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PNG seeks Chinese help to refinance debt, boost trade

SYDNEY/WELLINGTON (Reuters) - Papua New Guinea’s new leader has asked China to refinance its entire 27 billion kina ($7.8 billion) government debt and enter into free trading arrangements with Pacific island nations, even as competition for influence in the region intensifies between Beijing and Washington.

PNG Prime Minister James Marape said in a statement issued out of Port Moresby on Tuesday that the requests were raised during a recent meeting with the Chinese Ambassador to Papua New Guinea, Xue Bing.

On Wednesday, the prime minister watered down the comments, saying his government was in talks with a number of parties, not just China, to line up the best deal to refinance its debt, adding the earlier release was sent out without his consent.

“We are in discussion with many of our bilateral partners to access very low cost concession finance to give us some breathing space, and this includes our discussions with the World Bank, ADB and some other possible non-traditional partners,” Marape said in a statement.

PNG, a country rich in natural gas, crude oil, gold and copper, among other commodities, has fallen into large budget deficits in recent years. The government said in a fiscal update earlier this year “cash became tight” due in part to delays over a proposed $300 million budget loan from China.

The island nation’s total public debt accounts for just over 30% of its annual gross domestic product, according to a mid-year budget document, though it does not provide regular updates on how much of that is owed to China.

The request to Beijing coincides with aggressive warnings from U.S. Defense Secretary Mark Esper who said on Sunday that China was using “predatory economics” to destabilise the Indo-Pacific.

Reuters’ analysis of Pacific nation budgets has found that China ramped up its system of concessional loans over the past decade from almost zero to become the largest financier in the Pacific, bankrolling everything from ports and airports to sports stadiums and boulevards.

The sudden geopolitical interest in the Pacific has brought with it access to cheap financing, grants and gifts that were unimaginable to many of the small island economies only a few years ago.

Alison Stuart, division director of small states for the International Monetary Fund’s Asia Pacific department, said in a statement to Reuters that borrowing could support growth in Pacific island countries and address large infrastructure gaps.

She said the island economies were also vulnerable to a rapid build-up in debt burdens.

Pacific leaders are scheduled to attend the annual Pacific Islands Forum on the island of Tuvalu next week.

Tuvalu is one of six Pacific islands to recognise Taiwan, which Beijing views as a wayward Chinese province with no right to diplomatic relations.

In recent months China has intensified its lobbying of those countries to switch their diplomatic ties to Beijing.

Marape, who came to power in May, said in the statement he wanted Pacific island nations to enter into free trading arrangements with China “to boost economic corridor zones in the region”.

($1 = 3.4843 kinas)

Reporting by Jonathan Barrett in SYDNEY and Charlotte Greenfield in WELLINGTON; Editing by Jacqueline Wong