The dollar-starved Sri Lankan government is buoyed that it has been receiving financial assistance from India and China, which are vying for the dominance of the South Asian part of the Indo-Pacific region.
In recent weeks, regular announcements that the country has received currency swaps and credit lines from both these countries indicate, on the one hand, a temporary equilibrium or truce in the Indo-China power rivalry over Sri Lanka and, on the other, a foreign policy course correction by the Gotabaya Rajapaksa government.

It was not for nothing that President Rajapaksa in his policy statement on Tuesday included a short paragraph with a geopolitical undertone. It said:  “We are a free sovereign nation. We have no need to intervene in conflicts among powerful nations.  While we respect our neighbours, we wish to pursue a policy of friendship with all States.”
Such a declaration of neutrality was also found in the President’s inauguration speech in November 2019. But in practice there had been an apparent tilt towards Beijing in the government’s policy, much to the chagrin of New Delhi until the pandemic and the fast depleting foreign currency reserves brought upon the realization that it would be in Sri Lanka’s interest to always maintain foreign policy neutrality vis-à-vis the regional power conflict between India and China.

The apparent course correction is bringing in some early returns, with India and China coming forward to help Sri Lanka to tide over what could be its worst economic crisis in its 74-year post-independence existence. However, to think that such assistance is not conditions-attached is political naivety.  Beijing’s assistance, especially in the afterglow of its foreign minister’s visit to Sri Lanka and similar help from New Delhi after Sri Lanka’s finance minister’s political angioplasty in the artery to the heart of India give the impression that the two Asian powers have decided to put up with Sri Lanka’s fresh equidistant policy assurance.

In the horn of Africa, strategically placed port nation of Djibouti has gone to the extreme with its equidistant foreign policy.  The country of one million people with a US$ 3billion GDP, which is equivalent to China’s GDP for two hours, has allowed China’s People’s Liberation Army to set up its first overseas military base—and that, too, just 10 kilometres away from a US military base. The country also houses French, German, British, Italian, Spanish Saudi Arabian military facilities. Russia and India are also seeking a military presence in the country that overlooks one of the world’s busiest sea lanes -- the Bab al Mandeb chokepoint that connects Red Sea with the Gulf of Aden.

Sri Lanka need not and, we hope, will not go to the extent of emulating Djibouti to swell its foreign reserves. The country’s equidistant big-power policy should remain demilitarised without ambiguity. This is a difficult task for the government, given the big powers’ ability to turn their demilitarised presence into militarised presence if the need arises. Greece, for instance, despite being a Nato member, is compelled to permit visits by China’s naval vessels to its ports developed with Chinese financial assistance.
Unlike the Cold War conflict which saw rival powers not only severing diplomatic ties but also economic ties, the present day subterranean cold war, which is also referred to as hybrid warfare, allows trade relations between hostile powers to flourish even as military hostilities escalate amid mutual suspicion, sabotage of rival nation’s geostrategic projects and influence buying with neighbours. 

A textbook case of this hybrid warfare is Sino-India relations.  While the COVID pandemic was raging across the world in mid-2020 and India was struggling to cope with it, Chinese troops crossed the Line of Actual Control and captured 1000 square kilometers in eastern Ladakh. About 20 Indian soldiers died in the unexpected attack. In the northern most Indian state of Sikkim, a tense situation arose following Chinese military incursions in January and May last year. While Beijng was testing India’s resolve to take on China militarily, the two countries are also focused on undermining each other’s geostrategic footholds in neighbouring nations. This was while trade between India and China reached a record $125 billion in 2021.
Perhaps with the exception of Pakistan, every South Asian nation has caught up in the Sino-India hybrid war. Take for instance, the case of the Maldives.

China’s foreign minister Wang Yi, ahead of his recent visit to Colombo, was in the Maldives, a country which under President Ibrahim Solih, has embraced an India-first policy to amend relations that remained strained during the presidency of pro-China Abdulla Yameen. But of late, President Solih has been seen adopting an equidistant foreign policy vis-à-vis China and India.  Last year, the capital, Male, also saw a series of public protests against India’s alleged military presence in the archipelago. The government said the protests were the handiwork of Yameen supporters, who deliberately misinterpreted the positioning of a few emergency-response Indian helicopters in a Maldivian atoll as unsolicited Indian military presence. However, in small countries like Sri Lanka, the Maldives and Nepal, it is strongly suspected that rival big powers play a behind-the-scenes role in instigating public protests and getting involved in regime change ops.  

Writing for the Indo-Pacific Defence Forum magazine, Sarosh Bana, executive editor of Business India, says India must continue to counter China’s attempts to buy influence with its neighbours. 
In addition to offering neighbours economic and military alternatives to China’s One-Belt-One-Road enticements, India should look to the Quad, he said, adding that together, the Quad nations – India, the United States, Japan and Australia -- could create an infrastructure fund that provides financially sustainable alternatives to China’s debt-trap projects for India’s neighbours. 

But China rejects allegations that it is setting debt traps for developing nations with predatory loans often extended to financially unsustainable infrastructure projects with the intention of taking over the facilities after defaults on repayments.
China also vehemently rejects recent reports that it is planning to take over the Entebbe airport after the Ugandan government had defaulted repayments of the loan it obtained from China’s Exim Bank.  But the Wall Street Journal which first published the story and Ugandan opposition figures say the terms of the takeover are in the fine print of the US$200 million agreement, which was not revealed to the public by the Ugandan government. 

Whether the allegations are credible or not, loan-obtaining small countries should be mindful that there is always a hidden price attached even in free aid, for there is no free lunch in international politics. Whether this price is worth paying for is a matter to be prudently assessed by policy makers and advisers. 
Sri Lanka should be prudent enough to balance its short-term and long-term national interest with the national interest of those big powers which seek to increase their strategic foothold in Sri Lanka by offering assistance Sri Lanka desperately needs.