The U.S. itslef is in a trap

In 2018, former U. S. Vice President Mike Pence used the phrase “debt trap diplomacy” to oppose China’s global strategy. Two years later, former Attorney General William Barr interpreted it thus: Beijing is “loading poor countries up with debt, refusing to renegotiate terms, and then taking control of the infrastructure itself.”

No one had used the term, “debt trap diplomacy,” until May 2018, when the U.S. State Department distributed to the media, a paper called “Debtbook Diplomacy” from Belfer Center for Science and International Affairs at the Harvard Kennedy School. The two writers of the paper, Sam Parker and Gabrielle Chefitz, commissioned by the U. S. State Department, were from Homeland Security and the Department of Defense, and not from an Economics background.

Soon this study became the source for the State Department to gain more funds from Congress and use it to create derisive reports on China’s global investments, according to the FY 2018 Department of State Agency Financial Report: Collection of Sidebars. 

As the number of countries joining China’s Belt and Road Initiative (BRI) rises, so is the negative reporting on it, by the West. The West uses the term “debt trap” to describe the investments from China in Asia, Africa, Latin America, and the Caribbean.

This false narrative portrays both Beijing and its allied developing countries as if in an ultra-colonial owner/slave setup. The deliberately drafted crooked fiction is that once a country is weighed down by Chinese loans, it is Beijing’s puppet.

The myth of Hambantota

The prime example of this heinous strategy is the misconstrued description of the Sri Lankan port of Hambantota. A study by Deborah Brautigam, Professor of International Political Economy at the School of Advanced International Studies at Johns Hopkins University and Meg Rithmire, Associate Professor at Harvard Business School, has eminently exposed this myth of China’s ‘debt-trap policy’ around Hambantota.

At Hambantota port

It was not China, but the Canadian International Development Agency that had financed the Canadian firm, SNC-Lavalin to carry out a feasibility study for the port. The study in 2003 batted for building the Hambantota port, and the Canadians’ greatest fear was losing it to European competitors. SNC-Lavalin recommended a joint-venture agreement between the Sri Lanka Ports Authority (SLPA) and a private consortium on a build-own-operate-transfer basis.

The Canadian project failed, but the plan to build the port gained momentum during the rule of the Rajapaksas, who grew up in Hambantota. A second feasibility report produced in 2006 by the Danish engineering firm Ramboll, also made similar recommendations.

Armed with the Ramboll report, Sri Lanka approached the United States and India; both said no. A Chinese construction firm, China Harbor Group, stepped in. China Eximbank agreed to fund it, and China Harbor won the contract in 2007, six years before Xi Jinping introduced the BRI. China Eximbank offered Sri Lanka $307 million, a 15-year commercial loan with a four-year grace period, at a 6.3 per cent fixed interest rate.

Phase I of the port project was completed on schedule within three years.

Instead of waiting for phase I of the port to generate revenue, Mahinda Rajapaksa pushed ahead with phase II. In 2012, Sri Lanka borrowed another $757 million from China Eximbank, at a reduced post-crisis interest rate of 2 per cent.

By 2014, Hambantota was losing money. The SLPA signed an agreement with China Harbor and China Merchants Group to have them jointly develop and operate the new port for 35 years. China Merchants was using a new terminal in the Colombo port, and China Harbor had invested $1.4 billion in Colombo Port City.

In the 2015 elections, Rajapaksa was defeated by his health minister, Maithripala Sirisena. When Sirisena took office, Sri Lanka owed more to Japan, the World Bank, and the Asian Development Bank (ADB) than to China. Of the $4.5 billion debt Sri Lanka would pay in 2017, only 5 per cent was because of Hambantota. Sri Lanka’s debt from China is only 10 per cent of the country’s total foreign debt, while international capital markets borrowing makes up 47 per cent and the ADB 13 per cent.

Evidently, Chinese finance was not the source of Sri Lanka’s distress. Colombo arranged a bailout from the IMF, and decided to raise money by leasing out the underperforming port to China Merchants, making it the majority shareholder with a 99-year lease, and used the $1.12 billion to bolster its foreign reserves, without paying China Eximbank.

The U. S. thinktanks got fodder for its rumour mill and suddenly, Sri Lanka featured prominently in foreign-policy tirades in Washington. Pence said that Hambantota could become a “forward military base” for China, ignoring the fact that Hambantota’s location is strategic only from a business perspective.

Though India was alarmed by Hambantota, an Indian-led 100-year-old international banking advisory, Meghraj group, joined the U.K.-based engineering firm Atkins Limited, to write the long-term plan for Hambantota Port and a new business zone. The French firms Bolloré and CMA-CGM have partnered with China Merchants and China Harbor in port developments in Nigeria, Cameroon, and elsewhere.

To be continued in the next article….

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