Unsurprisingly again, the project ran into delays and cost overruns. Meanwhile, Rajapaksa had brutally won the civil war in 2009 and was eager to ‘commemorate’ his victory with the glorious launch of Hambantota. His impatience got the better of him during the negotiations for the second tranche of financing for the beleaguered port. In 2012, a whoppingly low 34 ships had berthed there against the 3,667 at Colombo. But Rajapaksa was desperately looking for cash to complete his showpiece. China agreed to give him another $757 million but yanked up the interest rate on even the first tranche of $307 million by a mind-numbing 600 basis points or thereabouts. Sri Lanka had just gotten itself into a debt trap.
To cut a long and sorry story short, Sri Lanka was forced to cede ownership of Hambantota and 15,000 acres of land around the port to China to settle its debt. Sri Lanka tried to circumscribe China’s stealthy ambition by ‘vetoing’ a military operation at the port. Of course, who could have predicted that Chinese submarines would visit just when Japanese Prime Minister Shinzo Abe was in town…
As China slung a lasso around Sri Lanka’s neck, India learnt a bitter lesson. The return on Chinese investment should not have been calculated merely in renminbi or rupaiya. Once you added the political payoff, it was clear the Chinese had struck a handsome deal.
Now it’s India’s turn to return the compliment. We are strenuously trying to reclaim the strategic space by dangling a $4-billion package before Lanka. Two credit lines of $1.5 billion to buy food, fertiliser, medicines, and petrol; loan deferrals and swaps of another $1 billion; eleven thousand metric tonnes of rice; plus a host of smaller bailouts. It’s an impressive attempt to win back Lanka’s goodwill in their hour of peril.
But is it enough? Can a few tweaks to our economic package trigger a big geopolitical ‘clawback’?
At this point, allow me to digress to what may appear facile, even frivolous, to the reader, but humour me. Around the end of the noughties, a fancied Indian private bank was rumoured to be in trouble after the Lehman collapse had wrecked financial institutions across the globe. This Indian bank was fearing a run by depositors which could have destroyed it.
I remember it was a Sunday, and most bank branches were closed. But serpentine queues of panicky depositors were forming outside hundreds of the bank’s ATMs. If everybody began to withdraw cash, the bank would have had to shut the counters, and its corporate credibility shattered forever.
My phone rang. The bank’s chairman was on the line. He wanted to declare on our business channel that he was opening all branches across the country, and anybody who needed cash would get it.