Why India should pull Sri Lanka out of China’s ‘debt trap’ and take it closer to the US
Posted on April 16th, 2022

The Rajapaksas’ political future is shaky. New Delhi will only prolong the hardship faced by Sri Lanka unless Colombo turns to the US.

Sri Lanka should move closer to the US and resolve its ongoing crisis. For all the Rajapaksas’ giving cold shoulder to the International Monetary Fund’s offer for help, it is with diplomatic assistance provided by India that Sri Lanka must mend ties with the US.

On 12 April, Sri Lanka declared the default on all payments on its $51-billion external debt to buy oil and agricultural commodities. The alarming level of food scarcity in the country has mobilised the population to demand the ouster of President Gotabaya Rajapaksa with the slogans ‘Go Gota Go’ and ‘Go Home Gota’ echoing on the streets. His decision to impose a public emergency on 1 April intensified protests further, leading to its quick revocation four days later. On the same day, former President Maithripala Sirisena-led Sri Lanka Freedom Party decided to withdraw its support from the ruling coalition led by Mahinda Rajapaksa. Till now, 42 members of the Sri Lankan parliament have withdrawn their support from the ruling coalition, including 12 from the Rajapaksas’ Sri Lanka Podujana Peramuna, leading to the government’s loss of majority.

The Opposition, led by Sajith Premadasa’s Samagi Jana Balawegaya (SJB), has announced a no-confidence motion against the government while also bringing a private member’s Bill to scrap the 20th Amendment and remove the powers of the executive presidency. Simultaneously, the party has also initiated the impeachment proceedings against Gotabaya. The demand to restrict the President’s powers has found support from the SLFP, which has demanded that the 19th Amendment be re-introduced with added powers” to curtail the executive powers of the presidency and an all-party interim government be formed without the involvement of the Rajapaksa family. On his part, former Prime Minister Ranil Wickremesinghe has proposed bringing a resolution in parliament that will allow the legislature to take over public finance from the President.

After riding a majoritarian Sinhalese Buddhist wave for more than a decade, the Rajapaksa family’s ongoing downfall has upended the Sri Lankan political dynamics. In the public imagination, the loss of legitimacy faced by President Gotabaya due to his failed macroeconomic policies, coupled with the allegations of dynastic corruption, has interlinked the ouster of the Rajapaksa family with the future political and economic stability in Sri Lanka. Nonetheless, neither Gotabaya nor Mahinda have given any indication that they are planning to leave. Instead of taking responsibility for the ongoing crisis, Mahinda sought to deflect the blame for the deteriorating economy on the youngsters protesting against his government, proclaiming that every second you [youth] protest, we are losing vital dollars.”

China bailing out

In this regard, China, the chief patron of the Rajapaksa family, has become circumspect to bail out its erstwhile allies. As the economic situation deteriorated in Sri Lanka with the onset of the pandemic in March 2020, China initially came to the rescue by providing $1 billion in loans. Subsequently, it also provided $1.5 billion in a currency swap deal. However, the consistent rise of the anti-China sentiment among the Sinhalese Buddhist majority forced Beijing to reassess the utility of its support to the Rajapaksa family.

While Mahinda had consistently harnessed Sinhalese majoritarian sentiments to dominate national politics, the failure to contain the anti-China sentiments in the Sinhalese South generated concerns in China about its future investments in the country. After the Rajapaksa government cancelled the Chinese hybrid energy projects in northern Sri Lanka, ostensibly under Indian pressure, the Chinese felt further aggravated. Thus, in his January visit to the island, Chinese Foreign Minister Wang Yi made a point to demand equal negotiations” with the country, without third party” interference. He also remained non-committal to a request for $3.5 billion in concessional” trade-credit for Chinese exports to Sri Lanka.

Mend ties, but with caution

China’s reluctance to restructure Sri Lankan loans and the backlash from the Sinhalese Buddhist leaders forced the Rajapaksa brothers to mend ties with India. Thus, in August 2021, Sri Lanka sent a new High Commissioner to New Delhi after keeping the post vacant for 18 months. It also announced the Integrated Country Strategy” for India. Along with promoting trade and investment, the strategy also sought to boost religious links and Buddhist exchanges and hand over a sacred Sita temple stone” from Sri Lanka for the Ram Mandir in Ayodhya. The Rajapaksas’ turn towards India brought quick dividends. Following a series of high-profile visits, the latter provided an economic package worth $2.4 billion in preferential loans and lines of credit. In return, Sri Lanka made progress on Indian projects like the Western Container Terminal (WCT) and the Trincomalee oil farm.

At a time of continuing economic distress, India’s support to Sri Lanka has earned a tremendous amount of goodwill. New Delhi’s decision to send 11,000 metric tonnes of rice on the eve of the Tamil and Sinhalese New Year is also a step in the right direction. But, India’s help to the people of Sri Lanka should not transpire into the support of the Rajapaksa family. Having lost popular legitimacy, their political future is shaky at best. Therefore, if New Delhi continues to make a deal with them, it will only prolong the hardship faced by the commoners in Sri Lanka. The solution to the country’s current economic predicament is possible only if the Rajapaksa family makes way for the interim government. In this regard, the disunity in the Opposition in Sri Lanka is a significant factor behind the confidence of the Rajapaksa brothers even in the face of mass protests. However, if the situation continues to deteriorate, the Narendra Modi government would have to host thousands of Sri Lankan refugees in Tamil Nadu. This makes it prudent for India to play an essential role in securing political stability in Sri Lanka.

Make Sri Lanka look westwards

At the same time, given India’s own economic situation and the magnitude of Sri Lanka’s economic crisis, it is unfeasible for the Modi government to continue funding the island’s purchases of food and oil. Therefore, India also needs to push Sri Lanka to improve its ties with the US. Historically, the Rajapaksa brothers have shown a great deal of stubbornness in taking support from the International Monetary Fund (IMF). In 2020, too, as the country began to face a balance of payment crisis, its leaders rejected taking help from the IMF. Due to its pro-China stance, the Sri Lankan government declined the Millennium Challenge Corporation grant of US$ 480 million offered by the US. Further, under Gotabaya’s presidency, Sri Lanka has also criticised Quad as an exclusive military alliance” with the potential to lead to a Cold War in the Indo-Pacific. However, having made a default on its external borrowings, now, Sri Lanka has no recourse left but to take help from the IMF.

After burning many bridges with the US under the Rajapaksa family’s arrogance, Sri Lanka now needs diplomatic support from India to navigate the ongoing economic crisis. This gives the latter a strategic opportunity to pull the island out of Beijing’s debt trap” and take it closer to the US, with which its interests remain aligned in the Indo-Pacific. Doing this would also allow New Delhi to retain its influence in future dispensations in Colombo.

Shrey Khanna is a Staff Research Analyst working on the Indo-Pacific Programme at the Takshashila Institution. He tweets at @Shreywa. Views are personal.

(Edited by Humra Laeeq)

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