Easy money

  • Many countries have got into trouble after failing to service enticing foreign loans

Sep 27, 2018-

Prime Minister KP Oli’s five-day visit to Beijing in June 2018 resulted in fruitful developments such as the signing of a memorandum of understanding on several items, most notably a Lhasa-Kathmandu railway. India did not see this trip, which will bring significant developmental benefits to Nepal and geopolitical benefits to China, from a positive point of view. For some in New Delhi, such agreements threaten well-established mutual cooperation between India and Nepal. They do not see this development as a positive bilateral agreement between Nepal and China, but as a direct move away from the hegemonic might of India.

This is definitely not entirely the case, contrary to the stance taken in numerous news articles published in the India media. Nepal is not ‘going into China’s arms’ to defy India. Instead, Nepal is primarily driven by developmental aspirations. This is understandable as it is still one of the poorest countries globally, despite widespread narratives about Asia’s global economic and political rise.

Unreliable partner

The impetus for Nepal to try to move away from India is also a result of the southern neighbour’s failure to be a reliable development partner. Some even say that India has sometimes had a regressive influence on Nepal’s development. This may have been reflected in New Delhi’s tacit support to an economic blockade of essential supplies in the aftermath of a devastating earthquake in 2015. Incidents like this may have led to Nepal feeling alienated. The first Indian prime minister to visit Nepal in 17 years was Narendra Modi in 2014. This could have potentially been a strategic mistake by India. Nepal may seek to improve relations with other countries, but this has no malicious intent towards India. The question is why Nepal is not given the freedom in foreign policy dealings with its other neighbours.

The idea of sovereignty bestows every nation with the same legal status. Therefore, India’s expectation of utter neutrality (or worse, unconditional allegiance) from Nepal overlooks Nepal’s sovereignty and freedom to make its own foreign policy decisions. Nepal and India have a long and close, and also complicated, relationship. It is a simple fact that no other nation shares the same linguistic, cultural, religious and ethnic similarities with Nepal as India. Their shared open border also facilitates a huge flow of goods, trade and migration.

On the other side of the frozen passes of the Himalaya, China shares none of India’s similarities with Nepal, but it can offer competing development resources and assistance. In the past few years, Nepal has accepted more development and joint infrastructural programmes from China. This has been seen as being part of a calculated geopolitical move away from India. It is seemingly impossible to accept aid from one country without being seen as moving away from another. This, for undeveloped nations, is surely unfair and restrictive.

The traditional way of looking at international relations where every move a nation makes is part of its overarching ideology, and which has been applied here to Nepal’s ‘overtures to China’, may not be applicable to small states such as Nepal or Bhutan. It is too limiting when it comes to studying the geopolitical moves of smaller countries like Nepal. Smaller states have a greater need to secure their own resource needs, often at the expense of being able to take a principled geo-political stance regarding foreign direct investment and foreign aid. However, it would also be wrong to assume that every move by Nepal is simply a response to its need for resources, but it does remain that a realist international framework is too constrictive to adequately describe such events.

Academics and theorists would do well to understand that turning down a multi-billion dollar development project to safeguard a poor nation’s geostrategic aim would be a foolish luxury. This is a luxury that many nations cannot afford. When Nepal jumped on the Belt and Road Initiative (BRI) bandwagon, it was not as a deliberate rejection of India. It was the acceptance of a hugely beneficial development project that would modernise, if not revolutionise, Nepal’s transport infrastructure.

BRI has been criticised as a hegemonic power project of China, which may be true in some aspects. But those who make this claim are unaware of the very real benefits that BRI brings to nations that join it. Besides trumpeting the new developments with China, the political establishment in Kathmandu should also assess its own political sincerity towards such large commitments with powerful countries. Further, embarking on ambitious projects purely based on political objectives without really considering the long-term implications—such as debt repayment mechanisms, other geo-political considerations and project viability concerns—would be dangerous.

The stakes for both China and India are high, and misgivings will not be treated mercifully or forgiven as they have been in the past. There are numerous countries today that have found themselves at the receiving end of unfavourable conditions after failing to service the billions of dollars worth of loans because they did not take into account the long-term implications of accepting seemingly ‘easy money’.

Salient examples

Chinese investment projects in Sri Lanka and Pakistan are salient examples. Sri Lankan politicians certainly rued their underestimation of their financial obligations when they had to hand over control of Hambantota port after they could not repay the money they borrowed to build it. Something like that could happen very easily in Nepal. Foreign agreements and arrangements should not be made as easily or freely as they are made at home because they involve far greater consequences.

In July 1950, India and Nepal signed a friendship treaty. A key aspect of this treaty is the agreement to respect each other’s sovereignty. It appears that almost 70 years on, Nepal is still struggling to get the respect that it deserves. Even cooperation with China on infrastructure development will only bear fruit if Nepal’s political establishment starts taking responsibility for its actions. An awakening to the geopolitical realities is the need of the hour because the costs of political insincerity may be very difficult for Nepal to pay.

Bhatta is an MPP candidate at the Lee Kuan Yew School of Public Policy. Morch is a journalist based in South Asia and Southeast Asia.

Published: 27-09-2018 08:03

User's Feedback

Click here for your comments

Comment via Facebook

Don't have facebook account? Use this form to comment