Our mountain of Chinese debt

Sadly one bad feature of the Mahinda projects was that they do not generate a stream of dollar income for us that would enable us to pay the loan instalments and the interest component on the loans

There are good reasons to repudiate these loans

We have an economic crisis. The basic cause of our economic crisis is the mountain of debt we have accumulated. To manage the crisis and to ensure we do not have another crisis, we must start by understanding all the implications that arise from the first cause of all our problems, the debt. The President’s offer to have a committee look at the fiscal and monetary management of the crisis is a rather naïve effort to hide the main cause of our problems and the people that caused it. The important question is not how well we used the options to manage the crisis, but to go one step further back and to identify what caused the crisis in the first place.

The answer is perfectly clear. It is due to the many projects completed by Mahinda Rajapaksa all financed by loans from China. There are three features common to them. The most important is that they were all on unsolicited tenders. This means we did not put out a tender and ask people to bid. An unsolicited tender is someone coming forward and saying I can build this highway or whatever and it will cost X million dollars. All the mega projects he embarked upon were based on unsolicited tenders from the Chinese. The second feature was that they were all supported by dollar loans from the Chinese to cover the full cost of the project. The third feature was the contracts to execute all the projects were given to Chinese companies. This meant that the funds provided to Sri Lanka as dollar loans all went back to China. The profit on executing the project also went back to China. Whoever swung this deal for the Chinese would have got a pat on the back from his bosses in China.

Some key features of the projects

I will christen them the Mahinda projects. Sadly one bad feature of the Mahinda projects was that they do not generate a stream of dollar income for us that would enable us to pay the loan instalments and the interest component on the loans. To make matters worse the Mahinda projects do not generate strong income flows in rupees. At best a very tiny dribble of income from the highways and not even that from the others like Mattala airport, Suriyawewa cricket ground, and the Hambantota Port if we had kept it to ourselves. They have not contributed to generating GDP for the country. At best they can be viewed as Mahinda Rajapaksa’s expensive pets that are nice to have but drive you to bankruptcy.

Why did he do it?

Mahinda Rajapaksa is an experienced politician. He knows the stories to tell the masses to get their votes. Until he tells us we do not know why he went in for these projects but we can build some part of the surrounding picture. He had some mania about developing the south of the country. Like the Maharajahs in India he wanted his own domain. His partiality for developing the South would have been known to anyone who was keen on knowing what made MR tick. The Chinese foreign office would have made it their business to get to know everything about MR. They would have known that MR never had a finance oriented mind. If one of his ministers came forward with a proposal he never asked the first question “what is the financial payback on the project”. That was not his domain but what was his domain was the likely political impact of the proposal.

So my conclusion is that MR never conceived these projects himself. He knew enough to know that they would cost a lot of money and that there was not enough money in the kitty to pay for it.

A parallel happening

China has no oil or gas. Whilst they may be powerful in a military sense with their bombs and rockets they would be in serious trouble if someone blocked the only route for oil to reach China. This is what was called the Silk Route. What the Chinese endeavoured to do was to establish a close relationship with countries on the Silk Route. This was called the belt and road project. A friendly relationship was not a secure relationship. To make it secure it had to be a dependent relationship where the countries on the Silk Route were dependent/indebted to China. As Sri Lanka was a key position on the Silk Route, to secure their position they had to make Sri Lanka indebted to China.

The ploy

The Chinese having studied MR knew that his mind was always ticking to find ways and means of strengthening his political position. Big projects the public thought were hugely beneficial fitted in well with his plans to strengthen his political position. When the Chinese asked him over a nice cup of tea or a glass of nice Chinese wine whether he would like to dramatically change the south with an airport and a port all connected to the rest of the country with splendid highways I think that Mahinda Rajapaksa heart would have had an extra beat due to the excitement. But the pragmatic man he was with his political feet firmly on the ground would have told the Chinese that he would love to have all these projects but the country just could not afford them.

The Chinese probably made their response very short and very sweet. I imagine they said all you have to do is to sign one piece of paper for each project accepting the unsolicited tenders and the associated loan to pay for the project. The Chinese would have assured MR that they will do all that is necessary to complete these projects and to hand them, over to the Government of Sri Lanka.

Just as they said all the projects were completed. MR was ecstatic. For the Chinese it was mission accomplished. An important country on the belt and road project was secured, with heavy loans with no ability to repay these loans.

There are many stories about MR being bribed. If they left an envelope on the table at the signing and MR put it in his pocket it is a relatively irrelevant piece in this saga. The key piece from the Chinese perspective was to get an important site on the belt and road and to get the country providing it indebted and subservient as they had heavy loans which they could never repay.

Can we repudiate these loans?

A port and airport and highways were built which were of no real benefit to us. Had they been important we would have called for tenders to execute these projects. But we did not as we did not require these projects. But it was of great importance to the Chinese in their belt and road project to protect the only route to get oil to China. These loans were given solely because they wanted to execute their belt and road project. The Chinese played with MR’s ego to get his signature on these contracts. 

The loans were a part of their ploy to keep us dependent on them.

We should repudiate these loans and tell the whole story to the global community that we were seduced to take these loans for projects to meet China’s objectives in their belt and road initiative and they were of insignificant benefit to us.

We should make all organised groups in Sri Lanka aware of the facts and get them to have massive protests to demand that China agrees to our demand to repudiate these loans.