Col R Hariharan | June 19, 2022
Here are my answers to questions from a Russian media on Sri Lanka’s economic crisis:
Q: The Sri Lanka government said that the existing fuel supplies would last only till June 21 as Sri Lanka awaits a confirmation from India for another $500 million credit line to buy petrol and diesel. By helping Sri Lanka during its ongoing crisis, does New Delhi gained a strategic advantage?
Geography has already conferred a huge strategic advantage to India as Sri Lanka is located within 40 km from India's southern tip. Traditionally, India and Sri Lanka have multifaceted relations including strategic cooperation. In particular, India has rendered valuable help to train Sri Lanka naval forces. So, it would be incorrect to see New Delhi's help to Sri Lanka {during its economic crisis) as an act to gain strategic advantage. 'Neighbourhood First' is an important component of PM Narndra Modi's foreign policy strategy and Sri Lanka as a close friend and neighbour has always depended upon India's help in times of distress. India under PM Modi has also been promoting Project SAGAR (Security and Growth for All in the Region) to increase maritime cooperation in the Indian Ocean region including Sri Lanka.
Q: Beijing has not budged so far on restructuring its debt as requested by Sri Lanka, though it is blocking the negotiations between IMF and Colombo. Has Sri Lanka's increased dependance on New Delhi to manage its crisis, affected the further development of Sri Lanka's close ties with China under the Rajapaksas? Your comments please.
China's policy equation with Sri Lanka has to be understood on the larger plane of Indo-Pacific security, which is emerging as a challenge for China's desire to dominate the Indo-Pacific region as part of realising the Chinese Dream. Geostrategically, Sri Lanka dominates the sea lanes of the Indian Ocean making it a strategic pivot of the region. China is aware of this. Even before President Xi Jinping embarked upon his Belt and Road Initiative (BRI) and its maritime component in 2013, China had developed close relations with Sri Lanka by coming to the help of Sri Lanka during the Eelam War against Tamil separatist insurgency. China became an indispensable arms supplier to the island nation. It pandered to the Rajapaksa's quest for glory and gained control of Sri Lanka's Hambantota port in the South, Colombo port as well as the Colombo Port City project which has just come up in land reclaimed from sea.
So China's presence in Sri Lanka cannot be wished away either by the Sri Lanka government and its leaders. It holds true to other powers including India. Both Rajapaksas and PM Ranil Wickremesinghe have striven to maintain good relations with Beijing to improve the small country's bargaining power in the world of strategic rivalry.
China's ambassador to Colombo has lauded India's help to keep Sri Lankan economy going and has spoken of readiness to cooperate with other powers including the US to help Sri Lanka. He has also spoken of China's economy going through tough times. China's strict lockdown policy to fight Covid has dislocated the global supply chain dependent upon Chinese goods. The UKraine war and its attendant geo-political realignment has added to China's woes. Apart from Sri Lanka, other South Asian states like Pakistan and Nepal have not been able to service China's debts. Other BRI members have also fared poorly. This has stretched China's finances. China has explained these limitations to Sri Lanka. It is ready to extend commercial loans which is not welcome to Sri Lanka. China has extended RMB 500 million credit line, which has not found enthusiastic response from Sri Lanka.
As far as China's debt restructuring is concerned, China has always been a stickler to enforce the terms of agreement and as a policy reluctant China to change them when Sri Lanka is bankrupt. Still, we can expect China to relax the repayment terms in the coming days after dragging its feet as a "special favour" to Sri Lanka. I think it has more to do with China's style of economic diplomacy than IMF intervention in Sri Lanka; China has made this clear in a statement.
Q: The western powers and the Gulf states haven't helped Sri Lanka? Does this give an opportunity for Russia to step in, perhaps supply fuel to the country?
To say Western powers and Gulf states have not helped Sri Lanka is not wholly correct. The ripple effect of the Ukraine war and its attendant sanctions on Russia has skewed the global economy, which was taking baby steps to recover from Covid pandemic. Prices of oil and commodities like rice, wheat, corn and edible oil prices have skyrocketed. The US economy is also under pressure; it has raised its Federal Rate by one percentage point to fight inflation for the first time in 28 years. These developments have hit hard, not only Sri Lanka, but also most of the smaller Asian and African economies, as they have not been able to restructure their credits for other countries to lend them money.
Standard & Poor has downgraded Sri Lanka's credit rating from CC to SD (Selective Downgrade) because Sri Lanka could not pay the interest for the international sovereign bonds it had issued. Sri Lanka is negotiating with the debtor entities to defer the repayment of its loans. Only India has done it. We can expect others to follow when Sri Lanka comes out with a coherent economic recovery plan.
As far as Gulf states are concerned, Sri Lanka is looking for their investment and employment opportunities for Sri Lankan, who are a main source of foreign remittance.
There had been reports of some consignments of Russian oil reaching Sri Lanka, but the Sri Lankan importer could not pay the berthing charges in time. There are a lot of impediments to importing oil from Russia for a small country like Sri Lanka due to unprecedented Western sanctions imposed on Russia. Sri Lanka would not like to offend Western powers by opting for Russian trade as they are capable of arm twisting international monetary bodies who can bail out Sri Lanka from its economic logjam. Sri Lanka might change its mind, if and when India evolves a methodology for its trade with Russia. In such a case probably Sri Lanka would be able to use it to improve its trade with Russia.
Q: Can India, with Russia's help, be a force to reckon within Sri Lanka and compete with China's influence?
Answering an earlier question, I have illustrated how China has managed to firmly establish itself in Sri Lanka. China has emerged as a global power and a major challenger in India's strategic sphere of influence in the Indian Ocean region. In spite of this, both India and China are trying to maintain a balanced relationship to avoid any confrontation along their disputed land border. India and China are keeping their diplomatic and military communications open to improve their fractured relations. On the other hand, strategic relations between Russia and China are closer than ever before, after the Ukraine war has resulted in a strategic realignment in Europe and America.
So, I feel the hypothetical situation of Russia and India coming together to curb China's influence in Sri Lanka has little strategic rationale. On the contrary, Russia, China and India as members of the BRICS have been trying to coordinate their efforts to create a new equitable world order. These efforts have suffered a setback due to strategic realignment in the Indo-Pacific which has resulted in the forming of the Quad framework. The Ukraine war has further stirred up the fears of a resurgent Cold War 2.0 in Europe.
India - Russia relations continue to be robust in spite of these
developments. However, there is little incentive for them to cooperate in
Sri Lanka to bring down Chinese influence.
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