Pacific aid surges as China, U.S vie for influence

PNG and China leaders
Photo: Chinese Embassy in PNG/Twitter

Regional powers poured record amounts of cash into the Pacific Islands during the coronavirus pandemic to help them weather the economic fallout as competition for influence heats up between China and the West.

An annual study released by Australia’s Lowy Institute on Monday showed financial assistance to the Pacific Islands rose 47 percent in 2020 versus the year before.

Lead researcher Alexandre Dayant told AFP that “there was a massive increase in loans”. Total financing soared to $4.2 billion (US$2.6 billion) — the highest figure on record and roughly equivalent to Fiji’s gross domestic product.

Much of the spending splurge was driven by crisis as tourism and trade-dependent islands across the region suffered with countries closing their borders to keep out the virus.

“The Pacific was facing massive, massive support needs, they were facing massive economic contraction,” Dayant said.

Collectively, the Pacific Island economies shrank 6.4 percent in 2020, twice as much as the world average, according to figures from the International Monetary Fund.

The Asian Development Bank (ADB), which is led by Japan and the United States, was among institutions dramatically increasing assistance.

Much of the help came in the form of direct loans, easing short-term fiscal pressures, but potentially storing up problems for down the track.

However, China’s spending in the Pacific actually fell in 2020 despite Beijing stepping up efforts to boost ties over the past decade with high-profile infrastructure projects.

“Fewer and fewer countries are signing Chinese loans in the Pacific, only Papua New Guinea and Vanuatu have signed new loans,” said Dayant.

But two Pacific nations that broke diplomatic ties with Taiwan in 2019 in favour of Beijing received a boost in Chinese funding.

“China is investing quite a lot in the Solomon Islands and the same thing in Kiribati,” Dayant said.

Beijing’s relations with the Solomons have deepened considerably since 2020, with Prime Minister Manasseh Sogavare increasingly looking to China as a partner.

The Chinese are “transferring funds directly to the Solomon Islands Constituency Development Fund, which is a slush fund that members of parliament use for their constituencies”, Dayant added. Critics have suggested this money was effectively used to buy the support of key politicians. Sogavare this year signed a landmark pact with Beijing that could allow Chinese security forces to deploy to the Solomon Islands.

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