Sri Lanka: yet another victim of Pekingese Scrooge

(To Gino Lanzara)

In international relations it is advisable to let events settle; the risk of bids with effect without any analysis is that of imprinting superficial images and sensations. In moments like the present, distracted by Russian missile launches or by paradoxical and harmful institutional sobs of fleeting consistency, the collective plunge of Sri Lankan rioters into the presidential pool arouses no interest other than a hilarious folkloric hint.

Despite the geographical distance, compensated by globalization and communications, what happens in that quadrant should also attract the interest of our country, where Enlarged Mediterranean became speech filler to the page substantially poorly understood and capable of arousing zero interest, which is unforgivable for a country that boasts the title of power, even if average and also in decline.

What happens in Colombo should interest us, given that the recent political and economic evolution of Sri Lanka presents symptoms that are ready to recur in other theaters with viral speeds.

Sri Lanka, twice the size of Belgium and practically always absent from the American agenda, is the 25th largest island in the world and, despite the Chinese presence, is only a few miles from India.

The economic crisis that plagues it is the worst since 1948, with the burden of interest from tens of billions of dollars impossible to repay; the economic disaster is combined with an equally critical geopolitical situation, which sees the ever closer Indian collision.

The factors that led to the current disaster are different: debt, pandemic, war in Ukraine which has increased the price of energy and cereals, undeniable responsibility of the dynasty Rajapaksa, present on the political scene of the country since 1936.

This time the flames are not fueled by ethnic Tamil claims and corrupt nationalisms, but by poverty and hunger; the debt, devouring everything, made a default concrete which, from an academic hypothesis, became reality, and the resignation of Prime Minister Mahinda Rajapaksa (opening photo of 2014), brother of President Gotabaya, was of no use.

Sri Lanka is intolerant of inter-ethnicism; Sinhalese, 75% of the population, although constituting the majority, are divided by caste, religious and cultural differences: despite the fact that Christians are just 1,3%, they hold the levers of power. Then there are the Tamils, a workforce settled by English colonialism and never recognized by the native Sinhalese, and the Muslim community, at the center of attention especially after the attacks.1 on Easter Sunday 2019, the cause of the death of almost 270 people, whose blood recalls the civil war of 25 years, forgotten by the West but no less bloody.

The Rajapaksa pass from the altars of Sri Lanka's liberation from the Tamil threat, to the dust of default, to shameful flight. We should know: the guard dies and (in general) does not give up, the monarch flees, perhaps even on a small military ship, it does not matter, as long as it is fast.. In short, the elements of the drama have always been there, it was only a matter of time; as many bad guys, not even the shadow of good ones, of accusations of crimes against humanity as many as you wish.

What can a collective bath in a pool now represent?

The whole world is a country: during his mandate Mahinda Rajapaksa removes the constitutional limits that prevent repeated electoral appointments; inherits a dramatic economic situation caused by a neoliberalism allergic to the recommendations of the IMF, but inclined to dream of a new Dubai, whose realization is entrusted to a state-owned Chinese company for just 1,4 billion dollars, plus 99 years of free rent of two-thirds of the land, to which other investments that failed at birth: the Hambantota airport, or the vacuum tire of world airports, and the underperforming port of Hambantota, costing one billion dollars.

In short, while the feasibility studies conclude that the project is not profitable, in 2010 China released credits for 307 million dollars, binding the assignment of the works to China Harbor; two years later Colombo receives a new loan of 757 million dollars at an unsustainable interest rate; in 2015 the strategic port hub turns out to be a fiasco, leaving Sri Lanka with a debt monstre2.

The Scrooge of Beijing does not take pity, it refuses the restructuring of the loan, which in 2017 forced the government led by the 4 seasons politician Wickremesinghe to sell to China Merchants Port Holding Company (CMPort), shares and management contract of the port for 99 years (nonsense, time flies). For China, the world's largest bilateral credit lender, Sri Lanka is a strategic investment in the Belt and Road Initiative, which requires a stopover in the Indian Ocean.

In 2015 the Rajapaksa brothers, responsible for five ministries3 they control 70% of the national budget; but corruption charges rain like Chinese loans; Maithripala Sirisena briefly rises to presidential power, however forced to appoint Mahinda Rajapaksa as premier.

A volte ritornano. In 2019 the perfect crime: Gotabaya Rajapaksa is elected, who is responsible for giving the maramaldo coup de grace to an economy already dead and with inflation4 out of control. With him, in fact, the debt is self-financed; the covid blocks tourism, weakened by the forced absence of Russians and Ukrainians, in completely other busy matters, while the government blocks imports of chemical fertilizers, also paralyzing agriculture.

What to do if not to find the stroke of genius (of evil) of the emanation of subsidies with empty coffers, with the ban on the importation of cars in the face of an internal production that never existed, and with the reduction of tax revenues and the cut of the 7% VAT? It was an obvious and (im) probable attempt to defeat poverty that was shipwrecked even before leaving.

Paradoxically, because there is nothing to be surprised about, those who supported the Sri Lankan economy were the emigrants with their remittances, which have however diminished in recent months, leading to the use of foreign bonds despite knowing that it would have been impossible to honor them. .

The further stroke of genius (of evil) lies in the recourse to the Chinese pawnshop, which ends up burying the affossabile. The Rajapaksa's centometristic fugue does not solve the problems, at the most it grants a bath and the taste of an abandoned buffet in a hurry. A little bit for a devastated country.

Could it have ended well? Absolutely not, also because the rain of accusations of selling off sovereignty is added to the other precipitations (but you think): we realize that Chinese infrastructure investments create economic dependencies that can be exploited for strategic purposes; it is no coincidence that the Sri Lankan Navy, Hambantota, is based in the port of Colombo5 it is isolated, devoid of military ships, and represents the perfect example of how infrastructure projects are part of a global development strategy as they are integrated into a larger network.

What is intriguing is that both Colombo (which has always been a marked card) and Beijing (which is surprising) have not properly framed sustainability and debt management. It is a delicate game. The largest Beijing-funded projects have three common elements: they use Chinese funding, Chinese contractors, and the Rajapaksa; the loans are all at high rates that reach 6,3%, with contracts that are not very attentive to the safeguarding requirements and often even secretive.

Who is responsible? Colombo or the lack of understanding of the risks of Belt and Road Initiative, with its 115 participants and founded on bilateral agreements, especially when the pandemic exposes thousands of Chinese borrowers to the danger of a domino default? And if the situation were to become gangrenous to the point of not guaranteeing institutional alternations after the presidential flight, which road will Beijing take to demand its reimbursements? Yet even as Sri Lanka's debt began to appear unsustainable, China persisted with costly, useless and opaque projects, such as Port City of Colombo, while observers have raised the alarm against the next Hambantota in Africa, in South-East Asia, in Europe, in fact sending very specific signals against dangerous forms of populism. The economic analysis that finances the port and road links remains anchored to smoky hypotheses that slow down the works for the port of Colombo, and do not take into account the reluctance of shipping companies to use Hambantota.6.

China is now the world's largest foreign creditor; export credits have become a powerful tool in Beijing's economic arsenal, which does not follow common rules. Never before has it become clear that having the Indo-Pacific is not and will not be easy.

While India is considering taking over7 Hambantota airport, in the nearest Western Balkans the EU is weighing the situation of Montenegro which has accepted an unsustainable motorway project, costing about 1/5 of its GDP, financed and built by the Dragon.

It would be wise not to rule out a forthcoming increase in Beijing-funded projects set to go towards crack, while post-pandemic economies try to settle down. Sri Lanka, which has requested Russian crude oil, is proof that Beijing's projects8 they do not support local economies but aim both at access to natural resources and opening up to Chinese exports; among other things, China often imposes its state-owned enterprises by reducing the number of local jobs, with loans often disbursed either in kind or in the form of reimbursement in hard currency, which imposes a high trade surplus on the beneficiary country while foreign exchange reserves run out.

Il Center for Global Development it was clear: the BRI is suffocating Mongolia, Laos, Maldives, Montenegro, Djibouti, Tajikistan and Kyrgyzstan plus Pakistan, which owes a $ 54 billion link between China and the port of Gwadar.

In fact, following the Ukrainian conflict, the economies of South Asia share numerous similarities, so much so that the crises in Sri Lanka, Pakistan and Nepal lead to think of forms of replication and not of contagion; this is therefore the first area forced to face political and economic problems connected with the increase in resource prices.

Main actors

India. New Delhi will try to re-establish influence in its own backyard; a nodal point of the east-west transit in the Indian Ocean, Sri Lanka remains strategic in the competition between China, USA and India, which cannot fail to feel threatened by a possible Chinese military settlement a few miles from its coasts. It is no coincidence that India not only offered Colombo 4 billion without conditions, but also supported the srilankési requests to the IMF, or the United States, which immediately caused Beijing to be apprehensive.

United States. The Biden administration promotes a strategy9 Indo-Pacific aimed at resistance to Chinese pervasiveness to allow the American alignment of the Pacific islands, a policy that should not have neglected Sri Lanka and its Chinese string of pearls which, lately, has also entangled the Solomon Islands in response to both the AUKUS agreement and the increase in US military capabilities on Wake Island10.

Conclusions. If it is true that Columbus is collapsing, and if it is true that the crisis is systemic and therefore without the possibility of a solution for international structures that can only intervene on individual countries, one cannot but stigmatize the American retreat which, especially with President Obama , has turned more to Asia than to the Pacific, leaving ample space for other regional actors who interpret populist or autocratic policies.

Sri Lanka, India, Pakistan and Bangladesh, with the appropriate distinctions, indicate the tendency to a nationalism that is not very sensitive to institutional appeals and motivated by the search for a stability that the liberal exponents have not been able to ensure. The srilankése use of tied aid from the IMF while it is between the Indian anvil and the Chinese hammer, leads to a climate of renewed Cold War but with one more element, namely being the first piece of an uncontrollable domino, where countries low-income families face 3 emergencies: pandemic, increase in debt, increase in prices due to the Ukrainian invasion.

The default srilankése will not be the last, it is only a matter of time; there Sovereign Debt Vulnerability Scorecard Bloomberg highlights how El Salvador, Ghana, Egypt, Tunisia and Pakistan are one step away from the lemming plunge.

1 claimed by the National Thowheeth Jama'ath - a local Islamist group affiliated with ISIS

2 Over 8 billion dollars for further projects that add up to that of the port

3 Defense, Justice, Economic Development, Finance and Infrastructure

4 The Central Bank's decision to devalue the rupee, to attract remittances and investments, favored inflation which in June stood at 54.6% on an annual basis.

5 The construction of a port in Hambantota has been part of development plans since 2002, when the Canadian company Lavalin, backed by the Ottawa government, completed a feasibility study rejected by the Sri Lankan government. Aside from the support received from the local company InfoConsult, which is applying for logistical and IT support, Hambantota is already mentioned since 1952 in a 1952 World Bank study, which sponsors a port in the southern part of the island, which takes up a 1910 idea of ​​the Englishman Leonard Woolf. In 2006 the Danish company Ramboll completed a second feasibility study, according to an optimistic view of the economic potential, basing its projections on the growth of Sri Lanka, on the activities of the ports of Colombo, Galle and Trincomalee, which are of interest to India and Japan.

6 China is now the world's largest foreign lender. Export credits have become Beijing's economic tool. In 2007, the Export-Import Bank of China granted its first loan for Hambantota.

7 India has secured around $ 3 billion in the form of a line of credit

8 In 2017, China pledged to follow the G20 guidelines for sustainable financing, as well as the G20 principles for infrastructure investment, related to adhering to World Bank and IMF policies for countries with high debt burdens.

9 Washington intends to establish diplomatic legations in Kiribati and Tonga, restoring US peacekeepers in Fiji, Samoa, Tonga and Vanuatu and free association pacts with Palau, Marshall Islands, Federated States of Micronesia

10 coral atoll in the North Pacific Ocean administered by the Air Force; it could play a key defensive role in the area in the event of a conflict, as China has missiles capable of hitting Guam and the continental United States.

Photo: Xinhua / Twitter