Australia Doesn’t Want Rise in Pacific Debt Burden

THE Turnbull government minister responsible for the Pacific has sounded a new warning about foreign loans, suggesting unsustainable levels of debt risk destablising island nations on Australia’s doorstep.

Wading into a fresh debate over China’s increasing influence in the South Pacific, International Development Minister Concetta Fierravanti-Wells said the Australian government welcomed investment from other nations, but not if it became a burden for developing economies.

Senator Fierravanti-Wells, who stirred controversy in January by accusing China of financing ‘useless buildings’ and ‘roads to nowhere’ in the Pacific, also said island nations should be aware that loans come with conditions and that aid donors and lenders – including development banks – should take into account the economic vulnerability of developing nations.

“We welcome contributions but in the end, we do not believe that the debt burden should be increased. Our priority is to ensure that we have a stable, secure and prosperous Pacific,” the minister told Fairfax Media.

“Australia delivers its aid in the form of grants. That’s very important to distinguish between assistance delivered in the form of grants as opposed to loans. That needs to be very, very clear.”

The Lowy Institute has found China directed $1.7 billion (US$1.3 billion) of aid – largely in the form of concessional loans – to eight Pacific nations in recent years, triggering concerns about economic stress, a lack of transparency around the terms, and the potential for the Chinese government to use the debt as political leverage.

Senator Fierravanti-Wells said Australia was committed to high standards of transparency with its grants and encouraged other countries to do the same.

Debate around the strategically important South Pacific flared this week after Fairfax Media revealed China and Vanuatu have held preliminary discussions about establishing a permanent People’s Liberation Army presence on the island nation.

The Chinese government has spent hundreds of millions of dollars in grants and loans for buildings and infrastructure in Vanuatu over the past decade. China reportedly accounts for nearly half of Vanuatu’s $440 million (US$341 million) foreign debt.

The minister also stood by her comments to The Australian newspaper earlier this year accusing China of using loans to construct ‘white elephants’ – a statement that angered Pacific leaders and the Chinese government.

“My comments were precisely going to the point of not imposing unnecessary debt burdens and therefore it’s the same message. It’s basically: we don’t want countries in our region to have imposed on them heavy debt burdens. That’s what it comes down to, that’s what I’ve said in the past,” Senator Fierravanti-Wells said on Wednesday.

Former Labor foreign minister Bob Carr, now the director of the Australia-China Relations Institute, said concerns about dangerous levels of debt were legitimate and suggested Australia raise the issue with Pacific countries and China.

He said the Turnbull government should provide advice to developing countries to help them assess development loan offers. He also called for Australian aid spending to increase as the structural budget deficit was reduced.

“We’re certainly entitled to raise with the Chinese our concerns. And we’re certainly entitled to put it on the agenda for the Pacific Islands Forum,” Mr Carr told Fairfax Media.

“Are small island developing states receiving proper advice before they load up with more debt? That’s a reasonable question.”

The overall Australian aid budget will fall to $3.9 billion (US$3 billion) this financial year. Spending will rise to just over $4 billion (US$3.1 billion) in 2018-19 and then be frozen at that level for two further years. The government has prioritised Asia-Pacific aid, which has been protected from harsh cuts.

Foreign Minister Julie Bishop on Wednesday said there was a huge need for infrastructure investment in Australia’s region but that it had to be productive.

“We don’t want to see any development assistance turn into a burden on vulnerable economies,” she said.