{"id":107568,"date":"2020-10-13T16:50:22","date_gmt":"2020-10-13T23:50:22","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=107568"},"modified":"2020-10-13T16:51:38","modified_gmt":"2020-10-13T23:51:38","slug":"summary-at-least-40-of-chinese-loans-to-sri-lanka-had-immediate-economic-benefits-to-sri-lanka-private-sector","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2020\/10\/13\/summary-at-least-40-of-chinese-loans-to-sri-lanka-had-immediate-economic-benefits-to-sri-lanka-private-sector\/","title":{"rendered":"Why Chinese Loans to Sri Lanka are Well Worth"},"content":{"rendered":"

Dilrook Kannangara\u00a0<\/em><\/span><\/h2>\n\n\n

Summary: At Least 40% of Chinese Loans to Sri Lanka Had Immediate Economic Benefits to Sri Lanka Private Sector<\/p>\n\n\n\n

All Chinese\nloans to Sri Lanka are for the construction of valuable physical assets. Even\nif only 40% of those projects are given to Lankan organisations and\nindividuals, that is highly profitable. In other words, 40% of the loan that\nwas taken for the project has immediately come back to Sri Lanka\u2019s private\nsector by way of labour and material purchases. It is true the government holds\n100% of the project debt. But when taken as a nation as a whole, only 60% of\nthe loan that equates to the portion of the project given to Chinese\ncontractors is a net outflow from Sri Lanka with interest. Even for them, an\nequal amount (60%) of services have been received by Sri Lanka. Once the\nproject is complete, the net outflow of 60% is covered by economic benefits\nearned and costs saved from the physical asset constructed. Therefore, Chinese\nloans are doubly beneficial to Sri Lanka. However, it gets even better!<\/p>\n\n\n\n

Background: Thank You\nAmerican Ambassador for Saying 40% of Chinese Loans Immediately Benefitted\nLankan Private Sector<\/p>\n\n\n\n

In a recent interview\nwith Daily Mirror, U.S. Ambassador to Sri Lanka Alaina B. Teplitz mentioned the\nfollowing:<\/p>\n\n\n\n

[Quote] A 2019 World\nBank study concluded that more than 60% of People\u2019s Republic of China\n(PRC)-funded Belt and Road Initiative (BRI) projects are allocated to Chinese\ncompanies and stressed that tender processes are opaque. [Unquote]<\/p>\n\n\n\n

http:\/\/www.dailymirror.lk\/opinion\/Sri-Lanka-should-engage-with-China-in-ways-that-protect-its-sovereignty-Alaina-B-Teplitz\/231-197159<\/a><\/p>\n\n\n\n

Well madam\nambassador, what about the remaining 40%? <\/p>\n\n\n\n

Even she agreed that\nit comes back to the host nation (Sri Lanka) at the time the project asset is\nconstructed. For instance, if a certain Chinese project costed $1.5 billion,\n$0.6 billion of it immediately came back to Sri Lanka by way of Sri Lankan\nlabour and material purchased from Sri Lanka even before the asset was\nconstructed in full! That\u2019s an enormous economic injection to the Sri Lankan\nprivate sector. That\u2019s not all. Chinese labourers working on the project\nconsume goods and services in Sri Lanka while they are stationed. They pay for\ntheir food, rent, entertainment and travel locally which is an added boost to\nSri Lanka\u2019s private sector. Although the amount cannot be quantified and\ntotaled, it is substantial. <\/p>\n\n\n\n

Then the asset is\nconstructed and operated it generates income directly and indirectly. Direct\nincome (for instance the Southern Expressway, Katunayake-Colombo Expressway,\nColombo South Port Terminal, powerplants) is recorded while indirect income\nearned by the nation\u2019s private sector is not quantified. Chinese built\ninfrastructure also leads to cost savings that are not quantified. For\ninstance, although the Mattla Airport is not making profit, Sri Lanka saves a\nmassive amount of money by having a second international airport. Planes need\nnot be diverted away from Katunayake International Airport (KIA) to Indian\nairports after Mattala came into operation. Essential and preventive repairs of\nKIA can be carried out without any disruption to air traffic. This was never\nthe case before Mattala International Airport.<\/p>\n\n\n\n

When considered as a\nnation, all Chinese loans are profitable. <\/p>\n\n\n\n

The\nConfusion: Government Taken Separately from the Nation as a Whole Gives the\nWrong Impression <\/p>\n\n\n\n

Confusion prevails\nwhen looked at the loan purely from the government point of view. The\ngovernment is liable to repay the full loan and interest. That includes 40% of\nthe project cost that came back to Sri Lanka\u2019s private sector, goods and\nservices purchased by Chinese workers in the island and paid by them to the\nprivate sector and indirect economic benefits earned by Sri Lanka\u2019s private\nsector during the construction stage.<\/p>\n\n\n\n

This is what ails\nIndian, American and NGO lobbies. They conveniently forget the massive economic\nbenefits already earned by Sri Lanka\u2019s private sector (40% plus much more) even\nbefore the project is complete. They also forget indirect economic benefits\nthat are continued to be earned by the private sector after the project asset\nis operational.<\/p>\n\n\n\n

It is not that they\nforget these; they maliciously disregard these benefits to Sri Lanka.<\/p>\n\n\n\n

Debt Trap:\nThe Unfortunate Leftover of US and Indian Pushed Reconciliation <\/p>\n\n\n\n

Sri Lanka is sadly in\na debt trap. This is not due to Chinese loans as Chinese loans have already\nshowered Sri Lanka with more than 40% of the loan value as private sector\neconomic benefits even before project completion! Debt trap is due to\ncommercial bonds issued in various western capitals at commercial USD bond\nrates. These are Sri Lanka Sovereign Bonds and Sri Lanka Development Bonds.\nThey have no identifiable physical asset and most went for reconstruction of\nthe north and east, reconciliation and resettlement of Tamil IDPs until 2013.\nSince then most monies raised by new bonds were used to repay old bonds and\ninterest. Interest rates vary from 6.75% on USD to even 10%. These debt holders\nare individual investors in the EU and the US. Worth mentioning again: these\ndebt holders are individual investors in the EU and the US.<\/p>\n\n\n\n

Indian debt also\nfalls into this category as Indian debt including currency swaps have no\nconstruction of physical assets that generate income. What\u2019s more, most\ndestruction to the environment is caused by Indian funded projects like housing\nprojects for Indian Tamils in environmentally vulnerable hill country which is\nthe catchment area of most rivers and most endangered wildlife. The recent\nspike in leopard encounters and unfortunate killing of a large number of\nleopards is the direct result of these invasive and useless Indian projects.<\/p>\n\n\n\n

No wonder, the US\nambassador avoided mentioning them!<\/p>\n\n\n\n

Comparing Lease and\nOther One-Sided Deals<\/p>\n\n\n\n

In addition to loans,\nSri Lanka has entered into lease and other agreements with China, India and\nUSA. Hambantota Port and Port City have leases entered with Chinese companies.\nThese are profitable to Sri Lanka as the Chinese companies pay a lease rent and\nshare profits of commercial ventures they carryout with a Sri Lankan stake. For\ninstance, Sri Lanka Ports Authority has a significant stake in the Hambantota\nPort. Efficiencies of Chinese management result in profit for the Sri Lankan\nshareholding too. <\/p>\n\n\n\n

However, this is not\nthe case with the leases Sri Lanka entered into with India over the Trincomalee\noil tank farm. The lease rental is not worth it and an Indian company is using\ntanks for its commercial ventures in Sri Lanka with no return to the island by\nway of a profit share or tax on profits or assets.<\/p>\n\n\n\n

Same goes for assets\nleased and continue to lease to USA. There is no profit share or tax income for\nSri Lanka.<\/p>\n\n\n\n

In addition to these,\nSri Lanka has entered into military deals with USA and India that binds Sri\nLanka to provide logistics facilities to them. One example is ACSA.\nUnfortunately, these deals are not with the paper they are signed in! Providing\nthem logistical facilities including airlift by SLAF is not cheap but the\nagreement states they are either not paid for or paid a very nominal amount. In\n1987 Sri Lanka entered into the Indo-Lanka Peace Accord which imposed worthless\nwhite elephants called provincial councils. They continue to bleed the Lankan\neconomy with no benefit whatsoever.<\/p>\n\n\n\n

Therefore, even on\nthe leasing front Chinese deals are far more profitable to Sri Lanka than US\nand Indian deals.<\/p>\n\n\n\n

Way Froward:\nReview All Commitments Economically and Politically, Retain the Beneficial and\nScrap the Unprofitable to Sri Lanka as a Nation<\/p>\n\n\n\n

Impact of\nthe debt trap has been worsened by the COVID-19 induced economic crisis. Sri\nLanka must critically evaluate all its deals particularly with foreign parties\nand their resultant local matters. Provincial Council system must be done away\nwith immediately as it is a massive white elephant. Indo-Lanka Peace Accord\nmust be rescinded officially. India-Sri Lanka lease agreement over Trincomalee\noil tanks must be scrapped as it offers no economic benefits. Progressive taxes\nmust be imposed on all foreign owned commercial ventures in Sri Lanka where\nthey compete against local entities, especially government entities. Property\nin Sri Lankan owned by Sri Lankans living in foreign nations as their permanent\nresidents or citizens must attract a tax on property value and government\npensions paid to Sri Lankans residing abroad must be reduced or removed. These\nare tough measures that are essential to meet tough economic challenges faced\nby the nation. China is the hen that lays golden economic eggs and further\ninroads must be made for Chinese investments in the island. At the same time no\ncountry should be allowed to dictate terms to Sri Lanka and influence Sri\nLanka\u2019s policy matters. Sri Lanka is an independent, sovereign and proud nation\nthat is more than capable of own policy decisions.<\/p>\n\n\n\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

Dilrook Kannangara\u00a0 Summary: At Least 40% of Chinese Loans to Sri Lanka Had Immediate Economic Benefits to Sri Lanka Private Sector All Chinese loans to Sri Lanka are for the construction of valuable physical assets. Even if only 40% of those projects are given to Lankan organisations and individuals, that is highly profitable. In other […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[44],"tags":[],"class_list":["post-107568","post","type-post","status-publish","format-standard","hentry","category-dilrook-kannangara"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/107568","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/comments?post=107568"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/107568\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=107568"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=107568"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=107568"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}