “I look forward to continuing to work together as NATO Allies on bilateral issues and shared global challenges.”

U.S. relations with Turkey have been impeded by Erdogan’s objection to Sweden joining NATO as well as Ankara’s close relationship with Moscow and differences over Syria.

Addressing jubilant supporters earlier from atop a bus in Istanbul, Erdogan, 69, said “the only winner today is Turkey”. “I thank every single one of our people who once again gave us the responsibility to govern the country five more years,” he said.

Erdogan’s victory extends his tenure as the longest-serving leader since Mustafa Kemal Ataturk established modern Turkey from the ruins of the Ottoman Empire a century ago – a politically potent anniversary to be marked in October with Erdogan in charge.

Erdogan, head of the Islamist-rooted AK Party, appealed to voters with nationalist and conservative rhetoric during a divisive campaign that deflected attention from deep economic troubles.

In his victory speech, he attacked the opposition again, calling them pro-LGBT.

Kilicdaroglu, who had promised to set the country on a more democratic and collaborative path, said the vote showed people’s will to change an authoritarian government. “All the means of the state were laid at the feet of one man,” he said.

Erdogan supporters, who gathered outside his Istanbul residence, chanted Allahu Akbar, or God is Greatest.

“I expect everything to become better,” said Nisa, 28, a headscarved woman wearing a headband with Erdogan’s name.

Another Erdogan supporter said Turkey would get stronger with him in office for five more years.

“There are issues, problems in every country around the world, in European countries as well … With strong leadership we will overcome Turkey’s problems as well,” said the supporter who gave his name as Mert, 39, as he celebrated with his son.

Bugra Oztug, 24, who voted for Kilicdaroglu, blamed the opposition for failing to change. “I feel sad and disappointed but I am not hopeless. I still think there are people who can see the realities and truth,” Oztug said.

Erdogan’s performance has wrong-footed opponents who thought voters would punish him over the state’s initially slow response to devastating earthquakes in February, in which more than 50,000 people died, Reuters reported.

But in the first round of voting on May 14, which included parliamentary elections, his AK Party emerged top in 10 of the 11 provinces hit by the earthquakes, helping it to secure a parliamentary majority along with its allies.

French President Emmanuel Macron offered congratulations, saying France and Turkey had “huge challenges to face together”.

The presidents of Iran, Israel, and the Saudi king were among leaders to congratulate him in the Middle East, where Erdogan has asserted Turkish influence, at times with military power. Erdogan, who was for years at odds with numerous governments in the region, has taken a more conciliatory stance in recent years.

Emre Erdogan, a political science professor at Istanbul’s Bilgi University, attributed Erdogan’s success to his supporters’ belief “in his ability to solve problems, even though he created many of them”.

Erdogan had also maintained the support of conservative voters who long felt marginalised. “This era will be characterized by a decline in political and civil liberties, polarization, and cultural fights between two political tribes,” he said.

Erdogan appeared to have prevailed despite years of economic turmoil which critics blamed on unorthodox economic policies which the opposition had pledged to reverse.

Uncertainty about what an Erdogan win would mean for economic policy pushed the lira to record lows last week, Reuters reported.

Reuters reported last week that there was disagreement within Erdogan’s government over whether to stick with what some called an unsustainable economic programme or to abandon it.

Kilicdaroglu had promised to reset governance, restore human rights, and return independence to the courts and central bank after they were sidelined over the last decade.

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