Isabella Carter
Chequebook diplomacy is a foreign policy that uses economic aid and investment between countries to achieve diplomatic favour. It is a type of bilateral diplomacy based on debt, where a creditor country intentionally extends excessive credit to a debtor country to allegedly extract economic or political concessions when the debtor country is unable to honour its debt obligations. Chequebook diplomacy has been associated with China's lending practices, which have been criticised for imposing unsustainable debt burdens on vulnerable countries, often collateralised by strategically important natural assets. However, it is important to note that other countries, such as Russia, have also been known to engage in chequebook diplomacy.
| Characteristics | Values |
|---|---|
| Type of diplomacy | Debt-based diplomacy |
| Nature of bilateral relations | One creditor country and one debtor country |
| Intention of the creditor country | To extract economic or political concessions from the debtor country |
| Nature of the concessions | Diplomatic recognition, favourable access to natural assets, etc. |
| Nature of the debt | Excessive credit |
| Repayment | In the form of economic aid and investment |
| Examples | China's substantial support for Pacific nations tackling the Covid-19 pandemic, Russia's aid to Nauru, Tuvalu, and Vanuatu in exchange for diplomatic recognition of the breakaway South Caucasus states of Abkhazia or South Ossetia |
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What You'll Learn
- Bank cheque diplomacy is a type of diplomacy based on debt
- It involves bilateral relations between creditor and debtor countries
- The creditor country extends excessive credit to the debtor country
- The debtor country often becomes unable to honour its debt obligations
- This results in economic or political concessions being made by the debtor country
Bank cheque diplomacy is a type of diplomacy based on debt
Chequebook diplomacy is a type of diplomacy based on debt, carried out in the bilateral relations between countries. It involves a creditor country intentionally extending excessive credit to a debtor country, often in the form of large project-related loans at market-based rates, with the intention of extracting economic or political concessions when the debtor country becomes unable to honour its debt obligations. The loaned money is typically used to pay contractors from the creditor country, and the debtor country may be required to provide favourable access to their natural assets, such as mineral resources or ports.
Chequebook diplomacy has been associated with China's lending practices, which have been criticised for imposing unsustainable burdens on vulnerable countries. For example, from 2013 to 2016, China’s contribution to the public debt of heavily indebted poor countries nearly doubled from 6.2% to 11.6% according to an IMF study. China's Belt and Road Initiative has also been characterised as a form of chequebook diplomacy, with the country allegedly using loans and investment to acquire real estate in strategically located foreign lands and gain diplomatic recognition for breakaway states such as Abkhazia and South Ossetia.
In contrast to Chinese loans, lending from institutions like the International Monetary Fund and the World Bank is collateralised by strategically important natural assets, even if they lack short-term commercial viability. However, there have been calls for these institutions to work towards more detailed agreements with borrowing countries, particularly in the case of the World Bank and China, to ensure transparency and adherence to internationally accepted best practices for financial sustainability and development standards.
Chequebook diplomacy has also been observed in the Pacific region, where countries are highly dependent on aid. China and Taiwan have engaged in "buying" diplomatic recognition from Pacific nations since the 1970s, and more recently, there has been an uptick in such diplomacy by non-traditional donors. For example, Slovenia, Estonia, and Kuwait have provided aid to Pacific nations, illustrating the enduring use of chequebook diplomacy by both established and emerging donor nations.
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It involves bilateral relations between creditor and debtor countries
Chequebook diplomacy is a type of diplomacy based on debt, carried out in the bilateral relations between creditor and debtor countries. It involves a creditor country intentionally extending excessive credit to a debtor country, often in the form of loans for infrastructure projects. The debtor country then becomes burdened with debt, which it struggles to repay, leading to economic or political concessions being extracted by the creditor. For example, China has been accused of using chequebook diplomacy to gain access to strategically important natural assets and ports in poorer countries.
In recent years, there has been a significant uptick in such diplomacy by donors not traditionally involved in the Pacific region. For instance, Slovenia provided close to US$44,000 in one-off aid to three nations in a Compact of Free Association with the United States – Palau, Micronesia, and the Marshall Islands. Similarly, Estonia provided more than US$225,000 to Fiji in 2017 to support its Presidency of the UNFCCC, a move that coincided with Estonia's bid for a Security Council seat.
Chequebook diplomacy can also involve the diplomatic recognition of breakaway states in exchange for aid or investment. For example, Nauru recognized Abkhazia and South Ossetia (breakaway regions of Georgia) in exchange for USD 50 million in aid from Russia. Tuvalu recognized Abkhazia and South Ossetia as well, allegedly after an offer of aid from Russia. This form of diplomacy is often criticized for a lack of transparency and for imposing unsustainable burdens on vulnerable countries.
To address these concerns, the World Bank and other Multilateral Development Banks (MDBs) should work towards more detailed agreements with creditor countries, such as China, to ensure that lending standards are transparent, financially sustainable, and adhere to modern labour, governance, and environmental standards.
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The creditor country extends excessive credit to the debtor country
Chequebook diplomacy, or checkbook diplomacy, is a type of diplomacy based on debt carried out in the bilateral relations between countries. It involves a creditor country extending excessive credit to a debtor country with the intention of extracting economic or political concessions when the debtor country is unable to honour its debt obligations. The loaned money is typically used to pay contractors from the creditor country, and the conditions of the loans are often not made public.
For example, China has been accused of using chequebook diplomacy to gain influence and acquire real estate in strategically located foreign lands. China provides huge loans to finance and build infrastructure in poorer countries, but in exchange, it demands favourable access to their natural assets. This has led to concerns about unsustainable debt burdens and a lack of transparency in lending practices.
To illustrate, a study by the International Monetary Fund (IMF) found that from 2013 to 2016, China's contribution to the public debt of heavily indebted poor countries nearly doubled from 6.2% to 11.6%. This has raised alarms among world leaders, who are calling for better adherence to internationally accepted best practices for transparency and financial sustainability in lending projects.
It's important to note that chequebook diplomacy is not limited to China. Other countries, such as Russia, have also been known to engage in this type of diplomacy. Additionally, new donors are emerging, such as Slovenia, Estonia, and Kuwait, who are providing aid and development funding to gain diplomatic support.
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The debtor country often becomes unable to honour its debt obligations
Chequebook diplomacy is a type of diplomacy based on debt. It involves a creditor country intentionally extending excessive credit to a debtor country, often in the form of loans for infrastructure projects, with the intention of extracting economic or political concessions when the debtor country becomes unable to honour its debt obligations. This inability to meet debt obligations can stem from a variety of factors, including the often-market-based rates of the loans, a lack of transparency around loan conditions, and insufficient environmental and social impact assessments.
The debtor country's challenges in honouring its debt obligations can be exacerbated when loans are collateralized by strategically important natural assets with high long-term value, even if they lack short-term commercial viability. For example, a country may struggle to repay a loan used to build a new port that provides access to valuable trade routes. In such cases, the creditor country may demand favourable access to the debtor country's natural assets, including mineral resources and ports, further compounding the debtor country's difficulties.
The loaned funds are typically used to pay contractors from the creditor country, which can create a cycle of dependency and further limit the debtor country's ability to honour its debt obligations. This dynamic can be observed in the relationships between China and several Pacific nations, where China has provided substantial loans and investment as part of its Belt and Road Initiative. From 2013 to 2016, China’s contribution to the public debt of heavily indebted poor countries nearly doubled from 6.2% to 11.6%, according to an IMF study.
To avoid debt traps and honour their debt obligations, debtor countries should strive for greater financial transparency and sustainability in their projects. Adhering to internationally accepted best practices, modern labour standards, governance, and environmental standards can help ensure the long-term viability of their endeavours. Additionally, working towards a more detailed agreement with lending countries or organisations, such as the World Bank or other Multilateral Development Banks (MDBs), can provide a framework that supports debt management and repayment.
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This results in economic or political concessions being made by the debtor country
Chequebook diplomacy is a type of bilateral diplomacy based on debt. It involves a creditor country intentionally extending excessive credit to a debtor country with the intention of extracting economic or political concessions when the debtor country is unable to honour its debt obligations. This results in economic or political concessions being made by the debtor country. For instance, in exchange for financing and building infrastructure in poorer countries, China gains favourable access to their natural assets, from mineral resources to ports. China's lending practices have been criticised for imposing unsustainable burdens on vulnerable countries, with a lack of transparency and adherence to international standards for labour, governance, and environmental protection.
Furthermore, countries like Russia have engaged in chequebook diplomacy by offering aid to Pacific island nations in exchange for diplomatic recognition of breakaway states such as Abkhazia and South Ossetia. This has led to concerns about the potential for debt traps and the strategic use of economic aid to gain geopolitical influence.
In the Pacific region, chequebook diplomacy has been a key component of engagement for several decades, with China and Taiwan vying for diplomatic recognition through substantial aid and development funding. This competition for influence has resulted in increased aid and grants provided by emerging donor nations, such as Estonia, Slovenia, and Kuwait, who are trying to conform to development norms while also pursuing their geopolitical interests.
The term "chequebook diplomacy" evokes the idea of governments using their economic power to dispose of money at their discretion, without necessarily expecting a direct financial return. Instead, the return on investment comes in the form of political influence, access to natural resources, or strategic geopolitical advantages.
To address the potential pitfalls of chequebook diplomacy, it has been suggested that organisations like the World Bank and other Multilateral Development Banks (MDBs) should work towards more detailed agreements with lending countries like China to ensure that lending standards, transparency, and sustainable development practices are adhered to in infrastructure projects.
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Frequently asked questions
Bank cheque diplomacy, also known as cheque book diplomacy or chequebook diplomacy, is a foreign policy in which countries use economic aid, investment, and debt to achieve diplomatic favour or recognition.
In bank cheque diplomacy, a creditor country extends excessive credit to a debtor country. The loaned money is often used to pay contractors from the creditor country, and the debtor country may struggle to honour its debt obligations. This can result in the creditor country extracting economic or political concessions from the debtor country.
In recent years, China has been accused of using bank cheque diplomacy to increase its influence and acquire real estate in strategically located foreign lands. For example, China provides large project-related loans to poorer countries to finance and build infrastructure. In exchange, China gains favourable access to their natural assets, such as mineral resources and ports.
