In the face of persistent pressure from Beijing, foreign aid has helped Taipei bolster formal relations with countries in need. Can that strategy endure?

Taiwan has long provided technical and financial assistance to other countries as a means of boosting its limited international profile. Given the relentless efforts of the People’s Republic of China (PRC) to isolate Taiwan, foreign aid has become integral to the island’s ability to be recognized as a sovereign state.

Currently just 22 nations maintain diplomatic ties with the Republic of China (ROC), the official name for Taiwan. Among them, only the Vatican – Taipei’s sole diplomatic ally in Europe – might be considered a developed country. The remaining 21 are developing countries in Latin America, the Caribbean, Africa, and the South Pacific.

Of the 22 nations that maintain diplomatic ties with Taiwan, only the Vatican – Taipei’s sole diplomatic ally in Europe – might be considered a developed country.

Although Taiwan’s diplomatic allies are not major powers, having formal relations with them brings clear benefits for the island. Those ties bolster Taiwan’s claim to being a sovereign entity separate from the PRC and strengthen its position in the international community. States that recognize Taiwan may speak on its behalf in international organizations that deny Taiwan membership, such as the United Nations and World Health Organization.

Additionally, official visits to diplomatic allies in Latin America and the Caribbean give Taiwanese government leaders the opportunity to make transit stops in the United States, which they ordinarily are unable to travel to because of Washington’s one-China policy. Those visits enable the president of Taiwan to make contact with members of Congress, the Taiwanese-American community, and other supporters in the United States – though those contacts are required to take place in cities other than the national capital of Washington, D.C.

Official visits to diplomatic allies in Latin America and the Caribbean give Taiwanese government leaders the opportunity to make transit stops in the United States, which they ordinarily are unable to travel to because of Washington’s one-China policy.

Commonly, an unspoken part of the arrangement in which these countries recognize Taiwan is that financial aid will be forthcoming. In 2014, Taiwan’s budget for overseas development assistance (ODA) totaled NT$8.57 billion (about US$268 million), according to Taiwan’s International Cooperation and Development Fund (ICDF). Supervised by the Ministry of Foreign Affairs (MOFA), the ICDF is the main arm for Taiwan’s economic diplomacy.

Taiwan spends significantly less on foreign aid than South Korea, its main economic rival. In 2014, South Korea spent US$1.85 billion on ODA, according to Korean government data.

A large proportion of ICDF funds is allocated to missions of experts sent abroad to manage key development programs. Of the ICDF’s 275 staff members, 159 work overseas. In addition, the organization provides loans for public works infrastructure, social investment programs, agricultural development projects, private-sector development, and emergency recovery projects. It also underwrites loans to Taiwanese companies investing in countries with which the ROC maintains diplomatic relations.

In an interview with Taiwan Business TOPICS, Ambassador Weber V.B. Shih, Secretary General of the ICDF, said the organization’s disbursement of aid should not be viewed as “checkbook diplomacy.”

“We don’t have a political agenda,” he said. “When Taiwan was a developing country in the 1950s, we received US$100 million a year in aid. Now we are giving back. We have transformed from an aid recipient to a provider.”

In 2014, total ICDF expenditures amounted to NT$1.73 billion (the remaining ODA budget is used directly by MOFA to help partner countries “through bilateral and multilateral grants and cooperation”). Of the ICDF portion, technical cooperation programs accounted for the largest share (73.3% or NT$1.27 billion), followed by project-specific lending (10.8% or NT$186.1 million), investments (10.4% or NT$180.9 million), and grants (5.5% or NT$95.7 million).

Despite the stated lack of a political agenda, most of the money is directed to countries that recognize Taiwan. Of the more than NT$3.68 billion in ICDF’s outstanding long-term loans at the end of 2014, the majority was allocated to either Taiwan’s diplomatic allies or countries that had switched recognition to Beijing only in the last decade, such as Costa Rica and Gambia. Exceptions included an NT$280 million loan for the development of an industrial park in the Philippines’ Subic Bay and an NT$20 million loan for a credit project for small farms in South Africa.

Details of Taiwan’s foreign aid programs are often kept confidential because of political sensitivities brought about by Chinese pressure, experts say. As a result, “there is simply not enough information in the public domain to allow even a close observer to know the what, where, why and how of Taiwan’s aid programs,” Joel Atkinson, an Australian political scientist who has studied foreign aid in this region, said in an email. “It can certainly be argued that this lack of transparency is a necessary evil, and to be honest I am agnostic about that. But the fact remains that it is opaque.”

Competing with Beijing

Taiwan began using foreign aid in the 1950s as the exiled Republic of China vied with the Chinese Communists in Beijing for international recognition as the legitimate government of China.

During this period, Africa was the primary recipient of ROC aid as Beijing and Taipei competed for diplomatic recognition from the African countries that had recently gained independence, and for their support in the United Nations. Between 1961 and 1971, Taiwan carried out over 100 agricultural technical missions in 24 African countries, for instance teaching rice-growing techniques to local farmers.

However, following the ROC’s expulsion from the United Nations in 1971, the nation’s number of diplomatic allies fell fast. By 1990, just a handful of important states still recognized Taiwan, including Saudi Arabia, South Korea, and South Africa.

Following the ROC’s expulsion from the United Nations in 1971, the nation’s number of diplomatic allies fell fast. By 1990, just a handful of important states still recognized Taiwan, including Saudi Arabia, South Korea, and South Africa.

Yet those countries all moved to recognize Beijing as China aggressively courted foreign trade and investment amid a wave of economic reforms in the 1990s. With Taiwan’s international space shrinking fast, then-President Lee Teng-hui responded with overtures to African, Caribbean, and South Pacific countries that included generous promises of aid.

“Neither President Lee nor any other president could allow Taiwan to lose all of its diplomatic allies, even if this necessarily meant aid to morally questionable countries,” said Timothy Rich, assistant professor of political science at Western Kentucky University and an expert on East Asian politics, in an email.

Lee’s efforts did bear fruit. The number of states recognizing Taiwan stood at 31 in 1996, the highest figure since the mid-1970s. “To a certain extent this helped cushion the blow of losing Taiwan’s two most important remaining official relationships, South Korea in 1992 and South Africa in 1997, both of which were ideology-based carryovers from the Cold War,” Atkinson says.

However, the “dollar diplomacy” created “perverse incentives for poor countries seeking assistance,” Rich observes. His research has found that as a country’s economy expands, particularly in terms of exports, it is more likely to recognize China. “Poor vulnerable countries thus find themselves able to start a bidding war of sorts between China and Taiwan over diplomatic aid, with no incentive for these third countries to consider the ramifications this may have on cross-Strait relations,” he says.

The ensuing diplomatic tug of war between Beijing and Taipei saw several of the world’s most despotic regimes offer diplomatic recognition to the highest bidder. Among the allies Taiwan won – and later lost – were failed states like Chad, Niger, and the Central African Republic.

The ensuing diplomatic tug of war between Beijing and Taipei saw several of the world’s most despotic regimes offer diplomatic recognition to the highest bidder.

The Chen Shui-bian administration initially sought to move away from the Lee Teng-hui approach to expanding diplomatic ties. In the foreign aid sphere, Chen aimed to assert a Taiwan identity, bolster Taiwan’s reputation as a donor, and handle public money more frugally than Lee had, experts say.

But Chen shifted tactics as Beijing began punishing him for his dismissal of its unification advances, notes Atkinson. Beijing picked off three allies during Chen’s first term and an additional five during his second term, while Taiwan only gained two.

“The Chen administration panicked,” Atkinson says, noting that the former president faced an intractably hostile legislature controlled by the opposition Kuomintang (KMT) and had no public support to increase the foreign affairs budget.

Money soon began to be channeled into questionable diplomatic pursuits. Most embarrassingly for Taiwan, in 2006 two middlemen made off with US$30 million allocated to establish relations with Papua New Guinea.

The situation deteriorated further in June 2007 when Costa Rica, which had maintained ties with the ROC since 1944, switched recognition to Beijing. Then-Costa Rican President Oscar Arias Chavez rubbed salt in the wound by accusing Taiwan of “being stingy with aid to its handful of allies.” And indeed Taipei was unable to match the US$70 million that Beijing was said to have offered San Jose in exchange for severing ties with the ROC.

Calmer waters

Seeking to improve cross-Strait relations, the Ma Ying-jeou administration reached a diplomatic détente with Beijing in 2008. No formal agreement was signed, but the two sides tacitly agreed to stop trying to poach each other’s diplomatic allies.

As a result of this truce, China refused offers of official recognition from three countries with diplomatic relations with Taiwan: Paraguay, the Dominican Republic, and Panama, according to a leaked U.S. diplomatic cable.

The Ma government used this opportunity to make changes to its foreign aid program. Most notable have been the Ma administration’s moves to decrease the risk of scandal, notes Atkinson. Those steps have included the pledge to dismiss ambassadors involved in “checkbooking” and the institution of a week-long training camp for case officers responsible for aid from all embassies.

Now, according to Atkinson’s research, MOFA will not proceed with a project requested by another government unless ICDF gives it a green light after conducting a feasibility study. He cites one case in which the Haitian government was informed that a fertilizer plant it was seeking to build was not feasible because of supply chain problems, and was “invited to discuss other options.”

While these reforms do not meet international OECD standards, “simply halting the churn of diplomatic allies – and the associated controversies and scandals” – have boosted Taiwan’s global standing, Atkinson observes.

Clearly, much of Taiwan’s aid does improve livelihoods and living standards for the recipients. For instance, Taiwan is co-financing the upgrade of Kiribati’s Bonriki Airport, whose deterioration had become a major safety concern for the small island country. Funding from Taiwan is helping to support the rehabilitation of the airport’s runway, taxiway, apron, and perimeter fencing, bringing them in line with International Civil Aviation Organization standards.

In Honduras, Taiwan used its ICT capabilities to help establish 1,189 computer classrooms in the public schools, according to ICDF. The project, which took place from 2007 to 2014, involved equipping each classroom with desktop computers, a server, and a network connection, and the training of computer instructors.

In Honduras, Taiwan used its ICT capabilities to help establish 1,189 computer classrooms in the public schools, according to ICDF.

Taiwan has also assisted its diplomatic allies with disaster mitigation. Following a devastating earthquake that struck Haiti in 2010, ICDF constructed a village for 1,500 displaced people. It also helped them overcome their difficulties by restoring the water supply system at the site, improving agricultural production, providing training in the making of bamboo handicrafts, and giving guidance for the development of farmers’ organizations.

In Nicaragua, which suffered an earthquake and two landslides in 2014, Taiwan’s satellite imaging technology helped the disaster relief team evaluate the severity and degree of the disasters. The data gathered will serve as a reference for future disaster contingency strategies, according to ICDF.

Looking ahead following the recent electoral victories by the Democratic Progressive Party (DPP), a major concern will be whether the diplomatic détente with Beijing can last, given Beijing’s longstanding distrust of the DPP.

“China will presumably pick off the easy cases, the ones that are anxious for relations with China, and China can outspend Taiwan in meeting those countries’ needs, so it may be no use for Taiwan to play the game,” Andrew Nathan, a political science professor at Columbia University and expert on cross-Strait relations, said by email. With that in mind, “given Tsai’s clean image, it might be more appealing to a Tsai administration to conspicuously break with precedent, refuse to play the game, and allow the natural public revulsion in Taiwan at Beijing’s actions to take its course.”

Given Tsai’s clean image, it might be more appealing to a Tsai administration to conspicuously break with precedent, refuse to play the game, and allow the natural public revulsion in Taiwan at Beijing’s actions to take its course.”

The Taiwanese public could well react to losing allies with “a collective shrug of the shoulders,” Atkinson says. “The importance of the allies is very much in the eye of the beholder, and if the people of Taiwan don’t care about maintaining them then they become a much less useful carrot/stick for Beijing.”

Ultimately, it is not the number of diplomatic allies Taiwan has that is most important, but rather that the island’s “unofficial relations with more powerful countries endure,” says Rich of the University of Western Kentucky. “To be blunt, formal relations with a microstate may be consistent with Taiwan’s claims of sovereignty, but it does little to prevent conflict with China in the future. Unofficial support from countries like the U.S. provide such assurance.”