The Sunday Leader

SINKING INTO DEBT WHILE AIMING FOR THE STARS

President Mahinda Rajapaksa announced yet another billion dollar development project last week, the Uva Udanaya for the provision of 100 per cent of all power (electricity) required for the Moneragala and Badulla Districts.
The project is envisaged under a credit facility of US $ 24,928 million provided by the Exim Bank of China to meet 85 per cent of the cost of lighting up and awakening this backward region while the balance 15 per cent of the cost is to be financed by the Government of Sri Lanka.
While attempting development projects is commendable it is essential to consider many factors including the basic factor of affordability. Considering the debt crisis the government is facing, it will be hard to find even the 15 per cent contribution required of the government for the Uva project to come through.
Most of the financial details of billion dollar development projects in and around Hambantota are well known. In 2008, China pledged a package of $ 1 billion credit for development of what is known as the Hambantota Development Zone expected to be completed in 15 years. The first stage of this project, the deep water harbour, has been already completed at a cost of $ 450 million. The second stage involves Phase II of the harbour and the construction of the Mattala Airport. The Airport is estimated at $ 210 million. The Chinese government will be providing financial assistance for all these projects .
In addition to Hambantota projects, China has also provided credit facilities running into $ 855 million for the coal powered plant at Norochcholai while it has invested $ 28 million for the Special Economic Zone to be established at Mirigama for Chinese investors.
Every now and then President Rajapaksa announces million dollar and even billion dollar development, mostly financed by credit facilities provided by China. Last week the government announced re-construction of 37 highways in the Jaffna region with assistance from the Chinese government and the Asian Development Bank. The financial details of re-construction of these roads totaling about 150Km has not been revealed.
Since the defeat of the war against LTTE terrorism, Rajapaksa has declared many wars on the economic front and speaks of economic development — Arthika Sangvaradanaya — with gusto, but some of such projects have not yet taken off commercially — particularly the deep water Hambantota Harbour built on a loan of $ 450 million.
Economist Harsha de Silva points out that (the first stage of) the much hyped harbour is operating at a loss since international shipping lines are not calling on the port. The government is now forcing fertiliser importers to discharge fertiliser at Hambantota instead of Colombo and this could increase the cost of fertiliser — which is already subsidized by the government — by $ 5 per tonne.
A matter of even greater concern is that there appears to be a lack of transparency regarding some deals with China. For example, de Silva states that the government recently borrowed $ 810 million from the Exim Bank of China for the second phase to be completed in 36 months. The terms and conditions stipulated with the China Harbour Engineering Co. Ltd. had been kept secret. The country should be told whether the company has plans to bring more Chinese workers and the sub-contractor for the project should be named, de Silva has said.
Further he claims that the $ 810 million borrowed from the Exim Bank has been at commercial rates of interest and this could worsen the debt crisis. Sri Lanka’s annual debt servicing (the principal involved and the interest payments on it), he points out now, exceeds  the revenue of government. In most deals negotiated on Chinese sponsored loans, the general public is not made aware of the rates of interest, the consequences of which could be disastrous.
Thus while there will be cheers for President Rajapaksa’s development projects, what most people don’t seem to realise is that the country is sinking deep into debt while going ahead with development projects. If the projects come good in time, all is well and good but if they don’t the repercussions will be severe. The Hambantota Harbour and Airport can turn out to be money spinners but they are risky gambles, particularly at a time when the government revenue falls below its debt payments.
In the absence of a strong and informed opposition as well as a government comprising basically of a cheering squad rather than constructive critics,  even billion dollar investments are approved almost nonchalantly.
The most dangerous trend is that some of the recently proposed projects are not even development projects but massive international showpieces.
The proposal to stage the next Commonwealth Games at Hambantota is a manifestation of sheer lunacy. President Ranasinghe Premadasa too had a touch of this madness in what the public dubbed as “Sobanay.” He wanted waterfalls, ponds, overhead bridges and massive gaudy shows like the Gam Udawa at tremendous cost to the tax payer.  President Rajapaksa betrays the same mentality. The song and dance being made on the Cricket World Cup being staged here is hardly justifiable when the state of the economy and the economic conditions of the poor people today are considered.
President Rajapaksa should consider what happened in India, which hosted the last Commonwealth Games and the fiasco it resulted in that made responsible Indians hang their heads in shame!
They could not even complete the stadiums — all in New Delhi. In time the Chief Executive Officer in charge was sacked for corruption but it was of no avail. What New Delhi, the capital of a rising economic giant could not do and what Hambantota in the backwoods of a poor country — even though it is close to the Rajapaksa abode can do, boggles our imagination.
Let not winning the war against terrorists make us think we all are supermen.

9 Comments for “SINKING INTO DEBT WHILE AIMING FOR THE STARS”

  1. In order to pay these loans, whole chunks of this country will have to be sold. Those who are taking commissions on these scams would have collected enough money to retire in some western country. The rest of us will be paying taxes through out noses for generations to come.

    Wonder what the so called “patriots” singing praise of Rajapaksas today will use as their excuse when all this explodes in our faces?

  2. Bulto

    I am willing to shave one side of my mustache or even willing to walk naked on the road shouting “Eureka” should these hoodlums turn out to be financial genius able to run the country any day soon with a surplus in balance of payment.

  3. Harsha de Silva i dont which university gave u,
    ur doctorate u dum like a rock. yes when the war was over unemployment rate was over 20% according to u. without these maga projects how we going to create jobs. yes we browing money from china those maga projects help us to create millions of jobs.
    other hand one internation port is not enough for country what happen if a natural disaster hit colombo Harsha de Silva take ur head from ur ass and start thinking son.
    before u open ur stupid mouth think twice.
    not only srilanka . EU, USA, RUSSIA browing money from china why because of this economic down turn governments creat job.
    but Harsha de Silva i am proud of of government MAHIND not like PREMADASA he didnt give weapons to LTTE to fight against SRILANKAN army

  4. Ravana

    careful Bulto, a surplus in the balance of payments can be arranged due to massive inward remittances from our slave labor in the middle east.

  5. Avatar

    Youor country is run by a fool with no brains. You are a third world poor country struggling to survive while other countries are rapidly developing. SL is poor and cannot afford anything. It should swallo its pride and stay that way.

  6. Dilshan

    Harsha De Silva has been making his doomsday predictions ever since this regime won the war. he said the economy will collapse in 3 months and the country will descent into anarchy…. Well.. we’re still here are we not??
    Obviously, some body with a better brain than harsha desilva is running the economy, if these people are also idiots, just think what that makes harsha desilva and people who quote him.

  7. sri

    None of these China deals have gone through proper tender procedures. It’s all over tea and whatever else in China to solve Chinese unemployment problem while locals have no jobs and hurting stomachs. It’ll catch up sooner or laler, probably sooner.

  8. drake

    How ridiculous! Both the article and the comments – See, if Sri Lanka is being offered foreign investment, then they should by all means take it. If you look at how the UK and many other western economies are struggling to attract foreign investment, then you will understand why Sri Lanka is being backed by foreign investors, and if you yet can’t clearly see the signs that these investments are aimed at long term prosperity and sustainability, you too must be as oblivious to the current global economic outlook as the acclaimed economist Harsha De Silva. The rise of the East is happening now, and Sri Lanka will inevitably have a huge roll to play in her emergence, and in the long term. The author also seems to believe that the Sri Lankan economy is in a dire state, but the truth is quite the opposite. You cannot have the worlds best performing stock market (up 96% in 2010) and be attracting such large sums of foreign investment and still try to claim destitution, like the author claims. The statement he makes “The song and dance being made on the Cricket World Cup being staged here is hardly justifiable when the state of the economy and the economic conditions of the poor people today are considered”, is utterly ridiculous because the Cricket World Cup is actually good for the economy and enriches the nation in many ways, including both social and economical. Such articles seem to me to be political weapons, where I’m inclined to believe that the authors of such trash must be getting paid by somebody wanting to use the mass-media to generate a culture of dissent. Strange isn’t it? Considering that such an article makes its way past both a sub-editor and an editor, makes me conclude further that the entire establishment (The Sunday Leader) is on a mission to spread deceitful lies fuelled by opposition funding.

  9. Anyone interested, please click “confessions of an economic hitman” on google and listen to the Youtube videos.
    John Perkins author of book of same title speaks.
    Then you will undestand that China is similarly, the ‘economic hitman’ operating in sri lanka.

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