Editorial

The Chinese Foreign Minister arrived in Sri Lanka yesterday on what we are told is his annual New Year call on African and Asian leaders. While he is warmly welcomed, not without significance was the planned, now cancelled, departure of the country’s Finance Minister to neighbouring India for an economic summit aimed at inviting investors, and talks with its leaders.

Such is the interplay of geopolitics in this neck of the woods that Sri Lanka is getting sucked deeper into the mire of the ongoing standoff played out in the Indo-China border region. The cold war between these giant nations is opening a new frontier in the southern flank of India – through Sri Lanka.

The recent jingoism displayed by the Chinese ambassador’s visit to the Northern Province has to be read in that context. He made no bones about conveying China’s intentions not to allow that part of Sri Lanka to be India’s exclusive turf. That the visit had the imprimatur of the Sri Lanka Government cannot be ruled out. That it happened on the eve of the Chinese FM’s visit leads one to the irresistible conclusion that it was directly Beijing’s initiative.

That visit has already ruffled feathers in the political playground of the North. While the Governor and the Fisheries Minister of the Central Government welcomed the envoy with clasped hands and jasmine garlands, the Tamil National Alliance spokesman frowned, asking the Chinese to stay away.

Both India and China are taking maximum advantage of Sri Lanka’s economic desperation to demand their pound of flesh in return for financial support. Realpolitik means that no country helps another for the good of humanity and world peace.

India has squeezed an extension to the oil tank farms lease near Trincomalee harbour. First brought up during the 1987 Indo-Sri Lanka Agreement to prevent the Americans using the natural harbour as a naval base, it now joins the US to prevent Chinese access to it. The local Oil Minister strains to say that the Government owns the oil tanks and is only leasing them to Indian Oil — for 50 years. He hides the fact that India could well argue justification in a military intervention if any enemy activity inimical to its commercial interests were to occur. The proposed coal plant at Sampur, also near Trincomalee, is India’s other target to consolidate its grip around Trincomalee. As a former Korean ambassador said, Sri Lanka’s geographic location can be an asset, and a misfortune.

Not to be upstaged, China no longer opts for win-win situations like the Rubber-Rice Pact with Sri Lanka in the 1950s. The multitude of projects it has shoved down Sri Lanka’s naive political leadership of recent times has aggravated a debt crisis like never before. Sri Lanka still owes China USD six billion (more than a trillion rupees in project loans and other loans) and having surrendered a 99-year lease over the Hambantota port, extended real estate around the Colombo Port city — and even capitulated to pressure — coughing out millions of dollars as compensation for a shipload of rotten fertiliser, there is rising alarm over the overwhelming, omnipresent Chinese influence and presence in the country.

To such a country has come the Chinese FM. And he is unlikely to come to the rescue with offers of restructuring these debts. The new China is more sophisticated — and less of a ‘nice guy’, as it seeks to challenge the global dominance of Western powers, especially in the Indo-Pacific and India’s historical domination in its Indian Ocean backwaters. China’s strategic gaze extends to the Maldives, which its Foreign Minister visited yesterday, and has set that country ablaze with a China vs. India internal debate over its own sovereignty.

Loaded with debts, Sri Lanka is not having it easy with either India or China as they compete vigorously for a larger share of the Lankan pie, or what is left. The Central Bank Governor remains adamant that G-to-G (Government to Government) loans will obviate the necessity to go to lending agencies like the IMF for bailouts. This means even more reliance on India and China. The IMF is a lending agency controlled by the United States, but its lending conditions are not tied to real estate in Sri Lanka.

The problem now may, however, be whether we have missed the IMF bus as well by having the National Debt to GDP ratio go beyond the threshold of what the IMF can accept to intervene. It’s a ‘damned if you do, damned if you don’t’ situation for Sri Lanka by having to fall at the feet of India and China for economic succour as the two jostle for supremacy in the region.

Printing money: The CB paradox

 The Finance Minister’s New Year relief package announced this week to ease the pain of his hardpressed fellow citizens so soon after the 2022 Budget has raised eyebrows across the board. A pleasant surprise to some; alarms bells to others.

 

Sri Lanka is known for living beyond its means, and now having to pay for it. On the face of it, the package is a people-friendly move. But hard-nosed economists will ask how the Government can afford it. With no plan to recoup the Rs. 229 billion earmarked for the programme, the only avenue open is to print the money. More money in circulation is higher inflation, the silent killer of the Cost of Living, already at a record 12 percent.

According to available statistics, the Central Bank printed a phenomenal 691 billion new rupees last year alone. There is no better explanation on the danger of printing money than that given by the sole authority allowed to do it — the Central Bank. Having said that firstly, the currency should be genuine, it says “another way of losing people’s trust in money is when a country experiences a significant increase in prices of goods and services continuously which is considered a hyper-inflationary situation”.

The bankers’ bank refers to German currency a hundred years ago when a loaf of bread that was one Deutche mark rose to four billion marks. “People had to carry money in wheelbarrows to purchase goods”. This is taught to all O’ level students of economics as a textbook case of inflation. People lost faith in money and it led to the collapse of banks and businesses. So repeats the Central Bank of Sri Lanka.