By David L. Phillips
Monday, May 23, 2022
Sri Lanka is in economic freefall. Food prices are soaring. Medicine, fuel, and electricity are in short supply. Foreign exchange reserves for the island nation of 22 million people are just $50 million. Under a cloud of gross mismanagement, Prime Minister Mahinda Rajapaksa resigned on May 9. Dismayed by the country’s corrupt and incompetent leadership, Sri Lankans also demand the resignation of President Gotabaya Rajapaksa. Chaos has engulfed the country as pitched street battles spiral out of control.
Who is to blame for Sri Lanka’s chaos and economic implosion?
The responsibility, first and foremost, rests with the Government of Sri Lanka led by President Gotabaya and Prime Minister Mahinda Rajapaksa who have ruled Sri Lanka for decades with few checks on their power. Under Rajapaksa’s rule, Sri Lanka assumed unmanageable debt through China’s Belt and Road Initiative (BRI). The cost of BRI is simply too great for a medium-sized economy to bear. China’s predatory financing is a dangerous gambit when countries borrow too much and cannot service their debt or meet the basic needs of their citizens. 
Not only is BRI a debt trap. It is a fertile field for corruption. China’s financing lacks transparency, encouraging officials to skim money from project budgets and line their pockets. When a successor government audits projects, it will be revealed that Mahinda and Gotabaya stole a fortune from the people of Sri Lanka. 
China’s money was a gravy train for Mahinda and Gotabaya Rajapaksa and their cronies from the Hambantota district.  The Hambantota port exemplifies economic mismanagement. In 2017, China Merchant Port Holdings invested $1 billion in the Hambantota renovation and was given a lease for 99 years. The capital infusion provided short-term benefits, replenishing Sri Lanka’s foreign exchange reserves. 
The Government accepted predatory terms for Hambantota after it could not repay its earlier loans to China. Interest for BRI financed projects is typically double that of international financial institutions, such as the Asian Development Bank or the International Monetary Fund. BRI exacerbated Sri Lanka’s balance of payment crisis. The government ultimately requested a debt-to-equity swap, selling its equity to Chinese companies because it was unable to repay loans to China. BRI is a pyramid scheme, throwing good money after bad.
There is a long list of bogus deals financed by BRI. China invested $1.4 billion in Sri Lanka’s Colombo Port, the largest single foreign investment in the island nation’s history. The project boasted employment opportunities and huge revenues for Sri Lankans. However, benefits never materialized. The Port City was completed last year. Though agreements were signed, it remains barren and empty. 
Sri Lanka became ensnared in a malign web of debt and dependencies. BRI entices nations into futile and ineffectual projects, which are extravagant relative to their means. The benefits are one-sided. Contracts require the purchase of Chinese materials and the hiring of Chinese labor. 
BRI financed other infrastructure projects such as roads, railways, and buildings. The $104 million Lotus tower proved to be a boondoggle. It has yet to start functioning. The $209 million Mattala Airport is known as the “World’s Emptiest Airport.” Chinese smile at the signing ceremony. They know that BRI allows China to take control of land and other natural resources, enriching the Chinese partner under the pretext of development. China also flooded the Sri Lankan economy with cheap Chinese goods that destroyed local manufacturing.
BRI has a similar modus operandi elsewhere in Asia, Africa, and Latin America. China’s debt trap impoverishes the poorest people and contributes to social instability. China’s peaceful rise is a myth.
China is only interested in its immediate gain. At the outset of the current crisis, Colombo asked China for new financing to meet the basic human needs of its people. China offered a measly $20 million for humanitarian assistance. It stipulated that additional funds could only be used to pay off Chinese loans. India helped fill the breach, but its support was not nearly enough.
Mahinda and Gotabaya will face justice, not only for corrupt practices. An inquiry should also consider war crimes for the slaughter and disappearance of ethnic Tamils during the final days of Sri Lanka’s civil war in 2009. Western countries often condition their financing on human rights criteria. China turns a blind eye, disdaining scrutiny of its human rights abuses such as the genocide of Uygur in Xinjiang.
Sri Lanka should be a lesson to other middle-income countries, like Pakistan and Djibouti which are also victims of BRI. Corrupt leaders can learn from the Rajapaksa’s experience. China’s predatory practices undermine good governance and contribute to human misery.
(Mr. Phillips is Director of the Program on Peacebuilding and Human Rights at Columbia University. He served as a senior adviser and foreign affairs expert for the State Department during the Clinton, Bush, and Obama administrations).