Maldives President Mohamed Muizzu snubbed India and courted China like his predecessor, Abdulla Yameen. A few months ago, he forced India to withdraw its small military contingent, which was mostly involved in medical evacuations and maritime surveillance. But now he has agreed to let Indian “defence platforms and assets” be deployed on the islands again, reports the Deccan Herald.
The welcome is hard-earned, the outcome of a multibillion-dollar rescue act.
Caught in a debt crisis with loans from China coming due, President Muizzu flew to Delhi for aid and wasn’t disappointed by Prime Minister Narendra Modi.
$760 million bailout
India unveiled a $760 million bailout for the Maldives to avert the risk of a sovereign default.
The bailout includes a $400 million currency swap deal and an additional 30 billion rupees ($357 million) in another swap agreement, which allows companies to do business in local currencies rather than US dollars, says the BBC.
India has already rolled over $100 million of short-term dollar loans to the Maldives this year, allowing the country to make an interest payment this month on a $500 million Islamic sukuk that comes due next year, reports the Financial Times.
The Maldives were in danger of becoming the first country to default on a sukuk, a form of debt that follows Islamic strictures against interest.
The Maldives, a tourism-dependent Muslim-majority Indian Ocean archipelago with over half a million people, are in dire straits with the holiday travel industry yet to recover fully after COVID-19.
Debt 110% of GDP
The Maldives are drowning in a sea of red ink, their total debt estimated to be 110 per cent of their gross domestic product, reports Bloomberg.
Meanwhile, the Maldives’ foreign reserves stood at just $437 million as of the end of August, sufficient to cover only about one-and-a-half months of imports.
China and India, competing for influence in the region, are the Maldives’ biggest foreign lenders. The Maldives owed about $400 million to the Export-Import Bank of India and about $530 million to the Export-Import Bank of China at the end of last year, according to official figures.
Strained relations
However, relations with India have been strained since Muizzu came to power in November 2023.
China was one of the first countries he visited as president. Traditionally, Maldivian leaders visited India first.
Muizzu told India to withdraw its small military contingent but allowed a Chinese research ship to dock in the Maldives in February. Some speculated the ship was on a mission to collect data which could be used by the Chinese military for submarine operations.
Adding fuel to the fire, a Maldivian deputy minister mocked Modi, provoking angry Indians, including several celebrities, to call for a tourism boycott of the island.
Nevertheless, when Muizzu sought financial assistance, Modi obliged.
Why India bailed out Maldives
According to some, he had no choice.
“Given its ambitions of being a net security provider in the Indian Ocean, India has no way of turning away the Maldives,” said Indrani Bagchi, chief executive of the Ananta Centre, a New Delhi-based think-tank, reported the Financial Times.
Wary of Chinese influence in its backyard, India has extended a helping hand to neighbours in distress. In 2022, New Delhi provided nearly $4 billion in loans and grants for supplies of fuel, medicine and other food to Sri Lanka after it suffered a crippling liquidity crisis.
However, despite being bailed out by Delhi, the Maldives are not cutting loose from China.
The Maldivian defence ministry said in March that China had signed an agreement to provide military assistance to the islands, reported CNN.