Sri Lanka: What next after ‘Panda Bonds’?

Ada Derana Biz

Sathiya Moorthy     14 August 2018

Living beyond one’s means is something that parents, family and religion condemn in people. The West-induced ‘credit card culture’ aimed at promoting consumerism and with it the ‘capitalists’ near-exclusively, may have changed it all, yet more and more people are finding the truth in the ancient wisdom even more. However, it is different when it comes to Nations and governments, where they live for another day, to be able to settle their dues, unlike us poor mortals.

The question remains if a Nation like Sri Lanka, with limited capability to repay its huge loans to global lenders, but has only goodwill in the international community (that too depends on whom the people elect to be in power) to pledge, can go on and on in the same route, and if so, how far and for how long.

Central Bank Governor Dr. Indrajit Coomaraswamy’s recent revelation that the Government was in talks with China to tap the ‘Panda Bonds’ market in that country should make the average Sri Lankan wonder. The man on the street should be asking how and how much he will end up having to repay for all those good, yet unyielding highways, and ports and airports that cannot earn enough, as the Rajapaksa experience with China has shown the present-day rulers, even more.

As Dr. Coomaraswamy would concede, a Nation’s repayment capacity is limited to its future earnings and commitments. In a politically polarised situation as has been prevailing in Sri Lanka for decades now, there are limitations to taxing the people on a future date to make such repayments, whether to China or whichever lender who comes knocking at the door.

There is also the inherent limit and limitation on how far can a Sri Lankan earn, whether it is inside the country or outside, to pay up his share of the tax dues, for the Nation to repay the lender his dues. The alternative would be for the Nation to default on loans, and declare bankruptcy and ask its international lenders to take a walk, or, agree to global bulldozing on ‘restructuring’ of the economy, the Greek way.

The ready Sri Lankan alternative and precedent is the ‘debt-equity swap’ of the Hambantota kind, for which the present-day rulers have blamed the predecessor President Mahinda Rajapaksa, no end. Yet, they are also adding to the ‘Chinese debt legacy’ through the ‘Panda Bond’ market and more direct loans as the US$ 1 billion Chinese credit that the Government was obtaining for building more highways.

National ‘war-effort’ 

At the height of the war, expressways connecting urban centres, and interior village roads and power-connections to long neglected areas may have been a part of the Nation’s ‘war efforts.’ It was not as if those expressways were required to move columns of armies as with Hitler’s autobahns. Instead, it was purported to have given a psychological boost to the masses that they had a government that was so confident of winning the war against LTTE terrorism that it was already looking at post-war development programmes.

‘Rural development’ in the South had suffered, especially in interior Sinhalese areas under earlier regimes, all of which cited the war expenses as the main cause for denying roads and delaying electricity connections to those villages. Yet, as the twin polls of 2015, especially the later-day Parliamentary Elections showed, there was an inherent limitation to ‘development’ alone satisfying people, in an Asian nation which had universal adult franchise, as far back as 1931.

The post-war scenario saw the North also getting the same treatment, under the mistaken Rajapaksa belief that ‘development’ was a sole and sure-fire alternative to the Tamils’ demands for more democracy, and of the ‘federal kind,’ more in content than form. It is another matter that the Tamils have yet to acknowledge that the post-war regime did provide all those roads and initiated IDP rehabilitation measures, which in comparison may have been slow in coming, at least according to their own pre-conceived perceptions.

Profligacy and worse 

The ‘Panda Bonds’ and loaned-out fast-tracking of development of the highways kind are equivalent to purchasing a luxury automobile on hire-purchase when one cannot afford it, and wait for the seller to send his man for taking possession of the vehicle and attaching whatever else he can for whatever portion of the unpaid dues that he could obtain through capitalization.

Facing general embarrassment in the neighbourhood and wanting to avoid stern parents who would then clam up and with their stern looks say, ‘I told you so’ for the rest of their lives, the practice has been for the automobile buyer to end up paying more than he had to, and he intended, too. Leave aside the truthfulness or otherwise of the new Government’s claims that this was the only way out, the Hambantota ‘debt-equity swap’ has elements of a person’s hire-purchase repayment predicament paradigm written all over it.

The post-war government’s profligacy is not about the debts the Nation ends up owing to China, alone. True, China’s international adversaries are citing an ‘inevitable debt-trap’ as the cause for their concern over Sri Lanka’s mindless profligacy and worse. It relates to the Government’s tendency to take credit from wherever it is available, possibly up to the stage when the Nation will be taking new loans only to pay up old ones, worse still, only to pay up a part-servicing of such loans. Other Nations have fallen the same way, and that is what a ‘debt-trap’ is actually about.

Pledging the family silver 

People have gone down the pipe, pledging the ‘family silver’ and then selling it off to the very lender, if only to save face and possibly life, too. ‘L’affaire Hambantota’ is nothing short of it. Yet, for the present Government to walk, rather, run, down the same path, which is already downhill and expect the Nation to believe that they were actually racing uphill is as much an uphill task as the real climbing even otherwise should be.

The irony is that the Rajapaksas were projected as unlettered in matters of economics. Against this, at least the majority UNP partner in this Government, starting with Prime Minister Ranil Wickremesinghe, have always prided themselves as a party of ‘economic liberals’ who at the same time, know where to draw the line. They have, however, proved to be pledging the Nation on the basis of their self-belief in economic literacy, but possibly with the conviction that it would now be another man’s turn to effect yet another ‘debt-equity’ swap involving another piece of Sri Lankan real estate, sooner than later, and square it all up in political terms.

Media reports have claimed that China’s share in Sri Lanka’s external debt was only around ten per cent of the total. Be it as it may, the total may be huge, and other lenders too may have learnt from China, how to capitalise their huge loans to Sri Lanka, by demanding their pound of Sri Lanka’s flesh, at times from closer to the Nation’s heart, which is the capital Colombo and/or wherever the Nation’s strategic assets lie. But then, does anyone care, and care at all?

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N Sathiya Moorthy is Senior Fellow and Director, ORF Chennai A double-graduate in Physics and Law, and with a journalism background, N. Sathiya Moorthy is at present Senior Fellow & Director of the Chennai Chapter of the Observer Research Foundation. Starting his journalism career in the Indian Express – now, the New Indian Express – at Thiruvananthapuram as a Staff Reporter in the late Seventies, Sathiya Moorthy worked as a Subeditor at the newspaper’s then sole publication centre in Kerala at Kochi. Sathiya Moorthy later worked in the Times of Deccan, Bangalore, and the Indian Express, Ahmedabad. Later, he worked as a Senior/Chief Sub at The Hindu, Chennai, and as News Editor, The Sunday Mail (Chennai edition). He has thus worked for most major English language national newspapers in the country, particularly with the advent of Tamil Nadu as the key decision maker in national politics demanding that all newspaper had a reporter in Chennai that they could not afford to have full-time. This period also saw Sathiya Moorthy working as Editor of Aside magazine, Chennai, and as Chief News Editor, Raj TV. In the new media of the day, he was contributing news-breaks and analyses to since its inception. Later, he worked as the Editorial Consultant/Chief News Editor of the trilingual Sri Lankan television group MTV, Shakti TV and Sirasa. Since 2002, Sathiya Moorthy has been the Honorary/full-time Director of the Chennai Chapter of the Observer Research Foundation. In the course of his job and out of personal interest, he has been studying India’s southern, Indian Ocean neighbours, namely Maldives and Sri Lanka, as well as the South Asian Association of Regional Cooperation (SAARC). He regularly writes on these subjects in traditional and web journals. He has also authored/edited books on Sri Lanka, and contributed chapters on India’s two immediate southern neighbours. His book on Maldives is waiting to happen. As part of his continuing efforts to update his knowledge and gain greater insights into the politics and the society in these two countries in particular, Sathiya Moorthy visits them frequently. Among other analytical work, he has been writing a weekly column for over 10 years in the Colombo-based Daily Mirror, first, and The Sunday Leader, since, for nearly 10 years, focusing mainly on Sri Lankan politics and internal dynamics, and at times on bilateral and multilateral relations of that nation. Expertise • Indian Politics, Elections, Public Affairs • Maldives • Sri Lanka • South Asia • Journalism and Mass Media Current Position(s) • Senior Fellow and Director, ORF Chennai Education • BGL, Madras University • BSc, Madurai University