By TON Sri Lanka

The besieged island nation of Sri Lanka entered a new stage of its continuing crisis as the country’s Parliament selected its next president. The panicked leavings and resignations of former President and Prime Minister, two brothers who ruled over the country’s politics for more than a decade and left the country amid a financial breakdown that triggered mass demonstrations. Now, the new president will preside over an insecure unity government that will pave the way for fresh elections.

However whoever emerges has an unhappily difficult job on his hands, including following a path forward with representatives from the International Monetary Fund. Sri Lanka is bankrupt. It is incapable to pay for imports of necessary goods, including food, medicine and fuel, in part because it is impotent to service current debts given its essentially empty reserves of foreign currency. Frustrating inflation has compelled a vast swath of the country’s 22 million people in need of food help. Schools and many businesses remain closed, while ordinary citizens wait days in long queues for gas.

For the rest of the world, Sri Lanka has become a warning saga of mismanagement and bad luck. The decadence of the former president and his brothers, along with an imprudent plan to change the nation’s farming industry into a solely organic enterprise, collided with a set of factors out of the country’s control. Those included the sweeping impact of the pandemic, which crashed the vital tourism sector, and then the Russian invasion of Ukraine, which disrupted global supply chains and accelerated the inflationary spiral that dragged Sri Lanka’s economy into the abyss.

Countries with high debt levels and limited policy space will face additional strains. Look no further than Sri Lanka as a warning sign,” International Monetary Fund (IMF) Managing Director said during meetings of the Group of 20 finance ministers this weekend.

One of the major players in Sri Lanka’s calamity is China. Beijing is Sri Lanka’s lone biggest creditor, accounting for some 10 percent of the country’s foreign debt. Between 2000 and 2020, it extended close to $12 billion in loans to the Sri Lankan government for a major substructure projects that changed into white elephants including a costly port facility in the former president hometown of Hambantota, which was effectively surrendered to Chinese control half a decade ago after Sri Lankan authorities acknowledged that they could no longer pay off the loans.

After spending vast amounts becoming the de facto creditor of much of the developing world, however, Chinese state banks have in recent years become more interested in debt collecting. A slowing economy at home has restricted Beijing’s appetites for risk abroad.

On the other hand Sri Lanka walked into what Beijing critics have dubbed China’s “debt trap” diplomacy. In 2020, it received a line of $3 billion in easy credit from China to help in the repayment of its existing debts. Sri Lanka opted for this path rather than taking the more painful steps of restructuring its debts in dialogue with the IMF and pushing through strictness measures to deal with IMF.

That seems to have been a blunder. Instead of making use of the limited reserves Sri Lanka had and rearrangement the debt in advance. If you had been realistic, we should have gone to the IMF at least 12 months the Sri Lanka finally financially collapse.

Chinese loans loom large in other debt-ravaged countries, too. China accounts for some 30 percent of Zambia’s external debt. Billions of dollars in Chinese funding for a hydropower facility and rail infrastructure are now edging Laos toward defaulting on its debt. Chinese officials and state commentators resent Western criticism of their methods, arguing that it smacks of a kind of colonial paternalism.

In Sri Lanka’s case, China is hardly the only creditor. India and Japan, among other nations, account for a considerable portion of Sri Lankan debt and are also enmeshed in complicated talks over further repayment and aid. However, China’s commitment with the country has been more noticeable and tricky.

It is evident that Beijing’s actively helped for the ruling former president family and its policies. These political failures are at the heart of Sri Lanka’s economic collapse, and until they are cured through constitutional change and a more democratic political culture, Sri Lanka is unlikely to escape its current nightmare. The legacy Beijing lays down in Colombo will be a symbol for the years to come. This is the first main, hysterical downfall where China is a main creditor.