Dinesh Perera
J M Keynes on IndiaThe available statistics appear to show that, whether the phenomena are connected or not, the rise of prices has nearly been proportional to the increase of currency”[1]Apart from the fluctuations of the seasons the Indian level of prices is most influenced at the present time by the extent to which Europe makes investments there”[2]
Why China Invests?
Keynes wrote an economic journal article studying
significant price rises in India in 1909. He statistically looked to see what
figures best explain the rise in prices. It puts forth the argument that the
‘rapid influx of foreign capital’ is what caused the
inflation of the studied time period. In the current monetary framework, a
rapid influx of foreign capital would result in exchange rate appreciation
making exports uncompetitive.
China by running
considerable trade surpluses has built up considerable foreign assets[3].
If China was to repatriate its foreign-held
assets it would face severe inflation and make its exports uncompetitive. It is
widely agreed that these trade surpluses accrue due to a large working
population being subject to slave-like
conditions[4].
This is a fact widely ignored by those Sri Lankans who purport to be considered
with the welfare of labor but happily
align themselves with China’s foreign interests.
Put in other
words, China cannot bring back its considerable foreign reserves back to its
mainland territory without causing large shocks to its economy. This creates a
need for China to reinvest its foreign proceeds overseas.
Context
The framing of this article is based opposing the
foreign policy commentary that deems that a small country must be aligned either
towards the Capitalist or Communist foreign power blocs.
The acceptance
of this then would lead one to define Mahinda Rajapaksa and Ranil
Wickremesinghe as aligned against and with the West respectively. This will
gloss over the capacity of a nation-state or leader to be duplicitous in its
dealings.
Both
Mahinda and Ranil have fond personal connections with Iran. Both have courted
the IMF. Mahinda famously paid consultancy fees[5]
to Dominique Strauss Kahn. Ranil proactively organized an extended fund
facility with the IMF and is suggested to be using Joseph Stiglitz and his
insight to undermine any influence. Both have given power to China and India.
China and India are increasingly intertwined.
Shri Kanungo, Deputy Governor Reserve Bank of India
China is the world’s largest economy today on a PPP
basis and India is the third largest. If you add the exports and imports, China
is India’s largest trading partner (2017–18 data). Among the fastest growing
economies, the engagement between the two countries can be expected to see
phenomenal growth in the times to come.
Debutante Strategy
The value of placing China as being either a positive
or negative influence must be questioned. Individual projects normally have on
large time scales complex cost-benefit analysis attached to them. It is sheer
hubris to suggest with confidence that aligning oneself to one power bloc at
the cost of the other, either the leading world superpower or the fastest
growing large economy, will be more beneficial.
Sri
Lanka’s foreign policy as overtly articulated now is to be friends with everyone[6].
This allows us to maintain relations with anyone who may be of use in the
future. The multipolar nature of current investments is a salient point in
foreign policy communications.
A
person who wields power in a society is normally considered to be autonomous in
the creation of relations. There are no rules limiting Sri Lanka in this regard
as we have no external military ambitions.
Those attempting
to place Sri Lanka under the influence of a greater power do so to undermine
its power. It is not in the national interests to be perceived to be in debt.
It is not in the national interests to position all our future plans within a
broader project (the Belt and Road Initiative) over which we have no say. Most
of all it is not in the national interest to play into the foreign narrative of
the local context.
The Notion of Debt
If history shows anything, it is that there’s no better
way to justify relations founded on violence, to make such relations seem moral than by reframing them in the language of
debt—above all, because it immediately makes it seem that it’s the victim who’s
doing something wrong.”
― David Graeber[7]
Whether or not someone owes something to someone else
is a judgment steeped in various cultural
considerations. This is because debt is more than just a monetary transaction
and can take forms that are non-monetary. People, for instance, can lend time
or moral support to each other with an expectation that the other party returns
the favor.
It is
also impacted by role. A parent, for instance, may never be indebted to their
child. This is because the nature of the relationship within our culture does
not allow for such accounting. Odd situations in terms of economics arise when
sometimes people are offered things for free with no explicit strings attached
and still refuse them. This can be explained culturally by the fact that
accepting such a gift would result in changing the nature of the relationship.
There
are also implications with regards to the terms of the debt. If for instance
there are stipulations attached to the debt does it still conjure up feelings
of indebtedness beyond the monetary value?
If China gives us money contingent on us using a Chinese contractor and paying
back a rate of interest is it really favor?
The terms that can
be enforced also speak a lot to the power balances within society. For
instance, our incredibly unequal society manifests itself quite explicitly in
the treatment of microfinance borrowers.
Monetary debts historically could be passed generationally and also result in
indentured servitude.
China Supporting our
Military
During our civil conflict,
the Chinese government provided the nation with considerable military
equipment, support within international bodies, and financial support to the
government[8].
This all had an undeniable impact in allowing for our military victory. The
Chinese government stood with us wherein Western governments that we are
currently pivoting to did not.
This
friendship was given at a time much needed. The US, on the other hand, attacked
Sri Lanka on human rights and the war effort. This is a country which had
previously gone as far as to give citizenship to a current presidential hopeful
who was involved in the brutal UNP led crackdowns on JVP supporters. The US-UNP
relationship probably helped secure citizenship.
The US globally is
not a real supporter of democracy. This is true of any superpower. There is no
dichotomy between China and the United States. Both nations must be balanced in
their influence if Sri Lanka is to prosper.
Responding to Propaganda
Recently a very subtle PR campaign is being run
pushing the idea that Sri Lankan debt to China is not significant[9].
The argument put forth hinges on the rate of interest and the total holding of
debt. Both of which would not place China as a predatory lender. This is in
contrast to the deafening silence and lack of gratefulness to India which
recently offered Sri Lanka a much-needed
line of credit[10].
An
actual think tank should look at the marginal growth in debt as there has been
little historical down payment of the debt. It is likely that within the
Rajapaksa administration Chinese debt and investment would show exponential
growth.
Providing a Sensible View
It is difficult to place a binary distinction between Chinese debt and investment being
either good or bad. It, however, is dishonest to absolve China of the negative
impacts some of its projects have had on Sri Lanka. The likening of China to a
bank and its impact only modulating good or bad policy is overly simplistic and
morally repulsive. As put forth in the bestseller Confessions of an Economic
Hitman there is a massive role the lender plays in the success or failure of a
project.
One
only has to look at Norocholai Power
Station or the Hambantota port to see the negative impacts of Chinese
investment. More on the Belt and Road initiative can be found on the American
Enterprise Institute website. Their China Investment tracker documents broad
corruption[11].
There have been positives of Chinese investment and
China invariably has to be a source of finance to the government. China as
mentioned before played a pivotal role in the war victory[12].
Chinese labor is bringing significant
efficiency to our construction sector. Every effort should be made to keep them
in the country after the completion of the Shang Ri La project.
The Lie on Concessional
Debt
The narrative put forth by these PR agencies is that
Sri Lanka loses its concessional debt privileges around 2004. They suggest this
is because Sri Lanka gains middle-income
status during this period. Therefore after 2004,
Sri Lanka has to go to international markets to finance its development[13].
This narrative is
maliciously untrue and is rarely contested. Sri Lanka on PPP terms might be
middle income but is not so in terms of actual dollar income. This is why basic
electronics seem so expensive even though we are defined as middle income.
Electronics are imported and priced in actual dollar terms.
Further
concessionary debt or military aid is not driven by actual need but rather by
foreign policy considerations. Israel, for instance, is a major recipient of US defense aid[14].
As we near an election Sri Lanka is also receiving considerable US/NATO linked
aid[15].
This aid is not tied to any specific project and can be spent in conjunction
with the upcoming monetary stimulus to boost the economy.
The
North and East of the country are also the focus of many good Samaritans[16].
The international community needs to promote projects in the area to seem
sincere in their views at the UN. These smaller projects, however, need to be
free from corruption so as to meet the internal policy requirements of the
funding agency and this was not possible in the previous regime.
The Executive Presidency
in All of This
It is a poorly kept secret that the leaders of the two
major political parties are going to support the abolishment of the executive
presidency[17].
It is only the gullible and the news cycle hungry journalists that are pushing
a narrative that sees the two gentlemen
passing political power either to their former leadership rivals or their
siblings. The conspiracy theories have gone so far as to involve the recent
defeat of expenditure heads[18].
The
political maneuvering required to bring
the constitutional amendment to pass still requires finesse but is the most
likely outcome given the current balance of interests and power.
The
Executive Presidency is important in this as it is an office that can
unilaterally change the foreign policy of the country. JRJ notably pivoted Sri
Lanka’s foreign policy to the US[19]
and placed the nation on the global map[20].
The President’s office under Rajapaksa pivoted heavily towards China. Rajapaksa
also greatly diminished our global standing[21].
Sri Lanka’s small
size and important maritime location will
always mean that it will be of interest to global powers. The Panama of South
Asia. If the acceptance of debt or international military corporation is moved
closer to parliament it is more likely that these arrangements benefit the
general populace.
The reason Sri
Lanka as a nation does not feel indebted to China is because they feel such
debt was negotiated by the former strongman in benefit of his extended family.
This is why one must analyze the growth
in debt and implications on the debt of
Chinese projects to have a broader understanding of the large mistrust of
Chinese influence amongst our people.
Conclusion
We as civil
society must look at things like grace periods and benchmark costs against
international standards when assessing projects. Construction companies should
also be able to make a profit. The Hambantota port, for instance, put the ports
authority into a significant cash flow problem. The local partnership model for
construction put forth in the recent budget is an economic policy that is agreeable to the majority of the voting
population.
Most Sri Lankans
do not feel a major debt to China. The Chinese only help as they need to
reinvest their foreign proceeds and gain regional influence in line with the
interests of an emerging superpower. Sri
Lanka must do what is best for itself and play foreign powers against each
other.
We, however, do
have an obligation to wherever possible offer refuge to those who are
politically persecuted. Sri Lanka is in a net debt position to the world who
accepted its citizens when they were facing persecution domestically following
two incredibly destructive changes to its constitution. We owe it to the world
to give the Chinese freedom from communism. Port
City can be their refuge.
[1] Recent Economic Events in India pg57 Author(s):
J. M. Keynes Source: The Economic Journal,Vol. 19, No. 73 (Mar., 1909), pp.
51-67
[2]
Recent Economic Events in India pg67 Author(s): J. M. Keynes Source: The
Economic Journal,Vol. 19, No. 73 (Mar., 1909), pp. 51-67
[3]
https://www.forbes.com/sites/kenrapoza/2014/04/07/chinas-foreign-assets-more-than-half-its-gdp/#6c5b34d731ea
[4]
https://thediplomat.com/2018/03/chinas-forced-labor-problem/
[5]
https://economynext.com/Sri_Lanka_ex_CB_Governor_defends_deal_with_Strauss_Kahn-3-1141.html
[6]
http://www.sundayobserver.lk/2018/05/20/news/continuation-policy-friendship-all
[7]
Debt: The First 5,000 Years
[8]
https://www.independent.co.uk/news/world/asia/how-beijing-won-sri-lankas-civil-war-1980492.html
[9]
https://www.veriteresearch.org/2019/01/16/chinese-debt-is-not-sri-lankas-biggest-problem-verite-research/
[10]
http://www.colombopage.com/archive_19A/Jan09_1547042503CH.php
[11]
http://www.aei.org/china-global-investment-tracker/
[12]
https://www.japantimes.co.jp/opinion/2009/03/04/commentary/china-fuels-sri-lankan-war/#.XIZ7z9JS82w
[13]
http://www.ips.lk/talkingeconomics/2019/01/22/managing-sri-lanka-china-economic-relations-bri-debt-and-diplomacy/
[14]
https://www.theatlantic.com/international/archive/2016/09/united-states-israel-memorandum-of-understanding-military-aid/500192/
[15]
http://www.dailynews.lk/2019/03/18/business/180538/world-bank-provide-usd-70-mn-rural-development
[16]
https://reliefweb.int/report/sri-lanka/human-rights-must-be-top-priority-economic-reforms-says-un-expert
[17]
http://www.dailymirror.lk/political-gossip/A-mystery-shrouded-dialogue-/261-164949
[18]
https://twitter.com/sunandadesh/status/1111526682710691841
[19]
http://www.sundaytimes.lk/110213/Timestwo/t2_14.html
[20]
http://www.island.lk/2009/09/07/features2.html
[21]
https://www.youtube.com/watch?v=9gL5stPqdHo