Update Country Report Maldives 04 Nov 2020

• The US government plans to open an embassy in the Maldives to deepen bilateral relations, as part of its Indo-Pacific strategy to counter China's rising influence in the region.
• The Economist Intelligence Unit expects the plans to go through, regardless of who wins the US presidential election.
• The Maldives will look to balance growing US interest against that of regional players India and China to maximise its negotiating position.

On October 28th the US secretary of state, Mike Pompeo, arrived in the Maldives for a brief official visit, during which he announced the US government's intention to open an embassy in the Maldives with a resident US ambassador. Mr Pompeo also met with the Maldivian president, Ibrahim Mohamed Solih, and the foreign affairs minister, Abdulla Shahid. Discussions around strengthening bilateral co-operation in the fields of trade and investment, counter terrorism, cyber-security and environmental preservation were held. Mr Shahid appealed to the US government to help it push for an extension of the repayment period on loans provided by the G20 members to developing countries to combat the coronavirus (Covid-19) pandemic.

One small step for the US, one giant leap for Maldives-US relations

The location of the Maldives in the Indian Ocean has traditionally garnered a lot of interest in the archipelago from regional players such as India and China, which are vying to increase their influence in the Indo-Pacific region. The decision of the US government to establish an embassy in the Maldives, which has, to date, been dependent on the US embassy in Sri Lanka for consular services, marks an important step towards closer bilateral ties between the two countries. The timing of Mr Pompeo's visit-the first by an incumbent US secretary of state in almost three decades-just before the US presidential election on November 3rd, reflects the US administration's heightened interest in countering rising Chinese influence in the region.

The Maldives accumulated a substantial level of debt from China under the previous Maldivian administration, led by Abdulla Yameen Abdul Gayoom (2013-18), to fund infrastructure projects. Repayment of these loans has been a major concern for the incumbent government, severely straining its fiscal position. Moreover, Maldives-China relations that prospered under Mr Yameen have frayed during Mr Solih's presidency, who prefers to strengthen ties with India. Over the forecast period (2021-22), as part of its Indo-Pacific strategy to keep China's geopolitical ambitions in check, the US will look to deepen ties by offering an alternative source of development and financial assistance with less onerous, more transparent terms. This is a strategy that the US has also adopted with other smaller nations in the South Pacific. This will hold true under a Joe Biden presidency, as is our central forecast, and will only serve to deepen further US engagement in the Indo-Pacific region. Irrespective of who wins the US presidency, we expect the US government to follow through on its plans to open the proposed embassy in the Maldives.

And now there are three

The step up to cultivating stronger diplomatic relations between the two countries comes soon after the Maldives signed the Framework for a Defence and Security Relationship with the US in September 2020-its first military agreement with any country other than India. Interestingly, the move was backed by India, which is also keen to become the nation's key international partner and expand its influence in the Indo-Pacific. This is in sharp contrast with the country's stance in 2013, when the government of India had blocked the plans of the then Maldivian president, Mohamed Nasheed, to sign a Status of Forces Agreement (SOFA) with the US. Despite the existing healthy India-US ties and their shared interest in containing China's rising influence in the region, there is a risk that India will feel threatened by the growing closeness of the Maldives to the US. Although, not part of our core forecast, any Indian opposition to closer Maldives-US engagement will remain a major downside risk during the forecast period. For its part, the Maldives will benefit from the traditional two-party (India-China) interest in the country widening into a three-sided (India, US and China) association. The archipelago will seek to balance the influence of India against that of other countries, in order to extract maximum concessions.