China-India Relations: A Pearl Is Unstrung in the Maldives

Summary

Ibrahim Mohamed Solih has defeated the incumbent president Abdulla Yameen by approx. 40,000 votes – an unassailable margin in this small island nation of 417,000. Turnout in the weekend election was an eye-popping 89%.

Yameen has officially accepted the result and will now make way for his opponent. His departure marks the end of a tumultuous phase in Maldives politics. Since coming to power in the wake of a 2012 military coup, Yameen presided over a trend of deepening authoritarianism, rolling back press and individual freedoms and arbitrary jailing political opponents. The situation came to a head late last year when Yameen declared a state of emergency and shuttered the Supreme Court after it appeared as though an impeachment petition was on the verge of being approved.

Of course, the impact of the Solih victory goes well beyond domestic politics. The island nation has historically fallen within India’s sphere of influence, yet China had been making new inroads over the past decade as a key economic partner. This new triangular arrangement was reflected in the political arena: China supported Yameen in its usual ‘no-strings-attached’ manner, and India – along with the UK and US – supported the beleaguered opposition and decried the ongoing erosion of rights and freedoms.

With Solih’s victory, India has won the battle – but the war is far from over.

Impact

A surprise victory for Solih. There was a widely-held assumption that President Yameen would win the weekend’s election, if nothing because he had created a system that made it impossible for his opponents to unseat him. Over the past year, politicians have been harassed and/or imprisoned by security forces; media airtime has been restricted for opposition groups; and Yameen has successfully seeded key institutions like the judiciary and election commission with close allies. Just days before the election, police raided the opposition’s campaign headquarters for reasons that remain unknown.

It also wasn’t clear how voters would respond to Ibrahim Mohamed Solih. Solih is a longtime parliamentarian, but he lacks the name recognition of the handful of leaders who have alternated ruling the Maldives since the Nasir presidency ended. In hindsight, Solih likely benefited from his relative obscurity, as it put him beyond the pale of the corruption allegations that have dogged past presidents, whether Abdulla Yameen, Mohamed Nasheed, or Maumoon Abdul Gayoom.

Maldives in the Chinese debt trap? Chinese economic engagement deepened dramatically under the Yameen presidency, prompting concerns that the Maldives was being saddled with an unserviceable debt burden. Several islands have been leased by the Chinese government on long-term agreements, and Beijing has financed a variety of development projects – some with dubious long-term value. One such project is the China-Maldives Friendship Bridge, a 2.1 km bridge joining the island of Malé with Hulhulé, where the airport is located. The bridge will cost $210 million, with $126 million coming as grant-in-aid from the Chinese government. Though the project will go a long way in alleviating traffic congestion in Malé, its inflated cost (over three times as much as former president Nasheed’s estimate in 2011) has fueled corruption concerns. The bridge, like many other China-financed projects in the Maldives, was the result of a closed bidding process involving only Chinese companies.

China is also upgrading the Maldives’ international airport – a project valued at around $830 million.

According to Gateway House, the Maldives is on the hook for at least $1.5 billion in Chinese loans. The terms of the various agreements haven’t been made public, but available evidence suggests they’re highly onerous. In July, former president Mohamed Nasheed claimed that the country is devoting over 20% of the national budget to interest payments (keep in mind the political imperative to exaggerate the figure at the time). A more conservative estimate puts the current amount at $92 million a year, or 10% of the Maldives annual budget.

The World Bank predicts that the Maldives’ debt load will reach 121% of GDP by 2020, nearly doubled from the 60% of GDP that the Yameen government was projecting for the end of 2018.

Looking ahead, we may see a situation similar to Malaysia, where Prime Minister Mahathir pledged to review projects agreed upon by his pro-China predecessor. The likely result would be public disclosures of the true cost of projects currently under construction, and potentially the actual terms of repayment as well. The Solih administration inherits a strained fiscal outlook; it will be in its immediate interests to unload as much responsibility as it can onto its predecessor.

The Indian government gets a geopolitical reprieve. At the height of this year’s political crisis in the Maldives, many were clamoring for India to get directly involved via a military show of force. They argued that the crisis was a consolidation of Chinese power in India’s historical backyard, and that this wasn’t just a case of Beijing supplanting New Delhi – eventually, likely via debt default, the Maldives would be handing over a strategic asset that would put a permanent PLA Navy installation on India’s doorstep. They viewed events in the Maldives as the latest advance of China’s ‘string of pearls’ strategy to encircle its major strategic competitor in Asia. Their fears were all but vindicated when the PLA Navy dispatched warships to the Indian Ocean at the height of the constitutional crisis in February.

But New Delhi restricted its concerns to diplomatic channels, and its patience has now paid off. Incoming president Ibrahim Mohamed Solih is generally considered to be pro-India, and a warming can be expected between New Delhi and Malé. However, we should not presume that India-Maldives relations will be returning to the ‘good old days.’ While China lost its champion in Yameen, it will remain a major player in the region. After all, Chinese loan financing – onerous though it can be – is often the only show in town for developing countries struggling to develop their basic infrastructure. Looking ahead, the Maldives-India-China triangular arrangement is here to stay.

A temporary setback for the China model. The election comes as a blow for Beijing, not only because of what it represents for China’s short-term interests in the Maldives, but also for the Belt and Road Initiative (BRI) ‘China model’ of development as a whole. There have been a few setbacks for BRI of late, notably in Malaysia, Pakistan, and now the Maldives. Malaysia and the Maldives both produced shock election results that unseated firmly pro-China politicians, and the new government of Pakistan, though far less disconcerting to China given the country’s lack of geopolitical wiggle room, is said to be pushing for a renegotiation of CPEC contracts. These setbacks have also come amid a more widespread scrutiny of Chinese lending to vulnerable countries, and the ongoing US-China trade war. As a result, we could see a somewhat softer face of BRI lending over the short-term as President Xi tries to rehabilitate the public image of his landmark initiative, perhaps in the form of maturity extensions for some of China’s most debt-distressed borrowers.