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Sri Lanka’s Comeback: The Indo-Pacific Strategy at Work

Asia India

Assistant Secretary Donald Lu recently made headlines in South Asia when he spoke of how Sri Lanka is an example of a country that has recovered from an economic crisis with the help of friends, like the United States, Japan, and India.

Marking two years of President Biden’s Indo-Pacific Strategy, Assistant Secretary of State for Central and South Asian Affairs Donald Lu recently made headlines in the Indian subcontinent when he spoke of the miraculous “comeback” of Sri Lanka, from a debt-ridden country in crisis to an example of how unwavering support from partners like India and the United States ensured Sri Lanka’s fast, albeit incomplete, recovery.

As a founding member of the non-aligned movement, Sri Lanka strives for strategic neutrality by hedging between India, the United States, and China, albeit with increased difficulty given rising geopolitical tensions between the latter two powers. Given contemporary investments by the Chinese in beefing up financial ties to countries in the Indo-Pacific, recent statements by Lu, as well as Deputy Assistant Secretary Afreen Akhter and Deputy Assistant Secretary Camille Dawson, emphasize the importance the Biden Administration is placing on positioning the United States as an “investment partner,” and not merely an “aid provider.”

Lu underscored the importance of Sri Lanka’s story at an event hosted by the United States Institute of Peace in Washington, DC. Lu said, How did they [Sri Lanka] do that [recover]? ... The answer I would offer is that they did it with a little help from friends. And this Indo-Pacific Strategy [of 2022], is based on the premise that the United States and like-minded partners are going to try to offer a better proposition.”

Sri Lanka’s 2019-onwards economic crisis was caused by Sri Lanka’s reliance on exports, nearly empty foreign reserves, and defaults on large debt payments. This was compounded by the Covid-19 pandemic. As Lu explained, at the peak of the crisis, Sri Lanka needed desperate humanitarian assistance. India came forward with concessional loans, ensuring Sri Lanka could buy and import foods and other necessities needed to restore a semblance of peace and security. According to Lu, “the creditor community led by Japan, France and India, negotiated for months to find a formula to allow Sri Lanka to restructure its debt … That opened IMF funding and changes in the economy you witness today.” In response to Lu’s comments, the president of Sri Lanka, Ranil Wickremesinghe, posted on X (formerly Twitter) “Thank you, Donald Lu of @State_SCA, for acknowledging our strides from crisis to stability.

In December 2023, the International Monetary Fund approved a $2.9 billion bailout package for Sri Lanka to recover from its debt, of which, India has committed to helping and expressed strong support for. In this spirit, the Asian Development Bank also approved a $200 million concessional loan. Others within the international community have branched out for support.

In September 2022, USAID assisted Sri Lanka with $20 Million in humanitarian assistance, to provide meals for an estimated 1.1 million children for 60 days. In 2022, the United States also provided 9,300 metric tons of fertilizer to paddy farmers and announced nearly $40 million in agricultural aid. Beyond aid, the US International Development Finance Cooperation has loaned $553 million to build a deep-water shipping container terminal in Sri Lanka’s Port of Colombo, which has been operating near capacity since 2021. In addition to the United States, other Quad members (India, Australia, Japan) have assisted Sri Lanka in their economy. The Japan International Cooperation Agency has funded Sri Lanka’s $2.2 billion light rail transit project.

Lu also remarked that, “We need to ensure Sri Lanka’s sovereignty,” citing the help of the US Army in providing patrol boats to the Sri Lankan Military with further plans to deliver a “King Air aircraft that will help Sri Lanka ... patrol its coastal waters.”

Consistent with this sentiment of securing a “Free and Open Indo-Pacific,” the United States has actively engaged Sri Lanka in defense and maritime cooperation. Most recently, from February 23rd to 24th (2024) the US Deputy Secretary of State for Management and Resources Richard Verma visited Sri Lanka, meeting with President Ranil Wickremesinghe and Foreign Minister Ali Sabry. The most significant announcement at this meeting was that the US Department of State has requested Congress to oblige $4 million in foreign military financing to transfer a fourth medium endurance cutter to Sri Lanka through the Excess Defense Articles Program to improve Sri Lanka’s ability to secure its exclusive economic zone and protect sea lanes. The largest ship in the Sri Lankan fleet is a high-endurance cutter -- 115 meters long with the capacity to carry 167 crew members – a gift from the United States in 2018. Sri Lanka has also contributed its vessels to help with US-led Operation Prosperity Guardian, aiming to combat Houthi rebels in the Red Sea. Beyond US engagement in maritime cooperation, international institutions such as the United Nations Office on Drugs and Crime have trained Sri Lanka’s navy and coast guard on maritime domain awareness.

The United States Indo-Pacific Strategy maintains that the United States must not seek to unilaterally change the status quo of Chinese activity and buildup, but rather to provide a better alternative, or as Lu says, “a better proposition.” In the case of Sri Lanka, the United States, as well as partners like Japan and India have stepped in to help and to offer that better proposition. Sri Lanka’s ongoing recovery will need the assistance of friends for some time to come. This is an essential element of President Biden’s Asia policy.

Quad members currently work not only under the umbrella of the Quad but also bilaterally with Sri Lanka. The Quad has developed into a vehicle of investment for smaller South Asian states, which is a vital and much-needed mechanism. However, if the Quad is to achieve more, it must bring smaller states into the equation and deliver concrete results while ensuring that smaller states maintain their sovereignty. Lu’s remarks on providing a “better proposition,” in a veiled reference to China, is akin to saying that the United States, Europe, and India are trying to work eye to eye with smaller states, whereas the Chinese Belt and Road Initiative take away sovereignty from the states it invests in through practices like debt trap diplomacy.

At the recent Quad Think Tank Forum in New Delhi, Indian External Affairs Minister S. Jaishankar explained that the Quad is meant to sustain democracies through developmental initiatives in a challenging security environment – that is certainly the direction the Quad is adopting, and Sri Lanka’s example may just sustain efforts to push the Quad to do more for the region and to build better bridges with smaller Asian states, beyond the stereotype of security preparedness and coordination that the Quad has become known for.

Lei Nishiuwatoko is a Spring 2024 Young Professional at the East-West Center in Washington. She recently graduated from Northeastern University and obtained a B.A. in International Affairs. Lei has interned at the NATO Defense College and L.E.K. Consulting and studied at the University of Oxford.

Aryan D’Rozario is a Programs Coordinator at the East-West Center in Washington, DC. He received his Master's of Science degree from the University of Oxford, where he read Modern South Asian Studies.