Wednesday, 25 March 2015 00:40
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Sri Lanka President Maithripala Sirisena’s first visit to China will have historic implications for both countries. Over the next few days he is expected to have cordial yet tough discussions over future relations, including debriefing Sri Lanka’s largest loan provider with the future plans of the Government.
China’s relations famously hit a “historic high” under previous President Mahinda Rajapaksa. Many watched with increasing trepidation as more and more loans were enthusiastically embraced by the Government for projects that made little sense.
At the start there were some positive deals, such as the coal power plant, which was deemed as an essential addition to boost growth through infusion of cheap power. But the doubts continued to pile on as the first phase of the plant underwent a series of sporadic breakdowns earning itself front-page status, before eventually being completed and inaugurated by Chinese President Xi Jingping during his visit last September.
Other projects clearly were a result of bad planning. Millions of dollars were funnelled to Hambantota for ports, airports and a ludicrously posh road system that is scarcely used. Ego-projects, as they came to be known, were carefully kept off the Government’s consolidated account to brush up deficit numbers and keep debt to GDP ratios rosier than they realistically were.
A plush performing arts theatre was added to the skyline of Colombo to sweeten the deals and more and more suspicions of corruption crept into the discourse. As the years sped by, more projects were added, including expansion of the Colombo Port and even a highly-controversial $ 1.5 billion Port City project, which is now at the centre of tense negotiations. At the end of Rajapaksa’s decade in power, Sri Lanka finds herself an estimated $ 5 billion in debt to China.
Unease over this closeness was one of the main campaign points of the Opposition, which since coming into power has attempted to clear the opaque negotiations between Beijing and the previous regime. After readjusting debt rates to 88.9% of GDP, the new Government has insisted all projects have to be re-evaluated before going forward.
However, since repayment of certain loans have already begun, more discussions have to be taken to hash out a fair deal for Sri Lanka, in particular complaints over China’s EXIM Bank strong arming for higher interest rates and amending the Hambantota Port deal to pay 6.3% interest over 15 years has gained much displeasure. Therefore, it is likely that Colombo will seek fresh interest rates and instalment plans on repayment.
But all this has to be done with a velvet glove. China on its part has bigger geopolitical considerations and so far has made it clear it wishes to continue strong relations with Sri Lanka. Special Envoy Assistant Foreign Minister Liu Jianchao, heralding unprecedented transparency, assured discussions with the Chinese Government and even Chinese companies over allegations of inflated costs during a visit last month.
Since assuming power the new Government has set about obtaining loans, reported to be as high as $ 4 billion, from several sources including the World Bank and IMF, perhaps in part to pay off some of the more expensive Chinese loans.
In the long run such a move will save Sri Lanka billions while not adversely affecting its credit ratings. Yet President Sirisena’s administration has to make sure one set of bad deals are not exchanged for a new set and it is still able to tap into the world’s fastest growing economy for trade. Opening a new chapter of relations with China may be one of the most crucial testing points for this Government.
