POLITICAL analyst Darren Lim and Victor Ferguson recently wrote an article for Rappler titled “Lessons for Manila from Sri Lanka’s ‘Debt-Trap’ Experience.”
Lim and Ferguson are experts on politics and international relations, and have written about China’s geo-economic strategy in Asia as well as in other regions, and although the topic of their essay is nothing new, it is a lesson that policymakers should pay attention to.
The crux of their essay is China’s debt trap diplomacy, a kind of strategy that is both old and new, depending on how you look at the situation. Both write, “Those more skeptical of China’s growing power, especially analysts based in the US and India, argue that the pattern of BRI lending – the offering of large ‘soft’ loans for infrastructure projects in strategically located developing countries, before leveraging that debt for concessions when countries are unable to meet the terms of repayment – belies a broader geopolitical strategy.”
The implication here is that the Duterte administration’s “Build, Build, Build” policy and its rapprochement with the People’s Republic of China (PRC) may put the Philippines in a precarious and, some might say, subservient position relative to China if – and this is a very important “if” – the administration’s infrastructure projects don’t bear enough returns to pay off the debt.
In the event that the Chinese-funded projects flop (as they already have in many cases in other countries) then the country will have a hard time paying back the borrowed money, in which case, one option is to simply hand over certain “concessions” to the Chinese in return for debt relief.
It works something like this. Let’s say that you have a business, and you took out a loan to fund it. However, your business has suffered in recent years, and so you cannot pay off your debt on time. One option that you have is to turn your debtor into a partner, and give him control over the business that’s proportional to the amount you owe him. You’re basically turning debt to equity. The problem with this set up is that when you surrender too much equity, you end up losing more and more control (or in the case of international relations, sovereignty).
Except in this case, we’re not talking about a business but an entire country. When China first began handing out loans to neighboring Asian and OROB countries, it knew that some of its borrowers would not be able to pay them back, and they were fine with this, because it puts them in the position of pushing their interests in regards to debtor nations.
Now, the Philippines is currently not in this position, and as far as I can see, our fundamentals are safe, but this situation won’t be resolved until we see the results of Build, Build, Build. Also, it takes more than good infrastructure to generate economic activity. So there’s really no guarantee that the Build, Build, Build program will generate the necessary funds to pay off the Chinese debt used to fund it.
Now, to be fair to the Duterte administration, the country does need a lot of infrastructure, but the point that Lim, Ferguson and myself want to make is that the Chinese debt-trap is real, and should things go wrong with Build, Build, Build, the country could fall into said trap, which I am sure most Filipinos would rather not happen. (jdr456@gmail.com/PN)
