India and China compete over Indian Ocean debt-relief diplomacy

India and China compete over Indian Ocean debt-relief diplomacy

Sri Lanka and Maldives seek bailouts as Asian giants dangle dollars to gain edge

COLOMBO — Sri Lanka’s navy scours the island nation’s northern waters in search of Indian smugglers hauling boatloads of turmeric, a staple spice used widely in South Asian cooking. The ultranationalist government of President Gotabaya Rajapaksa this year added the yellow seasoning to a list of banned imports in a desperate bid to prevent an outflow of precious U.S. dollars.

Meanwhile, the Maldives, to Sri Lanka’s southwest, has imposed limits on the use of dollars by locals to settle their monthly debit and credit card bills. The Bank of Maldives, the largest commercial bank in the region’s smallest country, in September set a monthly limit of $250 for each card, widely used by small businesses in the archipelago to pay for imports.

The commodity and currency crackdowns by the two Indian Ocean countries have a common thread spotlighting their shared need to shore up fast depleting foreign — overwhelmingly dollar — reserves. The cash crunch is forcing both governments to seek for financial lifelines to settle mounting international debts.

And that vulnerability is providing a fresh opportunity for China and India to deepen their influence in the nations as they engage in a growing contest to gain the upper hand in the strategic Indian Ocean. Though part of ongoing broader economic, financial and geopolitical ambitions on display by the world’s two most populous countries, it marks a new stage of engagement in a region where they have already been competing in infrastructure financing for years.