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International Relations

India offers Maldives $1bn in loans to help repay China debt

New Delhi calls for stronger security ties in exchange

India's Prime Minister Narendra Modi, right, shares a moment with Maldives former President Mohamed Nasheed during the swearing-in ceremony of President-elect Ibrahim Mohamed Solih in Male, Maldives on Nov. 17.   © AP

NEW DELHI -- India is considering providing up to $1 billion in loans to the Maldives to help it pay down its debt to China, but only if the island nation agrees to distance itself from Beijing, Indian government sources said.

India is in talks with the Maldives, offering low-interest loans over several installments in exchange for stronger security ties, including the permanent deployment of Indian military personnel in the island nation, according to the sources.

The countries are expected to iron out the details before Maldivian President Ibrahim Mohamed Solih, who took office on Nov. 17, visits India in December.

Under Solih's predecessor, Abdulla Yameen, the Maldives borrowed heavily from China to build bridges and housing as part of Beijing's Belt and Road infrastructure initiative. Yameen was even believed to have handed over some islands to China.

India, which sees the Indian Ocean as its own backyard, is alarmed by the possibility that China could build naval bases on the islands.

People travel on the China-funded Sinamale bridge in Male, Maldives. Under former President Abdulla Yameen, the Maldives borrowed heavily from China to build bridges and housing.    © AP

Negotiations appear to be going well. Maldivian Foreign Minister Abdulla Shahid and Indian External Affairs Minister Sushma Swaraj agreed to cooperate on economic and security issues at a Monday meeting in New Delhi.

Abdulla "reiterated that the government of Maldives will be sensitive towards India's security and strategic concerns," the Indian Foreign Ministry said in a statement, adding that India supports the Maldives "in ensuring fiscal and budgetary stability."

There is no official data available on the Maldives' debt to China. "From the information I have, the debt to China alone is $3 billion," which the government will work to pay off while developing the country, former President Mohamed Nasheed told reporters early this month. Nasheed, now a close aide to Solih, believes it would be impossible to repay this from the national coffers alone. The Maldives collects less than $1 billion in taxes a year.

Solih, a veteran member of Nasheed's Maldivian Democratic Party, unseated Yameen in an election in September. He is now cultivating closer ties with India, and plans to revise a free trade agreement signed with China under Yameen last year.

India is currently advancing a vision for a "Free and Open Indo-Pacific" along with Japan, the U.S. and Australia, while the U.S. has announced its own infrastructure investments in Asia to balance China's growing influence in the region.

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