Sri Lanka crisis wake up call for EU & West: EICC

Proactive action needed to prevent domino effect, warns apex EU-India trade body

Politics

July 22, 2022

/ By / New Delhi

Sri Lanka crisis wake up call for EU & West: EICC

EICC blames China for the Sri Lankan troubles and cautions that it is the first, but not the only country to go through this turmoil due to the debt trap laid by the Chinese (Photo: Pradeep Dambarage/Getty Images)

As Ranil Wickremesinghe, newly-elected President of Sri Lanka continues to struggle to restore peace to the island nation and bring it out of economic morass, the Europe India Chamber of Commerce has warned the European Union and other developed nations of a risk of similar civil unrest in other heavily-indebted nations, notably in Asia and Africa and calls for proactive action to prevent that.

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One of the first and most challenging tasks that await the new Sri Lankan President Ranil Wickremesinghe is to restore peace in the nation which has been in the grip of widespread protests and unrest, caused by the unprecedented economic crisis that has pushed essential items like food and fuel beyond the reach of the common persons.

And as President Wickremesinghe gets down to the Himalayan task, the Europe India Chamber of Commerce (EICC) has warned the European Union as well as other developed nations that Sri Lanka is not the country facing a risk of descending into a civil war and that the developed nations, notably the EU, need to take proactive measures in order to prevent similar chaos from breaking out in other countries that are also heavily indebted. The EICC blames China for the Sri Lankan troubles and cautions that it is the first, but not the only country to go through this turmoil due to the debt trap laid by the Chinese.

“Colombo’s crisis has been in the making for more than a decade, largely due to the country’s excessive dependence on imports and borrowings for a raft of massive, economically unviable infrastructure projects. Though successive Sri Lankan governments have their share of blame for the current situation, the real culprit is the debt trap, a necessary corollary of the Belt & Road Initiative (BRI) of Chinese President Xi Jinping,” says Sunil Prasad, secretary general of EICC, in a letter to Ursula von der Leyen, President of the European Commission.

“Though Sri Lanka is the most glaring example of how the BRI debt trap can ruin a country and bring to its knees in all senses, it is not the only one. There are several other countries in Asia and Africa who are on the brink of collapse as they are also reeling under the impact of terrible policies and glittering projects that may look good on paper but have become a millstone around their necks. China’s willingness to channel large amounts of money into countries ill-equipped to navigate huge ‘debt traps’ is for the purposes of obtaining economic and political leverage. China has used these investments to silence and buy loyalty of BRI countries and therefore it is not surprising that many BRI recipient states have refrained from publicly criticising China’s policy of collective punishment and mass arbitrary detention of millions of Uighurs Muslims in Xinjiang,’’ warns Prasad in the letter sent recently to the EU leadership.

He goes on to name some of the most outlandish projects sponsored by China and which have led to huge losses for many. “Most notably examples of misplaced priorities and investments on projects financed by China under the BRI include China-Pakistan Economic Corridor in Pakistan, the USD 4.5 billion Standard Gauge Railway in Kenya which has led to calls by Kenyan lawmakers asking to renegotiate the loan and cut it by half. Similarly, there are numerous other projects in Central and Western African countries as well as in Cambodia and Laos in South-East Asia that have become economic duds,” says Prasad.

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Wake up call for the EU

Prasad says that the collapse of the Sri Lankan economy is a wake-up call for the West, and to the European Union with many countries in Africa and Asia battling with similar woes and being sucked into the vortex of unmanageable debt. The economic and political chaos that has dangerously gripped Sri Lanka will have a big impact on the peace and stability in South Asia.

“Sri Lanka is now in the throes of a vicious economic meltdown. Those outside the debt-trap need to appreciate that the recovery from the economic crisis is not something that can be done overnight. However, some countries, especially the European Union, can help the country by providing urgent and special economic package. But at the same time, the commitment made by the Sri Lankan govt during the EU GSP+ monitoring mission in September 2021 to review Sri Lanka’s compliance with 27 International Conventions, must be monitored,” he says.

Calling for other nations to boost trade with Sri Lanka to help the country emerge from the crisis, Prasad says that as Sri Lanka’s exports remain concentrated in textiles and agricultural products such as tea and rubber, which remain the country’s main source of foreign exchange, the EICC is of the view that enhanced trade, meanwhile, remains a vital component part of any hope of rescuing Sri Lanka from the crisis.

“It is true that getting through the next few months will be very tough but the international community including the EU, need to reach out to Sri Lanka and help the country to recover from the crisis. If Sri Lanka is not assisted in this situation and if the chaos goes out of hand, then what happens to the next country who too will go on default because of debt-trap? You will agree that while Sri Lanka’s struggle is extreme, it reflects conditions across dozens of countries from South Pacific islands through some of the poorest in Asia and Africa that have signed onto Chinese Belt and Road Initiative,” says Prasad in the letter.

The letter by EICC to President of the Commission says that for years, China has tried to create a global image of being a dependable partner of developing countries. Many countries have tested that image by consistently and publicly asking for bail-out funding but in a time of need, China has ditched them and has demanded a heavy price for help. As Chinese loans assume the form of ‘cash for resources” in return for financing and building the infrastructure need, it demands favourable access to their natural assets, from mineral resources to energy and ports, says the letter.

“This is what is happening in Balochistan, a disturbed province in Pakistan where China has demanded that Pakistan gives full control of Baloch mineral assets including right to setting up Chinese military outposts under the BRI. Baloch nationalist insurgents have been attacking CPEC projects and personnel because they consider China an imperialist power that, along with the Pakistan government, is trying to snatch Balochistan’s natural resources. In view of the above, it is not out of context to state that EU should press Pakistan to scrap the China-Pakistan Economic Corridor (CPEC) to arrest Pakistan’s economic slide further,’’ warns Prasad. He says that with Pakistan’s economy in fast decline, it is likely to meet the same fate as Sri Lanka’s economy. “The EU should therefore convey to Pakistan that one of the conditions of receiving EU’s GSP plus trade privilege depends upon how the country responds to China’s dominance. The economic meltdown of Pakistan should make such a decision imperative and urgent because the country is teetering on the edge of a tailspin,’’ he says.

Prasad praises the steps taken by the Indian government to help Sri Lanka out of the economic morass. India has been playing the role of a concerned neighbour ever since the crisis in Sri Lanka reached a boiling point. “With its mantra of ‘Neighbourhood First’ and its vital strategic stakes in the island nation, India cranked up assistance to Sri Lanka. Until now, New Delhi has provided over USD 3.8 billion worth of support to the beleaguered nation. Ironically, China, which has been relentlessly increasing its footprints in the island nation, has been barely there for Sri Lanka in its hour of need,’’ says Prasad in the letter.

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“Madam President, as Sri Lanka descents into further chaos, economic and political, it is a matter of grave concern not only for India but also to the West and EU, because of the island nation’s geo-strategic location and close business proximity with China. In the interest of EU’s Indo-Pacific Strategy, EU must prevent Sri Lanka becoming South Asia’s Lebanon. The EU must seize the opportunity to play a larger role in the spirit of its Indo-Pacific Strategy. EU’s timely and appropriate action on Sri Lanka will determine the future of many vulnerable countries who are in the Chinese debt trap,’’ he says.

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