Sri Lanka is just the tip of the iceberg as lending to emerging nations burns
(British Economist, August 27, 2022)
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Will China change its ways? You may have no other choice.
When it comes to the moment when the hopes and complacency of China’s global infrastructure development plan, the Belt and Road Initiative, are condensed, there is little to surpass the groundbreaking ceremony for Colombo Port City in Sri Lanka in 2014. .
China’s President Xi Jinping will attend the ceremony in person to build a high-tech offshore financial center with marinas, hotels and luxury residences on 665 acres of reclaimed land off the coast of Sri Lanka’s capital. He nodded in satisfaction as the project manager introduced the $15 billion project.
Sri Lankan government officials likened the project to Dubai and Singapore. Xi described it as a “major hub” for the 21st-century Maritime Silk Road.
The Maritime Silk Road is a component of the One Belt, One Road initiative, which aims to facilitate the restructuring of maritime trade by providing funds for the development of ports and related infrastructure without the meddlesome conditions that Western countries and international organizations demand when lending. It’s an idea to aim for.
One Belt, One Road Participating Countries Struggling to Repay Debts
Time passed and August 2022. The future of Sri Lanka itself, not to mention Colombo Port City, is on the brink.
Sri Lanka, devastated by fuel and food shortages, is seeking a bailout from the International Monetary Fund (IMF) after it defaulted in May.
Pakistan, also heavily indebted, has received an IMF bailout, and more than a dozen other Belt and Road countries are facing distress to pay off their debts.
All of this has fueled a debate about how much responsibility China, the world’s largest government creditor, has.
But what matters now is how China responds to this situation.
Is China willing to cooperate with other creditors? Will they cooperate even at the risk of sacrificing Mr. Xi’s own geostrategic goals? Sri Lanka will be an important touchstone.
At the heart of the issue is China’s relationship with the Paris Club, a group of 22 mostly Western creditor nations.
China is an “ad-hoc participant (associate member)” of the club, but has turned down an invitation to officially join. why.
One reason is the close ties between the US-controlled IMF and World Bank and the Paris Club.