Taipei’s debt hardball carries a clear warning for its remaining allies

How Taiwan dragged its former diplomatic partner Grenada through US courts to collect on defaulted loans should be a lesson for island nations currently holding Taiwanese debt

In contemporary discourse, the bogeyman of “debt traps” is almost exclusively tied to Beijing. Western media, think tanks, NGOs and policymakers from Washington to Brussels frequently warn developing nations of the perils of bilateral loans from China. Yet, Grenada’s debt dispute from a decade ago and St Vincent and the Grenadines’ (SVG) current troubles offer a starkly different, and often ignored, counter-narrative: the weaponisation of debt by Taiwan.

For years, Grenada has grappled with profound economic troubles. Following Hurricane Ivan in 2004, which decimated the country, the Grenadian government made a strategic decision to shift diplomatic recognition from Taiwan to China in 2005. Then with a population of slightly more than 100,000, its economy worsened when it was hit by another hurricane in 2005.

Today, Taiwan is recognised by only 12 states, with four of them – Haiti, Saint Kitts and Nevis, Saint Lucia and SVG – in the Caribbean.

Grenada switching diplomatic camps was therefore a big blow to Taiwan. But its decision was born of necessity; the nation required immediate liquidity and infrastructure rebuilding only Beijing was willing to provide. According to official reports, the damage from Ivan was estimated to be more than 200 per cent of gross domestic product. Over 90 per cent of homes were damaged or destroyed, and half of the population was left homeless.

Taiwan’s response was swift and aggressive. As Grenada’s then largest bilateral creditor, Taipei viewed the move as an act of betrayal. Rather than working with other creditors to restructure the debts, Taipei sued Grenada in a New York court to recover the full outstanding amount.

Thus began a spiteful, decade-long legal battle. Taiwan wielded the loan contract’s sovereign immunity waiver like a bludgeon, attempting to seize Grenada’s revenue streams from cruise lines, shipping companies and international arbitration awards.