{"id":127162,"date":"2022-07-20T14:43:33","date_gmt":"2022-07-20T21:43:33","guid":{"rendered":"https:\/\/www.lankaweb.com\/news\/items\/?p=127162"},"modified":"2022-07-20T14:43:33","modified_gmt":"2022-07-20T21:43:33","slug":"real-debt-trap-sri-lanka-owes-vast-majority-to-west-not-to-china","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2022\/07\/20\/real-debt-trap-sri-lanka-owes-vast-majority-to-west-not-to-china\/","title":{"rendered":"Real Debt Trap: Sri Lanka Owes Vast Majority to West, Not to China"},"content":{"rendered":"<h2><span style=\"color: #0000ff;\"><em><strong>Benjamin Norton Courtesy https:\/\/towardfreedom.org\/<\/strong><\/em><\/span><\/h2>\n\n\n<p>Facing a deep economic crisis and bankruptcy, Sri Lanka was rocked by large protests this July, which led to the resignation of the government.<\/p>\n\n\n\n<p>Numerous Western political leaders and media outlets blamed this uprising on a supposed Chinese debt trap,\u201d echoing a deceptive narrative that has been thoroughly&nbsp;<a href=\"https:\/\/www.theatlantic.com\/international\/archive\/2021\/02\/china-debt-trap-diplomacy\/617953\/\">debunked by mainstream academics<\/a>.<\/p>\n\n\n\n<p>In reality, the vast majority of the South Asian nation\u2019s foreign debt is owed to the West.<\/p>\n\n\n\n<figure class=\"wp-block-embed is-type-rich is-provider-embed-handler wp-block-embed-embed-handler\"><div class=\"wp-block-embed__wrapper\">\nhttps:\/\/youtube.com\/watch?v=U52tT5hgtSk%3Ffeature%3Doembed\n<\/div><\/figure>\n\n\n\n<p>Sri Lanka has a history of struggling with Western debt burdens, having gone through&nbsp;<a href=\"https:\/\/www.newindianexpress.com\/opinions\/2022\/may\/07\/imf-and-the-sri-lanka-bailout-drama-2450657.html\">16 economic stabilization programs\u201d<\/a>&nbsp;with the Washington-dominated&nbsp;<a href=\"https:\/\/multipolarista.com\/2022\/05\/11\/michael-hudson-dollar-sanctions-imperialism\/\">International Monetary Fund (IMF)<\/a>.<\/p>\n\n\n\n<p>These structural adjustment programs clearly have not worked, given Sri Lanka\u2019s economy has been managed by the IMF for many of the decades since it achieved independence from British colonialism in 1948.<\/p>\n\n\n\n<p>As of 2021, a staggering 81 percent of Sri Lanka\u2019s foreign debt was owned by U.S. and European financial institutions, as well as Western allies Japan and India.<\/p>\n\n\n\n<p>This pales in comparison to the mere 10 percent owed to Beijing.<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" src=\"https:\/\/i0.wp.com\/multipolarista.com\/wp-content\/uploads\/2022\/07\/Sri-Lanka-foreign-debt-West-Japan.png?resize=880%2C927&amp;ssl=1\" alt=\"Sri Lanka foreign debt West Japan\" class=\"wp-image-5176\"\/><\/figure>\n<\/div>\n\n\n<p>According to official statistics from&nbsp;<a href=\"http:\/\/www.erd.gov.lk\/index.php?option=com_content&amp;view=article&amp;id=102&amp;Itemid=308&amp;lang=en\">Sri Lanka\u2019s Department of External Resources<\/a>, as of the end of April 2021, the plurality of its foreign debt is owned by Western vulture funds and banks, which have nearly half, at 47 percent.<\/p>\n\n\n\n<p>The&nbsp;<a href=\"https:\/\/asia.nikkei.com\/Spotlight\/Market-Spotlight\/Sri-Lanka-s-international-bondholders-brace-for-a-haircut\">top holders<\/a>&nbsp;of the Sri Lankan government\u2019s&nbsp;<a href=\"https:\/\/www.reuters.com\/world\/asia-pacific\/exclusive-blackrock-ashmore-part-sri-lankas-creditor-group-ahead-debt-talks-2022-04-06\/\">debt<\/a>, in the form of international sovereign bonds (ISBs), are the following firms:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>BlackRock (U.S.)<\/li><li>Ashmore Group (Britain)<\/li><li>Allianz (Germany)<\/li><li>UBS (Switzerland)<\/li><li>HSBC (Britain)<\/li><li>JPMorgan Chase (U.S.)<\/li><li>Prudential (U.S.)<\/li><\/ul>\n\n\n\n<p>The Asian Development Bank and World Bank, which are thoroughly dominated by the United States, own 13 percent and 9 percent of Sri Lanka\u2019s foreign debt, respectively.<\/p>\n\n\n\n<p><a href=\"https:\/\/multipolarista.com\/2022\/05\/11\/michael-hudson-dollar-sanctions-imperialism\/\">Washington\u2019s hegemony over the World Bank<\/a>&nbsp;is well known, and the U.S. government is the only World Bank Group shareholder with&nbsp;<a href=\"https:\/\/www.worldbank.org\/en\/country\/unitedstates\/overview\">veto power<\/a>.<\/p>\n\n\n\n<p>Less known is that the Asian Development Bank (ADB) is, too, largely a vehicle of U.S. soft power. Neoconservative DC-based think tank the Center for Strategic and International Studies (CSIS), which is funded by Western governments, affectionately described the ADB as a <a href=\"https:\/\/www.csis.org\/analysis\/asian-development-bank-strategic-asset-united-states\">strategic asset for the United States<\/a>,\u201d and a crucial challenger to the much newer, Chinese-led Asian Infrastructure Investment Bank.<\/p>\n\n\n\n<p>The United States, through its membership in the ADB and with its Indo-Pacific Strategy, seeks to compete with China as a security and economic partner of choice in the region,\u201d boasted CSIS.<\/p>\n\n\n\n<p>Another country that has significant influence over the ADB is Japan, which similarly owns 10 percent of Sri Lanka\u2019s foreign debt.<\/p>\n\n\n\n<p>An additional 2 percent of Sri Lanka\u2019s foreign debt was owed to India as of April 2021, although that number has steadily increased since. In early 2022, India was in fact the&nbsp;<a href=\"https:\/\/economynext.com\/india-top-lender-to-sri-lanka-in-2022-so-far-displacing-china-96931\/\">top lender to Sri Lanka<\/a>, with New Delhi disbursing 550 percent more credit than Beijing between January and April.<\/p>\n\n\n\n<p>Both Japan and India are key Western allies, and members of Washington\u2019s&nbsp;<a href=\"https:\/\/multipolarista.com\/2022\/02\/13\/china-quad-meeting-australia\/\">anti-China military alliance in the region, the Quad<\/a>.<\/p>\n\n\n\n<p>Together, these Western firms and their allies Japan and India own 81 percent of Sri Lanka\u2019s foreign debt \u2013 more than three-quarters of its international obligations.<\/p>\n\n\n\n<p>By contrast, China owns just one-tenth of Sri Lanka\u2019s foreign debt.<\/p>\n\n\n\n<p>The overwhelming Western role in indebting Sri Lanka is made evident by a graph published by the country\u2019s&nbsp;<a href=\"http:\/\/www.erd.gov.lk\/index.php?option=com_content&amp;view=article&amp;id=102&amp;Itemid=308&amp;lang=en\">Department of External Resources<\/a>, showing the foreign commitments by currency:<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" src=\"https:\/\/i0.wp.com\/multipolarista.com\/wp-content\/uploads\/2022\/07\/Sri-Lanka-government-foreign-debt-currencies.jpg?resize=880%2C499&amp;ssl=1\" alt=\"Sri Lanka government foreign debt currencies\" class=\"wp-image-5188\"\/><\/figure>\n<\/div>\n\n\n<p>As of the end of 2019, less than 5 percent of Sri Lanka\u2019s foreign debt was denominated in China\u2019s currency the yuan (CNY). On the other hand, nearly two-thirds, 64.6 percent, was owed in U.S. dollars, along with an additional 14.4 percent in IMF special drawing rights (SDR) and more than 10 percent in the Japanese yen (JPY).<\/p>\n\n\n\n<p>Western media reporting on the economic crisis in Sri Lanka, however, ignores these facts, giving the strong, and deeply misleading, impression that the chaos is in large part because of Beijing.<\/p>\n\n\n\n<p><strong>Sri Lankan Economic Crisis Driven by Neoliberal Policies, Inflation, Corruption, Covid-19 Pandemic<\/strong><\/p>\n\n\n\n<p>This July, Sri Lanka\u2019s government was forced to resign, after hundreds of thousands of protesters stormed public buildings, setting some on fire, while also occupying the homes of the country\u2019s leaders.<\/p>\n\n\n\n<p>The protests were driven by skyrocketing rates of inflation, as well as rampant corruption and widespread shortages of fuel, food, and medicine \u2013 a product of the country\u2019s inability to pay for imports.<\/p>\n\n\n\n<p>In May, Sri Lanka defaulted on its debt. In June, it tried to negotiate another structural adjustment program with the U.S.-dominated International Monetary Fund (IMF). This would have been Sri Lanka\u2019s&nbsp;<a href=\"https:\/\/asia.nikkei.com\/Spotlight\/Market-Spotlight\/Sri-Lanka-s-international-bondholders-brace-for-a-haircut\">17th IMF bailout<\/a>, but the talks ended without a deal.<\/p>\n\n\n\n<p>By July, Sri Lankan Prime Minister Ranil Wickremesinghe publicly admitted that his government was <a href=\"https:\/\/edition.cnn.com\/2022\/07\/05\/asia\/sri-lanka-bankrupt-fuel-crisis-intl-hnk\/index.html\">bankrupt<\/a>.\u201d<\/p>\n\n\n\n<p>Sri Lankan President Gotabaya Rajapaksa, who spent a significant part of his life working in the United States, entered office in 2019 and immediately imposed a series of neoliberal economic policies, which included&nbsp;<a href=\"https:\/\/apnews.com\/article\/b6b96849ebe74c8dbeac461ff8418c28\">cutting taxes on corporations<\/a>.<\/p>\n\n\n\n<p>These neoliberal policies decreased government revenue. And the precarious economic situation was only exacerbated by the impact of the Covid-19 pandemic.<\/p>\n\n\n\n<p>Facing an out-of-control&nbsp;<a href=\"https:\/\/www.thehindu.com\/business\/Economy\/sri-lanka-hikes-tax-rates-to-maximise-government-revenues\/article65480500.ece\">39.1 percent inflation rate in May<\/a>, the Sri Lankan government did a 180 and suddenly raised taxes again, further contributing to popular discontent, which broke out in a social explosion in July.<\/p>\n\n\n\n<p><strong>Media Falsely Blames China for Sri Lankan Debt Default<\/strong><\/p>\n\n\n\n<p>While 81 percent of Sri Lanka\u2019s foreign debt is owned by Western financial institutions, Japan, and India, major corporate media outlets sought to blame China for the country\u2019s bankruptcy and subsequent protests.<\/p>\n\n\n\n<p>The Wall Street Journal pointed the finger at Beijing in a deeply misleading article titled <a href=\"https:\/\/www.wsj.com\/articles\/deepening-debt-crisis-in-sri-lanka-stokes-controversy-over-chinese-lending-11642514503\">China\u2019s Lending Comes Under Fire as Sri Lankan Debt Crisis Deepens<\/a>.\u201d The newspaper noted that the crisis opens a window for India to push back against Chinese influence in the Indian Ocean region.\u201d<\/p>\n\n\n\n<p>U.S. media giant the&nbsp;<a href=\"https:\/\/apnews.com\/article\/politics-china-africa-b8c14e0c87c99f307e62b1a065bbaa6b\">Associated Press<\/a>&nbsp;also tried to scapegoat China, and its deceptive news wire was republished by outlets across the world, from&nbsp;<a href=\"https:\/\/abcnews.go.com\/International\/wireStory\/china-wild-card-sri-lankas-debt-crisis-84851676\">ABC News<\/a>&nbsp;to Saudi Arabia\u2019s&nbsp;<a href=\"https:\/\/english.alarabiya.net\/News\/world\/2022\/05\/20\/China-becomes-wild-card-in-Sri-Lanka-s-debt-crisis\">Al Arabiya<\/a>.<\/p>\n\n\n\n<p>Many corporate media outlets in India, including the&nbsp;<a href=\"https:\/\/www.newindianexpress.com\/world\/2022\/jul\/10\/china-employed-debt-trap-diplomacy-to-gain-strategic-edge-over-sri-lanka-think-tank-2474966.html\">New Indian Express<\/a>,&nbsp;<a href=\"https:\/\/www.business-standard.com\/article\/current-affairs\/china-used-debt-trap-diplomacy-to-gain-control-over-sri-lanka-think-tank-122071000019_1.html\">Business Standard<\/a>,&nbsp;<a href=\"https:\/\/www.youtube.com\/watch?v=fiAWTfQAD5o\">India Today<\/a>,&nbsp;<a href=\"https:\/\/theprint.in\/opinion\/sri-lanka-to-pakistan-south-asian-nations-are-tying-fortune-to-chinas-infra-projects-failing\/1031731\/\">The Print<\/a>,&nbsp;as well as Japan\u2019s media conglomerate&nbsp;<a href=\"https:\/\/asia.nikkei.com\/Spotlight\/Sri-Lanka-crisis\/Sri-Lanka-meltdown-exposes-China-loan-policy-5-things-to-know\">Nikkei<\/a>&nbsp;published similarly fallacious reports.<\/p>\n\n\n\n<p>U.S. government propaganda outlet Voice of America, which is closely linked to the CIA, employed the same spurious tactics in an article in April titled <a href=\"https:\/\/www.voanews.com\/a\/china-s-global-image-under-strain-as-sri-lanka-faces-debt-trap-\/6544106.html\">China\u2019s Global Image Under Strain as Sri Lanka Faces Debt Trap<\/a>.\u201d<\/p>\n\n\n\n<p>VOA accused Beijing of pursuing a kind of \u2018debt-trap diplomacy\u2019 meant to bring economically weak countries to their knees, dependent on China for support.\u201d<\/p>\n\n\n\n<p>On social media, the Western propaganda narrative surrounding the July protests in Sri Lanka was even more detached from reality.<\/p>\n\n\n\n<p>A veteran of the Central Intelligence Agency (CIA), Defense Intelligence Agency (DIA), and National Security Agency (NSA),&nbsp;<a href=\"https:\/\/twitter.com\/DerekJGrossman\/status\/1545790816538374145\">Derek J. Grossman<\/a>, portrayed the unrest as an anti-China uprising.<\/p>\n\n\n\n<p>China\u2019s window of opportunity to one day control Sri Lanka probably just closed,\u201d he tweeted on July 9, as the government announced it was resigning.<\/p>\n\n\n\n<p>After working for U.S. spy agencies, Grossman is today an analyst at the Pentagon\u2019s main think tank, the RAND Corporation, where he has pushed a hawkish line against Beijing.<\/p>\n\n\n\n<p><strong>BBC Reluctantly Admits the \u2018Chinese Debt Trap\u2019 Narrative in Sri Lanka Is False<\/strong><\/p>\n\n\n\n<p>China has funded several large infrastructure projects in Sri Lanka, building an international airport, hospitals, a convention center, a sports stadium, and most controversially a port in the southern coastal town of Hambantota.<\/p>\n\n\n\n<p>The UK government\u2019s BBC sent a reporter to Sri Lanka to investigate these accusations of supposed <a href=\"https:\/\/www.youtube.com\/watch?v=Z6jyU9xTi64\">Chinese debt traps<\/a>.\u201d But after speaking to locals, he reluctantly came to the conclusion that the narrative is false.<\/p>\n\n\n\n<p>The truth is that many independent experts say that we should be wary of the Chinese debt trap narrative, and we\u2019ve found quite a lot of evidence here in Sri Lanka which contradicts it,\u201d&nbsp;<a href=\"https:\/\/youtu.be\/Z6jyU9xTi64?t=168\">BBC host Ben Chu acknowledged<\/a>.<\/p>\n\n\n\n<p>He explained, The Hambantota port, well, that was instigated by the Sri Lankans, not by the Chinese. And it can\u2019t currently be used by Chinese military naval vessels, and actually there\u2019s some pretty formidable barriers to that happening.\u201d<\/p>\n\n\n\n<p>A lot of the projects we\u2019ve been seeing, well, they feel more like white elephants than they do Chinese global strategic assets,\u201d Chu added.<\/p>\n\n\n\n<p>The British state media outlet interviewed the director of Port City Colombo\u2019s economic commission, Saliya Wickramasuriya, who emphasized, The Chinese government is not involved in setting the rules and regulations, so from that standpoint the government of Sri Lanka is in control, and it\u2019s up to the government of Sri Lanka\u2019s wish to flavor the city, the development of the city, in the way it wants to.\u201d<\/p>\n\n\n\n<p>It is accurate to say that infrastructure development has boomed under Chinese investment, Chinese debt sometimes, but those are things that we\u2019ve actually needed for a long, long time,\u201d Wickramasuriya added.<\/p>\n\n\n\n<p>Chu clarified that, Importantly, it\u2019s not debt but equity the Chinese own here.\u201d<\/p>\n\n\n\n<p>So is the debt trap not all it seems?\u201d he asked.<\/p>\n\n\n\n<p><strong>Mainstream U.S. Academics Debunk the \u2018Chinese Debt Trap\u2019 Myth<\/strong><\/p>\n\n\n\n<p>Mainstream Western academics have similarly investigated the claims of Chinese debt traps,\u201d and come to the conclusion that they do not exist.<\/p>\n\n\n\n<p>Even a professor at Johns Hopkins University\u2019s School of Advanced International Studies, which is notorious for its revolving door with the U.S. government and close links to spy agencies, acknowledged that <a href=\"https:\/\/www.sais.jhu.edu\/news-press\/chinese-%E2%80%98debt-trap%E2%80%99-myth\">the Chinese \u2018debt trap\u2019 is a myth<\/a>.\u201d<\/p>\n\n\n\n<p>Writing in 2021 in the de facto mouthpiece of the DC political establishment,&nbsp;<a href=\"https:\/\/www.theatlantic.com\/international\/archive\/2021\/02\/china-debt-trap-diplomacy\/617953\/\">The Atlantic magazine<\/a>, scholar Deborah Brautigam stated clearly that the debt-trap narrative is a lie, and a powerful one.\u201d<\/p>\n\n\n\n<p>Our research shows that Chinese banks are willing to restructure the terms of existing loans and have never actually seized an asset from any country, much less the port of Hambantota,\u201d Brautigam said in the article, which&nbsp;was co-authored by Meg Rithmire, a professor at the stridently anti-socialist Harvard Business School.<\/p>\n\n\n\n<p>Brautigam published her findings in a 2020 article for Johns Hopkins\u2019 China Africa Research Initiative, titled <a href=\"https:\/\/static1.squarespace.com\/static\/5652847de4b033f56d2bdc29\/t\/60353345259d4448e01a37d8\/1614099270470\/WP+39+-+Acker%2C+Brautigam%2C+Huang+-+Debt+Relief.pdf\">Debt Relief with Chinese Characteristics<\/a>,\u201d along with fellow researchers Kevin Acker and Yufan Huang.<\/p>\n\n\n\n<p>They investigated Chinese loans in Sri Lanka, Iraq, Zimbabwe, Ethiopia, Angola, and the Republic of Congo, and found no \u2018asset seizures\u2019 and, despite contract clauses requiring arbitration, no evidence of the use of courts to enforce payments, or application of penalty interest rates.\u201d<\/p>\n\n\n\n<p>They discovered that Beijing cancelled more than $3.4 billion and restructured or refinanced roughly $15 billion of debt in Africa between 2000 and 2019. At least 26 individual loans to African nations were renegotiated.<\/p>\n\n\n\n<p>Western critics have attacked Beijing, claiming there is a lack of transparency surrounding its loans. Brautigam explained that Chinese lenders prefer to address restructuring quietly, on a bilateral basis, tailoring programs to each situation.\u201d<\/p>\n\n\n\n<p>The researchers noted that China puts an emphasis on \u2018development sustainability\u2019 (looking at the future contribution of the project) rather than \u2018debt sustainability\u2019 (looking at the current state of the economy) as the basis of project lending decisions.\u201d<\/p>\n\n\n\n<p>Moreover, despite critics\u2019 worries that China could seize its borrower\u2019s assets, we do not see China attempting to take advantage of countries in debt distress,\u201d they added.<\/p>\n\n\n\n<p>There were no \u2018asset seizures\u2019 in the 16 restructuring cases that we found,\u201d the scholars continued. We have not yet seen cases in Africa where Chinese banks or companies have sued sovereign governments or exercised the option for international arbitration standard in Chinese loan contracts.\u201d<\/p>\n\n\n\n<p><em><strong>Benjamin Norton<\/strong>&nbsp;is founder and editor of Multipolarista.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Benjamin Norton Courtesy https:\/\/towardfreedom.org\/ Facing a deep economic crisis and bankruptcy, Sri Lanka was rocked by large protests this July, which led to the resignation of the government. Numerous Western political leaders and media outlets blamed this uprising on a supposed Chinese debt trap,\u201d echoing a deceptive narrative that has been thoroughly&nbsp;debunked by mainstream academics. [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[102],"tags":[],"class_list":["post-127162","post","type-post","status-publish","format-standard","hentry","category-economy"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/127162","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=127162"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/127162\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=127162"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=127162"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=127162"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}