2. US warns Pacific on China debts

Pacific countries should avoid taking on water in the form of debt that cannot be easily serviced, a US diplomat has warned. Photo: Sam Sachdeva.

New Zealand’s Pacific reset has been praised by a top United States diplomat, who has warned Pacific countries against becoming “saddled with debt” as China boosts its spending in the region.

Matt Matthews, US deputy assistant secretary for Australia, New Zealand and the Pacific Islands, discussed the country’s engagement in the Pacific in a conference call on Monday afternoon (NZT).

Matthews said the Pacific remained of “ongoing and critical importance” to the US, which has been working on an Indo-Pacific strategy to ensure the “free and open architecture” of the region.

The US was one of the Pacific’s top development partners, providing over $350 million of funding in the last financial year, and was holding meetings with Pacific ambassadors in Washington DC on where and how it could best provide aid.

One of the major issues in the Pacific has been China’s growing investment and attempts at influence, including lending hundreds of million dollars through concessional loans that are growing the debt levels of island nations.

China’s approach to concessional loans more generally has been described by some as “debt trap diplomacy”, with recipient countries running the risk of default after taking on heavy debt. Last year, Sri Lanka handed over its Hambantota port to China on a 99-year lease, after the country was unable to pay back debts to Chinese state-owned enterprises involved in its construction.

Earlier this year, Foreign Affairs Minister Winston Peters announced plans for New Zealand to increase its aid and engagement in the region through a “Pacific reset”, while other countries have also bumped up their contribution levels in recent weeks.

While New Zealand politicians have shied away from directly naming China as a source of concern, Matthews said it was clear that the country had “dramatically increased its funding into the region [with] a lot of lending”.

“We’d want to make sure that that lending takes place in a way that’s constructive and that helps grow the economies in the Pacific.”

Matthews said the country should follow the example set by multilateral institutions like the World Bank, as well as traditional donors like New Zealand and Australia, to “step up and meet international standards”.

Aid projects in the Pacific, regardless of the donor, had to be transparent, of a high standard, and in line with international rules and norms, Matthews said.

“Infrastructure projects should always catalyse local countries rather than leave them saddled with debt…

“Each and every project should be evaluated against the metrics of whether or not it improves the economic sustainability and prosperity of a country which is the recipient of the grant or the loan, particularly cases where you have lending involved.”

The US would increasingly focus on infrastructure projects and how it could get private sector participation, and would coordinate with other regional donors like Japan, Australia and New Zealand.

The US was “very welcoming and supportive” of New Zealand’s Pacific reset and similar initiatives from other countries, Matthews said, and hoped to increase its own engagement in the region through its Indo-Pacific strategy.

“We see this all as extremely constructive because all these players do adhere to international standards and they’ve been good for governance and supportive of security within the region.”

The top priority in the region from a security perspective was dealing with North Korea’s “destabilising” nuclear programme, Matthews said.

The US had been working with Pacific nations to help them deregister fishing vessels linked to North Korea, and recently hosted meetings with countries including New Zealand, Fiji and Palau to share best practice from experts.

The country was also working on plans for a training programme on the issue for Pacific countries, hosted in partnership with Australia and New Zealand.