18 September, 2021

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Amidst The Delta Scare & Labour Strife, Will China Become Sri Lanka’s New IMF?   

By Rajan Philips

Rajan Philips

The government, rather the country, is in the grip of three mutually aggravating crises – involving public health, people’s lives and the economy. And every one of them has gotten critical. Covid-19 has morphed or mutated into a dreadful Delta scare. Even the suddenly impressive vaccine rollout is being outrun by surges in infections and deaths. If vaccination is picking up four paces, Delta is overtaking by eight paces and more. That is the reality. Last Thursday, two major hospitals, the Ratnapura General Hospital and the Karapitiya Teaching Hospital, “declared emergency,” apparently a rare occurrence  in Sri Lanka’s medical history. The emergency situation is due to increases in Covid-19 patients, technically bordering on “a situation of Mass Casualty Incidents” and warranting emergency responses, according to the Deputy Director-general of Health Services, Dr. Hemantha Herath. Hospitals in the Western Province are also getting filled up even as they are running short of oxygen supply. For some time now, the Lady Ridgeway Hospital in Colombo has been struggling to cope with the influx of children infected by Covid-19.   

The second crisis is the unrest among working people. This is more than a labour or trade union problem. The widespread unrest and ubiquitous protests are not part of the usual political muscle flexing. They are desperate signs of vast sections of people finding it impossible to get on with life. No one is suggesting that the government should creatively find ways to immediately restore normal economic life in the country. But everyone, except those who are close to the perks and fringes of power, is aghast that government leaders are pretending that they are in control of everything and that normality is just round the corner. Nothing can be more distant from the truth. And the truth is about the third crisis, which is the economic crisis. What the people are helplessly experiencing is the symptom of an economy that is in severe crisis. There is no point trying to hide it or to pretend otherwise.

Just like the crises, the government’s responses to them are also mutually aggravating. On the pandemic front, the President and the government have so failed to put together a permanent team of experts who will publicly tell the government and the people the unvarnished truth about the Covid-19 situation in the country, and offer their advice on what everyone should be doing to control and contain the Delta spread as much as possible.

Friday’s news reports announced that President Gotabaya Rajapaksa convened a special meeting to discuss the current COVID-19 situation. Head of the COVID-19 task force Army Commander General Shavendra Silva, minsters, Director General of Health Services and several other experts reportedly took part in the meeting. Nothing much came out of the meeting. The point is this is more political ad-hocism,  and not a substitute for putting in charge a permanent body of experts.

The government after initially downplaying the severity of the pandemic crisis and prematurely celebrating victory over the virus, is now trying to use Covid-19 as reason to stop public protesting. At the same time, the government is ignoring universal medical opinion that has been pleading for the continuation of Covid-19 restrictions. People can see through when the government uses medical opinion as grounds for arresting protesters, but will not listen to medical opinion that calls for generally restrictive measures to contain the spread of Covid-19. People can also see that protesters are not flouting Covid-19 precautions and they are not ignoring social distance requirements.

People know that they are experiencing the same helplessness and frustrations that are driving protesters to picket lines. They expect empathy from the government. And they want the government to honestly engage with the protesters and establish a consensual framework for work and welfare in the middle of an out-of-control pandemic with no quick ending in sight. 

The government’s economic management and messaging have been as bad as, or even worse than, its responses to the pandemic and to the people’s plights. The country is facing its worst economic crisis since independence in terms of self-inflicted revenue losses and diminishing foreign reserves, a falling rupee and mounting debt (domestic and foreign), and onerous debt repayment obligations. The people are going through the worst spell of severe hardships in living memory. In the midst of them all the government is stubbornly talking about some alternative way of economic management. What is being touted as the alternative way is not the outcome of any collective thought process and any co-ordinated implementation plan. Instead, it is a catch-all phrase to give context to knee jerk and uncoordinated responses to different problems as and when they arise. 

Chinese alternative to IMF?

The abrupt switch from chemical to organic fertilizers in agriculture by presidential fiat is by far the most glaring case in point. A second, politically less dramatic but economically more consequential instance is the government’s stubborn reluctance to seek IMF help to tide over the current balance of payment (BOP) crisis. In vaccine parlance, this reluctance is a severe form of IMF hesitancy. No one knows if this hesitancy is backed up by any hope of getting a full BOP bailout from Beijing. Even less is known if the government has approached Beijing for a fully-fledged BOP help beyond periodical swaps. Known lesser still is what would be China’s response.

It would be rationally worthwhile for the government to at least consider Chinese help as an  alternative to seeking IMF help. Although rational, it is not necessarily a prudent choice. The gossipy question is if there is any thinking at all within the government along these lines, assuming of course that thinking is going on in government circles. Equally, there has been no serious speculation among government critics that the government might be looking to China as a potential alternative to the IMF.

Ever since China started providing development assistance to emerging economies and developing countries, global watchers have become interested in China’s role as a counter to western hegemony over development assistance through the agencies of the World Bank (providing development assistance) and the IMF (securing financial stability and lending to tide over balance of payment difficulties). Although China’s development assistance (through the China Development Bank and the China Export-Import Bank) is more comparable to the activities of the World Bank, in recent years there has been growing “journalistic interest”  in viewing Beijing as an alternative source to the IMF for providing financial support to developing countries.

James Sundquist, a Yale University doctoral researcher, has summed up this interest in posing the question: “Does Chinese finance in the form of loans and currency swaps substitute for assistance from the International Monetary Fund (IMF), reducing that institution’s influence and opening more ‘policy space’ for developing countries?” His study based on data for 104 countries between 2001 and 2017 would seem to suggest that mostly countries that are “able to compensate China in means other than cash” are likely to consider turning to China to avoid the IMF. Non-cash compensation can be “repayment-in-kind with natural resource exports and geopolitical concessions.”

Sundquist selected four countries “for closer examination” to test his hypothesis. Sri Lanka is one of them. Angola, Zimbabwe and Mongolia are the other three. Angola is a resource rich country that received Chinese bailout and avoided the IMF. Zimbabwe, though nominally resource rich is practically resource poor because of its neglected and atrophied extraction infrastructure. China has not lent money to Zimbabwe because it is not credit worthy. Mongolia is resource-rich and China has been keen on offering assistance, but the Mongolian government opted to go along with IMF financial assistance and stabilization program. The apparent reason was to avoid too much bilateral reliance on China.

Sri Lanka is seen as a country that has received both development assistance and BOP assistance from China without possessing “resource guarantees,” because of its geopolitical assets. It would seem Sundquist’s research period preceded the Sri Lankan government’s current IMF hesitancy and did not quite assess the potential of Beijing becoming a total or the primary alternative to the IMF. But Sri Lanka’s current situation is more than a subject matter for research. It would be odd if looking to Beijing as an alternative to the IMF has not crossed the mind in the Rajapaksa government. The government speaks its mind on economic matters through half a dozen people. Everyone of them is dead set against the IMF. Six months ago, they were conventional IMF followers. But no one is mentioning Beijing as an alternative.     

There are many factors at play. Until 20 years ago, there was no China and developing countries had only one place to go to, namely, the West and institutions dominated by the West. The entry of China has provided an alternative source and somewhat levelled the playing field. But only ‘somewhat.’ A part of that ‘leveling’ also includes the potential for ‘democratising’ the operations of the World Bank and the IMF which are dominated by the US and its European allies. But China may not be all too keen about ‘democratising’ anything anywhere. China’s development assistance and lending patterns are also totally driven by domestic reasons and for domestic purposes.

China’s external financial relations and operations are always “rooted in central government decisions” and are implemented only by “state-affiliated institutions.” China is not an incubator of private investors or a source of foreign direct investments. At the same time, China is not the inventor of financial diplomacy. The US and France, for example, have provided direct emergency financial assistance, bypassing the IMF, to countries in the Middle East and Africa, respectively.

Sundquist lists three key decisions taken at different times by the Chinese government, that apparently have influenced the ebb and flow of Chinese financial activities overseas. First, in 2006, came the decision to extend externally the hitherto domestic operations of the China Development Bank as a parallel to the World Bank. This decision was made “at a time of fractured political power in China,” according to Sundquist. The second was the Belt and Road Initiative (BRI) launched by President Xi Jinping even as he concentrated the powers of the state in the office of the President. The third key decision so far has been the roll back of the BRI initiative in 2018 to concentrate on the domestic economic situation in China.

Put another way, the rest of the world, especially countries that may want to look to China to avoid the west or the IMF, have no certainty whether or when China is going to keep its lending window open, and to what levels. There is also the concern over the lack transparency involving China’s assistance, that it ignores issues of domestic corruption and money laundering, and that it is more short-term oriented without long term sustainability.

Among Sundquist’s assertions based on his research are that “Chinese loans have indeed enabled some countries to avoid turning to the IMF and enabled others to negotiate deals with fewer attached conditions.” As his Zimbabwe case study has shown, “China has typically denied bailouts to countries without reliable sources of foreign exchange,” and has paid “attention to debt sustainability rather than trying to ensnare them in debt traps.” Overall, says Sundquist, “Borrowing governments will have to weigh the respective benefits of IMF and Chinese loans diligently. They will, however, be happy to have the choice.”

He further notes that “Since 2017, the pace of new loans has slowed, and China has begun to confront the problem of borrowers unable to meet their debt service obligations. It is entirely possible that as China’s position begins to resemble that of traditional Western creditors, it will begin to behave in a more similar manner to them and work more closely with the IMF.” Where does all this leave Sri Lanka? Is there a third way, that avoids both the IMF and China, to overcome the current balance of payment crisis? It is up to the government to clarify.

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Latest comments

  • 6
    23

    China should be stupid to accept Sri Lanka with too many Indians in it.

    China should first divide the island into 3 mono ethnic parts and only help the part that is more pro-China and less pro-India. Let India and Pakistan help the rest. Fair, isn’t it?

    • 7
      0

      GATAM, YOUR error in second line needs to read “China should first divide China”

      • 0
        0

        Rajan, Why are all the Funded Human Rights NGOs in Colombo and elsewhere like you, silent about the Militarization, Digitalization of HEALTH AND EDUCATION SECTORS and institutionalization of the Surveillance regime and illegal Forced vaccination of people of the US citizen’s Rajapakse Regime and their clown in a uniform, Shavindra Silva, is the million dollar question?!

        Delta plus, minus, squared, Covid-19 is a bio-warfare and psychological operation to spread fear and a hoax.
        The information on US patents for Covrona VIrus, SARs CoV proves this was manufactured in GAIN OF FUNCTION RESEARCH at Fort Detick and University of North Carolina partly subcontracted to China’s Wuhan Labs.
        The dead left has totally lost the plot it seems!

      • 1
        0

        dtg
        I think that Europe should lead the way.
        Will not the division of Spain and UK be the best bets as there are already popular bids for secession?
        And of course there is Belgium where the Flemish and the Walloons mostly cannot get along. (It is far far better among us tribals here.)
        *
        After we finish with Europe, perhaps French Canada could revive its secessionist bid. (Canada is after all a European settler colony.)
        Then to carving up the USA (the neighbouing European settler colony). It could be a geographer’s nightmare, but fun though for the likes of G.

    • 8
      0

      The only way this country can save itself is by selling itself. That’s what even the kings did. A bit to the Portuguese, a wife from the Pandyans, now a bit to the Chinese, etc. We prospered as a vassal state most of the time. That’s the bitter truth.
      So what can be done? I believe the only solution is an economic Union, EU style, with India. That will give us the benefits of a stable currency, no shortages of basic items like food or fuel/ electricity, and EU-like limits on government profligacy, which is what got us into this mess in the first place. Of course the “patriots” will be up in arms, but after a few years, when the people realize the benefits, they will fall in line. It is true that Modi and Hindutva are reprehensible, but they don’t carry much clout in the South, due to the way India is governed. Anything is better than the black hole that we are about to plunge into.

    • 10
      0

      Thank you Rajan,
      .
      Stupid Rajapakshes may still feel that the CHINESE are their friends and they are very special to them.

      But the truth as it is, the Chinese keep hopes also to afro states to the same manner.

      It took long CURRENT govt LED by Nandasena and his corrupted bunch of thugs to go for COVID vaccinations. As many countries were busy with ordering jabs to their nations, our ballige puthas were busy with KALIAMMA controlled concoctions. Some joined to throw MUTTI (pots filled with Pirith water) into river branches. Wattiamma aka Apawithra though reponsible minister for health, became the number one guinea pig and speaker and other two jokers (JAYASUMANA and other man in that ministry) followed. All these irresponsible actions being taken by these men and women totally misled the nation.

      It is very dangerous that Rajaakshes play with srilanken future with easy tricks being played on them by the chinese.

    • 1
      2

      You mean Sinhalese, Tamil and Vedda?

    • 7
      0

      We can write, talk, wish, hope and pray till hell freezes over …….. but nothing much gonna change in the foreseeable future.

      People who are in power and the people who have a realistic chance of coming to power only have some simplistic knowledge/talent of robbing the public wealth.

      There is no one in sight who has even a bird fluttering in his brain ………. with even a clue how to advance a country in the 21st century modern world.

      Oppositions are very good at identifying the faults of a government in power ……….. but do the same things when they come in to power.

      The only realistic chance Lanka has is a miracle ….. and as history has shown miracles are as rare as hens teeth.

      Just enjoy the free comedy for what it is …….. that’s all you gonna get.

      I’ll bet Native’s 6.9 million dollar house on it.



      We just write here to console ourselves …….. our writings aren’t going to do a tuppence of a difference. ……… Now that good ol’ Sigmund has kicked the bucket, we have to resort to DIY psychoanalysis.

      I counted on Old Codger to be my psychoanalyst ……… but now I have him on the couch.

      Such is life.

      • 1
        0

        Nimal,
        “I counted on Old Codger to be my psychoanalyst “
        And EE as Psycho?

      • 1
        0

        “Now that good ol’ Sigmund has kicked the bucket, we have to resort to DIY psychoanalysis.”
        *
        NF, I guess that you are chipping in your two cents worth with Old Codger on your couch.

    • 0
      0

      Gatam
      This joke is getting stale even with its alpha to delta variants..
      If the purpose is to amuse think of something more funny.

  • 17
    2

    Dear Author.
    So what you say is that Hobson is laughing at us, looking at the mess we created for ourselves. Prevarication on essential issues but knee jerk ban on chemical fertilizer.

  • 21
    2

    The Chinese authorities who negotiate currency swaps and loans with Sri Lankan officials would probably view our people with contempt for mainly two reasons. One is the obvious deceit and duplicity evident in the negotiators. The other is the record of bad management that has plagued the country for decades on end, with endemic corruption and betrayal, unreliable record as debtor and lack of progress on any worthwhile ground. The Chinese would have preferred a robust and conscientious debtor, much like banks in the country would expect from borrowers.

    • 0
      0

      ……..”One is the obvious deceit and duplicity evident in the negotiators”..…
      China welcomed this attitude initially as it helped them to get SL into their trap, while other developed countries refused to give such large kickbacks for the white elephants and it suited China in the Belt Initiative. Even recently, Jap funded Light Railway was scrapped and an expressway started in lieu at higher cost was awarded.
      But now, may be, China has second thoughts because of …..”unreliable record as debtor and lack of progress on any worthwhile ground.”……..

  • 6
    6

    Author RP, You say a Chinese IMF is a rational choice but not a prudent choice and it is well said. The level of opening of the chinese lending window has an uncertain facet to it as there is an absolute lack of transparency associated together with hidden secrecy about transactions with other nations too. Knowing the overambitious BRI and the power hunger of prez. Xi to become the dominant world power, and at the same time need to remember Wuhan release of a genetically engineered Covid virus different from bat virus. With this biological weapon to destroy the world and SL economy, foolish uneducated leaders will trust fully for personal gain. Like the gamarala on the elephant’s tail, an unexpected dumping will occur. Real IMF has a better rescue history without dumping, though governing greed and robbery will not see this advantage.

  • 30
    5

    Rajapaksas wants to bring Sri Lanka as a communist land similar to China under a one party rule which is Rajapaksa family rule. Communism means end of Buddhism, end of democracy, end of parliament and of freedom of media including social media.

    • 8
      0

      Ajith, MR had better get knowledge of what happened to the entire family of the Tsar of Russia when communism took over the nation ruled by family . Asgiriya and Malwatthu chapters better be on guard as communism will not tolerate buddhism except to lure deceptively into submission. Even a black satakaya not tolerated. Keep your freedom.

    • 4
      0

      The Rajapaksa’s are playing with fire, and we will all get burnt.

    • 5
      7

      “Communism means end of Buddhism, end of democracy, end of parliament and of freedom of media including social media.”
      *
      Oh dear!
      Even Joe MacCarthy would be amused, were he around.

      • 1
        0

        “since 1949, China has been governed by the CCP, an atheist institution that prohibits party members from practicing religion while in office. In the culmination of a series of atheistic and anti-religious campaigns already underway since the late 19th century, the Cultural Revolution against old habits, ideas, customs and culture, lasting from 1966 to 1976, destroyed or forced them underground.

        “https://en.wikipedia.org/wiki/Religion_in_China

        • 0
          0

          Ajith,
          “since 1949, China has been governed by the CCP, an atheist institution that prohibits party members from practicing religion while in office. In the culmination of a series of atheistic and anti-religious campaigns already underway since the late 19th century, “
          Don’t you think that’s a good idea? After all, since 1949, China went from feudalism to superpower. Where has religion got us since 1948?

  • 4
    7

    Covid-19 has morphed or mutated into a dreadful Delta scare
    ———–
    Actually covid-19 is a hoax.
    What these ‘new variants’ are is the vaccine making many sick
    and even killing people.

    • 0
      0

      Humble, why the confusion. Most of those who have died are the unvaccinated. Simple scientific knowledge is that vaccines prepare immunity of the people against the attacking virus. The virus has morphed and mutated as it has been genetically engineered to do so by introducing stuff not found in the Wuhan bat virus to use as a biological weapon to collapse economy. Evil China is also enhancing soldier DNA funded by gain of function research and when soldiers mutate into wicked and demonic killers, eyes will open too late for safety

  • 3
    0

    Malaysia successfully weathered the Asian Economic Crisis without IMF assistance unlike Indonesia. But,the natural and other resources of Malaysia are immense and does not provide a good example. SL has already borrowed from many countries including Bangladesh. China may not want to play the role of bailing out hopeless countries. The theory of imperial overreach is that the more areas you get involved in greater is the loss of power. China would not want to lose power before it becomes really powerful. Internal problems like floods and the spread of Covid have shaken Xi. He is committed to Myanmar.Afghanistan presents a problem. There are other client states. China did not give vaccines at lower rates to SL. The idea that China will bail out SL is a long shot idea. Using strategic interests as a bargaining chip will work to the detriment of SL. There is bound to be a reaction from the Quad.Instead of being a basket case, we will become a battlefield. Better give up this idea.

  • 5
    0

    Depressing to read a clear-sighted article and then read comments that are all over the place – disorganised, confused, silly.

    • 1
      1

      Sarath
      When even certain words, let alone ideas, appear in essays people readily fly at a tangent.
      Why complain, join the mayhem and have fun.
      *
      Are you so depressed that you cannot make a serious comment?

  • 0
    0

    If the frontline is dealt by army if victory is long in coming, when you engage in actual fighting, then men’s weapons will grow dull the camouflaged and the military technique will not work to eradicate virus. Military a trained to clean the weapons
    If the frontline Health care workers will focused on the well-being on the individual. Team of primary care physicians are available to create exceptional family health care experiences by truly getting- Health care are trained to clean themselves and advised all others
    Delta is overtaking by eight paces and more who can control the military front liners or the health care services so the provision health care advice is a required at this moment the health care is the one facing the patients

  • 0
    1

    The noble eightfold path is NOT for politicians – who did not exist in Buddha’s time.
    https://tricycle.org/magazine/noble-eightfold-path/
    It is also incompatible with the modern state which maintains armed forces, even if only for survival.

    Communism – the doctrine of liberation of the proletariat – has served China and other communist nations well – they are strong and prosperous.

    • 1
      0

      ….”Communism – the doctrine of liberation of the proletariat”….
      May be communism has liberated the proletariat in a way but there is also a price – an hierarchy that dominates and rules the proletariat.
      In a democracy there is much more space for the proletariat in a human rights angle and the exercise of basic freedoms.
      There are choices.

  • 3
    3

    I think what the writer says is correct and need some consideration of the critical situation prevailing in people’s health, people’s lives and the economy. However, before the Rajapaksas convert Sri Lanka into another North Korea utilizing the crisis affecting Covid-19, threat to democracy and the unresolved financial situation and allowing China to have an upper hand in these matters, India is not going to merely watch what is going on in Sri Lanka. It is certain that there will be a sudden Indian invasion to drive out the Sinhalese. Moreover, it won’t be a surprise if Japan also has a Naval Base along the Eastern coast of Tamil with the consent and concurrence of India to counter any threats from China. Rajapaksas’ behaviour is a threat to India which is quietly monitoring. Meanwhile India had sent three of its warships to South China Sea to join the QUAD. This is a diplomatic move to restrict the moves of Sri Lanka & China. If Sri Lanka is going to dance to China’s tune, it is better for Gota and his military officers to resign.

    • 1
      0

      “Meanwhile India had sent three of its warships to South China Sea to join the QUAD. This is a diplomatic move to restrict the moves of Sri Lanka & China.”
      *
      Really?
      How creative!

  • 5
    1

    The chinese are blood suckers. They have proved it already in African countries.
    :
    Please check it out what Zambians have got to say about their so called investments. Our medamulana ballige puthas got their pockets filled by let ruining our motherland. Not even divine forces worked on Medamulana men, but in the days to come, that will be a reality.
    https://www.youtube.com/watch?v=Co0RGa99W0M

    • 3
      0

      leelasMonkey

      Chinese are blood suckers

      Hmm probably, The Chinese never occupied Sri Lanka, Never killed a single Sri Lankan never colonized Sri Lanka.
      But your favourite para suddhas , starting with the Portuguese, Dutch and English they killed latge numbers of Sri Lankans forced their retarded religeon on us. Destroyed our customs and religeons to the point we had to reimport it from other countries. and stole our treasures and gave birth to slaves like you .

      Hmm yes that sounds about right.. They must be blood suckers..

  • 1
    0

    Apart from China and the IMF can’t the Government go directly to the US? https://www.youtube.com/watch?v=bOnR-3l7AFM

  • 0
    0

    https://www.imf.org/en/News/Articles/2020/02/07/pr2042-sri-lanka-imf-staff-concludes-visit-to-sri-lanka
    1920 IMF Report is above. Shows steady inflation.

    Meanwhile, new secret contracts for road building etc., are being given, no doubt with “kickbacks” at the top.
    Chinese convict-labourers are cleaning tanks and running sea-harvest projects under secret agreements with China, while local labour is jobless.

    • 0
      0

      “Chinese convict-labourers are cleaning tanks and running sea-harvest projects”
      That is interesting
      Wonder who let you into this little secret?

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