This [week] Secretary of State Rex W. Tillerson delivered a speech on India to frame his visit to the country next week. Tillerson has offered formal speeches infrequently, and has been less visible on the South Asian region than his predecessors. I’m glad the secretary will finally travel to New Delhi and has finally decided to speak about India. I just wish he had done so earlier.
Tillerson ran through the expected list of U.S.-India accomplishments. He noted the increasing convergence of defense and strategic ties, commented on the need to constantly improve the business environment (an acknowledgement that India remains challenging), and then got to his theme: the United States and India should be partners to further a “free and open Indo-Pacific” because democratic India has been rising as a responsible power, upholding the rule of law and freedom of navigation, while China has not. He contrasted the two powers explicitly and repeatedly.
Tillerson spent time on the emerging problem of what he called “predatory economics” and nontransparent infrastructure financing, urging that, “We need to collaborate with India to ensure that the Indo-Pacific is increasingly a place of peace, stability, and growing prosperity — so that it does not become a region of disorder, conflict, and predatory economics.”
This clearly referred to China’s Belt and Road Initiative (BRI), and its financing for infrastructure projects that may or may not be economically viable, with unclear lending terms that may create unsustainable repayment obligations. Here, Tillerson appears to have been influenced by India’s public objections to the BRI for precisely these reasons.
South Asia is in so many ways a test case of what Beijing’s ambitious Initiative will deliver for recipient countries. The results in this region have caused alarm: Sri Lanka, unable to pay back its loan for an unviable port in the city of Hambantota, recently agreed to a debt-for-equity swap giving a Chinese state-owned enterprise majority ownership in the venture formed to operate the port. Sri Lanka can’t make good on the $6 billion loan it reportedly owes China, and the new deal is the result. No one knows what kind of bill Islamabad will eventually see for the $60-plus billion in infrastructure development to create the China-Pakistan Economic Corridor.
India has been trying to raise this issue on the international stage with little success. Back in May, India refused to attend the Belt and Road Forum in China. As I wrote at the time, the Indian statement on the Belt and Road Forum was forthright in its concerns:
Citing India’s commitment to physical connectivity “in an equitable and balanced manner,” the statement itemizes a series of principles for infrastructure projects that sound like a World Bank investment monitoring report:
- “must be based on universally recognized international norms, good governance, rule of law, openness, transparency and equality”
- “must follow principles of financial responsibility to avoid projects that would create unsustainable debt burden for communities”
- “balanced ecological and environmental protection and preservation standards”
- “transparent assessment of project costs”
- “skill and technology transfer to help long term running and maintenance of the assets created by local communities”
- “must be pursued in a manner that respects sovereignty and territorial integrity”
India obviously believes that Belt and Road projects do not meet the above criteria.
Tillerson proposed that the United States and India, as democracies interested in a free and open Indo-Pacific, should partner to develop transparent financial mechanisms that would help build the connectivity needed to increase trade and economic prosperity. He referred to the Millennium Challenge Corporation as one model, noting the recent compact signed with Nepal. But he provided no further specific proposals to sketch out in greater detail how the United States and India should work together to provide alternative financing.
He also did not address how the United States and India would together be able to provide an alternative to meet the extensive infrastructure financing needs in the Indo-Pacific region at a time when the Donald J. Trump administration seeks to shrink the State Department and USAID budgets. Multilaterally, last week Secretary of the Treasury Steven Mnuchin declined to support an effort to expand the World Bank capital base to increase development lending. That too, won’t help “expand transparent, high-standard regional lending mechanisms,” to use Tillerson’s words from this morning.
I look forward to further articulation of the concept that the United States and India will further partner to uphold rule of law, freedom of navigation, transparent financing to increase prosperity, and responsible leadership in the Indo-Pacific. Perhaps we’ll hear more next week from Secretary Tillerson in New Delhi.
Watch the full interaction below: