Chinese Loans Pushing Poor Countries To The Brink Of Collapse: AP

A dozen poor countries are facing economic instability and even collapse under the weight of hundreds of billions of dollars in foreign loans, much of them from the world’s biggest and most unforgiving government lender, China, Bernard Condon reported for the Associated Press (AP).

Photo Insert: In Pakistan, millions of textile workers have been laid off because the country has too much foreign debt and can’t afford to keep the electricity on and machines running.

An AP analysis of a dozen countries most indebted to China — including Pakistan, Kenya, Zambia, Laos and Mongolia — show paying back that debt eats up the tax revenue needed to keep schools open, provide electricity, and pay for food and fuel.

These countries have to scrounge for foreign currency to pay interest on loans, leaving paltry sums for food and fuel.

Behind the scenes is China’s reluctance to forgive debt and its extreme secrecy about how much money it has loaned and on what terms. On top of that is the discovery that borrowers have been forced to put cash in hidden escrow accounts that give China first dibs on payment.

Countries in AP’s analysis had as much as 50% of their foreign loans from China and most were devoting more than a third of revenue to paying off foreign debt.

Two of them, Zambia and Sri Lanka, have already gone into default, unable to make even interest payments on loans financing the construction of ports, mines, and power plants. In Pakistan, millions of textile workers have been laid off because the country has too much foreign debt and can’t afford to keep the electricity on and machines running.

In Kenya, the government has held back paychecks to thousands of civil service workers to save cash to pay foreign loans. The president’s chief economic adviser tweeted last month, “Salaries or default? Take your pick.”

Since Sri Lanka defaulted a year ago, a half-million industrial jobs have vanished, inflation has pierced 50%, and more than half the population in many parts of the country has fallen into poverty.

Experts predict that unless China begins to soften its stance on its loans to poor countries, there could be a wave of more defaults and political upheavals.

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