Poor Nations Near Collapse Under Chinese Loans

 

According to an analysis by the Associated Press, about a dozen poor countries are struggling to repay foreign loans, principally from China, and face instability and collapse. For years, China has used its considerable wealth to gain influence throughout Africa and Asia through loans which it strictly enforces:

"An Associated Press analysis of a dozen countries most indebted to China — including Pakistan, Kenya, Zambia, Laos and Mongolia — found paying back that debt is consuming an ever-greater amount of the tax revenue needed to keep schools open, provide electricity and pay for food and fuel. And it’s draining foreign currency reserves these countries use to pay interest on those loans, leaving some with just months before that money is gone.

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. On top of that is the recent discovery that borrowers have been required to put cash in hidden escrow accounts that push China to the front of the line of creditors to be paid." (our emphasis)

The countries analyzed in the AP's report had up to 50% of their foreign loans from China, including two (Sri Lanka and Zambia) which have already gone into default on loans financing public infrastructure. Combined with China's harsh terms and unwillingness to forgive some loans, these nations are facing the collapse of their economies:

"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.

'In a lot of the world, the clock has hit midnight,' said Harvard economist Ken Rogoff.  'China has moved in and left this geopolitical instability that could have long-lasting effects.'”

The cynic in us says that China is promoting instability and collapse of the poorer nations' governments in order to cultivate more pro-China regimes in their places, as they dangle loan forgiveness in return for a client state. Stay tuned to see if the situation improves or deteriorates.

(photo: Chinese worker at Trinidad and Tobago site. New China News Agency)