By Elke Larsen
United Nations flag. Island nations in the Pacific are increasingly likely to leverage their General Assembly votes for loans. Source: sbakshi's flickr photostream, used under a creative commons license.
When tiny Nauru, a nation of less than 10,000 people, is offered $50 million from Russia for a single vote its clear a market has emerged for purchasing support at the United Nations. As an unintended consequence of the UN system, at least 11 independent Pacific Island nations have found themselves in a unique position: they each have a vote at the United Nations and yet, because of their isolation, have no national interests in many of the distant disputes that fill the UN’s agenda. With a surplus of ‘unused’ votes, a market has been created where voting at the UN is exchanged for monetary assistance.
With a high level of dependence on foreign aid, Pacific Island nations have sought to diversify their income sources away from traditional donors such as Australia, New Zealand, and the United States in the name of increased sovereignty. The result is that, over the past four decades, the island nations have actively encouraged the formation of an “aid market.” Two negative consequences of this market can be observed from the China-Taiwan rivalry for diplomatic recognition. In 2009, it was estimated that Beijing’s aid in the South Pacific, including both grants and concessionary loans, totaled $209.9 million, while Taiwan’s was $60-$90 million. These aid transactions have not been transparent. This has less to do with undermining Western development efforts and influence and more to do with market-based incentives.
By not disclosing the details of their aid donations, both China and Taiwan hope to create a situation of imperfect information and pay below market price for the countries’ UN votes. This lack of transparency in grant-giving has too often resulted in money being funneled to violence, as happened in 2000, when a $25 million Taiwan grant was used to fuel violence in the Solomon Islands, and again in 2006, when Chinese aid likely supported the coup in Fiji. Moreover, China’s emphasis on concessionary loans is concerning. An estimated $183.2 million of China’s $209.9 million in aid in 2009 was in the form of soft loans, leading some states to overextended themselves—for instance, the Kingdom of Tonga holds debt equal to 32 percent of its GDP. Although many of these island nations believe their debt will be forgiven, such leniency seems unlikely given the leverage it provides China. Instead, these loans, taken in the name of greater autonomy, may actually be causing Pacific Island countries to give up sovereignty to their creditors.
For the traditional regional leaders, Australia and New Zealand, this market for votes pose a security threat by creating instability. Although there has been some success in their pushed for greater transparency via the Cairns Compact, the potential for instability remains. It is in the long-term interests of the United States, Australia, New Zealand, and the peoples of the Pacific to ensure that aid and loans are used to their full potential—to fund development projects rather than fuel corruption, violence, and unsustainable economic burdens. As one of the traditional regional leaders, the United States has a great deal of soft power in the South Pacific and it would be in all parties’ interests for it to use this political and social clout to press the islands’ donors to be more responsible with their assistance.
Elke Larsen is a research intern with the Pacific Partners Initiative & Southeast Asia Program at CSIS.
Please share these findings with the Asian Development Bank as most of the sovereign countries referred in the foregoing are members of ADB headquartered in the Philippines.
These countries will not necessarily turn to Russia, China, and Taiwan, unless the initial credit requests were declined by the commercial banks in the Western Pacific.
I was a Credit Administrator at Bank of Hawaii until January 1997 and has reviewed some of the credits emanating from the region. One was a hospital in Palau; the other was to National Fiji Sugar. The Palau Hospital was not routed properly for approval. The recommending loan officer should have passed it via Tripler Army Hospital for a review of the diseases endemic in the area, the US Department of Interior for the appropriation of the Compact Funds, and then to the US Ambassador to the Philippines and Palau.
Parallel events were occurring in Hawaii when the National Fiji Sugar credit facility was to go for Credit Committee approval. In hindsight, the risk assessment would have addressed the volatile political climate, but I would have referred the credit request to Asian Development Bank if Bank of Hawaii’s Credit Committee declined the credit facility.