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Thursday, February 2, 2023

China becomes wild card in Sri Lanka’s debt crisis

Colombo, Sri Lanka ( Associated Press) – China says its initiative to build ports and other infrastructure across Asia and Africa, paid for by Chinese loans, will boost trade. But in a cautionary tale for borrowers, Sri Lanka’s multibillion-dollar debt to Beijing threatens to hinder efforts to resolve a financial crisis from which the Indian Ocean nation cannot import food or gasoline. Is.

Sri Lanka’s conflict is peaking, but it reflects the conditions in some of the poorest countries in Asia and Africa among the dozens of South Pacific islands that have signed Chinese President Xi Jinping’s Belt and Road Initiative. As the total debt of poor countries is rising, taking risks can put others in trouble.

Sri Lanka’s 22 million people are in serious trouble. Foreign exchange ran out in April, leading to food shortages, power cuts and protests, which forced a prime minister to resign. Payments of $51 billion in debt to China, Japan and other foreign lenders were suspended.

Sri Lanka and other poor Asian countries welcome Chinese financing. The Asian Development Bank says the region needs to invest $1.7 trillion annually in infrastructure to keep economies growing. But some, including Sri Lankan critics of his government’s spending, say the Chinese-led projects cost too much or too little for their economies.

China ranks third among Sri Lanka’s creditors after Japan and ADB and accounts for 10% of the debt, but Xi’s government has a great potential to disrupt an agreement.

Beijing promised to “play a positive role” in talks with the International Monetary Fund on a potential emergency loan. China offered to lend more, but hesitated to engage in a process that could reduce Sri Lanka’s debt, possibly for fears that other Belt and Road borrowers owe billions of dollars in the same amount of relief. Will demand

Economist WA Wijewardene, former deputy governor of the Sri Lankan central bank, said: “If China makes concessions to Sri Lanka, it will have to make the same concessions to other borrowers.” “They didn’t want to get into that trouble.”

Experts say that if China tries to avoid debt cuts, it could disrupt IMF talks or prompt private sector creditors to seek more funding.

“Lack of cooperation by Beijing will complicate Sri Lanka’s debt recovery journey,” Aditi Mittal of Verisk Maplecroft, a consulting firm, said in an email.

The United States, Japan, the European Union and other governments also lend, but on a smaller scale. Many Belt and Road countries attract little non-government funding because they are considered too risky or lack a legal framework for infrastructure investment.

Some governments have run into minor troubles. Truckers in Kenya protested after their government imposed a fuel tax to pay for Chinese-built railways, with drivers complaining they would compete with them.

Others have canceled or scaled down projects. Malaysia described a planned railway in 2019 as too expensive. Thailand has renegotiated a high-speed railway after protests over the low work being given to Thai companies.

China has restructured some debt. Ethiopia persuaded Beijing in 2018 to waive some interest and extend the repayment of a 10-year loan for a $4 billion railway to 30 years. This reduced the annual payment but added two more decades of interest charges.

Chinese officials say the Belt and Road projects are business ventures, not aides. Most of the lending is on commercial terms. Details are often secret.

The Belt and Road ranks governments in Washington, Moscow, Tokyo, New Delhi and others harassing Beijing, the biggest trading partner for all of its neighbors, trying to expand their influence and reduce their influence. are.

Opposition figures say while Sri Lanka needs China to reduce its debt, the blame is on leaders who have built unrealistic projects that don’t pay for themselves when they fail to invest in economic growth. can do.

Kabir Hashim, an MP, said that the foreign debt “built highways, airports and convention halls in forests, which provided no return in foreign exchange”. “We no longer have dollars to pay off our dollar debt.”

Critics cite a Chinese-built port in Hambantota to the southeast as a prime example of official negligence.

It was built in the hometown of then-president Mahinda Rajapaksa and paid off $1.1 billion in Chinese loans, despite an expert panel rejecting the plan.

Its promoters said Hambantota would ease the burden on Sri Lanka’s main port in Colombo on busy Indian Ocean shipping routes. But it failed to generate foreign revenue.

Beijing pulled out of the port in 2017 by buying a state-owned company, China Merchants Group, on a 99-year lease for $1.1 billion. It also includes land for an industrial park.

The deal gave Sri Lanka cash to repay Chinese banks, but alleged official mishandling gave a foreign government control of part of the country.

A Chinese loan was also paid for an international airport near Hambantota. Some airlines use it.

Crisis alleged that Beijing used a “debt trap” to gain influence over the country.

“They knew we had no capacity to repay,” said Vijaydas Rajapakse, an MLA.

“We must persuade China to give up at least some of the debt,” Rajapaksa said. “Ordinary poor people, without one meal a day, are now paying this debt.”

Sri Lanka owes $7 billion to Chinese banks and other lenders this year, but the payment was postponed on April 13 during talks with the IMF. The government owes $25 billion, or about half of the total, to private sector bond investors.

Mittal wrote, a restructuring agreement with China or Japan would be a “positive sign” for a recovery.

In a written response to questions, the Chinese foreign ministry said Beijing was prepared to “play a positive role in reducing Sri Lanka’s debt burden”, but gave no indication of whether the outstanding amount could be reduced. .

“China stands ready to support relevant financial institutions for dialogue with Sri Lanka,” the ministry said.

In April, then-opposition leader Ranil Wickremesinghe told broadcaster Republic TV that China offered a $1 billion loan instead to reduce Sri Lanka’s debt. This would allow the government to make payments, but would increase the total dues.

Wickremesinghe took over as prime minister on 12 May, when Majapakse, who had built the Hambantota port in an earlier role as president, resigned.

Chinese Ambassador Qi Zhenhong told reporters on April 25 that talks with the IMF would interfere with Beijing’s loan offer. The IMF usually requires a borrower to strike a deal with all creditors to reduce the debt.

China has refrained from joining the London Club of Government Lenders, a forum for talks on debt reduction.

The central bank governor warned that China and other creditors should accept similar terms.

Nandlal Veerasinghe said, “It is not fair to treat one creditor differently to another.” “Then others will not come on board.”

Wijewardana said that even if Beijing bows down, Sri Lanka cannot afford to isolate China, its biggest potential lender and investor.

“Sri Lanka is not in a position to say no,” he said.


Pati reported from New Delhi and McDonald’s from Beijing.

World Nation News Desk
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