{"id":89022,"date":"2019-05-18T16:04:37","date_gmt":"2019-05-18T23:04:37","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=89022"},"modified":"2019-05-18T16:04:37","modified_gmt":"2019-05-18T23:04:37","slug":"our-real-debt-to-china","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2019\/05\/18\/our-real-debt-to-china\/","title":{"rendered":"Our Real Debt to China"},"content":{"rendered":"
\n

Dinesh Perera<\/em><\/span><\/h2>\n<\/div>\n\n\n

J M Keynes on India<\/strong>The 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\u201d<\/em>[1]<\/em><\/strong><\/a>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\u201d<\/em>[2]<\/em><\/strong><\/a> <\/em><\/p>\n\n\n\n

Why China Invests?<\/h4>\n\n\n\n

Keynes wrote an economic journal article studying\nsignificant price rises in India in 1909. He statistically looked to see what\nfigures best explain the rise in prices. It puts forth the argument that the\n\u2018rapid influx of foreign capital\u2019 is what caused the\ninflation of the studied time period. In the current monetary framework, a\nrapid influx of foreign capital would result in exchange rate appreciation\nmaking exports uncompetitive.<\/p>\n\n\n\n

China by running\nconsiderable trade surpluses has built up considerable foreign assets[3]<\/a>.\nIf China was to repatriate its foreign-held\nassets it would face severe inflation and make its exports uncompetitive. It is\nwidely agreed that these trade surpluses accrue due to a large working\npopulation being subject to slave-like\nconditions[4]<\/a>.\nThis is a fact widely ignored by those Sri Lankans who purport to be considered\nwith the welfare of labor but happily\nalign themselves with China\u2019s foreign interests.<\/p>\n\n\n\n

Put in other\nwords, China cannot bring back its considerable foreign reserves back to its\nmainland territory without causing large shocks to its economy. This creates a\nneed for China to reinvest its foreign proceeds overseas.<\/p>\n\n\n\n

Context<\/h4>\n\n\n\n

The framing of this article is based opposing the\nforeign policy commentary that deems that a small country must be aligned either\ntowards the Capitalist or Communist foreign power blocs.<\/p>\n\n\n\n

            The acceptance\nof this then would lead one to define Mahinda Rajapaksa and Ranil\nWickremesinghe as aligned against and with the West respectively. This will\ngloss over the capacity of a nation-state or leader to be duplicitous in its\ndealings.<\/p>\n\n\n\n

            Both\nMahinda and Ranil have fond personal connections with Iran. Both have courted\nthe IMF. Mahinda famously paid consultancy fees[5]<\/a>\nto Dominique Strauss Kahn. Ranil proactively organized an extended fund\nfacility with the IMF and is suggested to be using Joseph Stiglitz and his\ninsight to undermine any influence. Both have given power to China and India.\nChina and India are increasingly intertwined.<\/p>\n\n\n\n

Shri Kanungo, Deputy Governor Reserve Bank of India<\/p>\n\n\n\n

China is the world\u2019s largest economy today on a PPP\nbasis and India is the third largest. If you add the exports and imports, China\nis India\u2019s largest trading partner (2017\u201318 data). Among the fastest growing\neconomies, the engagement between the two countries can be expected to see\nphenomenal growth in the times to come.<\/p>\n\n\n\n

Debutante Strategy<\/h4>\n\n\n\n

The value of placing China as being either a positive\nor negative influence must be questioned. Individual projects normally have on\nlarge time scales complex cost-benefit analysis attached to them. It is sheer\nhubris to suggest with confidence that aligning oneself to one power bloc at\nthe cost of the other, either the leading world superpower or the fastest\ngrowing large economy, will be more beneficial.<\/p>\n\n\n\n

            Sri\nLanka\u2019s foreign policy as overtly articulated now is to be friends with everyone[6]<\/a>.\nThis allows us to maintain relations with anyone who may be of use in the\nfuture. The multipolar nature of current investments is a salient point in\nforeign policy communications.<\/p>\n\n\n\n

            A\nperson who wields power in a society is normally considered to be autonomous in\nthe creation of relations. There are no rules limiting Sri Lanka in this regard\nas we have no external military ambitions. <\/p>\n\n\n\n

Those attempting\nto place Sri Lanka under the influence of a greater power do so to undermine\nits power. It is not in the national interests to be perceived to be in debt.\nIt is not in the national interests to position all our future plans within a\nbroader project (the Belt and Road Initiative) over which we have no say. Most\nof all it is not in the national interest to play into the foreign narrative of\nthe local context. <\/p>\n\n\n\n

The Notion of Debt<\/h4>\n\n\n\n

If history shows anything, it is that there’s no better\nway to justify relations founded on violence, to make such relations seem moral than by reframing them in the language of\ndebt\u2014above all, because it immediately makes it seem that it’s the victim who’s\ndoing something wrong.\u201d
\n\u2015 David Graeber[7]<\/strong><\/a><\/p>\n\n\n\n

Whether or not someone owes something to someone else\nis a judgment steeped in various cultural\nconsiderations. This is because debt is more than just a monetary transaction\nand can take forms that are non-monetary. People, for instance, can lend time\nor moral support to each other with an expectation that the other party returns\nthe favor.<\/p>\n\n\n\n

            It is\nalso impacted by role. A parent, for instance, may never be indebted to their\nchild. This is because the nature of the relationship within our culture does\nnot allow for such accounting. Odd situations in terms of economics arise when\nsometimes people are offered things for free with no explicit strings attached\nand still refuse them. This can be explained culturally by the fact that\naccepting such a gift would result in changing the nature of the relationship.<\/p>\n\n\n\n

            There\nare also implications with regards to the terms of the debt. If for instance\nthere are stipulations attached to the debt does it still conjure up feelings\nof indebtedness beyond the monetary value?\nIf China gives us money contingent on us using a Chinese contractor and paying\nback a rate of interest is it really favor?\n<\/p>\n\n\n\n

The terms that can\nbe enforced also speak a lot to the power balances within society. For\ninstance, our incredibly unequal society manifests itself quite explicitly in\nthe treatment of microfinance borrowers.\nMonetary debts historically could be passed generationally and also result in\nindentured servitude.<\/p>\n\n\n\n

China Supporting our\nMilitary<\/h4>\n\n\n\n

During our civil conflict,\nthe Chinese government provided the nation with considerable military\nequipment, support within international bodies, and financial support to the\ngovernment[8]<\/a>.\nThis all had an undeniable impact in allowing for our military victory. The\nChinese government stood with us wherein Western governments that we are\ncurrently pivoting to did not.<\/p>\n\n\n\n

            This\nfriendship was given at a time much needed. The US, on the other hand, attacked\nSri Lanka on human rights and the war effort. This is a country which had\npreviously gone as far as to give citizenship to a current presidential hopeful\nwho was involved in the brutal UNP led crackdowns on JVP supporters. The US-UNP\nrelationship probably helped secure citizenship.\n<\/p>\n\n\n\n

The US globally is\nnot a real supporter of democracy. This is true of any superpower. There is no\ndichotomy between China and the United States. Both nations must be balanced in\ntheir influence if Sri Lanka is to prosper.<\/p>\n\n\n\n

Responding to Propaganda<\/h4>\n\n\n\n

Recently a very subtle PR campaign is being run\npushing the idea that Sri Lankan debt to China is not significant[9]<\/a>.\nThe argument put forth hinges on the rate of interest and the total holding of\ndebt. Both of which would not place China as a predatory lender. This is in\ncontrast to the deafening silence and lack of gratefulness to India which\nrecently offered Sri Lanka a much-needed\nline of credit[10]<\/a>.\n<\/p>\n\n\n\n

            An\nactual think tank should look at the marginal growth in debt as there has been\nlittle historical down payment of the debt. It is likely that within the\nRajapaksa administration Chinese debt and investment would show exponential\ngrowth.<\/p>\n\n\n\n

Providing a Sensible View<\/h4>\n\n\n\n

It is difficult to place a binary distinction between Chinese debt and investment being\neither good or bad. It, however, is dishonest to absolve China of the negative\nimpacts some of its projects have had on Sri Lanka. The likening of China to a\nbank and its impact only modulating good or bad policy is overly simplistic and\nmorally repulsive. As put forth in the bestseller Confessions of an Economic\nHitman there is a massive role the lender plays in the success or failure of a\nproject.<\/p>\n\n\n\n

            One\nonly has to look at Norocholai Power\nStation or the Hambantota port to see the negative impacts of Chinese\ninvestment. More on the Belt and Road initiative can be found on the American\nEnterprise Institute website. Their China Investment tracker documents broad\ncorruption[11]<\/a>.\n<\/p>\n\n\n\n

There have been positives of Chinese investment and\nChina invariably has to be a source of finance to the government. China as\nmentioned before played a pivotal role in the war victory[12]<\/a>.\nChinese labor is bringing significant\nefficiency to our construction sector. Every effort should be made to keep them\nin the country after the completion of the Shang Ri La project.<\/p>\n\n\n\n

The Lie on Concessional\nDebt<\/h4>\n\n\n\n

The narrative put forth by these PR agencies is that\nSri Lanka loses its concessional debt privileges around 2004. They suggest this\nis because Sri Lanka gains middle-income\nstatus during this period. Therefore after 2004,\nSri Lanka has to go to international markets to finance its development[13]<\/a>.\n<\/p>\n\n\n\n

This narrative is\nmaliciously untrue and is rarely contested. Sri Lanka on PPP terms might be\nmiddle income but is not so in terms of actual dollar income. This is why basic\nelectronics seem so expensive even though we are defined as middle income.\nElectronics are imported and priced in actual dollar terms. <\/p>\n\n\n\n

            Further\nconcessionary debt or military aid is not driven by actual need but rather by\nforeign policy considerations. Israel, for instance, is a major recipient of US defense aid[14]<\/a>.\nAs we near an election Sri Lanka is also receiving considerable US\/NATO linked\naid[15]<\/a>.\nThis aid is not tied to any specific project and can be spent in conjunction\nwith the upcoming monetary stimulus to boost the economy.<\/p>\n\n\n\n

            The\nNorth and East of the country are also the focus of many good Samaritans[16]<\/a>.\nThe international community needs to promote projects in the area to seem\nsincere in their views at the UN. These smaller projects, however, need to be\nfree from corruption so as to meet the internal policy requirements of the\nfunding agency and this was not possible in the previous regime.<\/p>\n\n\n\n

The Executive Presidency\nin All of This<\/h4>\n\n\n\n

It is a poorly kept secret that the leaders of the two\nmajor political parties are going to support the abolishment of the executive\npresidency[17]<\/a>.\nIt is only the gullible and the news cycle hungry journalists that are pushing\na narrative that sees the two gentlemen\npassing political power either to their former leadership rivals or their\nsiblings. The conspiracy theories have gone so far as to involve the recent\ndefeat of expenditure heads[18]<\/a>.<\/p>\n\n\n\n

            The\npolitical maneuvering required to bring\nthe constitutional amendment to pass still requires finesse but is the most\nlikely outcome given the current balance of interests and power.<\/p>\n\n\n\n

            The\nExecutive Presidency is important in this as it is an office that can\nunilaterally change the foreign policy of the country. JRJ notably pivoted Sri\nLanka\u2019s foreign policy to the US[19]<\/a>\nand placed the nation on the global map[20]<\/a>.\nThe President\u2019s office under Rajapaksa pivoted heavily towards China. Rajapaksa\nalso greatly diminished our global standing[21]<\/a>.<\/p>\n\n\n\n

Sri Lanka\u2019s small\nsize and important maritime location will\nalways mean that it will be of interest to global powers. The Panama of South\nAsia. If the acceptance of debt or international military corporation is moved\ncloser to parliament it is more likely that these arrangements benefit the\ngeneral populace.<\/p>\n\n\n\n

The reason Sri\nLanka as a nation does not feel indebted to China is because they feel such\ndebt was negotiated by the former strongman in benefit of his extended family.\nThis is why one must analyze the growth\nin debt and implications on the debt of\nChinese projects to have a broader understanding of the large mistrust of\nChinese influence amongst our people.<\/p>\n\n\n\n

Conclusion<\/h4>\n\n\n\n

We as civil\nsociety must look at things like grace periods and benchmark costs against\ninternational standards when assessing projects. Construction companies should\nalso be able to make a profit. The Hambantota port, for instance, put the ports\nauthority into a significant cash flow problem. The local partnership model for\nconstruction put forth in the recent budget is an economic policy that is agreeable to the majority of the voting\npopulation.<\/p>\n\n\n\n

Most Sri Lankans\ndo not feel a major debt to China. The Chinese only help as they need to\nreinvest their foreign proceeds and gain regional influence in line with the\ninterests of an emerging superpower. Sri\nLanka must do what is best for itself and play foreign powers against each\nother.  <\/p>\n\n\n\n

We, however, do\nhave an obligation to wherever possible offer refuge to those who are\npolitically persecuted. Sri Lanka is in a net debt position to the world who\naccepted its citizens when they were facing persecution domestically following\ntwo incredibly destructive changes to its constitution. We owe it to the world\nto give the Chinese freedom from communism. Port\nCity can be their refuge.
<\/p>\n\n\n\n

\n\n\n\n

[1]<\/a> Recent Economic Events in India pg57 Author(s):\nJ. M. Keynes Source: The Economic Journal,Vol. 19, No. 73 (Mar., 1909), pp.\n51-67<\/p>\n\n\n\n

[2]<\/a>\nRecent Economic Events in India pg67 Author(s): J. M. Keynes Source: The\nEconomic Journal,Vol. 19, No. 73 (Mar., 1909), pp. 51-67 <\/p>\n\n\n\n

[3]<\/a>\nhttps:\/\/www.forbes.com\/sites\/kenrapoza\/2014\/04\/07\/chinas-foreign-assets-more-than-half-its-gdp\/#6c5b34d731ea<\/a>  <\/p>\n\n\n\n

[4]<\/a>\nhttps:\/\/thediplomat.com\/2018\/03\/chinas-forced-labor-problem\/<\/a>\n<\/p>\n\n\n\n

[5]<\/a>\nhttps:\/\/economynext.com\/Sri_Lanka_ex_CB_Governor_defends_deal_with_Strauss_Kahn-3-1141.html<\/a>\n<\/p>\n\n\n\n

[6]<\/a>\nhttp:\/\/www.sundayobserver.lk\/2018\/05\/20\/news\/continuation-policy-friendship-all<\/a>\n<\/p>\n\n\n\n

[7]<\/a>\nDebt: The First 5,000 Years<\/p>\n\n\n\n

[8]<\/a>\nhttps:\/\/www.independent.co.uk\/news\/world\/asia\/how-beijing-won-sri-lankas-civil-war-1980492.html<\/a>\n<\/p>\n\n\n\n

[9]<\/a>\nhttps:\/\/www.veriteresearch.org\/2019\/01\/16\/chinese-debt-is-not-sri-lankas-biggest-problem-verite-research\/<\/a>\n<\/p>\n\n\n\n

[10]<\/a>\nhttp:\/\/www.colombopage.com\/archive_19A\/Jan09_1547042503CH.php<\/a>\n<\/p>\n\n\n\n

[11]<\/a>\nhttp:\/\/www.aei.org\/china-global-investment-tracker\/<\/a>\n<\/p>\n\n\n\n

[12]<\/a>\nhttps:\/\/www.japantimes.co.jp\/opinion\/2009\/03\/04\/commentary\/china-fuels-sri-lankan-war\/#.XIZ7z9JS82w<\/a>\n<\/p>\n\n\n\n

[13]<\/a>\nhttp:\/\/www.ips.lk\/talkingeconomics\/2019\/01\/22\/managing-sri-lanka-china-economic-relations-bri-debt-and-diplomacy\/<\/a>\n<\/p>\n\n\n\n

[14]<\/a>\nhttps:\/\/www.theatlantic.com\/international\/archive\/2016\/09\/united-states-israel-memorandum-of-understanding-military-aid\/500192\/<\/a>\n<\/p>\n\n\n\n

[15]<\/a>\nhttp:\/\/www.dailynews.lk\/2019\/03\/18\/business\/180538\/world-bank-provide-usd-70-mn-rural-development<\/a>\n<\/p>\n\n\n\n

[16]<\/a>\nhttps:\/\/reliefweb.int\/report\/sri-lanka\/human-rights-must-be-top-priority-economic-reforms-says-un-expert<\/a>\n<\/p>\n\n\n\n

[17]<\/a>\nhttp:\/\/www.dailymirror.lk\/political-gossip\/A-mystery-shrouded-dialogue-\/261-164949<\/a>\n<\/p>\n\n\n\n

[18]<\/a>\nhttps:\/\/twitter.com\/sunandadesh\/status\/1111526682710691841<\/a>\n<\/p>\n\n\n\n

[19]<\/a>\nhttp:\/\/www.sundaytimes.lk\/110213\/Timestwo\/t2_14.html<\/a>\n<\/p>\n\n\n\n

[20]<\/a>\nhttp:\/\/www.island.lk\/2009\/09\/07\/features2.html<\/a>\n<\/p>\n\n\n\n

[21]<\/a>\nhttps:\/\/www.youtube.com\/watch?v=9gL5stPqdHo<\/a>\n<\/p>\n","protected":false},"excerpt":{"rendered":"

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\u201d[1]Apart from the fluctuations of the seasons the Indian level of prices is most influenced at the present time by the extent to […]<\/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-89022","post","type-post","status-publish","format-standard","hentry","category-economy"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/89022","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=89022"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/89022\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=89022"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=89022"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=89022"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}