US calls China a “spoiler” as China still “cold” over restructuring its debt to Sri Lanka
US Envoy to Sri Lanka Julie Chung made a scathing remark recently that China is a ‘spoiler’ as it is holding up Sri Lanka’s application for the USD 2.9 billion International Monetary Fund (IMF) bailout, a dire need for the government of Sri Lanka. When the BBC questioned Ms. Chung about the IMF and the current state of Sri Lanka, she responded in the affirmative. Her remarks came while Sri Lanka remains silent keeping its fingers crossed over China’s decision.
Her statement came at the right time as still it is not known what the Chinese think of Sri Lanka’s IMF deal and there are only rumours that China has agreed to a two-year repayment plan for the country’s debt to China of approximately USD 7 billion.
There are several rumors currently circulating in the social media over China’s position regarding its restructuring programme.
A letter dated January 18 to President Ranil Wickremesinghe of the Chinese government declaring that they can only give a five-year moratorium and that they cannot go beyond that prompted inquiries from several media outlets.
The letter, which the Chinese Embassy has declared to be a forgery, was circulating on social media and claimed that Chinese financial institutions had contacted Sri Lankan officials to offer their assistance in finding a suitable solution to the country’s maturing loans. The falsified letter stated that because of the slowdown in the real estate market and the already-stressed status of the Chinese banking system, they regret to advise that China would not be able to pay off the outstanding debt but are willing to reduce the repayment terms.
The Chinese government immediately reacted to the forged letter, however, they are yet to convey what is true.
Also, another story broke out about China’s stand. This time it was according to a letter seen by Reuters. The Reuters said that the Export-Import Bank of China reportedly offered Sri Lanka a two-year debt moratorium, according to a Reuter’s story. It also consented to aid the nation in its quest to obtain a USD 2.9 billion loan from the International Monetary Fund. Which of these two stories is correct, is not known and yet to be determined by the government of Sri Lanka.
US envoy statement
But the US envoy statement that the greater onus to move was on China, as the biggest bilateral lender, irked China. She openly said, “We hope that they do not delay because Sri Lanka does not have time to delay. They need these assurances immediately.” “For the sake of the Sri Lankan people, we certainly hope China is not a spoiler as they proceed to attain this IMF agreement.”
It is also unclear whether India and China will ultimately agree to write down their loans to Sri Lanka which is widely anticipated. India has already agreed to the terms but their recommendations are not made transparent.
Ms.Chung said after Argentina plunged into economic crisis and default in 2001, some American hedge funds, rather than accepting a restructuring of the sovereign bonds they had bought on the open market, demanded full repayment and took the country’s government to court in the US to achieve it.
In response to Ms Chung, the Chinese Embassy in its official media release said it’s always “China, China, China is our US colleague starts chanting this infamous mantra and blaming China as a spoiler to the Islands negotiation with the IMF during her recent interview on Sri Lanka debt Issue.”
But one of the remarks was the US is printing dollar with more than USD 3 trillion in 2020 alone. China criticized, “Who is keeping on printing money?” referring to the US. But China needs to be retold that the US dollar is the global reserve currency. In other words, most countries and companies from other countries usually need to transact business in US dollars, making them exposed to the value of their currency relative to U.S. dollars. The United States and the Federal goverment in particular, don’t face this “currency risk”.
However, the economist suspects that China is still undecided on the IMF recommendations to Sri Lanka. “China will test the waters from time to time to see what idea will succeed,” an economist said. China is unwilling to completely commit. They simply require 100% commitment from the debtors in order to finally take over their assets.
Despite making the Sri Lankan government scratch its head over the IMF deal, China has scooped up another joint venture to establish a cargo service hub at Colombo Port. The contractor is none other than China’s CM Port group, which has taken the Hambantota Port for 99 years lease. The proposed deal is worth USD 150 million.