Tough challenges in turbulent economic weather

As President Ranil Wickremesinghe headed East to jump-start stalled or abandoned Japanese projects in Sri Lanka and seek support from the Asian Development Bank (ADB), news from the West, i.e. the International Monetary Fund (IMF) was not particularly encouraging.

Hopes that the IMF would fast-forward its bailout package for Sri Lanka appeared moving at a lukewarm pace as delays in getting the country's creditors on board for a debt servicing deal seemed to stall progress. Thus, an early approval by the IMF's Executive Board for the USD 2.9 billion dangled before the Government by its staff- level team that was in Colombo last month is unlikely to be sealed by this month or even November. A Central Bank team heads next week to Washington (IMF) to try and break the logjam.

At the root of the problem is China -- lagging behind in giving a firm commitment on how it intends giving any moratorium to Sri Lanka on its loan repayments, notwithstanding repeated assurances by its envoy in Colombo of friendship and hosannas to China on the 73rd anniversary of the creation of the modern People's Republic of China by the Prime Minister who went as far as referring to that country as a ' kalyana mithra' (noble friend interested in the other's prosperity).

Sri Lanka is yet to reach out to China at a high political level, as that country readies for its upcoming annual congress of the Chinese Communist Party.

In the meantime, the Japanese political leadership was eager to find out from the visiting Sri Lankan President his take on China. The baggage left behind for President Wickremesinghe by his predecessor including the cancellation of 13 Japan-funded projects in Sri Lanka, some of which went to China and the granting of permission to a Chinese surveillance vessel that docked at Hambantota recently seemed to require reassurances that relations with Japan would revert to the status quo ante.

Japan has also been a longtime kalyana mithra of Sri Lanka, and has come forward to co- chair a meeting with China in an ad-hoc mechanism on Sri Lanka's debt sustainability issue as a forerunner to the Paris Club which includes the major subscribers to the IMF, mostly the Western powers. However, Japan would be hesitant to put additional financing into a country like Sri Lanka that can't service its debts.

A neutral Sri Lanka has got caught in the vortex of geopolitics ( the West plus India and Japan versus China) and is being used as the bait to goad China to the debt sustainability table. The President made a reference to this global power play affecting smaller countries. Addressing the ADB he quoted a local idiom; "When the elephants fight, it is the grass that gets crushed".

The IMF's attention has lately been drawn to the sudden strengthening of the US Dollar causing convulsions in major economies from China to Japan, and in Britain, whose Pound has crashed to a record low. How Sri Lanka navigates itself in this turbulent economic weather is not going to be easy.