Photo courtesy of Nikkei Asia

China has backed Sri Lanka’s debt plan. To be more specific, as Bloomberg reported, it has “given assurances that it will support Sri Lanka’s debt restructuring.” This is a significant breakthrough and it means that in the coming weeks, the country will receive that much hyped and much sought after IMF Extended Fund Facility (EFF) bailout of $2.9 billion. The bailout will be disbursed in a series of tranches over four years: not enough to salvage a debt-ridden economy, even on Sri Lanka’s scale but according to certain analysts, enough to assure investors to return to the country.

Restoring investor confidence in a country like Sri Lanka with the kind of government it has and the foreign policy shifts it has gone through over the last year is of course not a big problem. Unlike most other countries that are reeling from debt crises and the possibility of sovereign default, Sri Lanka has had it good. China’s assurances did take time but the fact of the matter is that multilateral institutions, the IMF in particular, were amenable to the government’s reform package: the IMF’s recent declaration on the much reviled tax hikes, for instance – it called them painful but necessary, in line with international best practices – shows very clearly that the world’s most powerful financial institution is not in fundamental disagreement with the UNP-SLPP regime’s economic policies.

That said, getting China’s assurances was not easy. Were it not for Indian assistance last year, Sri Lanka would have gone Lebanon’s way; a point that is not lost on both countries’ political elites and diplomatic officials as they ramp up efforts to integrate their power and energy sectors. A recent Sunday Times political column reported that in 2022, then Finance Minister Basil Rajapaksa was on the verge of negotiating a significant loan from China. This might have been on the scale of the $2 billion loan rollover that Pakistan is expecting from Beijing. In Sri Lanka’s case, though, that loan never materialised because the country was mired in a crisis so big that the government had no choice but to resign.

Against this backdrop, India blinked before China could and it made good use of Sri Lanka’s vulnerabilities, sending it the oil and gas it needed to keep its power grid and transportation system running. When it exhausted these credit lines in July, Sri Lanka had no alternative to look for: it desperately sent one delegation after another to Qatar and to Russia but none of them bore fruit. The lesson there was clear – without Indian assistance Sri Lanka would be nowhere. Thus, as the country got soaked in one uprising after another, after one president left and the man he had appointed as prime minister took his place, the government could only veer sharply to the right, becoming probably the most neoliberal any government in Sri Lanka has become since the 1980s. Whatever populist trappings the Rajapaksas had infused into this neoliberal-authoritarian setup vanished overnight.

It would be ridiculous to think that the big powers in the Indo-Pacific – India, China, and the US, and the wider west through the QUAD Alliance – ignored these developments. The government’s reluctance to look for alternative energy sources, even as it was clear that Sri Lanka could make use of Russian oil and gas, pointed at one thing: the country would not go beyond the IMF line, which by extension was Washington’s line.

The west seems to have taken this bait, which explains how, despite the cosmetic criticisms of the government’s handling of protesters, there is much more engagement by these countries with this regime. To be as blunt, in Ranil Wickremesinghe the west found someone who could, as he indeed did, push forward the economic reforms they were advocating. For his part President Wickremesinghe pursued a policy that was in line with IMF diktat but that was also somewhat in line with previous policy as his government’s stance on the China-Taiwan Question and the Russia-Ukraine War clearly illustrated.

There is a simple explanation why the government, although touting a pro-West line in its economic policies, has not gone completely pro-Western in its foreign policies. To be sure, this regime has no official foreign policy. But at a book launch three months ago, Foreign Minister Ali Sabry admitted that “for Sri Lanka, everyone is important.” More recently in parliament he conceded that the country is no longer non-aligned, but “multi-aligned.” Whatever they mean, the rationale for these statements is clear. Sri Lanka is a small state, and it cannot sidestep one bloc over another. Indeed, not even when its economy was in better shape did it indulge in ideological posturing vis-à-vis its foreign relations and in the rare circumstances that it did, as in the early years of its independence, it had to backtrack quickly, leading to landmark developments like the Rubber-Rice Pact.

The Aeroflot controversy and the Yuang Wang 5 episode showed that while the country was aligned with the west over its economic policies and reforms, it could, did and had to engage in a balancing act where other powers were concerned. It could not shirk India and the US, which anyway had, in the eyes of the public, given it the money the country had so desperately wanted and yet it could not avoid China and Russia either.

This does not mean the west, or for that matter India, has given up on Sri Lanka. Quite the contrary. Last month, for instance, a high-level German delegation met the president and informed him that the country’s human rights record put its GSP Plus status in jeopardy. It then asked for Sri Lanka’s support at the recent UN resolution against Russia, a resolution that revealed a split between the global north and the global south. These developments should tell us that the west is subtly pressurising Sri Lanka and that it is not above using the country’s dependence on its markets to push forward its foreign policies.

For now, it seems as though the west is satisfied with Sri Lanka’s foreign policy trajectory although that trajectory is by no means as pro-Western as it was in the 1980s. This is not to say that the west will go all the way up or down with this regime. But the government is besieged by an array of opposition parties and the more popular among them are veering to the left. The most popular among them is the JVP-NPP which, despite its criticism of Chinese projects, has been sympathetic to China. The JVP-NPP has also come out against the 13th Amendment, a point that will definitely not be to India’s liking.

Since of late, these parties have been critical of IMF negotiations as well. Speaking at a rally, Sunil Handunhetti accused the government of becoming ecstatic “whenever they get money from the World Bank.” More recently, Vijitha Herath lambasted its reckless pursuit of IMF reforms, stating that they were not the solution to the crisis and they would ultimately put the country back in debt. By contrast, the SJB has been critical of parties opposing IMF reforms, arguing that there is no alternative. Indeed, far from criticising neoliberal austerity, the SJB has been eager to depict itself as more business-friendly and pro-western than its competitors.

The only counteracting force within the SJB, ironically, has been Sajith Premadasa, its leader. While the neoliberal right-wing in the party has been promoting IMF visions of neoliberal austerity, Mr. Premadasa, the son of a populist president, has been making statements that are the obverse of his colleagues’ more liberal, centre-right position. Thus, barely a day after he publicly announced his support for the death penalty against terrorists and drug dealers, Eran Wickramaratne, an MP known for his advocacy of neoliberal reforms and liberal values, admitted that the party had no definitive stance on the issue.

Not unlike the government, the Samagi Jana Balavegaya does not have a proper, cohesive foreign policy. Its focus has been on economic reform, as its recent press conferences and seminars make clear. Recent statements, however, indicate that it is clarifying its foreign policy stances. At the recent parliamentary debate where Minister Ali Sabry made his remark about multi-alignment, it was Eran Wickramaratne who made the case against non-alignment, observing that in the present setup, it no longer made sense to pursue such a policy. Given geopolitical realities, the SJB has been as pragmatic as the JVP-NPP on issues like Russia-Ukraine and China, hence Mr. Wickramaratne’s outburst against foreign interests trying to set up military bases in the country. Nevertheless, the JVP-NPP has been more vocal about such topics and it has taken the left’s position on them.

Given all this, the government, which is led by a president who is hawkish on economic reform and ostensibly dove-ish on ethnic relations, has cultivated better relations with the west than has the opposition. This may not sit in well with liberals who idealise and look up to the west as some sort of saviour. But it does sit in well with the harsh world of realpolitik: a world that the current president is only too familiar with.