The cost of gaining influence: India promises Maldives $1.4 billion in aid as the island nation looks to reduce its debts to China

^{(Image source-https://presidency.gov.mv)}

• On 17 December, the Indian government announced that it was extending $1.4 billion in financial aid to the island nation to help the latter fund its “socio-economic development” programs.
  
• During the previous administration of President Abdullah Yameen, Maldives took on a lot of loans from Chinese entities to fund infrastructure projects and currently needs to service them.
  
• As part of his election agenda, Maldives’ new President, Mohamed Solih, said he would renegotiate or cancel contracts that the previous government had signed with China so as to curtail the country’s debt burden.
  

As expected, the visit of Maldives’ new President, Mohamed Solih, to India this week primarily hinged on one goal: securing some form of financial assistance to help it repay its debts. India’s Prime Minister Narendra Modi, seeking to cement a relationship with an important regional neighbour, was happy to oblige.

On 17 December, the Indian government - which is currently struggling to meet its fiscal deficit targets - announced that it was extending $1.4 billion in financial aid to the island nation. The assistance won’t completely be a direct cash transfer, but will also take the form of currency swap and credit lines. In exchange, India could also be allowed to establish a military presence in Maldives.

The announcement is a natural progression in the relationship between the two countries following the election win of Solih, which portended a move away from China in favour of India. The two countries also signed a number of pacts, one of which related to visa facilitation.

The Indian government said that the aid would be used to help Maldives fund its “socio-economic development” programmes. However, Maldives finances clearly need a boost as it looks to service what could be as much a few billion dollars of debt to China, although the actual number has proved elusive so far.

During the previous administration of President Abdullah Yameen, the island nation took on a lot of debt from Chinese entities to fund infrastructure projects like bridges and airports. From China’s point of view, it made sense to gain influence in a country which fell in the middle of many important shipping routes towards the West.

As part of his election agenda, Solih said he would renegotiate or cancel contracts that the Yameen government had signed with China so as to curtail the country’s debt burden. Last month, he was reportedly planning to scrap a free trade agreement with China.

The Modi administration sees China’s increasing presence in the Indian Ocean as a threat and hence, is looking to neutralise it by strengthening ties with regional neighbours.

The example of Maldives is a suitable template for many countries in the region, such as Sri Lanka, Pakistan and Malaysia, that find themselves with a lot of debts to repay to China.

Wresting influence in Maldives from China will be an important win for India as it looks to protect its interests in the Indian Ocean. While it doesn’t boast the financial clout of China, it will, in all likelihood, have no choice but to offer financial and trade incentives to countries in the region.


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