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Debt-trap diplomacy

Debt-trap diplomacy
Highlights

US Defence Secretary James Mattis has praised Prime Minister Narendra Modi for speaking about massive debts, saying he made a really good point about...

US Defence Secretary James Mattis has praised Prime Minister Narendra Modi for speaking about massive debts, saying he made a really good point about the dangers of accepting loans that are "too good to be true." Mattis heard the PM at the International Institute for Strategic Studies' 17th Asia Security Summit -- also known as the Shangri-La Dialogue -- in Singapore on Saturday.

Governments must not put other nations under "impossible burdens of debt," Modi said, amidst the growing global concern over the so-called Chinese model of "debt diplomacy." Sometimes a country borrows to build infrastructure, and the donor nation’s own workers get the best construction and other jobs. And aid that does not guard against corruption can hurt rather than help the recipient nation.

That’s why some kinds of foreign aid amount to debt-trap diplomacy. Aid recipients can find themselves greatly indebted to a single creditor: Over half of Kenya’s sovereign debt, for example, is held by China, according to share.america.gov. Through its $1 trillion “one belt, one road” initiative, China is supporting infrastructure projects in strategically located developing countries, often by extending huge loans to their governments.

As a result, some of these countries are becoming saddled with debt, leaving them even more firmly under China's thumb, writes project-syndicate.org. The Center for Global Development, a non-profit research organization, analyzed debt to China that will be incurred by nations participating in the current Belt and Road investment plan.

Eight nations will find themselves vulnerable to above-average debt: Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Montenegro, Pakistan, and Tajikistan, writes Qz.com, adding that researchers argue that China should work to bring other countries into their investment programs to spread debt more equally, and adopt stricter standards and more transparency about how sustainable its support for developing economies really is. Donor countries, says PM Modi, must empower nations, not place them under impossible debt burden.

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