When it comes to settling its cripplingly high debt, Malaysia seems to be looking east.
Speaking to Malaysian press after a meeting with his Japanese counterpart Shinzo Abe, Prime Minister Mahathir Mohamad announced that he had asked Japan to extend Malaysia yen credit in the form of soft loans to help clear the country’s debt, The Star reported.
The soft loans – with interest rates of just 0.7 per cent during Mahathir’s last stint as Prime Minister during the eighties – could be used to retire older, existing loans with interest rates of up to six per cent.
“Some of these loans also come with a 10 per cent commission for the person facilitating the credit. This means that if the loan is RM100mil, we are only getting RM90mil but servicing the loan at six per cent.
“This means that we are effectively paying seven per cent or even 7.5 per cent,” Dr Mahathir is quoted as saying in The Star.
“If it is possible, we can reduce the costs of borrowing by taking loans from another source.
“This will help our huge national debt,” he said, according to The Star.
He said that Japan is looking into the proposal.
Mahathir met Abe during his recent trip to Japan to attend the 24th Nikkei Conference on the Future of Asia, his first trip as Prime Minister after the opposition coalition Pakatan Harapan’s shock win in May’s general election.
At an earlier joint press conference, Abe said that the Look East policy, established when Mahathir was last in office, would be “rejuvenated” and “upgraded,” The Star reported.
The Malaysian premier’s visit to Japan has been interpreted by some as a deliberate shift away from China, according to Reuters.
China invested heavily in Malaysia during the term of previous Prime Minister Najib, buying assets held by scandal-plagued state fund 1MDB as well as funding prominent projects including the East Coast Rail Link.
Even before PH’s victory on May 9, Mahathir announced that he would be reviewing some of Malaysia’s China-funded projects and that the country would stop borrowing from China.
Mahathir has since complained about the terms in China’s loans and has even alleged that some of the projects could have been used to cover up the 1MDB scandal, The Star reported.
Chinese investment in Malaysia has also stoked fears of increasing Chinese influence and the potential loss of sovereignty, a sentiment echoed in other countries.
Many media organisations and experts have questioned the motives behind the generous loans China has extended for infrastructure projects in developing nations
As Ronak D. Desai outlines in an article for The Straits Times, the terms of the loan favour China, often allowing access to lucrative national resources or market entry for Chinese goods.
Worse, the projects often fail to rake in enough cash and the country finds itself unable to pay its debts, leaving it reliant on China.
Sri Lanka is an often-cited example of China’s so-called debt trap diplomacy, its Hambantota port handed over to a state-run Chinese company under a 99-year lease deal after it failed to pay its debt. The port, situated at the intersection of several Indian Ocean trading routes, may well prove to be of great strategic importance to China.
Another project in Sri Lanka, the Mattala Rajapaksa International Airport, has earned the unenviable title of the world’s emptiest airport.
Concern is also mounting in southeast Asia, with some suggesting that the loans Laos and Cambodia received from China prompted the two nations to support China’s claims in the South China Sea.
A commentary by Alito L. Malinao in the Philippine Daily Inquirer earlier this year raises a similar point, with the author questioning Foreign Secretary Alan Peter Cayetano’s defence of China’s actions in Philippine waters, and speculating on whether the slew of projects being funded by China will eventually cause the country to become “beholden to Beijing.”
Addressing the issue of Chinese investments, Mahathir said that Malaysia will remain friendly with China, but will not be “indebted to China”, Reuters reported.