LDN - Business

Tonga PM fears asset seizures as Pacific debts to China mount

[August 16, 2018] By Charlotte Greenfield and Jonathan Barrett

WELLINGTON/SYDNEY (Reuters) - Pacific island nations are holding talks which could lead to a coordinated request that China forgive mounting debts in the region amid concerns Beijing may start seizing strategic assets, Tonga's Prime Minister 'Akilisi Pōhiva said on Thursday.

Tonga, one of eight island nations in the South Pacific carrying significant debt to China, is due to start repaying loans next month after borrowing heavily in the aftermath of deadly riots in 2006 that destroyed large parts of its capital.

China's possession of a Sri Lankan port as Colombo struggled with a spiralling debt crisis meant asset seizures could not be ruled out, Pōhiva told Reuters in a phone interview from Tonga.

"If it happens in Sri Lanka, it can happen in the Pacific - so it is entirely an option for China to consider," said Pōhiva, who did not identify any specific assets at risk of being seized.

"If we fail to meet the requirements and conditions set out in the agreement ... we have to pay the cost for our failure to meet the conditions."

China's Foreign Ministry did not immediately respond to a request for comment on Thursday. It has previously said there was no evidence China was responsible for creating unsustainable debt and that it retained good relations with Tonga.

In April, media reports suggested China wanted to establish a military base in the Pacific island nation of Vanuatu after funding a wharf big enough to handle warships. Both China and Vanuatu denied the reports.

Pōhiva, who came to power after the bulk of Tonga's $115 million debt to China was accumulated, said the region should negotiate as one.

"It is no longer an issue for individual countries because there are small countries who borrowed from China and we have problems with that and the option is to collectively work together to find a way out."

Regional leaders are due to gather at a Pacific Islands Forum early next month in the island nation of Nauru where Pōhiva said they will progress plans to ask for their debt to be forgiven.

China, which has a status as a 'dialogue partner' in the grouping, has sent an envoy to the event since 2007.

For a graphic on Chinese loans to Pacific nations on the rise, click https://tmsnrt.rs/2LG3p6S

DEBTS MOUNT

A recent Reuters analysis of the financial books of South Pacific island nations showed China's lending programmes have gone from almost zero to over $1.3 billion currently outstanding in a decade.

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Prime Minister of Tonga Samiuela Akilisi Pohiva addresses the United Nations General Assembly in the Manhattan borough of New York, U.S., September 24, 2016. REUTERS/Eduardo Munoz

The relatively high debt burdens in the small economies has stoked fears the region risks falling into financial distress and becoming more susceptible to diplomatic pressure from Beijing.

Despite holding little economic sway, each small Pacific state represents a vote at international forums such as the United Nations. They also control vast swathes of resource-rich ocean and access to the region holds strategic military significance.

China has forgiven debt owed to it by some countries in the past.

In 2016, China cancelled about $90 million in Cambodian debt at a time when Phnom Penh was seeking exemptions to longstanding debt to the United States.

But Beijing has also moved ahead with fresh loans and aid to the country, becoming its most important diplomatic and economic backer as Cambodia's relations with the United States have frayed.

Australia and New Zealand, traditionally the main powers in the South Pacific, have raised concerns about China's growing influence in the region, and led efforts to give more attention and aid to their island neighbours.

Australia's Minister for International Development and the Pacific, Concetta Fierravanti-Wells, said they were worried about the impact of heavy debt levels on vulnerable economies.

"This whole issue with Tonga has gone through the Pacific like a dose of salts, and understandably, because the money they now need to repay their loan means they have less money for health and education," Fierravanti-Wells told Reuters in a phone interview.

New Zealand's Foreign Minister and Deputy Prime Minister Winston Peters said in an emailed statement that "over-leveraging in any situation is always a bad idea".

(Reporting by Charlotte Greenfield in WELLINGTON and Jonathan Barrett in SYDNEY; additional reporting by Michael Martina in BEIJING. Editing by Lincoln Feast.)

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