1 May 2006

Academic queries Tonga's plans to use Chinese aid to balance its budget

7:08 pm on 1 May 2006

An academic says the manner with which China is providing aid to Tonga has caused problems in the past.

Local media have reported that as a result of last month's China-Pacific summit, China will provide nearly 6-million US dollars as part of a new aid package to balance Tonga's budget.

Professor of History of Politics at the University of the South Pacific Ian Campbell, says most countries do not provide aid in such a manner.

Professor Campbell says main-line donors have changed their approach over the last 20 years because direct budgetary subsidies caused chaos in the region in the 1970s.

"It's very inflationary. It increases the spending power of a government without increasing its productivity so you end up with the classic inflationary scenario of too much money chasing too few goods and that causes rapid domestic inflation as well as encouraging trade deficits or a balance of payments deficit."

Professor Campbell also says direct budgetary aid is hard to monitor.