Tiny South Pacific nation seeks US$100 bil loan from China

SYDNEY: The Solomon Islands is seeking a US$100-billion loan from Chinese interests in talks begun soon after the small South Pacific archipelago switched diplomatic ties to Beijing from Taiwan last year.

Details of the proposal, reviewed by Reuters, have sparked concern over whether the small economy can handle a loan that represents more than 66 times its annual economic output.

The loan has been formally “offered by confidential donors” through broker Terry Wong, documents from the Solomons’ finance department show.

The broker, with a Beijing address, would receive a proposed fee of 11% if the US$100 billion loan is secured.

A person who answered calls to the broker did not comment.

Harry Kuma, the Solomons’ finance minister, who is leading the negotiations, told Reuters he would provide further detail about the talks next week.

The office of Prime Minister Manasseh Sogavare said an official statement was pending.

A senior member of the Solomons government with knowledge of the proposal confirmed the veracity of the documents. He declined to be identified because he is not authorised to speak on behalf of the government.

This person said the discussions were exploratory and there was no certainty a deal would be reached.

The proposal was from “private Chinese interests” and did not involve the Chinese government.

Responding to faxed questions from Reuters, China’s foreign ministry said it was not aware of the matter, but that ties between the two countries had got off to a good start since the establishment of diplomatic ties.

The correspondence between the broker and the Solomons government dates from last November, shortly after the South Pacific nation switched ties to Beijing from long-term partner Taiwan, drawing a sharp US rebuke.

The diplomatic switch was a prize for China in its bid to peel away allies from Taiwan, which it considers sacred territory with no right to state-to-state ties.

The site of fierce fighting in World War II, the archipelago is a key strategic location in the South Pacific.

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

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

Documents from the Solomons finance ministry include investment plans designed to recoup the brokerage fee and service annual interest of about 0.05% on the US$100 billion loan.

“Surplus revenue generated from the investment plan will be injected into the Solomon Islands national budget annually,” the proposal said.

In February, the International Monetary Fund (IMF) said the Solomons’ debt was low, but it was at risk of financial shocks as a small, low-income economy heavily reliant on a logging industry that is in decline due to depleted resources.

The Solomons has a population of about 650,000, and a GDP of US$1.47 billion, budget documents show.