How China made Sri Lanka bankrupt?

Ground Report | New Delhi: Srilanka Bankrupt; China's indebted Sri Lankan economy is going through a very bad period. Inflation has risen so much that people are finding it difficult to buy food. The Corona pandemic has left the treasury empty. Foreign exchange reserves have reached a 10-year low. In such a scenario, it has become difficult for Sri Lanka to repay the debt and it may go bankrupt in 2022.

Sri Lanka's Department of Census and Statistics announced that the overall rate of inflation for February 2022, as measured by National Consumer Price Index (NCPI) on year-on-year basis, stood at 17.5 per cent, the highest since 2015.

The NCPI has weights based on consumer spending in the 2012/13 Household Income and Expenditure Survey and reflects new methods consistent with the best international practices, reports Xinhua news agency.

Year-over-year inflation for the food category increased to 24.7% in February 2022 from 24.4% in January 2022, and that for the non-food product group increased to 11% in February 2022 from 10.2 % in the previous month.

Srilanka Bankrupt

However, the Sri Lankan government on Monday announced an economic relief package of 1. 1.2 billion (approximately INR 8,000 crore). Finance Minister Basil Rajapaksa claims that the country will not default on international loans. He also said that the relief package would not increase inflation and no new tax would be imposed on the people.

A New York Times investigation reveals the enormity of the sums borrowed from Beijing by the small island in the Indian Ocean during the time of President Rajapaksa. Which obtained in exchange millions of dollars for the 2015 election campaign, which will however lead to his ousting.

It all started in 2005 when populist Mahinda Rajapaksa came to power. Sri Lanka had been in civil war for many years, but the new strongman of Colombo succeeded in putting an end to it four years later, by ordering the massacre of thousands of Tamils. “The country found itself increasingly isolated because of the accusations of human rights violations” levelled against its president, the American newspaper recalls: “Sri Lanka then relied on China to obtain economic and military support, as well as political support at the United Nations, in order to block the potential sanctions with which he was threatened.”

Billions of dollars

Mahinda Rajapaksa firmly held the reins of the country, thanks to the presence in government of several members of his family, who controlled “80  % of the state budget”. As early as 2007, the ruling clan sought help from China to build a trading port at Hambantota, the stronghold of the Rajapaksa, located on the southern coast of Sri Lanka. Although “feasibility studies have conclusively concluded that the project is not profitable”, in 2010 Beijing released a line of credit of 307 million dollars, on condition that the work is entrusted to a Chinese company, China Harbor. (Srilanka Bankrupt)

“This is a classic request from China for its projects around the world, in order to escape an open bidding procedure, underlines the New York Times. Throughout the region, the government in Beijing lends billions of dollars and gets them back at a high price, to then recruit thousands of Chinese workers. ” Two years later, Rajapaksa obtains a new loan of 757 million dollars, provided that the rate of the previous one goes to a very high level of 6.3%.

Appeal of the President of Lanka

Sri Lankan President Gotabhaya Rajapaksa has called on China to restructure its debt service to help his country cope with its financial difficulties. He made the request during a meeting with Chinese Foreign Minister Wang Yi in Colombo. According to K-analysts, Sri Lanka has benefited from billions of dollars in soft loans from China, but the country is currently facing a foreign exchange crisis and is on the verge of bankruptcy.

The Sri Lankan president said it would be a great relief for the country to focus on restructuring debt repayment as a solution to the growing financial crisis in the wake of the global epidemic.

China is Sri Lanka's fourth-largest lender after global financial markets, the Asian Development Bank and Japan. Over the past decade, China has lent more than 5 billion to Sri Lanka to build highways, ports, airports and coal-fired power plants. However, critics say the funds were used in projects such as the low-profit White Elephant, which China denies.

Without elaborating, the statement said that Gotabhaya Rajapaksa had also requested "concessional conditions" on exports from China to Sri Lanka. In 2020, China's exports to Sri Lanka amounted to 3.5 billion. The Sri Lankan president also proposed allowing Chinese tourists to visit Sri Lanka, in addition to the Code 19 sanctions. (Srilanka Bankrupt)

It may be recalled that the Chinese Foreign Minister arrived in Sri Lanka on Sunday to promote the Bullet and Road Initiative, while Sri Lanka is looking to Beijing to avoid a foreign exchange and debt crisis.

Consider a dictator

In January 2015, everything changed. The president called a snap election, and in the weeks leading up to it, “the China Harbor company transfers, from an account hosted at Standard Chartered Bank, at least $7.6 million to accounts funding Rajapaksa's campaign”. Ten days before the election, checks for several hundred thousand dollars will be distributed to manufacturers of T-shirts and saris intended for supporters of the candidate president. A Buddhist monk favourable to Rajapaksa alone will receive $38,000. In vain: the Sri Lankans oust the incumbent, whom they consider a dictator, and bring to power one of his ministers, Maithripala Sirisena.

Poisoned gift? The latter finds himself faced with a mountain of debt accumulated by the State. Because in the meantime, the Chinese have been entrusted with the realization of another pharaonic project, a lakeside city worth 1 billion dollars, in front of the shore of Colombo. In December 2017, “under strong pressure and after months of negotiations, the new government ceded the port of Hambantota to the Chinese for ninety-nine years, with 6,000 hectares of land around it”. This is how Beijing, which claimed to have only "commercial aims" in Sri Lanka, secured a century of sovereignty over a piece of territory bordering one of the busiest maritime routes in the world, with a base capable of accommodating its navy, its submarines and its secret services.

Sri Lanka is now seeing its debt explode. In 2015, this small country of 22 million inhabitants had to reimburse 4.68 billion dollars to its creditors. This year, it owes 12.3 billion dollars, of which about 5 billion to China. “In May, Sri Lanka borrowed $1 billion from the China Development Bank to meet these maturities,” notes The New York Times.  (Srilanka Bankrupt)

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