By Usman Khan

On Monday, 26 September 2022, Sri Lanka President visited Japan last month to meet the Prime Minister of Japan and other high-ranking officials of the Japanese government. Sri Lankan President also attended the state funeral of the former Japanese Prime Minister.  As Japan tightens the noose around and Sri Lanka after being sidelined and Japan took U-turns on infrastructure projects offered to Sri Lanka.

At the same time, going for the International Monetary Fund (IMF) bailout package at the outset of the severe financial crisis and defaulting debt repayment was of concern to Japan.

Japan is Sri Lanka’s oldest development partner and the debt amounts to around 10% of Sri Lanka’s total budget. During his official visit, Sri Lanka's President asked Japan to play a primary role in negotiations with Sri Lanka with IMF. As Sri Lanka is "suffering a lot," the country needs to return to normalcy as soon as possible. Sri Lanka and Japan have long been friends and the Sri Lankan president hoped to work together and make the relationship even more durable.

Japan, however, is unwilling to lend money to Sri Lanka and the Sri Lankan President paid a visit to japan to convince the Japanese government about the credibility of his Government. As Sri Lanka's relations with Japan had broken down because the former president's regime chose China over Japan and canceled the East Container Terminal (ECT) Development Project at the Port of Colombo, which had been offered to Japan to develop with Sri Lanka Ports Authority. The former President also canceled the Light Rail Transport (LRT) project that had been allocated to Japan.

These projects were canceled on the pretext that Japan’s LRT was costly. There were also talks that China was also one of the competing bidders and the project might shift hands. For Japan, it was not only a major setback in their bilateral relations with Sri Lanka but also a source of national disgrace for Japan.

Even the former Foreign Minister, at the beginning of this year, said and admitted that certain situations could have been handled better, referring to the termination of the Japan-funded Light Rail project in Colombo. The LRT was designed with 16 stations over 15.7 kilometers of track in and around Colombo. The consultancy contract was awarded in March 2019 and the detailed design was at the final stage.

Japan International Cooperation Agency (JICA), Overseas Coastal Area Development Institute of Japan, Japan Port Consultants Ltd and the Oriental Consultants Global Co., Ltd jointly submitted their final report on the Preparatory Survey for the Project of Development of the East Container Terminal in the Colombo South Port in Sri Lanka.

Also recently, the Sri Lankan Secretary, of Foreign Affairs, led bilateral consultations with a senior delegation from the Ministry of Foreign Affairs of Japan led by the Assistant Minister of Southwest and Southeast Asia Affairs in July 2022. The Sri Lanka delegation included the Governor of the Central Bank, and Secretary to the Treasury, and senior officials of the Ministry of Foreign Affairs, Defense and Sri Lanka Navy.

As Japan remains a major contributor to the IMF. The Regional Office for Asia and the Pacific (OAP) is one of the IMF’s major regional offices around the world. It was established in 1997 in Tokyo with the help of Japan and now serves as a critical outpost in the Asia-Pacific region of 37 member countries including a few emerging economies. Its presence offers testimony to the substantial and growing importance of the region in the global economy.

Office for Asia and the Pacific (OAP) facilitates coordination between IMF headquarters and those member countries and promotes IMF’s various initiatives in the region through key activities. The discussions focused on enhancing bilateral political, economic and defense cooperation as well as strengthening people-to-people ties.

Earlier, during his meeting the Japanese Prime Minister in his congratulatory message to the Sri Lankan President said that he expects political stability in Sri Lanka and indicated his willingness to help Sri Lanka with its bailout package with the IMF.

During their meeting with the Sri Lankan president, the Japanese Prime Minister stated that Japan is willing to further strengthen the bilateral relations with Sri Lanka to implement Japan’s vision of a "Free and Open Indo-Pacific" (FOIP). Japanese Prime Minister also mentioned that Japan is willing to provide humanitarian assistance to Sri Lanka to address its current humanitarian situation, as Sri Lanka is a long-standing friend of Japan.

As the Japanese Prime Minister pointed out the importance of transparent and fair development finance in compliance with international rules and standards, both the Japanese Prime Minister and Sri Lankan President shared a common understanding of the importance of debt restructuring in Sri Lanka in a fair and transparent manner with the contribution of all creditor countries