Some countries have become vulnerable to “debt-trap diplomacy,” in which creditor countries use debt to obtain their strategic goals.
A creditor country can use that debt burden to obtain strategic assets, such as ports or political influence. Debtor countries are often trapped into compliance, according to a recent report from Harvard University scholars.
“Over the past decade, China has extended hundreds of billions of dollars of loans to countries that often can’t afford to repay them,” the report’s authors, Sam Parker and Gabrielle Chefitz, wrote.
Countries vulnerable to ‘debt-trap diplomacy’
The report highlights that China has been able to exert influence on countries that have received large Chinese loans. For instance, after experiencing difficulty servicing its debt, the Sri Lankan government transferred the port of Hambantota to China in a 99-year lease. Djibouti, whose debt burden in 2017 approached 100 percent of its gross domestic product (GDP), recently agreed to host China’s first permanent overseas naval base, the report notes.
Most U.S. financial assistance to developing countries comes in the form of grants and low-interest loans for emergency response, global health, peace and security, and good governance.
The U.S. ambassador to Sri Lanka, Atul Keshap, said development doesn’t have to come at the expense of crippling debt. The United States has provided more than $2 billion in aid to Sri Lanka, Keshap said. “And all of that has been grant aid. There hasn’t been a loan in there,” he said in an interview with Sri Lankan news outlet Ada Derana. “It is a gift of the American people to see Sri Lanka be a truly strong and stable democracy.”