Debt, Development and Democracy

By N. Sathiya Moorthy | Published: 2:00 AM Feb 24 2021
Columns Debt, Development and Democracy

By N. Sathiya Moorthy

According to Media reports, the Government is now considering an Indian offer of $12 million grant for installing ‘renewable energy systems’ in three islands of Jaffna Peninsula in the Tamil-majority Northern Province. Originally, the Cabinet had offered the project for execution to a Chinese firm. It was funded by a loan from the Asian Development Bank (ADB).

As Power Minister Dullas Alahapperuma said, the Government was favourably disposed to the Indian proposal, made in the light of the installation contract going to a Chinese firm. He had a point. While the original project cost had to be repaid to the ADB with interest, the Indian funding comes in the form of a grant. It means that Sri Lanka has $12M loan-repayment at least, not to worry about even as it got the required project, which was decided by the Government in Colombo. 

There is no denying that New Delhi should be concerned if adversarial China should extend its developmental footprint from the southern-most Hambantota to the northern-end Jaffna Peninsula, closer to the Indian mainland. In between lines connecting expressways, built again by China, not to leave out the Mahinda Rajapaksa International Airport in Mattala, the Colombo Port City and the Colombo International Container Terminal (CICT). 

India First policy

That Sri Lanka is India’s closest neighbour is a geographical fact. China is a politico-military adversary of India is a historic fact. After coming to power in November 2019, the Government of President Gotabaya Rajapaksa has been reiterating an ‘India First’ foreign and security policy. Defence Secretary and Navy veteran, Adm Jayanath Colombage (retd) has been quoted umpteen number of times on this commitment. 

Such a policy makes immense sense, for Sri Lanka in particular. The Nation suffered for a faulty foreign policy at the heigh of the Cold War, when the Government of President J.R. Jayewardene titled more towards the West, especially the US. Western liberalism, whatever it meant, and market capitalism, for whatever it was worth was the socio-politico identity of JRJ’s UNP. This alternated at the helm with the SLFP coalition’s centre-Left policies, both on the economic and international fronts. 

The erstwhile Soviet Union represented that cause during the Cold War. The Soviet Union might have been dead, even international communism may have been weakened. But the idea that Soviet Communism represented is now taken over by Communist China. Rather, from the days of Deng Xiaoping China has retained the communist model of political suppression but adapted the western model of market capitalism – or, whatever it came to earning dollars, though not minting dollars. 

Printing dollars as other Nations have to earn them is a right still exclusively reserved to the US, under the post-War Bretton Woods system in the middle of the previous century. Beijing called its hybrid scheme as ‘capitalism with Chinese characteristics’. China thus now has a new ‘Xi Jinping Thought’ after those in the name of Chairman Mao and Deng Xiaoping. 

In international political terms, it means ‘cheque-book diplomacy’, translated in practice as ‘debt-trap diplomacy’. Sri Lanka has been a victim of the same, as someone somewhere failed to read the fine-print, or had an exaggerated sense of the Nation’s ability to pay back the Hambantota credit-line even before the project had begun making money. So comes the debt-equity swap-deal, handing over a slice of Sri Lankan territory to the Chinese, in the guise of a 99-year-old lease. 

To borrow from the adage, 99 years is a long period – and all of us would be dead by then. It is anybody’s guess how and why the predecessor Government of President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe signed off the lease deed for Sri Lanka, and yet went ahead of and borrowed more from Beijing, to build roads – which could have and should have waited, in the face of a calamitous economic down-turn, even without the Easter blasts (2019) and the COVID pandemic (2020). 

Perception battles

Truth be acknowledged, it is Sri Lanka and all Sri Lankans that should be worried about the Nation taking huge, unrepayable loans, which are economically disastrous even otherwise. When most of the loan, of the National/global perception of the source is just one Nation, then the socio-political costs are unimaginable and unfathomable. The claims that China credits totalled only ten per cent of the Nation’s grand total debts, does not seem to wash – at least in the visual perspective of the individual. 

Politics, domestic and international are as much about such perceptions as they are about the real work in real terms in the real world. Before coming to power, President Gotabaya, for instance, said he would have the Hambantota swap-deal reviewed and get back the leasehold. After coming to power, to be fair to him, it looked as if the Hambantota deal was the first decision of the predecessor Government he reviewed. The finding was it was a commercial deal, and could not be undone. 

It is thus a matter of timing that the Indian grant for the Jaffna projects came well ahead of the Government concluding the installation pact with the short-listed Chinese firm, reportedly chosen through an open tender. It is here, there seems to be some confusion in some political circles in the country, as to distinguishing between a creditor-Nation and a grantor-Nation. 

It is not about India and China, or, India or China. The Indian grant apart, New Delhi’s role ends there. It may have had its own political reasons for extending the grant, but it does not interfere with the sub-texts that is universal to all Chinese funding anywhere in the world. Jobs only for Chinese, even on-site. Rather, it is no jobs for the locals on-site or off-site.

Any friendly Nation in China’s place should have begun with investing on the infrastructure to build what it takes to build the Hambantota Port and all those expressways, Port Cities and port terminals – and more. They would have and should have begun by setting up cement and steel factories in the host-Nations, providing jobs to the locals, not only in the construction sites, but also in the factories concerned. Not China. 

This only implies there are ‘multiple leakages’ – and that is a polite term – for Sri Lanka, or whichever Nation is the recipient of the purported Chinese largesse. Upfront, the credit-terms, which are obviously not disclosed by political parties even when they are in the Opposition. In Sri Lanka’s case, the current Opposition, originally under UNP’s Ranil Wickremesinghe, has more to hide on the logic behind the Hambantota swap-deal and the Nation continuing to borrow more from the very same source. 

Otherwise, Sri Lanka continues to bleed even more on repayment terms, first, and directly. But the loss of jobs that should have been for Sri Lankans, is less visible but more damaging to the Nation’s economy and society. If there are future tensions based on joblessness of the present-generation youth, as happened in the mid-sixties, then you can fix the source of those problems without effort. China would be the automatic candidate for that honour.

Broader policy

President Gotabaya, on assuming office, came up with a very constructive idea, of not taking loans, but only accept investments, especially from overseas sources, as repayment with interest had become a huge burden. In 2019, according to official figures, an unimaginably high 86 per cent of the GDP went towards ‘servicing’ debts – an euphemism this for ‘interest payments’. Of course, neither China, nor other foreign creditors were the only ones to get a piece of that big cake. 

Hence, the question arises: How come the Indian source for grant was not tapped before the Government decided on the Jaffna power projects? Or, was it originally put up by the previous Government but passed without thought by the bureaucracy and a section of the political class without proper application of mind, especially on the President’s very practical dictum?

Fair enough, in a democracy, that too a Third World democracy like India’s, decisions do take time, so do funds allocations in some cases. There are multiple layers of decision-making that a parliamentary democracy entails – when compared even to the presidential form, as in Sri Lanka. China’s is a different cuppa…. The question often needs to be asked: Should a Nation like Sri Lanka wait for an Indian decision on funding, once the policy-approval has been granted, or should the host-Nation rush through a credit-line, if coming from a Nation like China, where again, it is a near-one-man decision? 

These is the kind of policy decision that a new Sri Lanka has to ask itself if it has to think of repaying the accumulated debts in the foreseeable or not-so-foreseeable future, whoever is in power, whichever President and Prime Minister was/is in office. After all, having silently criticised the previous Rajapaksa regime for the Hambantota construction-cum-concession project, the successors did not detail the commitments made under the swap deal. 

Had it not been for the then Ports Minister, Arjuna Ranatunga, the cricketer-politician, the Nation would not have even known some or much of the details in this case. All of it only meant that Arjuna lost his job in the Ports Ministry, and was shifted elsewhere. But then, for all those talking tall about the Nation’s security and also the honour of the Nation’s Navy, it was he who ensured that the security of the Hambantota leasehold and the adjoining Sri Lankan territorial waters still remained in the hands of the Sri Lanka Navy, and not the Chinese lessee. 

China’s is a development in the place of democracy model. True, democracy cannot be everything, but then, development, especially of the intellectual kind, implies that people will ask questions. That is also what Sri Lanka is all about – a Nation with a very high literacy rate, and a Nation that is the region’s oldest democracy, since circa 1931.

(The writer is Distinguished Fellow and Head-Chennai Initiative, Observer Research Foundation, the multi-disciplinary Indian public-policy think-tank, headquartered in New Delhi. email: [email protected])

By N. Sathiya Moorthy | Published: 2:00 AM Feb 24 2021

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