Senators Warn Against China’s Debt-Trap Diplomacy During COVID-19 Crisis

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U.S. Sen. Chuck Grassley (R-Iowa) joined Sen. David Perdue (R-Ga.) and 14 of their Senate colleagues in expressing concerns with the impact that deteriorating global market conditions caused by COVID-19 will have on developing countries and the potential geopolitical implications of relief efforts.

In a letter to Treasury Secretary Steven Mnuchin and Secretary of State Mike Pompeo, the senators cautioned that the U.S. must be wary of enabling China’s debt-trap diplomacy in loans provided by multilateral development institutions for which the United States is the main funder.

“We urge the State Department and the Treasury to consider the impact of the Chinese-financed Belt and Road Initiative (BRI) on the finances of many troubled economies and policy implications of additional International Monetary Fund (IMF) or World Bank support,” wrote the senators. 

“Domestic economic constraints in China stemming from COVID-19 will likely make China less willing to roll over debts as they mature, which could exacerbate emerging-market liquidity challenges,” the senators continued. “As projects struggle in areas of strategic interest, China will be tempted to safeguard its investments and political influence.”

The senators outlined specific actions the U.S. should take in response to China’s predatory lending practices:

• Continue efforts to help countries review the viability of BRI projects
• Closely monitor countries now buckling under Chinese-issued debt
• Support offering debt restructuring to troubled economies through the IMF and World Bank
• Require any country that requests IMF assistance to be transparent in all outstanding finances and legal obligations, including BRI agreements and Chinese debt
• Pressure Chinese institutions to renegotiate the underlying debt of developing countries

“Short of this, U.S. and other Western taxpayers would be in essence bailing out Chinese financial institutions and enabling China’s debt-trap diplomacy,” the senators wrote.

The letter, led by Perdue, was signed by Grassley and senators Marsha Blackburn (R-Tenn.), John Cornyn (R-Texas), Mike Crapo (R-Idaho), Kevin Cramer (R-N.D.), Steve Daines (R-Mont.), Ted Cruz (R-Texas), Kelly Loeffler (R-Ga.), Martha McSally (R-Ariz.), Jerry Moran (R-Kan.), Marco Rubio (R-Fla.), Rick Scott (R-Fla.), John Thune (R-S.D.), Thom Tillis (R-N.C.), and Roger Wicker (R-Miss.).

Read the full letter here.

Author: Press Release