Sri Lanka shows how broken debt negotiations have become

For sri lanka’sgdpimfimf politicians September 27th was meant to be the light at the end of the tunnel. After more than a year of economic free fall—in which the former president fled protests, shrank by 9% and billions of dollars of arrears piled up—the was in town, ready to release $330m from a bail-out agreed in March. There was even talk that the country’s creditors would reach a deal to cut back its debts.Yet the fund’s officials flew back from Colombo without releasing a dollar. The problem was two-fold: Sri Lanka’s tiny tax take and China, which is the country’s biggest creditor. The cannot lend more unless Sri Lanka restructures its debts, since the country owes so much elsewhere that officials cannot otherwise be sure they will get their money back. Therefore by refusing to take a haircut on its debts, China is holding up Sri Lanka’s restructuring—as it is in other indebted countries, too.