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IDJ ENGLISH Time for Japan to rebuild its relations with Sri Lanka


Time for Japan to rebuild its relations with Sri Lanka
China’s shadow over Colombo LRT project cancellation

The Sri Lanka government’s policy of canceling a railway project supported by Japan last year caused a stir. Sri Lanka is gaining geopolitical weight as a key country in the Indian Ocean, and Japan is looking to resume the railway project through inter-government talks. In the background, however, Sri Lanka’s debt problems and the presence of China, the biggest donor to Sri Lanka, are casting a pall.

President points out “cost-effectiveness”
The project is to develop a 15.7km long next-generation type of tram(LRT) that would run through the biggest commercial city of Colombo. The total project cost is approximately USD 1.5 billion (JPY160 billion) and is scheduled for completion in 2026. It is the largest Official Development Assistance (ODA) ever provided by Japan to Sri Lanka. Sri Lanka grew rapidly into a middle-income country after the end of the civil war in 2009. But traffic congestion in Colombo has become more serious. The development of a mass transit system is an outstanding issue for combating air pollution and reducing greenhouse gas emissions.
In March, 2019, the Japan International Cooperation Agency (JICA) signed a loan agreement with the government led by Then-President Maithripala Sirisena for the first phase of the project, which amounted to approximately 30 billion yen. However, the presidential election in November, 2019 saw a change of government, with Former Undersecretary of Defense Gotabaya Rajapaksa as president and his brother Mahinda Rajapaksa as prime minister.
Mr. Gotabaya came to Japan in 2014, when he concurrently served as undersecretary of urban development under his brother’s administration (2005-2015), and visited monorails in Tokyo and Okinawa under JICA’s guidance.
Mahinda, meanwhile, is a strong pro-China politician that built Chinese-funded port and airport in his hometown Hambantota during the time of his presidency. In 2020, Sri Lanka also suffered with the spread of the COVID-19 virus, and the planned contract for the main body construction of the LRT was delayed. Then, in late September, Rajapaksa’s administration abruptly approved a cancellation policy.
According to local reports, President Gotabaya pointed out that “the cost-effectiveness of the project is not good.”. The former central bank governor, Minister of Finance, Capital Markets and State-Owned Enterprise Reform, said: “The priority of the current government is different from the previous one. We need to proceed not only with Colombo-centric operations, but also with projects to rescue low-income people in rural areas.”
Even more worrisome is the remarks made by Rambukwella, a cabinet spokesman and Minister of Media and Information, “We’re thinking of an efficient project that can achieve the same result within a $500 million cost.” This seems to refer to public-private partnership projects that make use of private funds. Moreover, there is a rumor that the other partnership might be a Chinese company.
After a change of government between political rivals, total cancellation of the previous administration’s policy also occurred in the United States. However, canceling an international cooperation project properly contracted between governments without prior consultation, is an act that affects international trust.
When Sirisena’s administration took over from Mahinda Rajapaksa in 2015, it revised the foreign policy of the previous administration, which was too biased toward China, and shifted to a multilateral, balanced diplomacy, including Japan and India. The Chinese-backed “Port City Plan” in Colombo was also suspended and reconsidered. As the number of development assistance has become more diversified, the LRT project has been realized.
However, the LRT business seems to have been running aground in rough seas of governmental change once again. Japan is in talks between the governments, calling for the cancellation to be withdrawn and the project to resume. However, Sri Lanka’s debt problem is also related, and the future of the talks is difficult to predict.

China expands presence during the COVID-19 Crisis
In early October, 2020, about two weeks after the announcement of the cancellation, a Chinese government official arrived in Colombo. Yang Jiechi, a former Foreign Minister and a member of the Central Political Bureau of the Communist Party of China (CP).
According to an announcement by the Ministry of Foreign Affairs of China and the China International Development Cooperation Agency (CIDCA), the two countries agreed to cooperate in human resource development, such as the opening of a technical university in Hambantota, and to further promote the Belt and Road Initiative. In addition, according to local media reports, financial assistance to the debt-ridden Sri Lankan government seems to have become a focus. October, 2020, was a time when China’s developments in the debt problems of the world’s developing countries were closely watched ahead of the G20 Finance Ministers and Central Bank Governors’ Meeting and the annual meetings of the International Monetary Fund (IMF) and the World Bank.
According to the IMF, Sri Lanka’s foreign debt balance (2019) is about $56 billion. It accounts for 69% of the country’s GNI. Debt risks have increased, as the economy has been hit hard by the COVID-19 crisis and the country’s bond rating has also been lowered. In March, 2020, China provided a lower-interest loan of $500 million to help Sri Lanka combat the virus, but Sri Lanka has asked for additional assistance.
In October, China agreed to provide $90 million in grant aid to CIDCA for technical cooperation in rural Sri Lanka, including healthcare, education and water supply. Sri Lanka’s foreign debt breakdown (on a balance basis) is capital markets (47%), followed by Asian Development Bank (13%), Japan (10%), China (10%), and World Bank (9%). In a single year, China has held the position of the largest donor since 2009, and its responsibilities as creditors continue to grow.
Hambantota Port, in particular, was developed by Chinese support during Mahinda Rajapaksa’s regime. However, the industrial zone around the port has not been developed yet. In 2017, Sirisena’s administration signed a 99-year lease contract
with China. This was criticized as a “debt trap” by China.
Recently, it is reported that a Chinese tire factory decided to locate near the port. In response to the COVID-19 crisis in Sri Lanka, in addition to providing large amounts of medical materials and inspection equipment, China also promoted tourism support measures to attract Chinese tourists to the country.
However, China’s financial assistance has traditionally been mainly through project financing to support infrastructure construction. Financial assistance on the COVID-19 measures will also reduce the burden of debt repayment. Some Sri Lankan journalists said, “China has become the last resort for funds, and it’s just like a ‘CHIMF’.” However, if financial assistance lacks discipline, such as structural reform of the debt problem, it could cause moral hazards in these countries. This threatens to dilute the effectiveness of IMF-focused international cooperation in combating debt, but its dependence on China is likely to become even greater.

U.S. MCC withdraws aid to Sri Lanka

In Sri Lanka late last year, the U.S. Millennium Challenge Corporation (MCC) withdrew a once-agreed infrastructure assistance plan totaling $480 million. With the aim of reducing poverty, the government tried to improve roads and expand bus routes. However, the Sri Lankan side believed the MCC’s plan was linked to U.S. security policy and seemed concerned about stimulating China.
After independence, Sri Lanka, which advocated democratic socialism, was regulated to export natural rubber as a strategic material in the Western camp during the Cold War, and has a history of supporting each other by exchanging it for Chinese rice. While Sri Lanka has been wary of the United States and the Washington Consensus as neocolonialism, it has been conscious of China as its ally.
Professor Monte Cassim, the president of the Graduate University Shizenkan in Tokyo, who is from Colombo and served as a senior aide to the prime minister of the former Sri Lankan government, points out: “Japan’s development cooperation is highly valued by the people of Sri Lanka. It is necessary to thoroughly explain to the Sri Lankan government that Japan is different from the United States. With the construction of railways, you should make use of Japan’s knowledge for regional economic development, such as development in front of stations.”
Japan should continue to hold tenacious discussions on the LRT, including its life cycle costs. This is an important time to rebuild relations with Sri Lanka, which tends to rely on China, and to advance understanding of Japan. (Yukifumi Takeuchi)

“International Development Journal” February edition, 2021



債務リスク抱えるスリランカ 日本は関係再構築の時

























『国際開発ジャーナル』 2021年2月号掲載記事


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