ZCZC
BCN-12
CONGO-CHINA-IMF-DEBT,FOCUS
China’s vast investment in Africa hits a snag in Congo
PARIS, April 28, 2019 (BSS/AFP) – China’s investment strategy of throwing
money at developing countries appears to have hit a snag in the Republic of
Congo as the central African nation is seeking an IMF bailout.
While the funding it provided to Congo wasn’t part of the Belt and Road
Initiative (BRI), which China was promoting this week, it serves as a
cautionary tale of the trouble Beijing could face with its plan for massive
investments in maritime, road and rail projects across 65 countries from Asia
to Europe and Africa.
When the plunge of global oil prices in 2014 blew a hole in the Congolese
government’s finances, it was China that stepped in to help.
But despite the recovery of oil prices, the country, also known as Congo-
Brazzaville, has had trouble getting back on top of its finances and has
asked the International Monetary Fund for help.
The IMF places conditions on its loans to force governments to take
measures to boost their finances. In addition, as the IMF can only lend if it
judges that a country’s debt load is sustainable, a bailout may be
accompanied by a restructuring of government debt.
“It’s certainly the first time China has found itself confronted with this
kind of situation,” said a specialist in relations between China and Africa
who asked her name not be used as the discussions with IMF were still
underway.
“The Republic of Congo is seeking IMF protection in order to avoid a
possible default on its payments,” she added.
“China, which holds more than a third of its foreign debt, is not really
comfortable with that.”
MORE/HR/1015
ZCZC
BCN-13
CONGO-CHINA-IMF-DEBT,FOCUS 2 PARIS
– China lending full-tilt –
Julien Marcilly, chief economist at Coface, a firm that provides payment
insurance for French companies, said that China “went full-tilt on lending in
recent years, often to countries which produce and export raw materials, in
particular oil.”
It is only now that “Beijing is beginning to realise that problems can
build up”, in particular after Venezuela defaulted.
The situation is all the more worrying as the Republic of Congo in 2005
was one of the countries that benefited from an international debt relief
initiative for the world’s poorest countries.
Its foreign debt was bought down from 119 percent of annual economic
output to just 33 percent.
But like other oil-producing nations, Congo-Brazzaville took a beating
from the 2014 plunge in oil prices.
“It was an expected and very brutal drop in prices, which was ironically
linked to a slowdown in China,” noted Marcilly.
The drop in oil prices meant the nation’s economic output dropped by 50
percent. As a consequence, its debt as a percentage of GDP soared to 110
percent in 2017.
About one-third of the country’s debt is in Chinese hands, or about $2
billion, said the specialist in relations between China and Africa.
The Congolese government reached an agreement with IMF negotiators a year
ago, but the terms need to be approved by the IMF’s governing board.
One year later, the deal has yet to be approved.
A French source confirmed that the IMF programme is contingent on Congo-
Brazzaville’s debt becoming sustainable, which means that a deal has to be
reached with China on cutting the amount owed or pushing back payments.
However it would be unusual for Beijing to do this. When Sri Lanka was
unable to repay its loans it was forced to turn over a deep-sea port to China
for 99 years.
The IMF and China both declined to comment when contacted by AFP.
MORE/HR/1018
ZCZC
BCN-14
CONGO-CHINA-IMF-DEBT,FOCUS 3 LAST PARIS
– IMF hemmed in –
It will be tricky for the IMF to find a compromise.
Last year a group of US lawmakers urged Treasury Secretary Steven Mnuchin
to use his influence at the IMF — where the United States holds the most
voting rights of any nation — to block bailouts of countries that were too
heavily indebted to China.
“For the United States it out of the question that the IMF rescues a
country that is in debt to China,” the specialist said.
With the IMF sticking to its long-held position that debt must be
sustainable at the end of a rescue programme so it gets repaid, the situation
was blocked.
Until a mid-April meeting of IMF leaders, the question of Congo’s debt to
China was only being discussed between the two nations.
A Congolese source told AFP on the margins of the meeting that “China made
efforts, we’re making progress.”
She added it was hoped the rescue programme could be approved at an IMF
board meeting in June.
“We understand that things are moving along a good path, but it hasn’t
been signed yet,” a French source said.
France has prioritised increased transparency on lending to developing
countries during its G7 presidency, particularly those in Africa where France
still backs the CFA franc.
BSS/AFP/HR/1020