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Bankrupt Sri Lanka seeks additional $1 billion loan to pay China

The Democratic Socialist Republic of Sri Lanka hopes to take out another $1 billion loan, open a separate $1.5 billion line of credit and activate a $1.5 billion currency swap with communist China, Sri Lanka’s Beijing envoy told Bloomberg News on Friday.

Sri Lanka – a socialist oligarchy ruled by the Rajapaksa dynasty for decades before the last member of the ruling family, Gotabaya Rajapaksa, relinquished the presidency on Friday – is currently facing the worst economic crisis in its history, the result the mismanagement of the Rajapaksa family directly linked to a propensity to take out predatory Chinese loans. Under Gotabaya and his brother, former president and prime minister Mahinda Rajapaksa, Sri Lanka joined China’s Belt and Road Initiative (BRI) and took on too large loans to pay off projects it could not sustain , making it one of the biggest BRI losers in the world. .

Under Gotabaya Rajapaksa, Sri Lanka has run out of foreign currency reserves this year, leading to bankruptcy and widespread shortages of almost all of the country’s basic commodities, including food, medicine and fuel. Rajapaksa had also made the country dependent on food imports after banning chemical fertilizers, a “green” move to go all organic which the former president admitted in April was a “mistake”.

The tiny Asian island nation has been making international headlines for months as the economic crisis fueled a popular uprising that was both civil and violent. On the one hand, mobs of angry Sri Lankans have torched more than 50 private homes belonging to politicians – at least two prime ministers, Mahinda Rajapaksa in May and Ranil Wickremesinghe last week. In contrast, last week, crowds of what appeared to be hundreds of people occupied the historic residences of the President and Prime Minister to throw a big party, eat the luxurious food, drink the President’s booze and, bizarrely, use the president’s soap to shower. The party ended peacefully on Thursday when protesters decided that since Gotabaya Rajapaksa had fled the country, they had made their point. Some stayed to clean up.

Since Friday, Sri Lankans have continued to take to the streets to celebrate Rajapaksa’s flight from the country.

The departure of Gotabaya Rajapaksa to the Maldives, then to Singapore, led to Prime Minister Wickremesinghe becoming interim president. The national parliament will choose a new president on July 20.

In the meantime, Wickremesinghe’s government seems determined to repeat Rajapaksa’s mistakes, seeking extravagant loans from China to pay off China’s previous extravagant borrowings. Sri Lanka’s ambassador to Beijing, Palitha Kohona, told Bloomberg on Friday that Colombo is asking for $4 billion in aid from the Communist Party, in addition to several new $1 billion pledges.

“We are confident that at some point the Chinese system will accept our demands because they are not unreasonable demands,” Kohona told Bloomberg. “We have made similar requests to other creditors. Sri Lanka needs funding to bring stability to our financial system and we are confident that the Chinese will come to the party as soon as possible.

One of the loans requested would be a billion dollar loan to avoid defaulting on a separate Chinese loan. About ten percent of Sri Lanka’s prodigious debt belongs to China.

“The Federal Government of Sri Lanka has approximately $12.6 billion in outstanding bonds owed to global funds; all refunds are frozen and defaults have been recorded,” Bloomberg explained. “He owes roughly an equivalent amount to bilateral creditors and multilateral lenders.”

The release of Kohona’s remarks followed reports that the International Monetary Fund (IMF) was seeking to continue talks with Sri Lanka following Rajapaksa’s departure.

“We are hoping for a resolution to the current situation that would allow for the resumption of dialogue on an IMF-supported program,” IMF spokesman Gerry Rice said Thursday, according to Sri Lankan media Ada Derana. Currently, Rice said, such talks could not take place because Sri Lanka did not have a stable government, but the IMF hoped they would resume “as soon as possible”.

These conversations could be more favorable under Wickremesinghe – if he wins the parliamentary presidential election – than under Rajapaksa. Wickremesinghe served as prime minister under Gotabaya Rajapaksa, but had been a family rival as recently as 2018, when then-president Maithripala Sirisena tried to illegally depose Wickremesinghe as prime minister to install Mahinda Rajapaksa. Last month, Wickremesinghe appeared to condemn China, insisting in frustration that he was “trying to have a dialogue” with the communist regime, for impoverishing Sri Lanka through the unsustainable borrowing the Rajapaksa had directed.

Rajapaksa said he attempted a dialogue with China to get out of its BRI debt trap in January, but Beijing has not worked with Colombo for meaningful debt restructuring.

The Chinese Communist Party has enthusiastically dismissed any blame for the situation in Sri Lanka, relying on its propaganda weapons to argue that the BRI’s massive debt has nothing to do with the collapse of the national economy. .

“Commercial creditors and multilateral financial institutions of Western countries are responsible for Sri Lanka’s external debt,” the Chinese regime said. world times newspaper boldly concluded last week. “Numerous research reports have repeatedly demonstrated that Sri Lanka’s current debt crisis is not directly linked to Chinese-funded infrastructure investments.”

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Post expires at 11:40pm on Thursday July 21st, 2022