China's Huge Investment in Africa Announces Difficult Announcement in Congo

BEIJING – China's investment strategy of injecting money into developing countries seems to be hindered in the Republic of Congo, as the country of Central Africa seeks an IMF bailout.

The funding provided to the Congo was not part of the Belts and Roads Initiative (BIS), which China was promoting this week, but it warns of the difficulties that Beijing might face with its mbadive investment plan. in the maritime, road and road sectors. and rail projects in 65 countries from Asia to Europe and to Africa.

When the fall of world oil prices in 2014 dug a hole in the finances of the Congolese government, it is China that intervened to help.

Despite the recovery in oil prices, the country, also known as Congo-Brazzaville, struggled to recover from its finances and asked for help from the International Monetary Fund.

The IMF imposes conditions on its borrowing to force governments to take measures to boost their finances. Moreover, since the IMF can only lend if it believes that a country's debt burden is sustainable, a bailout can be accompanied by a restructuring of the public debt.

"This is certainly the first time that China is facing this kind of situation," said a China-Africa relations specialist who asked that his name not be used because the discussions with the IMF were still ongoing.

"The Republic of Congo is asking for the protection of the IMF in order to avoid a possible default of payment," she added.

"China, which holds more than a third of its external debt, is not really comfortable with that."

CHINA READY TO FULL

Julien Marcilly, the chief economist of Coface, a company that provides payment insurance to French companies, said China "has totally relied on lending in recent years, often to commodity producing and exporting countries. , especially oil ".

It is only now that "Beijing is beginning to understand that problems may arise", especially after Venezuela's failure.

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 from the world's poorest countries.

Its external debt rose from 119% of annual economic output to only 33%.

But like other oil-producing countries, Congo-Brazzaville was hit hard by the drop in oil prices in 2014.

"It was an expected and very brutal drop in prices, which was ironically linked to a slowdown in China," Marcilly said.

Falling oil prices resulted in a 50% drop in the country's economic output. As a result, its debt as a percentage of GDP climbed to 110% in 2017.

About one-third of the country's debt is in the hands of China, about $ 2 billion, said the China-Africa relations specialist.

The Congolese government reached an agreement with the IMF negotiators a year ago, but the terms must be approved by the IMF's board of directors.

A year later, the agreement has not yet been approved.

A French source confirmed that the IMF's program is contingent on the debt sustainability of Congo-Brazzaville, which means that an agreement must be reached with China on reducing the amount owed or the deferral of payments.

However, it would be unusual for Beijing to do so. When Sri Lanka was unable to repay its loans, it was forced to return an ocean-going port to China for 99 years.

The IMF and China both declined to comment when contacted by AFP.

IMF HEMMED IN

It will be difficult for the IMF to find a compromise.

Last year, a group of US lawmakers urged Treasury Secretary Steven Mnuchin to use his influence with the IMF, where the United States holds the largest number of voting rights, to block the bailout countries that are too indebted to China.

"For the United States, it is out of the question that the IMF saves a country indebted to China," said the specialist.

The IMF, in keeping with its long-standing position that the debt must be sustainable at the end of the bailout program in order to be repaid, the situation has been blocked.

Until a meeting of IMF leaders in mid-April, the issue of Congo's debt vis-à-vis China was only under discussion between the two countries.

A Congolese source told AFP on the sidelines of the meeting that "China has made efforts, we are making progress".

She added that it was hoped that the bailout program could be approved at an IMF board meeting in June.

"We understand that things are going well, but it has not been signed yet," said a French source.

France has given priority to greater transparency in lending to developing countries during its G7 presidency, particularly in Africa, where it still supports the CFA franc.