At Colombo Meet, Jaishankar Flags Dangers of Unviable Debt

Relevance: GS2 - Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

(Source: The Hindu, 10/12/2023)

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Why in the news?

• Recently, the annual meeting of the 23-member Indian Ocean Rim Association (IORA) was held in Colombo, Sri Lanka.
• At the annual meeting, India's External Affairs Minister, S. Jaishankar, urged countries in the Indian Ocean region to collectively tackle development challenges.
  • He cautioned them about the potential risks associated with concealed motives in economically unviable projects or unsustainable debt, an indirect reference to concerns about China's alleged "debt trap" diplomacy raised by Western nations.

Key Points from the Meeting

• External Affairs Minister S Jaishankar stated that it is important to maintain the Indian Ocean as a free, open and inclusive space based on the UN Convention on the Law of the Seas (UNCLOS), as the Constitution of the Seas.
• During the meeting, three bilateral agreements were signed, focusing on Indian assistance for housing projects, modernizing schools, and boosting milk production in Sri Lanka.
• Jaishankar also emphasized the importance of addressing the dangers of unsustainable debt, which is seen as a veiled reference to Chinese loans and projects in the region.
• India has been supporting Sri Lanka with lines of credit, debt payment moratoriums, and currency swap arrangements worth nearly $4 billion.

Sri Lanka's Debt Crisis and Diplomatic Efforts

• Sri Lanka is currently engaged in negotiations with the International Monetary Fund (IMF) for a $2.9 billion bailout to stave off a looming debt crisis. The release of the second tranche of $330 million is still pending.
• In addition to seeking assistance from the IMF, Sri Lanka has received support from India, including lines of credit, debt payment moratoriums, and currency swap arrangements amounting to nearly $4 billion.
• The country is also working to finalize a debt restructuring package with China, one of its significant creditors.

Debt Trap Concerns Surrounding China's BRI Initiative

• The Hambantota port in Sri Lanka, initially funded by a Chinese loan, was leased to Beijing in a 99-year debt-for-equity swap in 2017 due to Sri Lanka's inability to repay the debt.
• This move, amounting to a USD 1.2 billion debt swap, prompted international concerns over China's acquisition of strategic assets in distant countries through substantial loans and investments.
• It has contributed to global apprehensions regarding potential debt traps and regional hegemony associated with China's Belt and Road Initiative (BRI) infrastructure projects.

Sri Lanka’s Indian Ocean Rim Association (IORA) Leadership and Member Composition

• Sri Lanka assumed the role of Chair in the IORA forum, after assuming the chairmanship from Bangladesh.
• India has assumed the Vice Chair of IORA for the next two years.
• The IORA includes 23 member countries spanning South Asia, Southeast Asia, Australia, West Asia, and Africa, all situated around the Indian Ocean.
  • Additionally, there are 11 major powers that serve as dialogue partners, including China, the U.S., the U.K., Russia, Japan, Turkey, and the most recent entrant, Saudi Arabia.
• Sri Lanka's hosting a major conference, despite its economic challenges, is seen as a symbolic message of confidence and resilience in the face of the crisis.

What is the Indian Ocean Rim Association (IORA)?

• The IORA is an intergovernmental organization established in 1997, with its secretariat in Mauritius.
• It was initially known as the Indian Ocean Rim Association for Regional Cooperation (IOR-ARC).
• It operates as a tripartite forum that brings together representatives from Government, Business, and Academia to foster cooperation and interaction.
• It was conceptualized by India and South Africa and is founded upon the values of open regionalism to boost economic cooperation through trade facilitation, investment, and regional social development.

Priority Areas of IORA

Global Significance of the Indian Ocean

• The Indian Ocean, often referred to as the 'sea of stability,' ranks as the world's third-largest water body. This vast expanse plays a pivotal role in global trade, facilitating a remarkable 86% of worldwide trade activities.
• As a lifeline for international commerce and transportation, it carries one-third of the globe's bulk cargo traffic and two-thirds of its oil shipments.
• Furthermore, the Indian Ocean is a reservoir of immense wealth, containing abundant reserves of oil, natural gas, and valuable minerals.
• The region's fisheries contribute significantly, accounting for nearly 15% of the world's total catch.
• Moreover, the Indian Ocean region is responsible for transporting 75% of global maritime trade and meeting 50% of the world's daily oil consumption.

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FAQs

MCQ

Question: With reference to ‘Indian Ocean Rim Association for Regional Cooperation (IOR-ARC)’, consider the following statements: (UPSC 2015)

1. It was established very recently in response to incidents of piracy and accidents of oil spills.
2. It is an alliance meant for maritime security only.

Which of the statements given above is/ are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2