The ruling Communist Party in Laos has given the go-ahead to the government to officially negotiate a controversial loan with China to finance an ambitious high-speed railway project linking the two countries.
The 11 members of the Politburo of the Central Committee of the Lao People's Revolutionary Party have unanimously approved a resolution to make preparations to negotiate the U.S. $7.2 billion loan from China, a member of the party's Central Committee told RFA's Lao Service last week.
The Politburo is the party's highest body and directs policies of the government, which has come under fire for being prepared to be subject to stringent conditions imposed by loan provider Exim Bank of China.
Some Lao and foreign experts felt that the conditions could saddle the resource-starved country with financial problems and tighten Beijing's grip on Laos.
Pro-China Deputy Prime Minister of Laos Somsavat Lengsavat, in charge of the rail project since the beginning, has volunteered to lead the Lao delegation's upcoming meetings with Chinese officials over the loan and has also asked to remain in charge of the project's implementation, the party source said.
The party's decision to push ahead with the Chinese loan came five months after the Lao parliament decided that the country implement the estimated 420-kilometer (261-mile) rail project.
A Chinese construction company, which was to have partnered with Laos in the venture, has pulled out because it felt the project would not be profitable enough, the local Vientiane Times reported.
The rail project will connect the Lao capital Vientiane to the country's Luang Namtha province along the border with China, with the network linked further to a line from Kunming, the capital of China's Yunnan province.
Interest payment
A Lao Ministry of Finance official said in December that the country may have to pay a whopping U.S. $3 billion interest payment for a U.S. $7 billion loan it will obtain from Exim Bank of China.
The interest fee of nearly half the principal sum could result in Laos having to divert its precious share of revenue from Chinese-owned gold and bauxite mining operations to repay the massive loan, the official said, speaking on condition of anonymity.
He calculated the interest payment to be around U.S. $3.33 billion, basing it on a 2 percent compounded interest rate to be imposed on the 30-year loan.
At least nine legislators in the one-party communist state have expressed opposition to the project, concerned that the Chinese loans could sink the economy deeper into financial problems, sources had said.
An assessment of the rail project by a consultant for the United Nations Development Program said the terms of the financing offered by the bank were so onerous they put Laos's "macroeconomic stability in danger," the New York Times said in a January report.
Other international donors echoed the findings, the newspaper said.
'Perfect sense'
But the Global Times newspaper, a tabloid with strong ties to the Chinese Communist Party, said in a recent report that the loan is collateralized with underground mineral reserves because "in the highly unlikely event of the project's total failure," it "can be repaid through extraction over the years, and the cash repayment will be minimal."
"It makes perfect sense for a landlocked country to make a strategically important and productive railway investment that secures access to trading partners and lubricates the movement of essential productive factors," the report said.
In fact, the Global Times report said, most economists would predict that the commissioning of the railway will enable the export of perishable agricultural products, reduce transportation costs, help local farmers and merchants fetch better prices through international trade, facilitate domestic migration of labor, and boost processing trade.
Deputy Prime Minister Somsavat has told the country's parliament that the rail project, much of the construction of which will be carried out by Chinese workers, will attract more foreign investment and boost economic growth.
Laos has also inked an agreement to build a U.S. $5 billion railway connecting Thailand and Vietnam.
A Malaysian company, Giant Consolidated Ltd., was in early November awarded a contract to construct and operate the 220 kilometer (140 mile) railway from Savannakhet, on Laos’s southwestern border with Thailand, to the Lao Bao border gate with Vietnam in the east.
Reported by RFA's Lao Service. Translated by Viengsay Luangkhot. Written in English by Parameswaran Ponnudurai.