As Ranil Wickremesinghe takes over as Prime Minister of Sri Lanka for the sixth time, how he takes control of the crisis gripping the island country is critical both for India and for stability in the region. Indian Ocean. The task ahead of him includes not only the major challenge of restoring economic stability to his country, but also of keeping the expanse of ocean that extends from the Indian subcontinent intact.
With the unprecedented devaluation of the currency, the increase in foreign debt and the insufficient foreign exchange reserves leading to an unfavorable balance of trade as the import of basic necessities such as fuel, medicines and equipment medical supplies, paper, etc. has become unaffordable, 22 million people in Sri Lanka bear the brunt of prolonged government mismanagement.
Severe inflation, the rising cost of living, the availability of electricity for less than ten hours a day, an impending food shortage, and basic education and health systems on the verge of collapse , have forced people to take to the streets to protest the dire state of Sri Lanka’s government has dragged the state into.
The torrents of protests fueled by the anger of ordinary Sri Lankans have led to incidents of desperate reprisals, such as the burning down of the former prime minister’s ancestral home and the overturning of a former minister’s vehicle in a lake.
Given the financial disaster that has unleashed in the island nation, an immediate solution to alleviate the crisis is to infuse monetary relief. Sri Lanka has about $4 billion in debt, which includes a $1 billion international sovereign bond that matures in July.
A sovereign bond is a debt security issued by a national government to raise funds to fund government programs, repay old debt, pay interest on current debt, and any other government spending needs. The Asian Development Bank, Japan and China are among its main lenders.
Regarding Chinese involvement in Sri Lanka’s economy, prominent nations in the Indian Ocean region have reason to be concerned about the impending situation and foreseeable future in this strategic territory.
The deep-water port of Hambantota, at the southern tip of Sri Lanka, was built to relieve pressure on the port of Colombo and is closer to international shipping routes. In 2016, the government then led by Wickremesinghe decided to heavily privatize the port to facilitate the inflow of foreign currency to pay off maturing sovereign bonds relating to the port.
A Chinese state-run company chosen through the process has also spent resources developing the port until it is fully operational. The following year, in accordance with the agreement, a 99-year lease on the port was granted to China, giving it a strategic foothold in the Indian Ocean.
Sri Lanka sits on a key sea route between the Strait of Malacca and the Suez Canal connecting Asia and Europe. This route is widely used by tankers. The 21st Century Maritime Silk Road – an extension of China’s Belt and Road Initiative – stretches from the Chinese coast via Suez to the Mediterranean, and beyond to Central and Eastern Europe through to its rail connection.
According to the initial agreement with Sri Lanka, China will only use the port of Hambantota for commercial operations. Given the current crisis Sri Lanka is grappling with and the 99-year lease of the territory to China with its massive investments, as well as around 15,000 acres of land for an industrial area nearby (including an airport international close to that built by India), the serious proposal of a slice of Sri Lankan territory becoming a Chinese colony can be considered as coming true.
Since the end of the 26-year-old civil war in 2009, China has made significant investments in building infrastructure in the island nation. The reason why Sri Lanka sought Chinese assistance was purely in its economic interest. In fact, the cost of maintaining the port in 2017 was far greater than the trade revenue it brought. It is therefore not surprising that this agreement is on the way to becoming a strategic error with unbearable debts incurred.
What can be expected in the future is that China will have no obligation to restrict its operations in the critical Indian Ocean location to commercial activities only. With big steps towards the colonization of Sri Lanka under previous agreements, the presence of the Chinese army in the region is quite possible.
It is this likely situation that poses a serious threat to India. While China is already a lingering concern for India on the northern and eastern borders and its proxy presence on the western border with Pakistan’s policy of “bleeding India with a thousand blows”, only the peninsular region is at risk. shelter from the shadow of the military.
Added to this is the influx of refugees which will impact the regions of southern India. As a preparation for the approaching difficulty, an immediate measure can be to plan ahead for the accommodation of refugees to cushion the impact of the Sri Lankan crisis on Indian society and economy. .
Although India extended humanitarian aid to its devastated neighbor in the form of a billion dollar line of credit to import essential goods from India, Sri Lanka followed this up with a request for 2 $.5 billion to China, only sinking further into its debt trap.
What India needs to learn from the example of its deteriorated neighbor is that internal political stability is crucial in facilitating a stable and healthy economy, which will steer a nation towards growth and prosperity. With Sri Lanka in shambles, India is reminded to assess the extent of its internal stability, both political and economic. Only with a robust economy can a state cope with a military situation.