By Damintha Gunasekera –
The island nation of Sri Lanka has a long and rich political history spanning over 2500 years. Despite gaining universal suffrage in 1931, having the world’s first female prime minister in 1960 and several decades of democracy, the country recently had to default on its debt, the first country in the Asia-Pacific region to do so in this century. However, Sri Lanka is only the first in a string of countries facing economic and social unrest. A combination of pandemic recovery, climate shocks, war in Ukraine and global inflation is leading to a global economic meltdown. In South Asia itself, Pakistan is also on the verge of bankruptcy and, along with Nepal, has banned importation of luxury items such as mobile phones to combat low forex issues. As the USD hits 20-year highs, developing countries such as Sri Lanka that are heavily dependent on imports, face even more pressure.
Sri Lanka’s official inflation rate stands at 39%, while food inflation is as high as 57%. Steve Hanke, from John Hopkins University, measures Sri Lanka’s inflation at a whopping 113%, only behind Zimbabwe (277%) and Lebanon (126%). Many Sri Lankans are down to just consuming two meals a day, while standing in queues for as long as 24 hours for cooking gas, kerosene, and fuel has become commonplace. Funnily enough, the passport line stretches kilometers as well, as the youth desperately try to leave. Shortages in essential foods, life saving medications, and the skyrocketing prices of vegetables have created an unbearable situation. This crisis is a result of decades of financial mismanagement, triggered by the pandemic that led to the downfall of its tourism industry, and exacerbated by major policy blunders by the Government.
But why should the US care about Sri Lanka then? Although the ASEAN region is heavily under China’s grasp, Sri Lanka can still be salvaged. While the case to aid Sri Lanka may be argued on a humanitarian basis, as its 22 million people are in dire straits and the country is teetering on the verge of a total economic and social collapse, it is not realistic. Developed states only react if they have some sort of interest, and to be honest, it isn’t pragmatic to believe that the United States can step in to help all collapsing economies.
The election of Gotabaya Rajapaksa as President in 2019 moved Sri Lanka from Western influence back to the arms of the Chinese. It was in fact under Mahinda Rajapaksa, the President’s older brother, that Sri Lanka grew rapidly as a result of debt-driven ‘white elephant’ projects facilitated by China. Projects such as a port in the sleepy town of Hambantota, an airport deemed to be the World’s Emptiest Airport, massive highways (which are only used by stray dogs and cows) and several other projects have been too costly and simply add no value to the economy. However, these infrastructural projects are not random, and are actually a part of a Belt and Road Initiative (BRI) by China to secure their trade and supply routes. Nonetheless, Sri Lanka is in the midst of its biggest ever financial crisis and its multi-billion dollar debt to the Chinese is a major impediment in resolving its crisis.
The new balance of power in Asia has shifted heavily towards China and since the scrapping of Obama’s ‘pivot’ to Asia and the Trans-Pacific Partnership (TPP), US power in the region is rapidly diminishing. As Lee Kuan Yew once explained, “in the old concept, balance of power meant largely military power. In today’s terms, it is a combination of economic and military [presence], and I think the economic outweighs the military”, in which case, China is dominating not only the region but the world. China is currently the largest trading partner for over 130 countries– including all the major Asian economies. China’s trade with the ASEAN countries alone has increased substantially over the years, climbing from 10.3% in 2010, to 19.4% in 2015, and to 28.1% in 2020, while the US accounts for only 9% of trade.
However, Sri Lanka is an interesting case, as its Human Development Index (HDI) levels surpass most Asian countries, at 0.782, and puts it in the high human development category.
As recently as 2019, the World Bank applauded Sri Lanka as a developing success story as it reached the upper-middle income category. But there is one serious question – how did it get here? Many attribute it to the Chinese ‘debt trap’, and they aren’t wrong. The Chinese only make investments in countries that are strategically important to them, and Sri Lanka is the prime example. This island nation is located just six to ten nautical miles from the busiest East-West shipping route, where at least 60,000 ships travel this route annually, carrying two-thirds of the world’s oil and half of all container shipments.
The development of the Hambantota Port by China was no coincidence, despite other countries deeming it infeasible. The Chinese face the ‘Malacca Dilemma’, as India holds the Andaman and Nicobar Islands at the chokepoint of the Malacca Strait, where over 80% of Chinese oil imports pass through, thus any blockade would be detrimental to the Chinese economy. Robert Kaplan was correct when he predicted that the next global struggles will be played out in the Indian Ocean. However, US reluctance in getting more involved directly runs the risk of the whole Asia-Pacific region falling into the hands of China.
Sri Lanka can be a major ally to the US, something which former President Richard Nixon realized when he visited the country back in 1953 prior to his Presidency. Moreover, due to its strategic location, it was once the Headquarters of the Allied South East Asia Command under Lord Mountbatten during WWII. It can be deemed as a major maritime hub, whose official language was English until 1952, and still has a large population proficient in English, a quality very unusual in the region.
Already you can witness the US soft power across the island, whether it’s music on the radio, movies at the theater, fast-food chains such as Mcdonald’s, Popeye’s and even TGI Friday’s. Moreover, there is a massive Sri Lankan expatriate community spread across the US from scientists to billionaires such as Chamath Palihapitiya. Thus, it is only a question of when the US will intervene to stabilize Sri Lanka, in order to further boost trade and business opportunities. The lack of US involvement in the Asia-Pacific region in the recent past has led to the belief that the ‘Chinese model of development’, which undermines many international norms including democracy and rule of law, works as witnessed in other parts of Asia.
Sri Lanka’s President – backed by China – employed the ‘Chinese model of development’ with closed borders to increase domestic production and curtailment of economic, political and social rights for economic prosperity. The Rajapaksa Government even went as far as bringing Chinese Communist Party (CCP) officials to Sri Lanka in order to indoctrinate members of their Government party, SLPP. Nevertheless, it has only been a misery and failure from Day 1. It is a contemporary example of what Fukuyama predicted back in 1990 as the Soviet Union collapsed, ‘End of history’, as liberal democracy triumphed. The US ought to step in and reiterate the effectiveness of democracy and free markets for states to prosper, in addition to providing some critical aid to Sri Lanka to ward it from further falling into anarchy and having spillover effects to other parts of the world.