Solomon Islands seeks $ 100 billion loan from Chinese interests

SYDNEY (Reuters) – The Solomon Islands government is seeking a $ 100 billion loan from Chinese interests in negotiations that began shortly after the small South Pacific archipelago transferred diplomatic ties from Taiwan to Beijing last year.

FILE PHOTO: The national flags of Solomon Islands and China fly in Tiananmen Square in Beijing, China October 7, 2019. REUTERS / Stringer / File Photo

The details of the proposal, reviewed by Reuters, have raised concerns over whether the small economy can handle a loan that is more than 66 times its annual economic output.

The loan was officially “offered by confidential donors” through broker Terry Wong, according to documents from Solomons’ finance department. The broker, with an address in Beijing, would receive an 11% commission if the $ 100 billion loan was secured.

A person who answered the broker’s calls did not comment.

Solomons Finance and Treasury Minister Harry Kuma, who is leading the talks, told Reuters he would provide more details on the talks next week.

Prime Minister Manasseh Sogavare’s office said an official statement was pending.

A senior Solomon government official with knowledge of the proposal confirmed the veracity of the documents. He declined to be identified as he is not authorized to speak on behalf of the government.

This person said the talks were exploratory and there was no certainty that a deal would be reached. The proposal came from “Chinese private interests” and did not involve the Chinese government.

China’s Foreign Ministry did not immediately respond to a request for comment sent by fax.

The broker’s correspondence with the Solomons government dates back to November last year, shortly after the South Pacific nation severed ties with longtime partner Taiwan in favor of Beijing, which sparked a strong rebuke from the United States.

The diplomatic change was a price for China in its attempt to withdraw its allies from Taiwan, which it sees as sacred territory without the right to state-to-state ties.

The archipelago, where heavy fighting took place during World War II, is also a highly strategic location in the South Pacific.

Opposition lawmaker Peter Kenilorea, who was critical of the diplomatic shift to Beijing, said he was fiercely opposed to the loan proposal.

“It’s extraordinarily stupid,” he told Reuters on Friday, citing unsustainable debt.

The Solomons’ finance ministry documents include investment plans designed to recoup brokerage fees and serve an interest rate on the $ 100 billion loan that it says would be around 0.05% per year.

“Surplus revenues generated by the investment plan will be injected into the national budget of Solomon Islands each year,” the proposal says.

The International Monetary Fund (IMF) said in a February report that Solomon’s debt was low, but risked financial shocks given that it is a small, low-income economy heavily dependent on a declining forest industry due to resource depletion. .

The Solomons have a population of around 650,000 and a GDP of $ 1.47 billion, according to budget documents.

(GRAPHIC: Tug of war in the Pacific -)

Report by Jonathan Barrett in Sydney

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