Analysts: Rising Debt Burden Could Make Laos More Dependent on China | Voice of America
Laos is not likely to make all of its debt payments this year, largely owed to China, which has become the world’s largest lender, more than the World Bank or any other global institution, analysts say. .
When Vientiane’s bills come due, how will the renegotiations affect Beijing’s growing influence in its communist nation? The question is also part of a larger question about Beijing’s influence in Southeast Asia.
Laos was already at high risk of what analysts called “debt distress” before the coronavirus pandemic, but COVID-19 has only increased the risks of its foreign borrowing.
Fitch reviews lowered its official outlook for the Laotian economy to “negative” from “stable” last month, primarily based on Laos’ ability to repay its foreign loans as a result of the crisis. Currently, Laos has 19 confirmed cases of the coronavirus, according to Johns Hopkins University.
The risk is visible in the data. The debt that Laos owes to China stands at around 45% of the smallest nation’s gross domestic product, which is the highest percentage among countries included in a 2019 analysis by the Lowy Institute, an Australian research group.
“Laos has accumulated significant external debt over the past decade in connection with major new hydropower projects, as well as Belt and Road infrastructure projects,” said Rajiv Biswas, chief economist for the Asia-Pacific region of London-based analytics firm IHS Markit. In an interview with VOA, Biswas also said that this had “increased the burden of paying down debt in the medium term”.
The hydroelectric projects and the estimated $ 500 billion Belt and Road Initiative are part of a program by China to connect with dozens of countries through infrastructure. The initiative would link China with Europe, Africa and other parts of Asia. The level of indebtedness that some countries could incur in the face of such investments is a cause for concern. China said no conditions were attached to its investments and loans.
Fitch estimates that Laos has foreign exchange reserves of $ 1 billion and will owe $ 900 million in external debt payments this year. He also predicts that state revenues will contract by around 25%. He said if the one-party state couldn’t meet payment deadlines, China’s dominated lenders would be motivated to cancel Laos’ loans or help Laos pay them off with new loans.
“Geopolitical considerations and economic interests are likely to stimulate more bilateral lending, or debt relief, in the absence of sufficient funding from other sources,” Fitch said. We do not know what Beijing would want in exchange for its generosity.
The United States is concerned that China is aiming to become too powerful over the 10-member Association of Southeast Asian Nations. US Secretary of State Mike Pompeo held a video conference with ASEAN foreign ministers in April, warning them that China had built more territory in the disputed South China Sea, sunk a Vietnamese fishing boat this year and dammed the Mekong River, which could limit fish and nutrients flowing downstream to Laos, Cambodia, Thailand and Vietnam.
“The United States strongly opposes bullying from China,” he said. “We hope other nations will hold them accountable as well.”
The largest lender in the world
China and the United States have both increasingly sought to establish ties with Southeast Asia in areas ranging from geopolitics to business. Cloud companies like Microsoft and Google are competing with Chinese giants Huawei and Alibaba for customers in the region.
In one of the biggest recent business deals, Facebook and PayPal, both based in California, bought stakes in Indonesian ridesharing company Gojek, which already has investments from Chinese tech company Tencent.
Infrastructure financing is another arena of influence, which China wields through Belt and Road, and the United States through its “Indo-Pacific” spending program. The loans from the Asian nation are however much higher. The German institute in Kiel analyzed the data last year and concluded that Beijing has become the world’s largest lender, overtaking groups like the International Monetary Fund and the World Bank. He said that between 2000 and 2017, other countries’ debt to China “increased tenfold from less than $ 500 billion to over $ 5,000 billion.”
Laos is one of the most indebted of these nations. What China gets from the bilateral relationship ranges from Vientiane resisting joint ASEAN action in the South China Sea, to a standby rail line that will link China with Laos and, possibly, its neighbors. Laos is also one of the first nations, along with Cambodia, to sign plans that “endorse China’s regional vision of a community of common destiny,” said Jonathan Stromseth, senior researcher at the Brookings Institution.
“China is becoming increasingly involved in the internal affairs of Southeast Asian countries,” he said in a November report.
Examples include China recruiting Southeast Asians for study tours and training, as well as appealing to its diaspora in the region to serve as a diplomatic bridge, he said, adding: ” China has stepped up activities in target countries to influence results and public opinion. ”