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China poised for diplomatic windfall in Sri Lanka elections

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Beijing backs politicians and influential Buddhist leaders, expert says

MARWAAN MACAN-MARKAR, Asia regional correspondent, Nikkei Asian Review

 

BANGKOK — China is cultivating a wide swathe of political allies in Sri Lanka ahead of the nation’s general elections on Aug. 5, marking a break from throwing its lot in with one dominant political camp.

 

Foreign policy insiders in the small South Asian nation reckon the strategy fortifies the edge China has over geopolitical adversaries India, Japan and the U.S. when it comes to influencing a country that straddles an increasingly contested stretch of the Indian Ocean.

 

This diplomatic shift, the insiders say, has been marked by quiet, behind-the-scenes meetings between Chinese emissaries and the leading political parties vying for votes ahead of elections that in a little more than two weeks will determine parliament’s 225 lawmakers.

 

The coronavirus’s impact in Sri Lanka provided China with an opening to demonstrate its newly tuned diplomacy. Song Tao, minister of the international department of the Chinese Communist Party’s Central Committee, in June hosted a video conference with leaders of Sri Lanka’s major political parties to cultivate bipartisan bonds under the guise of fighting COVID-19.

 

The island nation has reported 2,674 infections and 11 deaths. According to Luo Chong, a spokesperson of the Chinese embassy in Colombo, the meeting was a goodwill gesture that has been repeated with other allies in the wake of the pandemic. “The International Department of the Communist Party of China conducted several joint-video conferences with different parties in Sri Lanka, Nepal, [the] Philippines, Indonesia and Arab counties, which is a common practice, especially under the current COVID-19 situation,” he told the Nikkei Asian Review.

 

The pandemic has boosted China’s influence in Sri Lanka, a veteran Sri Lankan diplomat said, referring to a $500 million loan President Gotabaya Rajapaksa desperately sought from China to help fight COVID-19.

 

“China is the only international player who has the funds to help with such emergencies,” the diplomat said. “Beijing was prompt because it knows which political players it is closer to in Sri Lanka — the Rajapaksas,” referring to the president and his elder brother Prime Minister Mahinda Rajapaksa, a former president.

 

But seasoned observers of Chinese diplomacy read more into Beijing’s preelection encounters with parties across Sri Lanka’s political spectrum.

 

Patrick Mendis, a visiting professor of global affairs at the National Chengchi University, based in Taiwan, said the CCP constantly adjusts its diplomacy based on previous outcomes. “It has remarkable agility to change as China learns from its past mistakes in Sri Lanka,” Mendis said. “Now, it supports not only political parties but influential Buddhist leaders, as China realizes the power of the Buddhist clergy in domestic politics.”

 

In 2015, China was perceived as backing then incumbent President Mahinda Rajapaksa. But Mahinda lost his reelection bid in a shock setback for the country’s most politically influential clan, the Rajapaksas, who had displayed signs of dynastic ambitions.

 

That 2015 poll, the second after the Rajapaksas presided over the end of a nearly 30-year Civil War, was marked by allegations that India, the regional power in South Asia, and China were bankrolling competing campaigns.

 

The Rajapaksa camp accused the Research and Analysis Wing, India’s spy agency, of pouring funds into a coalition of anti- Rajapaksa political parties to defeat Mahinda in his run for a third term.

 

Former President Maithripala Sirisena ended up winning, and his camp accused a Chinese company with investments in Sri Lanka of financing the Rajapaksa campaign.

 

Last year, in November, Gotabaya Rajapaksa, a former military lieutenant colonel, won a decisive mandate in the presidential poll, signaling voter appetite for a strongman leader after five years of a divisive and dysfunctional administration under an anti-Rajapaksa coalition.

 

While China burrowed deep into Sri Lankan politics — it has even commissioned local pollsters to gauge voter sentiment — it was also lavishing multibillion-dollar loans on the country for large infrastructure projects ranging from a new harbor and airport to highways. Not surprisingly, China accounts for 10% of Sri Lanka’s ballooning external debt of $55 billion. Compare that number to $88 billion, the size of the island’s economy

 

The China-funded projects have become a hot-button issue during election cycles as some Sri Lankan voters take a dislike to foreign money paying for strategic assets. “This was never the case before,” a senior South Asian diplomat said. “Foreign policy and foreign investment [used to have] bipartisan backing no matter which party won, but that has changed over the last few years, and strategic investments have become campaign fodder.”

 

As for Japan, for decades Sri Lanka’s largest bilateral lender and development partner, it now must deal with the Rajapaksa tilt toward China. Mere months into his first term, Gotabaya Rajapaksa has sent mixed messages to Japan about the fate of two multibillion-dollar infrastructure projects, both of which were championed by the previous coalition government.

 

One is an elevated light railway system through parts of Greater Colombo, the island’s largest commercial city. The new government says the rail will have to be delayed.

 

The other is an expanded container terminal in Colombo Port, which also has Indian and Sri Lankan backers. The tripartite agreement, signed in 2019 by the previous government, is also at the whim of the Rajapaksa government, which wants new terms. Japan appears unmoved for now. “There is no such fact that Japan and Sri Lanka have agreed to revise the plan of the LRT project,” an official at the Japanese Embassy in Colombo told Nikkei, referring to the Light Railway Transit project. “We understand that this project has so far been implemented as planned by the Sri Lankan implementing agency.”

 

But India’s government is fuming over the matter, especially now that the Rajapaksa camp is turning the Colombo Port container terminal project into an anti-India campaign issue.

 

Diplomatic sources in Colombo say India eyed a stake in the Colombo Port as a counterweight to China’s growing dominance in Sri Lanka’s maritime economy.

 

“The Indians don’t trust the Rajapaksas,” said a diplomat from a Western embassy in Sri Lanka’s former capital. “They see them as doubled-tongued. A reversal on the port project would see India returning to the pre-2015 days of distrusting Colombo.”

 

The U.S. faces a similar quandary. A $480 million grant under Washington’s so-called Millennium Challenge Corporation was partially meant to help upgrade Sri Lanka’s transport and logistics infrastructure, but it too has become an electoral football, as it was during the presidential election in November. Rajapaksa has profited from the anti-MCC campaign rhetoric of his ultranationalist constituency among the country’s Sinhala-Buddhist ethnic majority.

 

The U.S. may have to bite this political bullet to achieve its longer-termstrategic vision in the Indian Ocean, which includes Sri Lanka.

 

“Washington’s attention to Sri Lanka appears to be increasingly fueled by geostrategic concerns about China,” said Nilanthi Samaranayake, director for strategy and policy analysis at the Center for Naval Analysis, a Washington-based think tank. “[There is more] attention on Sri Lanka than ever before… [and there willbe] questions [after the elections] about which direction Sri Lankawill move in regarding its policies toward India, the U.S. and China.”



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SJB: Excise, FM officials all out to pocket Rs 1 bn

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By Saman Indrajith

Matara District SJB MP Buddhika Pathirana yesterday told Parliament that the Finance Ministry and Excise Department officials had misled Prime Minister Mahinda Rajapaksa and State Minister Ajith Nivard Cabraal in order to obtain billion rupees, fraudulently.

The officials had got a contract for printing stickers or barcodes to be displayed on bottles of liquor awarded to an Indian company.

“The project would result in one-billion-rupee loss to the government coffers annually,” the MP said, adding that the money being taken from the public purse would end up in the pockets of corrupt officials.

Pathirana said that the Excise Department had commenced a project to paste stickers on bottles of liquor to differentiate them from the fake and counterfeit bottles in the market.

“As per this project’s requirements, 32 million stickers would be needed per month. The stickers are to be purchased from Madras Security Printers company of India. This method was proposed in 2016 but it failed and the officials thereafter decided to introduce a barcode system.

“The cost of a sticker at 25 cents and the new barcode system will cost of two rupees a piece. This is a dubious deal. It seems that the Finance Ministry officials and the Excise Department heads have ganged up to give the contract to the Indian company and get commissions. There are many unanswered questions. First, the contract of printing the barcode too has been given to the MSP company, which could not secure the first contract. I want to know whether the proper procurement process has been followed. The second question is whether the barcodes would be up to the standards listed in the tender. Third question is who had selected the MSP company which is black-listed in India after being found guilty of frauds with Indian liquor companies in providing stickers to them. MSP has been blacklisted in many other countries. The company has been banned in Sudan and Liberia for supplying the stickers to private companies. The last question is whether this fraud is being committed with the knowledge of ministers of this government.”

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Reserves fall to lowest since 2009, rupee strengthening to be short-lived: report

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by Sanath Nanayakkare

Sri Lanka’s Foreign reserves had dropped to USD 4.1bn in March 2021, the lowest since August 2009, on the back of over US$ 4bn outstanding debt payment during April-December 2021 period, a report issued by First Capital Research yesterday said.

According to the report, rupee appreciation is likely to be short-lived considering Sri Lanka’s depleting foreign reserve position, high foreign currency debt repayment requirement and limited funding sources available in the market are expected to further increase depreciation pressure on the currency during 2Q and 3Q.

“We maintain our exchange rate target for 1H2021 at Rs. 196-202 with 2021 year-end target at Rs. 205-215 as mentioned in our ‘Investment Strategy 2021 – January 2021,” the report recalls.

“Sri Lankan rupee appreciated 5% against the US dollar over the last 2 market days reversing the continuous accelerated depreciation witnessed in January-April 2021. On 12th April, Sri Lankan rupee recorded a historical low of Rs. 201:1 US$. Ministry of Finance (MoF) reported on the same day that the government of Sri Lanka entered into a loan agreement with the China Development Bank (CDB) for US$ 500mn and MoF expected the funds to be disbursed during the same week. Following the announcement, the market registered a steep appreciation with mid-rate recording at Rs. 190.9 on April 19,” it says.

The total foreign debt repayment (capital and interest) for 2021 is US$ 6 bn, according to the report.

Meanwhile FC Research believes that the temporary appreciation in USD-LKR, may adversely impact earnings of export companies such as Hayleys, Haycarb, Dipped Products, MGT Knitting Mills, Teejay Lanka, Expolanka Holdings etc. in the short term.

“However, considering the potential future currency pressure, we expect an overall depreciation of approximately 12% for the rupee providing a significant gain for companies with foreign currency revenue”, FC research predicts.

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Govt. asks Opposition not to propagate lies

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By Saman Indrajith

Chief Government Whip and Highways Minister Johnston Fernando yesterday accused the Opposition MPs of abusing parliamentary privileges to mislead the public by propagating lies about the Easter Sunday terror attacks. 

Addressing Parliament, Minister Fernando said: “The Opposition MPs level wild allegations in the House knowing that they have the cover of parliamentary privilege. If they have anything substantial or any knowledge of the perpetrators of the Easter attacks still not in custody they can go to the CID and lodge complaints so that such complaints could be investigated.”  

Fernando said so after SJB Galle District MP Manusha Nanayakkara had told the House that he possessed evidence of those who carried out the Easter Sunday terror attacks.

Nanayakkara also said that the facts that he had were not in the report of the Presidential Commission of Inquiry into the Easter Sunday carnage.

“You are making various statements regarding the Easter Sunday terror attacks in the Chamber without any proof because you know that you have Parliamentary privilege. You even quoted some statements which are not included in the PCoI report. How did you obtain such information? Why didn’t you complain about this to the CID in the first place? Your action is aimed at misleading the public,” the Minister said. 

Minister Fernando said that the Opposition should stop insulting Archbishop of Colombo Malcolm Cardinal Ranjith by misinterpreting the latter’s statements. 

“When you are in the Government you never said that this is a Buddhist country. Now you are insulting the Cardinal too. You should not do that,” the Minister said. 

“The former Government should be responsible for the terror attack. Now we are trying to punish those who are responsible for it. We will take action against everyone who is responsible. You should support us, not try to obstruct the on-going investigations,” Minister Fernando said.

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