Sri Lanka has been plunged into a deep economic and political crisis for some time now and reached its deepest point last Saturday, July 9, when President Gotabaya Rajapaksa fled his official residence in Colombo, the capital of the country, moments before thousands of protestors violently entered the presidential house in retaliation for the serious economic situation they are going through.
Due to the attack and the president’s forced escape, he and his brother, Prime Minister Mahinda Rajapaksa, agreed to resign from their political posts.
Sri Lanka has been facing its worst economic crisis in decades. For weeks, it has encouraged constant protests, many of which ended in clashes with the police, leaving several dead and hundreds injured.
The country’s economy has collapsed exponentially in a short period. Imports of essential goods ranging from milk to fuel are practically suspended, causing severe food shortages and continuous power outages.
Citizens were forced to stand in endless queues to purchase essential items that were rising in price by the minute, thanks to the galloping inflation of the economy. This situation caused protests to become increasingly violent throughout the country.
It is no coincidence that Sri Lanka is in the situation it is in, nor can the complex reality be explained simply by blaming the ineffectiveness of its politicians.
There is also a political and economic framework that has the Chinese communist regime as its protagonist, which has subjected Sri Lanka with its Belt and Road project, as it is doing with several countries in the world, to a giant debt trap from which it forces debtor countries to make exaggerated commercial or diplomatic concessions to delay repayments, leading the economy of these countries to absolute ruin.
What is China’s role in this crisis: “The trap of debt diplomacy?”
Like many other countries that decided to implement progressive economic policies, Sri Lanka has been dragging deep budget and trade deficits for years. To try to pay them off, its authorities took a now obviously wrong decision: to get into debt with the Chinese regime.
This new case of a crisis is further evidence that the Chinese regime uses its devious “debt trap diplomacy” to gain strategic advantages over countries that generally suffer from structural poverty, economic dependence, and high levels of corruption.
Sri Lanka’s Gross Domestic Product (GDP) to external debt ratio has risen steadily since 2010, coupled with a sharp increase in the current account deficit and a sharp drop in exports, which prevented the inflow of dollars and is now reflected in the impossibility of importing even essential commodities such as fuel.
In this context, which already showed Sri Lanka’s inability to repay its debts, the Chinese regime irresponsibly continued to inject foreign exchange into the economy in the form of huge loans with highly misleading clauses, whereby the country undertook to grant concessions and various types of benefits to the regime if it defaulted on its maturities.
Many of the loans acquired from China were partly on conditions of carrying out massive infrastructures that are generally meaningless for Sri Lanka but strategically useful for the expansionist intentions of the Chinese regime.
Such is the case of the Mattala Rajapaksa International Airport, for the construction of which China lent the country $200 million. Still, the terminal is so little used that its revenues are not even enough to cover the most basic running costs of the facility.
In 2012, overnight, thanks to a $1.4 billion loan from Beijing, Sri Lanka built a huge deepwater port in Hambantota.
Despite being located on the world’s busiest shipping lane, far from boosting industrial activity, as promised by the authorities, it incurred losses of $600 million during the first six years, on top of the vast debt incurred for its construction. As a result, Sri Lanka was forced to hand it over to a Chinese company for at least 99 years.
It is worth noting that the port is only a few miles from the border with India, which implies more than a strategic military point for the Chinese regime, which has maintained a tense relationship with the neighboring country for several years.
China is Sri Lanka’s primary bilateral lender. When its rulers recently tried to renegotiate the payment schedule, Beijing preferred to offer more bilateral credits to repay existing credits and thus deepen the country’s dependence on the regime.
The role of the Belt and Road in the economic crisis in Sri Lanka
The Asian giant subjugates impoverished countries with loans and investment promises. Cheap labor, precariousness, and environmental deterioration is the economic model it is trying to replicate in regions such as Latin America, Africa, and Southeast Asia, where, although rich countries do not prevail, natural resources and strategic points for both the regime’s military activity and its commercial development abound.
Today’s international context does not allow, or limits, the imperialist advance as it was in the 19th century when the force of armies was used to invade nations and break sovereignties.
In this sense, in 2013, the Chinese communist regime implemented the project called “the Belt and Road,” promising prosperity to all participating countries. Through this project, it managed to institutionalize its imperialist advance using non-violent but equally harmful mechanisms, such as forced indebtedness, secret contracts with corrupt politicians, meddling in domestic political affairs in its favor, appropriation of natural resources, and many other issues.
Through the economic colonization of the Belt and Road, the Chinese regime has provoked enormous economic and political crises in countries like Sri Lanka, Zambia, and Angola, from which it will take decades to emerge. These are the ones that have already collapsed due to the policies implemented by the regime. Still, it is extremely worrying that there are currently at least 68 developing countries with large debts to China, whose contracts and clauses, in many cases, are entirely unknown.
Given the international situation marked by the Russian-Ukrainian war, the food crisis, high inflation, and the post-pandemic economic consequences, most of these countries are not in a position to pay off their debts to the regime.
Sri Lanka is currently broke and suffers from a debt of more than $50 billion to the Chinese regime. According to experts, that figure could be even much higher if the “secret agreements” signed between the parties are considered.
But there is genuine concern that many other countries are in similar situations, which could generate catastrophic consequences for each of these nations that will fall into absolute dependence on the communist regime when they have to comply with the controversial “confidentiality clauses” of the agreements.