by Ashwin Hemmathagama

Total value of concessionary loans, aid, and the grants offered by China during the past four years have exceeded US$3,836 million payable between 14 to 20 year period; subjected to different interest rates agreed between 1.53% and 6.5%, the statistics released by the Ministry of Finance and Planning disclosed. Some may see this financing as a part of the much wanted development pledged in MahindaChinthana political manifesto or as a rescue plan for the regime to overcome the international economic pressure brewing over the alleged human rights violations.

According to the Government of Sri Lanka, the Chinese financed the key development programs here including the road construction, port construction, power generation, water supply, irrigation, other infrastructure development, and supply of equipment, machinery, and vehicles necessary for these projects. However, this assistance was not limited to financing but also forced Sri Lanka provideemployment opportunities for over 1,700 Chinese personnel now engaged in 42 projectsthroughout the island.

In reality, most of these credit facilities came with conditions much stiffer than employing Chinese personnel but also to buy everything from raw materials to machinery from China and also to contract the Chinese firmsto execute and manage. In certain cases the sub-contractors are also from China, which leave little room for the Sri Lankans industries to capitalize or to sustain the grassroots.

Any country embarking on massive infrastructure depend onlow interest rates for long repayment periods, known as the soft loans prefers the World Bank, Asian Development Bank, and similar multilateral lenders or from any other bilateral state donors. However, the Chinese rates stands well above these agencies but of course lesser than the average commercial lending rates.An attractive solution for any borrower with questionable credit ratings and Governance issues. The ulterior goal of a soft loan is to complete the respective project on time and to use it for propelling the economic development in both macro and micro levels. Unfortunately instead of helping the Government to pump money into the Sri Lankan grassroots the Chinese financing will recycles all back to China as agreed in the contract.