The Debt Trap

The leaders of the so-called Yahapalana Government painted a rosy picture through providing concessions to the people for a few months soon after assuming office. They also had a  mini-budget the same month they came to power. However, they have since been lamenting about a huge debt burden they had inherited from the former regime led by former President Mahinda Rajapaksa and attributing their failure in keeping their election promises to the same debts, especially the ones drawn from foreign countries.

The most important issue in respect of foreign debt is that both the leaders of the Government, President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe had said that the Government was unaware of the real amount of monies the country owed to other countries.

Prime Minister Wickremesinghe told the Parliament last year that the Government did not know the exact amount of foreign debt as so many loans the country had obtained from various countries had not been properly documented.

President Sirisena also had stated in January this year that more than $ 58 billion – approximately Rs. 9 trillion - or ninety per cent of foreign loans borrowed by the previous Government were unaccounted for in Finance Ministry records.

Despite there being disagreement among the financial circles about the amount the President had referred to, the fact remains that both leaders of the Government had complained about the absence of proper records on foreign loans. It has been attributed to so many Government institutions having borrowed money independently from foreign sources. Apart from this now it is said that the country has been caught in a debt trap.

In fact, this is not a new phenomenon in spite of the term debt-trap being used since lately by Western Analysts, especially to vilify China’s financial intervention in many developing countries.

US Secretary of State Rex Tillerson had stated recently that Beijing “encourages dependency using opaque contracts, predatory loan practices, and corrupt deals that trap more nations in debt and undercut their sovereignty, denying them their long-term, self-sustaining growth. The Western analysts go on to call this “debt-trap diplomacy.”

However, responding to these allegations a spokesman from the Chinese Embassy in Colombo, Luo Chong told media days ago Sri Lanka was caught in a debt trap but not by China.

“I also stress that Sri Lanka is indeed trapped, not by Chinese but by the lack of development due to historical and external reasons… Some foreign forces, without willingness or abilities to help, are fabricating lies, only trying to obstruct the joint development of China and other developing countries including Sri Lanka and keep Sri Lanka in the trap of poverty.”

Years ago the two main parties had been competing in getting financial assistance from the Western sources, especially from the World Bank (WB) and the International Monetary Fund (IMF) after coming to power alternately. At the same time, the same two parties with their smaller allies criticized the Governments in power for “mortgaging the country” to the WB and the IMF.

Indeed it was a mortgage since those loans entailed conditions such as privatization and pruning of funds for the welfare of the people. Besides, those loans have failed to minimize the country’s dependency.

In fact, the country had thus been in a debt trap for the past several decades. Whether China is involved in “debt-trap diplomacy” or not, Mr Luo Chong’s above argument that Sri Lanka is trapped because of lack of development due to historical and external reasons is undeniable. One might recollect the famous allegation by founder leader of the JVP Rohana Wijeweera during 1982 Presidential election that Sri Lanka was obtaining loans on interest to pay the interest of the previous loans (Naye poliya gewanna poliyata naya gannawa). That indicates the country having been trapped by foreign debt even in those days.

The Opposition - whichever party it may be - always would accuse the Government of pushing the country into the foreign economic grip by obtaining unproductive loans. Hambantota Port project is the best case in point. The Joint Opposition is now levelling the same allegation against the incumbent Government that had been levelled by the UNP against the previous Government.

Politicians in Sri Lanka who make decisions must have an independent view on the nature of the foreign loans the country obtains, without preferring to look at the issue through their political prism.