By Ben Packham - The Australian
Papua New Guinea has asked China to refinance its entire government debt of $11.8 billion in an unprecedented move that could give Beijing huge leverage over Australia’s nearest neighbour.
PNG Prime Minister James Marape announced the request after a meeting yesterday with Chinese ambassador Xue Bing in Port Moresby — less than a fortnight after an official visit to Australia at the invitation of Scott Morrison, who has sought to counter rising Chinese influence across the region.
Mr Marape, who had vowed to “take back” PNG’s resource-rich economy from foreigners, would give a formal letter of request to the ambassador to convey to Beijing, his office said in a statement.
“(The Prime Minister) requested the ambassador to inform Beijing on a bid to assist the government of PNG refinance its existing country’s K27bn debt,” the statement said. “He suggested that both the Bank of PNG and the PRC People’s Bank will take the lead with the Department of Treasury in ensuring that consultations are under way.”
The statement said Mr Marape had also requested China enter into a free-trade agreement with Pacific Island countries, and foreshadowed a state visit by Mr Marape to Beijing.
It said the visit would be combined with signing agreements and talks on future co-operation on a range of projects including ports and airstrips.
The Australian understands the Australian government was already in preliminary talks with PNG to help it avoid a looming “fiscal cliff”. This included an offer of help to put together a debt restructuring plan funded by the International Monetary Fund.
International banking sources, who requested anonymity for fear of antagonising China, said Beijing was likely to require collateral — such as a major resources project — in case PNG defaulted on the loan.
Other countries have had to hand over key assets after falling into Chinese “debt traps”, including Sri Lanka, which was forced to sign over the Port of Hambantota on a 99-year lease when it defaulted on a Chinese loan.
The Lowy Institute’s Pacific program director, Jonathan Pryke, said if the deal went through, “it would be of huge benefit to the cash-strapped government”, consolidating short-term and expensive loans and helping to alleviate foreign exchange pressures.
“The risk for the lender is that, without commitments to structural reform, there is no guarantee that PNG would be able to pay back the debt now owed to them,” Mr Pryke said.
“China may look for other strategic or economic guarantees that would make the $US8bn liability more palatable, but as far as I know this would be new territory for them.”
PNG’s public debt, which stands at about 32.8 per cent of GDP, is expensive to service, with 10-year bonds paying about 12 per cent interest.
PNG owes China about $870 million, or about 7 per cent of government borrowings.
PNG’s government debt for last year came in at 26.9bn kina ($11.8bn), a legacy of the O’Neill government, which borrowed heavily during the boom years of 2012-14.
This included a $1.2bn loan from investment bank UBS to buy a 10 per cent stake in the ASX-listed Oil Search, which later tanked on falling oil prices and cost PNG an estimated $420m.
Pro-China PNG MP William Duma, a former minister who was sent to the backbench by Mr Marape, welcomed the Prime Minister’s decision to seek debt consolidation assistance from China.
“Our country’s future lies with China and the rest of Asia,” Mr Duma said.
“Asian countries, starting with China, do not worry about the size of a country or how wealthy it is, but they give prominence to people-to-people relationships.”
Go to this link for more: https://www.theaustralian.com.au/nation/politics/china-circles-png-amid-debt-blowout/news-story/a79709b361d5dfe80fd1226b9cd6a3a8
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