Congo’s IMF Bailout Request Should Concern China

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Written by Peter Pedroncelli

Congo’s request to the International Monetary Fund for help to avoid a default may serve as a cautionary tale for China, which holds more than a third of its foreign debt.

When global oil prices dropped heavily in 2014, the Congolese economy and government’s finances suffered. China took the opportunity to step in and assist with funding, according to Polity.

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Following the recovery of oil prices, Congo has continued to struggle with its finances and has asked the IMF for help, reports South China Morning Post.

The International Monetary Fund is a Washington D.C.-based
organization with 189 member countries that works to promote global economic cooperation, secure financial stability and reduce poverty around the world.

The IMF provides loans to member countries experiencing financial problems.

China’s vast investments across Africa and future plans for further investment mean that it will expose itself to these kinds of situations, and its investment strategy should take such examples into consideration. 

The Asian economic superpower plans to make large investments in maritime, road and rail projects in 65 countries across Asia, Europe and Africa, according to ENCA.

IMF bailout
Chinese President Xi Jinping and Congo President Denis Sassou Nguesso listen to their national anthems during a welcoming ceremony inside the Great Hall of the People in Beijing. AP Photo – Lintao Zhang

Many of these are focused in Africa, where China has been attracted to invest due to an abundance of natural resources including oil, gas and metals to meet its energy imports and construction demand.

The resources are also necessary to sustain the country’s manufacturing industry, IssAfrica reports.

IMF bailout worries China

In requesting an IMF bailout so that the country does not default on its loans, Congo has made China uncomfortable.

An expert in China-Africa relations who wishes to remain anonymous told AFP that the Asian country has not encountered this sort of issue previously and is not comfortable with the involvement of the IMF as China holds more than a third of Congo’s external debt.

For the IMF to provide a loan, the receiving government must take measures to boost its finances which may include restructuring government debt, EWN reports.

In Congo’s case, that could mean an agreement may need to be reached with China on cutting the amount owed or pushing back payments.