Japan – the setting sun?

The Presidential outburst at the Central Bank this week and an earlier verbal rocket to state banks to follow Government policy come in the immediate backdrop of an alarming report that JICA, the Japanese foreign aid agency has suspended supporting a major project, seeking clarification on Government financial policy.

The sting in the Japanese missive to the Treasury is the questioning of the Government’s debt policy and the request for a debt moratorium from Japan. It means the Government’s requests to various world capitals for debt moratoriums are no longer sans scrutiny.

Neither the Central Bank nor the state banks can hardly be blamed for this new development even though the state banks are indeed culpable of adopting the age-old policy of “banking without risks”. They have been over cautious in supporting Government policy to lend a helping hand to those businesses hit by COVID-19.

Japan had been the No. 1 aid donor to Sri Lanka for many years. It came in a big way in the J.R. Jayawardene era, partly as a genuine token of appreciation to the Sri Lankan statesman’s San Francisco speech at the end of WWII. That Japan has raised a red flag at Sri Lanka does not bode well for this country.

The Japanese ire is not pure economics. It also has a geopolitical flavour to it. They are asking questions about Sri Lanka’s (non-existent) Energy Plan. They want to know about the LNG project and the underground cable project from Kerawalapitiya to the Colombo harbour.

They are asking about the Light Rail (overhead) project that the government seems to want cancelled. After months of negotiations to which JICA agreed on a loan with an interest rate as low as 0.1 per cent with a 12- year grace period, they may seem to feel -- something they don’t say publicly -- that certain parties in the new Government have questionable motives in cancelling it and converting it to a Public-Private-Partnership from another country citing low returns. If it is low returns, will a private enterprise walk in -- unless there’s more to it than meets the eye?

These are not matters where the blame can be apportioned to the banks. These are matters that can well be a precursor to other foreign donors, especially Western donors raising red flags on Sri Lanka; something the Government will have to take serious cognizance of in these perilous economic times.