China debt defaults5/21/2023 Sri Lanka’s new president Ranil Wickremesinghe (appointed by lawmakers, not by the public) is now in an awkward spot. It should come as no surprise that Aid Data’s finding suggest that “the most corrupt governments among Chinese borrowers seem to leave office shortly after the onset of an IMF program.” Will the Chinese loans the underlying reason for the Rajapaksa regime’s end? After all, multiple IMF warnings had gone unheeded in government the conditions of Chinese loans, and their link to kickback schemes that directly benefited Rajapaksa and the political elites in Sri Lanka. Today, several other South Asian nations follow the same trajectory, with heavy borrowings and supporting China’s policies. All three dimensions have worsened significantly during Gotabaya Rajapaksa’s regime. The trap has three levels: a political party level with the Chinese Communist Party a human rights stance dictated by China and Chinese military assistance. The now-disgraced president Gotabaya Rajapaksa, who fled public anger to the safety of Singapore, contributed to the latter trap, tilting the formerly balanced foreign policy of Sri Lanka towards China. Field research in Sri Lanka in 2021 made it clear that China has effectively laid two traps in the country, the classic debt trap and a strategic trap. It’s a timely warning for many other nations in BRI with largely unsustainable borrowing and China as their major creditor. He further views, “That, I think, ought to be an object lesson to a lot of other players – not just in the Middle East or South Asia, but around the world – about having your eyes wide open about those kinds of dealings.” “The Chinese have a lot of weight to throw around and they can make a very appealing case for their investments,” says Burns. Which means it can go on for any number of years after 99 years or for another 99 years.” Even today, as prime minister, he knows he could never revisit this agreement nor investigate any Chinese project for corruption, as his predecessor Ranil Wickremasinghe had tried to do in 2015.Īt the Aspen Security Forum, CIA chief Bill Burns assesses, “Sri Lanka today is heavily indebted to China” having “made some really dumb bets about their economic future and… suffering pretty catastrophic, both economic and political, consequences as a result.” As foreign minister, he had warned that the 99-year Hambantota deal “can extend for a further period. The newly elected prime minister, Dinesh Gunawardena, understands this as well as anyone. Sri Lanka’s political elites had only their political survival in mind China saw, in this fragile and corrupt political culture, a historic opportunity. Economy described in her book The World According to China, “the country could not service its debt and instead granted China a 99-year lease on its Hambantota port.” It was a senseless decision. Sri Lanka was an even more dramatic case. In Zambia, where Chinese creditors hold a third of the national debt, China has taken over mining assets as collateral. Experts such as Nicholas Casey and Clifford Krauss explains the double-facet behind the BRI logic, and notes that ‘China gets to keep 80 percent of Ecuador’s most valuable export- oil- because many of the contracts are repaid in petroleum, not dollars’. Several of the would-be BRI beneficiaries have found themselves forced to transfer resources to service their debt. It falls on these countries to pay the difference. Projects in Mongolia and Azerbaijan face the same problem, despite gross gains. Ten projects found in six nations – Vanuatu, Indonesia, Myanmar, Tajikistan, Pakistan, and Hungary – could not generate sufficient revenue to justify the cost. China’s Belt and Road Initiative (BRI) isn’t quite as lucrative as often advertised.
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