The historic burdens of borrowing

by WILFRID JAYASURIYA-February 24, 2019, 9:28 pm 

Usvatte's superbly composed paper published on Wednesday 20th February in the Island newspaper makes me happy about the level of academic and journalistic writing the Sri Lankan news media can reach. Usvatte was the head of economic analysis in the UN in NY, and before that he was in "perspective planning" in the Planning Ministry with Dr Gamini Corea. I was his batch mate in Peradeniya University in the 1950s, and I am happy to have been a friend of his then as well as now. So I write this short note with pleasure.

The presentation of evidence from international economic data and analysis, which would be accessible to him, together with references to concrete examples such as the Lotus tower in Colombo, the Mahakandarawa irrigation tank in the dry zone, the cricket ground in Hambantota and the Port City in Colombo, brings to life his general thesis that Sri Lanka has been engaged in infrastructure building as a political bait to the elector and a response to a foreign lender.

In the early days of foreign aid (1965 onwards) what was important was commodity aid, especially after the desperate lack of foreign exchange for imports of essential goods, caused by a shortage of foreign exchange. After 1965, when Dudley Senanayake became PM, World Bank missions arrived annually in Colombo, to assess annual requirements of foreign aid, which would supplement the projected earnings in the balance of payments. I was fortunate to be a participant in that process and thereby gained access to the large and exciting area of development economics as a "lay practitioner" and not a "high priest."  But Usvatte went on to be a high dignitary, and one could see his paper as an absolutely authoritative statement of economic dogma, which none can gainsay. The beauty of it is how well he presents it! 

While presenting the thesis which is summarized in the heading "Capital Cheap in Chong Guo and Expensive in Sri Lanka", he also raises the matter of "what did Rajapaksa get out it," -- of the ‘cricket ground in Hambantota or the port in Hambantota’ or words to that effect, since the potential was never realized. We are aware that Rajapaksa is a vainglorious man as seen in the pictures, some years back, of him dressed like a monarch on his throne and his concept of a royal family of Rajapaksas, and the extended family of relatives holding various important positions in the realm. But that is the way of all flesh. Megalomania afflicts people who have been either in power or trying to attain power all their lives, as many of the politicians in the limelight in our country display, in various proportions. The most extreme was JR, who in his old age wanted to be immortal since he was no longer capable of fighting elections. The prospect of death undermines the consciousness and makes people, especially old ones, to seek an escape in some way. All of the world’s literature is replete with it, and Shakespeare gives a poetically acceptable version of it in Prospero’s version of it in the Tempest. It is pretty obvious that Rajapaksa was not interested in calculations of cost and benefit.

But at the beginning Rajapaksa had to fight a war in which the integrity of the country itself was at stake, and for which he needed resources, which Sri Lanka could not pay for, at that moment. So, an ally who would support in whatever way was a Godsend. And China gave lots of money when Sri Lanka needed it most. The subsequent entanglements which China, created as a kind of payment for help when most needed, involve those infrastructure projects like the harbour and the airport, and the playground, which were probably part of China’s usual formula of tying up a debtor in continuous obligation for favours received. This is not an unprecedented event in our own history.

Bhuvenekhabahu King of Kotte, which was the kingdom of Lanka at that time (early decades of the 16th Century), was under attack by his younger brother Mayadunne, who was a much abler warrior at the same time that, in 1505, the Portuguese arrived in Colombo. The King signed a pact with the Portuguese, allowing the King of Portugal to have a claim and a right to a foothold in Kotte, in return for protecting the kingdom from Mayadunne. The Portuguese got a port in Colombo from Bhuvenekhabahu (see S.G.Perera - Ceylon Under the Portuguese) and the Chinese got a port in Colombo from Rajapaksa, for protecting the kingdom from the Tamils and the Indians. It took from the early years after 1500 to 1948 (five centuries) to recover the sovereign ownership of Colombo port by the people of Lanka.

But China, within a few decades after we had become a sovereign state, got a part of that sovereign territory for its own domain, when China took a part of Colombo port, and the government that succeeded Rajapaksa and is now in power could not get it back. On the contrary, the present rulers wanted to give another part of the port to India also! All this is the result of the disunity created by the Sinhala Only Act. Outsiders take full advantage when the household is divided. We saw (on TV) how fast the Chinese arrived on the scene when Rajapaksa appeared to have recovered power In November 2018. They are still there. And getting the Indians into it (a smart move? ha! ha!) will only make our country the cockpit of a war which will demolish us completely.

That is the bad side of it. Most probably there will be a silver lining or even a complete turnaround. Very rarely in recent world history has a sovereign nation lost its sovereignty due to being indebted. I remember a discussion in the late 1960s, about the level of indebtedness that India had reached, among members of a World Bank aid mission to Ceylon. I happened to be there as the Liaison Officer. Some held the view that the level of indebtedness had reached dangerous proportions, but an Indian economist, Arun Shouri, later the Editor of an important newspaper in Delhi said, "So what can they do? Will they invade India?" So now? Is there no danger to Sri Lanka in being so heavily indebted? Or can Sri Lanka borrow from Peter to pay Paul and survive?