[I've come to the opinion that a not insignificant chunk of China coverage that currently pops up in the Western media is an info op curated by China hawks in order to promote and exploit further polarization between the US bloc and the People's Republic of China. And some of the info ops, including the articles in the big media outlets, don't hold up under close examination.
I extracted this post from the script of a China Watch show I did a year ago. The "Hambantota debt trap" myth has served as the foundation for a year's worth of "Belt and Road" threatmongering for projects in Pakistan, Zambia, Maldives, and even Ecuador. The data concerning Sri Lanka's debt trap--and who set the trap--makes for interesting and enlightening reading. The China Watch episode of December 17, 2017 Donald Trump's China Hawk Clown College Now in Session, can be viewed by newsbud subscribers or rented via Vimeo. CH 12-26-2018]
Hambantota
is a Sinhalese expression meaning “flapdoodle peddled by China hawks and
distributed by credulous anti-PRC journos”.
The flapdoodle in question is the assertion that the Hambantota Port is
a scheme to create a debt trap against the island nation of Sri Lanka.
The case is
asserted that the PRC funds costly Belt and Road infrastructure projects the
recipient can’t afford, then takes them over as strategic assets when loan
repayments can’t be met. Case in point:
Sri Lanka, which is crushed by crippling forthcoming loan repayment obligations
equivalent to 95% of its annual revenues.
Stories in
the Western press on Sri Lanka’s debt crisis are usually illustrated by the Hambantota
Port project on the south coast of Sri Lanka.
The Sri Lankan government just finalized an agreement to lease the port,
a notorious white elephant, to the PRC on a 99 year agreement.
It looks
like there is indeed a conspiracy here: a conspiracy by the ex-president of Sri
Lanka, Mahinda Rajapaksa, to build an impregnable economic, patronage, and
political base in his rural home province on the remote southern coast of Sri
Lanka. Rajapaksa borrowed money from the
PRC to build a world class port, a world class international airport, a world
class cricket stadium, and world class highways linking the prosperous north to
impoverished Hambantota. Didn’t
work. All of these magnificent
facilities are unused and generating virtually no cash flow to pay back the
loans to the PRC.
Rajapaksa
was strongly pro-PRC thanks to the unstinting diplomatic and material support
the PRC provided him during his war of annihilation against the Tamil
insurgency. In a detail neglected by
fans of the world’s biggest democracy and current US Indo-Pacific bestie India--but rather important to our story--the
Hindu Tamil insurgency was originally supported by India, trained by India’s
Research and Analysis Wing, and, in a classic case of blowback, ended up
assassinating Indian president Rajiv Gandhi.
When
Rajapaksa needed help to crush the insurgency, he turned to the PRC, not India,
and when Rajapaksa wanted to build his follies at Hambantota, Hu Jintao—not
fearsome BRI overlord Xi Jinping—was there to help.
However, Rajapaksa
lost his bid for re-election in 2015 partly as a result of alleged Indian
finagling, and the new government had no interest in trying to make Rajaipaksa’s
hometown boondoggle turn the corner.
The whole “Hambantota
debt trap” story plays out in an interesting way.
Sri Lanka
faces a massive debt repayment burden of almost $4 billion dollars in the
coming year; but the Hambantota port and airport account for less than $200
million of that. That’s just 5% of the
total.
Most of that
obligation is now gone because the PRC took over 80% of the port in a debt for
equity swap. And under the terms of the
lease, the PRC has to make a payment of $292 million dollars immediately out of
total lease payments of $1.2 billion.
That means
that the Hambantota deal has freed up about $450 million dollars in cash for debt
service next year. Pretty sweet.
The Hambantota deal was apparently a factor in
the IMF’s decision to free up another quarter billion dollar tranche of loans on
December 7 to help Sri Lanka with its balance of payments problem.
All in all,
the Hambantota boondoggle is turning into something of a net positive for Sri
Lanka. And, if you look beyond the teeth
gnashing by China hawks, the PRC’s move is a reassuring indication to BRI
partners that the PRC will step up for refis and work outs of really crap
projects.
In addition,
India put in a bid for $300 million to operate the white elephant Rajapaksa
Airport next to the port. Vital counter
chess move to deny air terminal facilities to a potential PRC naval base? Or the price tag for staying in the political
game in Sri Lanka by providing the government with another $300 million dollar
windfall?
The other
interesting number is this: Sri Lanka’s sovereign external debt is $50
billion. Only $8 billion of that, about
16%, is held by the PRC.
Sri Lanka’s
big debt repayment headache is not the Chinese.
It’s that the Sri Lankan government sold somewhere between one to two
billion dollars of sovereign debt almost every year at near junk interest rates
for rebuilding and social peace, well, social buy offs, after the catastrophic
civil war with the Tamils.
There was
some economic growth going on but not enough to service those loans. They’re starting to mature and guess
what? Those government bonds are held by
international investors and, unlike the PRC government, those international
investors aren’t interested in delay, rescheduling, renegotiating, or conversion.
So Sri
Lanka’s in the arms of the IMF for bridge financing—linked, of course, to
demands for domestic revenue and financial reforms—so it can go back to the
international lending well again to roll over the debt it still can’t pay.
Who created
the debt trap for Sri Lanka? The usual
suspects: money center banks like Citigroup, Deutsche Bank , HSBC and Standard
Chartered and fund managers primarily in the US and Europe.
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