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Saturday December 10th, 2022

War in Ukraine and its implications in South Asia

RESISTANCE: Putin’s Pan-Russia project meets resistance from Ukraine back by the West. Decades ago Soviet Union received Western military aid to resists Hitlers Pan-German Generalplan OST.

ECONOMYNEXT – In December of 1971 as the war in then East Pakistan was reaching a turning point the United States, at the time allied with Pakistan sent in the Seventh Fleet with an Aircraft carrier to the Bay of Bengal. The objective was to intimidate the Indian-backed Mukti Bahini rebels fighting for the independence of East Pakistan to create the new country of Bangladesh.

However, the then Soviet Union sent in a flotilla inclusive of a cruiser and several submarines. This caused the US Navy to withdraw allowing the Indian forces to liberate East Pakistan.

That is part of South Asia’s complex history why the countries of the region have refrained from the outright condemnation of Russia’s invasion of Ukraine, although they agree Russia’s actions goes against the accepted world order a webinar hosted by the Friedrich Naumann Foundation for Freedom (FNF) was toldon March 31.

The webinar entitled “The War in Ukraine and its implications in South Asia” drew speakers from India, Bangladesh and Sri Lanka as well as representatives from the German Bundestag (Federal Parliament.)

At the webinar Member of the Bundestag Dr Markus Faber called on the South Asian countries to support the stance taken by Germany and NATO against the Russian aggression. Faber, who is a member of the Defense Committee of the Bundestag asked the countries of South Asia to support the sanctions imposed on Russia and the security architecture that exists in the Indo-Pacific region.

“Democracies must support each other,” he said adding that democratic countries make more reliable allies as they are dependent on the support of the people.

Faber said that his country as well as the NATO alliance were phasing out dependence on Russian oil and gas and beefing up its defense spending.

For India, the biggest and most influential country in the region, the main concern was that the Western powers, the United States and the European Union taking a hostile position against Russia would change the world order.

“We are concerned that this war would weaken Russia, make it a Pygmy and drive it into the arms of the Chinese Dragon,” India’s former Ambassador to the Netherlands Bhaswati Mukherjee told the webinar.

India, the veteran diplomat said, considers China its biggest concern and this conflict may make the country’s contentious neighbor stronger. She pointed out that India is “anchored to the West” and isstrategically allied with the United States.

She says India “views with alarm at the possibility of Russia becoming weaker and weaker” due to the conflict and sanctionsand drawing closer to China.

“This will change the world order and it will leave India having to confront China alone.” She said after the Russian invasion of Ukraine India is concerned that China would attack Taiwan and also make incursions into the disputed Himalayan regions on the Indo-Chinese border.

She also pointed out that India remains dependent on Russia for armaments and spare parts for military hardware. Much of India’s fighter aircraft are Russian. It also needs Russian petroleum to come out of the Covid pandemic caused recession.

She also quoted from the writings of former US Secretary of State Henry Kissinger who had written in 2014 that “far too often the Ukrainian issue is posed as a showdown: whether Ukraine joins the East or the West. But if Ukraine is to survive and thrive, it must not be either side’s outpost against the other — it should function as a bridge between them.” She said she agrees with Kissinger although she has no admiration for him.

Moderator Saikat Dutta, Founding Partner of the think tank Deep Strat India,acknowledged the request made by Dr Faber for the South Asian democracies to support the West in isolating Russia, but he said that may be more complicated because of historical events.

Those events are specifically related to the 1971 conflict between India and Pakistan that eventually saw the birth of Bangladesh. Mukherjee said that in the case of India, it had found the former Soviet Union a reliably ally during that conflict with the then US backed Pakistan.

She recalled that when the Bangladeshi armed liberation movement, the Mukti Bahini were fighting the Pakistan Army with Indian military support to create Bangladesh in December 1971 the US sent the Seventh Fleet to the Bay of Bengal. It was a threatening move. However, a Soviet Naval Task Force comprising Cruisers and two submarines reached there first and after a tense standoff in December of that year the Americans withdrew.

At that time, Mukherjee said, Moscow gave the Indians a deadline to complete the mission. The primary issue was the fight for airspace and Indian Pilots flying Soviet-made MIG 21s fighter-bombers cratered the airfields in what was East Pakistan and declared air superiority in four days.

For the Bangladeshis also, the Russian connection is still strong ever since. Prof Lailufar Yasmin of Bangladesh’s Dhaka University said the incident is etched into the Bangladeshi psyche. In more recent times Bangladesh has also enteredinto technology partnerships with Russia, including the building of a Nuclear-powered electricity generating plant.

Yasmin agreed that that the world is not in a post-Second World War era, andcountries like Bangladesh have moved on and charted their own course. However, she pointed out that neutrality does not mean the country has no policy. She pointed out that Bangladesh does strongly believe that the sovereignty of a country is “sacrosanct”, and that aggression in the manner of Russia’s cannot be condoned.

Bangladesh has also improved economically and with a relatively large population of 170 million people is attracting investment from around the world, particularly Japan. The economic ties with China have also grown, she said.

In the case of Sri Lanka, which also along with India and Bangladesh did not vote against Russia at the UN Resolution condemning the invasion of Ukraine, a neutral stance has been a continuation of its foreign policy.

At the same time the US and the EU are the biggest markets for Sri Lanka’s exports, particularly apparel, but at the same time Russia continues to support Sri Lanka at international fora where resolutions have been proposed to punish Colombo’s record on Human Rights and alleged War Crimes.

Imran Furkan who was the Sri Lankan representative at the Webinar said that however Sri Lanka always stresses the importance of the Rule of Law as it is a very small country and keeping its independence and territorial integrity is of paramount importance.

Furkan, a management accountant who advises businesses in the Asia Pacific region, also said that Sri Lanka’s ties to the Soviet Union and thereafter Russia go back many decades with many Sri Lankans studying in Russian Universities on scholarships, particularly administrators and Civil Servants.

Mukherjee went on to say that while India is “firmly anchored” to the US and the West, it also has a relationship with Russia which cannot be broken. She said the West understands India’s position. She also said that in history the Russians have shown a lot of resilience in war, taking massive casualties in the battle of Leningrad for instance in WW2.

She also agreed with some Western commentators who have been critical of the “demonization” of Russian President Vladimir Putin saying that it was counterproductive.

Datta pointed out that in the case of the West it treats India differently when it comes to engagement with Pakistan and Afghanistan, while maintaining the closeness with India. “This is a duality that we need to understand and negotiate,” he added.

The webinar also discussed why the former Soviet Union and now Russia has engaged with South Asia. In response Prof Yasmin said “international relations are not conducted due to altruism. In international relations there is anarchy because each country is acting on its own interests.”

In the case of the Ukrainian refugee crisis, she said that Bangladesh has voted to support their plight, as it is battling the Rohingya refugee issue.

The Rohingya are a Muslim minority in Buddhist majority Myanmar who have fled their country in their millions to Bangladesh due to persecution by Myanmar’s military. “The reaction from South Asia to the current conflict is therefore very complex as it is very inter-connected,” she added.

China’s relations with the rest of South Asia have shown that it has been mostly a development partner. Prof Yasmin said that China had lent her country cash for infrastructural development, but Bangladesh has also receivedassistance from other countries such as Japan, the EU and the US.

In the case of Sri Lanka, Furkan said that Sri Lanka has a good record of balancing the powers around it but during the past ten years or so came closer to China. “China came with development aid after the (Civil) war ended in 2009,” he pointed out. Many new post-war infrastructure projects were completed with Chinese loans.

Furkan also said that the older generation of Sri Lankan leaders have a good impression of Russia. However, as this current war has broken out in the age of Social Media, the younger Sri Lankans would possibly not have such a favorable view of Russia as it is portrayed as aggression against a sovereign state, he said.

Yasmin and Furkan both concluded that in the case of Bangladesh and Sri Lanka as their exports go to the EU, the US and Japan it s vital that they keep good relations with the West, while retaining “strategic continuity and autonomy” in its dealings with Russia.

Moscow has been a long-standing partner to South Asian countries before and after the fall of the iron curtain on key defense, economic and energy-related issues; partnering with India, Bangladesh, Nepal, and Sri Lanka amongst others.
The ongoing invasion of Ukraine by Russia has wide-reaching geo-economic, geopolitical, and strategic implications for South Asia. The complicated balance of priorities for countries in South Asia has led to vastly muted reactions on the international diplomatic stage.
The session would cover these implications for countries in South Asia and the broader implications of the war in the wider Indo-Pacific region.

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Sri Lanka opposition MP sees racist agenda behind behind pro-China demonstration

TNA MP Shanakiya Rasamanickam – Image credit: Facebook

ECONOMYNEXT – A protest held outside the Chinese embassy in Colombo against opposition legislator Shanakiyan Rasamanickam was likely the work of a paid group with little knowledge of Sri Lanka’s crisis and pushing someone else’s racist agenda, the MP said.

Rasamanickam told EconomyNext on Saturday December 10 that the protestors were peddling a familiar narrative of racism.

“These people are clearly on a racist agenda. We know how this agenda plays out and we know who is behind it from before, so it’s not anything new. People can connect the dots and figure out who might be behind this protest,” he said.

The hurriedly put together demonstration seemed to be against Rasamanickam’s controversial warnings of anti-China protests in Sri Lanka over Beijing’s purported reluctance to restructure the crisis-hit island nation’s debt.

A small group of protestors including a number of Buddhist monks had gathered outside the embassy premises on Friday December 09 condemning Rasamanickam’s statement in parliament that people will take to the streets against China in a “go home, China” wave of protests similar to the “go home, Gota” protests that unseated Sri Lanka’s powerful former president Gotabaya Rajapaksa.

“I was actually very happy to see a protest happening against me in Colombo. This is the first time there was a protest held against me,” said Rasamanickam.

I”f you look at the group that were protesting, they are quite unaware of the current economic situation in the island,” he added.

One banner displayed by the pro-China protestors contained the words “let us strongly condemn the ‘Go home China’ statement by separatist Rasamanickam” in Sinhala, though the organisers had been careful to omit the word ‘separatist’ in the English translation of the slogan.

It is unclear at present who was behind the protest, but a placard carried by one of the protestors read “is this going from anti-Gota to anti-China”, indicating the possible involvement of pro-Rajapaksa elements.

“It looked like a paid  group of people who came with no knowledge of the country’s situation and was completely under the agenda of somebody else,” said the MP.

The Batticaloa district lawmaker claimed that some people had offered to organise a counter-protest against the pro-China demonstrators but he declined the offer.

“I refused it because the citizens aren’t silly. They are aware of their surroundings and what is going on, so we need not protest in that way,” he said.

A commotion also ensued at the demonstration when a woman started recording it on her mobile phone, prompting some of the protestors to demand that she leave. Words were exchanged, with the visibly agitated woman yelling at the protestors that they were conspiring to sell Sri Lanka to China.

What triggered the protest was an explosive remark by MP Rasamanickam on December 02 that if China were a true friend of Sri Lanka’s, it would agree to either write off the island nation’s 7.4 billion dollar debt or at least help restructure it.

Nearly a fifth of Sri Lanka’s public external debt is held by China, according to one calculation.

“If China, who has nearly 20,000 billion dollars, is truly Sri Lanka’s friend… offering 9 million litres of diesel or half a million kilos of rice isn’t real help,” said Rasamanickam, speaking in Sinhala.

“I say to China and the Chinese embassy that, as 22 million Sri Lankans irrespective of ethnic or religious differences got together to say ‘Go home, Gota’, don’t push us to a place where we will be saying ‘China, go home’,” he said.

Whatever the agenda behind Friday’s protestors, they are not alone in their opposition to Rasamanickam’s strong words against China. Main opposition Samagi Jana Balawegaya (SJB) MP Harsha de Silva was strongly critical of the statement, insisting that Sri Lanka cooperate with all countries.

Rasamanickam told EconomyNext that his words were misrepresented.

“What I said was ex President Gotabaya Rajapaksa didn’t listen to the voices of the people and people ended up saying ‘Gota Go Home’ and if the Chinese fail to address the issues and act in the interest of the Sri Lankan community, naturally people will start opposing them also. If that happens, I simply said that I will support them because for us our country and our people are the priority,” he said, adding that his speech had raised awareness among the public of the situation.

The MP has been raising his voice in parliament and elsewhere in recent days over what he claims is a hesitance on the part of China to assist in Sri Lanka’s debt restructuring efforts. The 2.9 billion dollar extended fund facility (EFF) that the International Monetary Fund (IMF) has offered to extend to the island nation is contingent upon the successful restructure of this outstanding in addition some stringent reforms that experts say are long overdue.

Colombo has been vague at best on the status of ongoing restructure talks with Sri Lanka’s creditors, and opposition lawmakers and others have expressed concern over what seems to be a worrying delay. Rasamanickam and others have claimed that China, Sri Lanka’s largest bilateral creditor, is the reason for the apparent standstill.

Meanwhile, IMF Chief Kristalina Georgieva has called on China to speed up restructuring of debt in Sri Lanka and Zambia following a meeting with the leaders of the country.

“We had a very fruitful exchange, both on the G20 Common Framework and on some specific cases,” she said in a statement after the meeting.

“We need to build on the momentum of the agreement on Chad’s debt treatment and accelerate and finalize the debt treatments for Zambia and Sri Lanka, which would allow for disbursements from the IMF and multilateral development banks,” she said. (Colombo/Dec10/2022)

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IMF chief calls on China to speed up Sri Lanka, Zambia debt overhaul

ECONOMYYNEXT- International Monetary Fund Chief Kristalina Georgieva has called on China to speed up restructuring of debt in Sri Lanka and Zambia following a meeting with the leaders of the country.

“We had a very fruitful exchange, both on the G20 Common Framework and on some specific cases,” she said in a statement after the meeting.

“We need to build on the momentum of the agreement on Chad’s debt treatment and accelerate and finalize the debt treatments for Zambia and Sri Lanka, which would allow for disbursements from the IMF and multilateral development banks.”

Sri Lanka is discussions with the Export Import Bank of China as the lead lender to the island, State Minister Shehan Semasinghe told parliament.

China has informed Sri Lanka that they will also hold bilateral discussions with the IMF and World Bank he said.

China has been asking questions from Sri Lanka and lenders were trying to assess the impact on credits to other countries as well as the domestic economy, he said.

China is a top lender to Sri Lanka along with Japan, the Asian Development Bank and Japan.

Some of China’s infrastructure loans have also been questioned for lack of proper feasibility, though a coal plant is generally acknowledged to be best investment the country has made since the 1980s and is enough to cover many since.

But China gave several so-called ‘cover up loans’ to Sri Lanka which was not linked to infrastructure or economic reforms when the country ran into forex shortages under ‘flexible inflation targeting/output gap targeting’ compounding borrowings from sovereign bond investors.

Sri Lanka calls such monetary instability linked borrowings ‘bridging finance’.

The World Bank and Asian Development Bank or Japan does not give such ‘bridging finance’ or budget support loans without reforms to expand economic activities.

Sri Lanka central government net debt (after deducting foreign reserves) which was 17 billion US dollars after almost 65 years of foreign borrowings shot up to 32 billion US dollars over 7 years of extreme monetary instability. Meanwhile foreign reserves became negative.

Resorting foreign borrowings to meet foreign repayments comes from a Mercantilist fallacy known as the ‘transfer problem’, analysts have said.


Sri Lanka debt crisis trapped in spurious Keynesian ‘transfer problem’ and MMT: Bellwether

Policy makers believe that a current account surplus is magically required to make foreign repayments and not higher interest rates to curtail domestic investments and consumption which make resources available to meet such payments which will in turn reduce the imports and any current account deficit. (Colombo/Dec10/2022)

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Sri Lanka has excess rice amid malnutrition: President

ECONOMYNEXT – Sri Lanka is to harvest a good rice harvest in the upcoming main (Maha) cultivation season but paddy stocks from two previous seasons are still with farmers and collectors, President Ranil Wickremesinghe said.

“I see now that we will get a good harvest in the Maha season,” President Ranil Wickremesinghe told parliament.

“That is also a problem, because we have some leftover rice stocks from the recent Yala (minor) season and the previous Maha season.”

“Now there can be situation of excess rice, we have to protect the farmers. On the other had we will have food to reduce malnutrition.”

Sri Lanka’s rice farmers do not grow and internationally traded grade of rice and bumper harvests do not lead to export booms but calls for trade restrictions on the hungry and helpless to ‘protect’ their incomes.

Rough rice (paddy) prices have fallen to around 80 rupees a kilogram, from over 120 rupees at the height of the crisis earlier in the year when large volumes of money was injected to the banking system to sterilize interventions and pay state workers.

Food Price Crisis

Though supplies are coming back to normal, because soft-pegging macro-economists destroyed the rupee from 200 to 360 to the US dollar by printing money for two years to keep interest rates down, prices are double before from the liquidity injections or ‘stimulus’ started.

The malnutrition is coming from monetary instability involving the collapse of the anchor-conflicting ‘flexible exchange rate and not a problem in the real economy as excess food supplies show.

Related Impoverished Sri Lankans are selling assets, eating less: WFP

Sri Lanka’s chicken farmers are also looking for export opportunities.

Related Sri Lanka chicken farmers eye exports as domestic prices drop

Sri Lanka is now in the worst the worst currency crisis triggered it the history of its intermediate regime (flexible exchange rate) central bank.

With salaries not keeping pace, incomes many sectors, mostly salaried workers including daily wage earners are too low to afford food whether or not they are plentiful, leading to malnutrition especially of the children of poor families.

The phenomenon has a been a recurring problem in the country after the soft-pegged central bank was set up 72 years ago.

Before 1980, when depreciation became fashionable in Washington policy making circles (now called a flexible exchange rate and BBC policy at that time), import controls were the main threat to food supplies, not soaring prices and lagging wages.

Food Trade Controls

In the 2022 currency crisis soft-pegging macro-economist in a mistaken strategy then banned ‘open account imports’ threatening food supplies ranging from lentils to onions and sugar to wheat that usually come from South Asia and Dubai, driving up prices.

But Wickremesinghe then opened account imports, preventing a real food crisis from taking place, allowing money flowing through traditional gross settlement systems (Undiyal/Hawala) to be easily prioritized for food.


Sri Lanka can trigger food shortages as in medicines with new trade controls

Sri Lanka food importers seek exemption from open account trade ban

Sri Lanka removes ban on open account food imports

Food imports in Sri Lanka are only around 100 to 150 million dollars a month which is about third of monthly worker remittances and about 10 percent of total exports.

However the central bank under Governor Nandalal Weerasinghe took the required action to liberalize rates allowing credit to slow and stabilize the external sector.

The government also raised energy prices to keep in line with flexible exchange rate collapse (also a recurring phenomenon) and raised taxes to reduce domestic credit (also recurring action).

President Wickremesinghe and his advisors focused their efforts on getting loans from foreign lenders to buy fertilizer for farmers after he took over as Prime Minister and later President.

Fertilizer supplies are important in a currency crisis not just to produce food as normal but the construction sector usually has to be smashed to stop balance of payments deficits and to stop the rupee from falling further.

When rural workers engaged in construction return home to farming areas availability of fertilizer will help them keep in employment.

Open Market Injections

Construction and other sectors undergo an artificial boom when a soft-pegging central bank suppresses rates with its open market operations and sells downs reserves when the currency peg comes under pressure.

Selling reserves and printing money through open market operations to stop rates going up – an action called ‘sterilized intervention’ – effectively injects what classical economists called ‘fictitious capital’ into banks and artificially pushing up credit and imports further by effectively re-financing private sector activities with central bank credit.

The new money to sterilize interventions over-extending a credit cycle and encourages more imports.

In the current crisis Sri Lanka’s Consumer Affairs Authority, by imposing price controls, disrupted sectors like poultry sector and created black markets.

President Wickremesinghe has so far not taken any actions to abolish the CAA or its price controlling powers which goes against his ‘social market economy’ strategy. (Colombo/Dec09/2022)

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