By Ajith Rajapaksa –

When a bankrupt country receives good news, it raises great expectations in the hearts of its people. Last week, the government gave extensive publicity to this so-called good news. Consequently, various opposition groups were very concerned about this trend. Some were worried if this was genuinely good news, while others were anxious to learn more details about it. Nevertheless, at first glance, being able to restructure bilateral debts and officially come out of bankruptcy should be good news for the people of a bankrupt country. This is particularly true for those who have suffered in long queues for oil and gas, and for the business community that had to stop operations due to the inability to open letters of credit. However, it seemed that this news was not very favorable for political groups hoping to seize state power in the near future.

This was evident from the anti-propaganda campaign launched on social media against this good news. Although many opposition groups raised various issues for political gain, these appeared to be efforts motivated by political intentions. The negative arguments presented by these people indicated that they were not truly interested in seeing Sri Lanka emerge from bankruptcy or that they simply opposed the current government. They argued that it is the rating agencies that determine whether Sri Lanka is bankrupt or not, and hence, Sri Lanka has not yet emerged from bankruptcy. Another popular argument was how the country could be free from bankruptcy without paying back the debts. While some presented such arguments for political gain, it appeared that many people did not fully understand these issues. Emerging from bankruptcy does not mean paying off all debts and being completely debt-free. Rather, it means obtaining an international certification that assesses the country’s future ability to repay its debts. Without this certification, a bankrupt country cannot move forward, cannot transact in international markets, and cannot reach agreements with creditors. Therefore, this process is a very important and necessary one. International rating agencies upgrade the rating of a bankrupt country as an interim result of this debt restructuring process. Swift restructuring of sovereign bonds is also crucial in this matter. Being able to restructure bilateral debts is a major step in this direction. Therefore, if we think without bias, belittling this process is wrong.

The president compared this process to the perilous journey in the story of Hunuwataye Kathawa to rescue Grusha’s child. Recently, the leader of the National People’s Power mentioned in a TV discussion that the remaining steps of this process must be completed and the child must be rescued. This means implementing the agreed-upon plan with the International Monetary Fund and restructuring all debts, including bilateral and bond debts. Any party coming into power will have to implement this plan. Therefore, the success of this process will benefit anyone who comes into power in the future.

Another misconception widely spread is that the country went bankrupt due to theft and corruption. Some political groups have strongly propagated this idea to gain political advantage. In reality, the country went bankrupt because we fell into a large debt trap and faced several disasters. Recently, Professor Jayati Ghosh, an expert in development economics who visited the country, stated that it is wrong to attribute Sri Lanka’s bankruptcy solely to theft, corruption, and mismanagement. She explained that this is not unique to Sri Lanka; around 72 countries worldwide are facing similar crises due to inherent problems in the capitalist economic system. Investments flow into some countries for various reasons, leading to an increase in imports and a decline in exports, making exports less competitive in the international market. As a result, a trade deficit occurs, which gradually increases over time. Poor political decisions, policy choices, or other disasters at certain points lead to the cessation of foreign investments and the withdrawal of foreign money from the country, causing a financial crisis. In Sri Lanka’s case, it was the large high-interest loans taken by the Rajapaksa government for unnecessary projects, the Easter attacks that occurred while we were trapped in the debt trap, the emptying of the treasury by Gotabaya Rajapaksa after providing promised large tax concessions, the collapse in agriculture due to the cessation of importing chemical fertilizers, and the COVID-19 pandemic that followed. These erroneous policies and disasters reduced remittances and completely halted the dollar income from the tourism industry. The garment industry and other local industries also faced significant collapse.

In reality, instead of criticizing the debt restructuring process and the International Monetary Fund’s plan for narrow political gains, it is essential to analyze the country’s development deeply. The International Monetary Fund plays a significant role in maintaining global capitalism. The governing power of this institution is controlled by the USA and Europe. Although they help rebuild bankrupt countries, they clearly represent the interests and demands of the creditors. Therefore, the targets given for debt restructuring are very difficult to achieve, making debt sustainability very challenging. As a result, there is a risk of facing another debt crisis. For example, the directive to maintain a ratio of 95% between the debt amount and the country’s gross domestic product is very problematic and unrealistic.

In the past decade, Sri Lanka repeatedly borrowed to pay off the installments and interest on previous loans. Therefore, the creditors knew very well that we were trapped in a debt trap. They were well aware of the risk of lending to a country that was highly likely to go bankrupt. Hence, they demanded high returns for their loans to minimize their risk. It is unfair, greedy, and unjust to now demand full repayment of these loans, which were given for high returns. Additionally, the cuts implemented as part of the International Monetary Fund’s plan reduce the money circulating within the country, potentially leading to further economic contraction. If this happens, achieving the debt repayment targets could be difficult. Therefore, it is essential to formulate our own plan with a proper analysis beyond the International Monetary Fund’s plan. Professor Jayati Ghosh emphasizes this need. She also stated that it is impossible to sustain the capitalist economic system without a debt cancellation process. It is an ongoing process in the market economy, and annually, large companies around the world cancel debts in this manner. Germany, which went bankrupt in 1953, achieved significant development due to the cancellation of its large debt burden. This happened clearly due to geopolitical needs. Small states like Sri Lanka, without the power to make such deals, find it difficult to obtain such concessions.

To make these unjust conditions more favorable, an attempt has been started to formulate a process under the leadership of the United Nations. If this process is successful, as soon as a country goes bankrupt, the interest on its debt will stop accumulating immediately, preventing the debt amount from increasing. This creates an incentive for creditors to quickly engage in debt restructuring. Moreover, all creditors, including private creditors, will be compelled to come to the same negotiation table. She also suggests abolishing the current quota system of the International Monetary Fund and distributing its funds to countries in need of loans based on their gross domestic product ratios under the “Special Drawing Rights” scheme. The current quota system allocates funds to countries that do not need loans, making it ineffective. She emphasizes that all heavily indebted countries in the third world must unite and raise their voices to successfully implement these reforms. Furthermore, she stresses the need to obtain parliamentary approval before obtaining international bonds and to hold politicians accountable for these matters.