23 February, 2024

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RW’s Plea In Paris & Predicament At Home

By Ameer Ali

Dr. Ameer Ali

At the Paris Conference of 22-23 June 2023, French President Emmanuel Macron called for “a new consensus for the planet … detailing a shared political view structuring the way toward a profound reform of international financial architecture and governance”. He also added that the conference was to put forward an agenda to “fight against inequalities and climate change”. How many times before has the world listened to such lofty ideals before they become vacuum in action? But Macron’s call for a new international financial architecture itself is a tacit admission that the current system is in crisis and needs change. When the entire world is in debt to an amount exceeding $300 trillion and is destined to increase further how on earth could one dream of a debt free planet and equitable development? Lending and borrowing are normal state of what economics defines as “ordinary business.” But it is the responsibility of the borrower to choose the cheapest lender and use what is borrowed wisely and profitably so that repayment could be made promptly while enhancing development. Sri Lanka failed on both counts, and President Ranil Wickremesinghe without insisting on a “separate process” had pleaded for a special deal for the issues of debt stressed middle-income countries before they become bankrupt as his. 

The urgency for this special deal arises because SL is scheduled to start soon negotiations for debt restructuring with its international creditors, which include the Paris Club (Club de Paris), India and China. It was on that undertaking that IMF agreed to extend $2.9 billion loan under EFF over four tranches. With the first tranche already released the SL economy had achieved a modicum of financial stability and economic comfort. But that stability and comfort could evaporate soon if the outcome of restructuring negotiations becomes too onerous. There are two aspects in particular that could endanger a favourable outcome. One is the conflicting geopolitical interests of the parties concerned, and the other is the insistence of foreign creditors to share the burden of restructuring with SL’s domestic creditors. Because, one of the key principles of the Club is burden sharing with “all creditors”. 

Of the three parties among SL’s foreign creditors, the 22-member Paris Club is an organization that reinforces US foreign policy objectives, and the debtor country that approaches the Club for debt-renegotiation must have in place an IMF approved economic stabilization program. The entire economic reform package that IMF demanded RW and his government to implement was a leaf taken straight from the US textbook on free market economy, and the primary objective of that package is to enable SL to honour its debt obligations once the expected benefits come to fruition, and then continue to be a faithful disciple of the system. What it really means is that that there is no economic independence for the debtor country at the end but continued dependence on the US and its allied patrons. This was the reason why RW did not ask for a “separate process” but for a special “deal”.

The other two, India and China, are geopolitical enemies rather than rivals in the Indian Ocean each vying to dominate if not control that Oceanic Highway, and Sri Lanka is caught between the two. China that had lent to SL over $7 billion understandably had been too benevolent and that benevolence, which is actually going back to the China-Ceylon Rice-Rubber Pact of 1952, paid off in winning a 99-year leasehold over SL’s Hambantota Harbour. Although China agreed to support SL’s debt restructuring effort, which allowed IMF to sign the EFF deal, China still remains un-committal to any outcome. RW is scheduled to visit India soon followed by one to China. US and the Paris Club members know that RW was the man who signed off that lease. US in particular would also be worried over Russia’s increasing interest in SL. All these factors would certainly play a role in the restructuring drama.      

More than the geo-political issues interfering with negotiations with foreign creditors, it is the burden-sharing element that IMF promotes would prove more costly to the local economy. SL’s total domestic debt is equivalent to about $36 billion. The largest portion of it is government debt accumulated through short-term treasury bills and long-term T-bonds. Unlike the sovereign bonds which are mostly held by international creditors, these two are default-free risk instruments and are held mostly by the local banks, insurance companies, and the five main Employment Provident Funds. The so-called hair-cut means a partial default which involves the choice of one or more of three options to holders of these assets: foregoing part of the principle lent; writing off a portion of interest income; and accepting a new set of instruments with less attractive terms. How deep or light the hair-cut at home would depend on how little or great the concessions SL would receive from foreign creditors. However, the partial default at home is bound to affect customer confidence on local banks and financial institutions. That would in turn affect the expected financial stability and economic recovery from IMF program. The government’s predicament on domestic debt is depicted by its vacillation and contradiction.  At first it agreed with the IMF to go through this painful exercise. Later it contradicted and said that it had not made any decision and that there would be no need for a hair-cut. Lately, according to the Acting Finance Minister, whatever restructuring that government undertakes would be to maintain debt sustainability, as pointed out by Kenji Okamura, IMF Deputy Managing Director.  

At the end of the day, there is one thing that is unavoidable. The post-restructure financial sector and economy would impose more burdens on the ordinary people in terms of high living cost and increased taxes and tariffs. Interest rate would remain fairly high and inflation would continue to persist because of economic slowdown abroad. What would be the consequence of that in terms of public discontent is anyone’s guess. In the final analysis, debt could only be settled by earning a surplus. To earn that surplus local economy needs a concrete plan to mobilize domestic resources and channel them into a carefully studied and identified set of productive ventures into which foreign investment should be directed. The market bird should be allowed to fly inside that plan-cage. Such a plan is unfortunately not there, because the man at the top, like his uncle JR, believes in unbridled free enterprise, which in combination with government corruption and absence of accountability, led to debt and bankruptcy in the first place. This is why a system change is imperative. 

*Dr. Ameer Ali, Murdoch Business School, Murdoch University, W. Australia

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Latest comments

  • 6
    1

    RW’s Plea In Paris & Predicament At Home

    The advice the president is geting is If you want to rebel, rebel from inside the system.That’s much more powerful than rebelling outside the system, Election is needed, The ballot is stronger than the bullet.

    • 6
      2

      ” The ballot is stronger than the bullet . ” Very old saying ! May be
      Ranil wants some French Tear Gas Canisters ! Look at Ranil Face ,
      Macron is laughing at the request !

    • 3
      0

      “The ballot is stronger than the bullet.”
      Not always. The outcome of the ballot has been nullified quite a few times, on occasion with a bullet.

  • 8
    5

    Going around the world by spending billions of dollars is a jolly opportunity for both the President RW and Foreign Minister (Gota’s agent) but it is not going to find solutions to the economic cirisis of the country unless the people of this country is prepared to corporate with the IMF theory. To solve the problem the people of the country have to change their attitude and it is the responsibility of the President and its team must be free from corruption and free from racism. The money which was spent on this country from the debt are still in the hands of Sri Lankans, particularly in the hands of politicians may be most of them are invested outside the country. So, the President should put forward what is his plan to clean the political corruption and racism to the people rather than spending time and money in protecting corruption and racism.

  • 11
    4

    Only a fool can hope for a corruption free Sri Lanka with the SLPP MPs supporting the government.

    In Customs Appeal CUS/APP/11/2023, Case BIA/Case/011/2023, a forfeiture order was issued by the Supervising Officer forfeiting Rs. 15 million worth of jewellery according to documents I have seen.

    Then on 27.02.2023 “the former minister of internal affairs Wajira Abeywardhana” files an appeal. Thereupon, Director General of Customs P.B.S.C. Nonis sets aside the forefeiture order on the gold jewellery based on an appeal committee’s recommendation.

    I wonder if money was paid or it was done out of fear of a former minister.

    Ranil is fooling us by promising a corruption free Sri Lanka. Finally the politicians will make the money while we suffer.

    Even the the media laws are to force us into silence to protect the corrupt. Look at Dappula de Livera PC, the former Attorney General of Sri Lanka. He began saying that “There was a Grand Conspiracy with regard to the 2019 April Attacks.” His silence has now been bought with a call to the TID.

    This is our future when even a former AG can be silenced so easily.

    We really need a system restart with elections and new leaders. Or we have no future.

    • 3
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      “We really need a system restart with elections and new leaders.”
      Will elections and new leaders offer us a meaningful system restart?

  • 7
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    The high-profile beggar Ranil’s proposal is good, but if the international community is to agree to his suggestion then the following basic conditions must be established so that the crooks will not rob money from the citizens in the future:

    1. All withdrawn bribery and corruption cases must be brought back before the court after rectifying the omissions.
    2. Legislation must be enacted in the Parliament so that no bribery and corruption case can ever be withdrawn under any circumstances after filing a case.
    3. Legislation must be enacted that all bribery and corruption-related funds deposited/invested overseas should be brought back to the country through the UN.
    4. If anyone is found guilty by a court of law in a civil case or a criminal case the civic rights of that person must be withdrawn for the life of that person.
    5. Any person found guilty of stealing money/land/property belonging to the government in any way or form in a civil or a criminal case irrespective of how old that case has been judged, must never be able to be nominated as a candidate in any election.

    • 0
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      Buddhis1: Your proposal @ 1: Good. One more addition: All those who made OMMISSIONS must also be prosecuted to find out HOW those “Ommissions” were made.

      For example, The Bribery Commissioners who FAILED to sign the plaint and the officers who FAILED to obtain the signatures as laid down in the “Act” must be prosecuted and made responsible and accountable.

  • 7
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    RW is a master at manipulating politics in SL: the gullible people get taken for a ride.
    The “system” needs radical change.
    The constitution needs a major correction by introduction of age limits and term limits to elected office to get rid of the crooks who have ruined the country.
    Wake up.

  • 5
    1

    All is the result of politicians forcing our precious country to become a first-world one. Weren’t all these short-term treasury bills, long-term T-bonds, and sovereign bonds Ranil’s brain-child? Economists like Howard Nicholas also gave all kinds of fancy-sounding advice which were impossible to implement, and which directly caused Gota-Ranil to gather all kinds of economists business-people around them and invest in all kinds of investitures, with the idea of soon creating first-world-type industries. Lankan money vanished of course, into the global system.

    Ranil is doing his best of course, but it is an impossibility to try and creep up to first-world standards for a small country like ours. Wrong time-setting. It was all very apparent before Gota took over, but he threw caution to the wind, and went along that same path expecting miracles. Ranil is only furthering it.

    Only thing left to do is to place the IMF money on the SME, and convince the IMF(who’s supposed to be helping depressed countries to recover), that the money certain Lankans are keeping tightly in overseas accounts can be used to pay back their loans. That, plus taxation of the 1%. That’s the debt restructuring Ranil should be speaking about, rather than trying to play the “God of the global $300-trillion debt restructuring” in Paris.

    • 4
      0

      RTF,
      Jeeves,
      “All is the result —————————————————–. Weren’t all these SHORT-TERM TREASURY BILLS, LONG-TERM T-BONDS, AND SOVEREIGN BONDS Ranils’ brain-child?”
      NAY!!?? It started sometime 2008/09 and went on all through MaRa’s term to 8th January 2015!!?? P B Jayasundara was Secretary Treasury and Minister of Finance and Executive president (all-in-One Achcharu) was Mahendra Percival!!! Add to the Fun, Cabaal Cabraal was the CBSL Governor, the miscreant adding flavour to the whole COMEDY OF FOLLIES!!!??? Greek bond Scam, INVESTED IN A FAILING Market and Lost ‘Lock, Stock and Barrell’ (a few examples – many more) the Fuel hedging deals with Chairman CPC Asantha De Mel and finally paying default payment in Court of Arbitration, Singapore to German DEUTSCHE bank!!!???
      No space to talk about 20% contract Price on Lakvijaya!, 2, and 3 (Project cost original estimate 585 Million USD signed during CBK went up to 1086 Million USD) and many more!!!???
      RW, LOUNGING around as OPPOSITION LEADER, during that 10 Years!!??

      RW, (2015) handed over HPP and further T Bonds to repay Loans taken 2005-15!!!?
      Can Sri Lankans expect the 20% to ‘Save their Souls’, starving as redeeming measure, so MISDEEDS COMMITTED, could be COMPASSIONATELY FORGOTTEN!!!???
      KAWTHA HORA!!!??? HORA! HORA!

      • 0
        0

        Mahila,

        Shocking! Truly , shocking! But then, Ranil shouldn’t introduced even more investment deals to pay for the Rajapaksa comedy of follies. From alternate networks he went onto the mainstream ones trying to core the malady. The country voted him in 2015 thinking he had the magic wand. Got even worse.

        So in 2015, the country voted in Gota to cure the Ranil comedy of errors. Country thought he could clinch both Eastern and Western deals; knew the alternate and mainstream magic numbers. They looked in hope towards Gota’s Vistas of Prosperity. Cycle of doom has started all over again at the lowest level possible. All is the result of trying to force capitalism on a country that direly needs a Socialist structure.

        • 0
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          correction: …..cure the malady.

    • 2
      1

      Ramona the financial whiz-kid
      “All is the result of politicians forcing our precious country to become a first-world one. Weren’t all these short-term treasury bills, long-term T-bonds, and sovereign bonds Ranil’s brain-child?”
      Simply because you never heard of them doesn’t mean they didn’t exist. I have bought T bills even in the 90’s, when the yields were in the 20’s.

      • 2
        0

        Old codger,

        Of course, of course……but that was your personal prerogative to buy them. In Ranil’s case, he took the provident funds and things of the hard-work of the workers, and forced them onto his financial plans.

        • 2
          1

          Ramona
          You claimed Ranil introduced treasury bills. He didn’t.
          What part of that don’t you understand?

          • 2
            2

            He sure indulged in it like mad..much more than the original introducers.

            • 0
              0

              Now he’s taking the poor people’s Samurdhi benefits to balance his Capitalistic plans, I hear.

  • 3
    0

    It is clever for author to analyze debt restructure and IMF stand on it. IMF and Paris Club is aware that Sri Lanka will never pay there debt and turn in to at least medium developed country. Behind the scene there aim is keep Sri lanka in SUSTAINABLE debt ridden underdeveloped country due to geopolitical importance of the country.
    Sri lanka was put into this lame situation by the leaders of this country for at least for last 20 years. Responsibility lies on Rajapkase family and Ranil Wickramsinghe. How can you imagine Ranil being leader of the opposition for 20 years against Rajapakse regime and now became their choose savior and stooge of the family in the name of uplifting the country.
    In order to get rid of this it is paramount to get rid of Rajapakse family and Ranil Wickramasinghe and elect a leader who does not have to satisfy certain social class, certain families or save perpetrators responsible for looting the country.
    As alternative between SJB and Jathika Jana Balwegaya it is increasingly getting obvious that Jathika Jana Balwegaya is the only credible major party who will at least genuinely attempt to get us out of this mess during our life time.
    It is obvious to the destitute majority and part of the middle class in Sri Lanka by now.

    • 3
      0

      Jack

      So correct! Well said!

  • 1
    1

    Moda India’s Demolu Pariah Dr. Jaishankar recently said those did not go to Langkang for some time should go back and see how much he had done in Langkang. Is that a pleasing statement to Langkang political leaders who win their election with the word “I did it”. Further it appears that not China’s $10B but even India’s loans giving problem Langkang to get restructuring plan, unless IMF wants to give loan Langkang wants without imposing the annoying conditions on our Lord of the Langkang, the Evil Emperor. Recently Airports & Aviation Minister said he had delivered the promise he made Tamils, that is the Palali Airport. From Rajiv Gandhi’s time India has struggled to rebuild that war damaged airport. Appe Aanduwa which has been number one out doing anybody in deceiving and cunning has changed Palai as a Rapist Military Port and changed the KachaTivu (which they received from India -Tamil Nadu court case is lost to retake the Island) as a Chinese Naval Port, to keep India out of Langkang’s local business. India has been trying to rebuild up to Talaimannar the British build, another northern icon, Pamban Bridge which blown out in a cyclone in 1964. The Old Palali Airport was demolished by Lankan Military to stop the flights that were taking off to Chennai and Ratmalana.

  • 1
    1

    Nobody knows in which election the airport minister promised to build the Palali Airport back to Tamils. Deva had said he asked India to rebuild that port and India did for him. But only India wanted the airport built with a long runway so Airbus a320 can land. In any case, generally, Tamils do not like any of these damn ideas like this because those always meticulously planned Sinhala Colonization schemes right in the Middle of Tamils villages, like what is happening in Veddukunari. Now the minister is claiming his promise to Tamils is fulfilled. It could be a sincere-honest plan to get for him a share from the Philanthropist Georgieva donation from the IMF. But the comedy part is nobody knows in which statement the minister made this promise to Tamils, and after making that promise, if he had won any elections in the south for him to become a minister. Because of the ailments created by the minister’s statement about Palali Airport, Evil, who in the Paris Meeting said it was India who forcefully stuck Langkang with a loan of $4B which Lanka didn’t want, and that time had closed the door for foreign loans. Evil’s talk(smoke) did not come out without any fire. These days the whole international community wants Langkang on their side, a karma infested by Kadirgamar’s ticks, who slept with 32 dogs.

  • 1
    1

    It is true that there was fire because of the Indian Demolu FAM’s repeated failures in Langkang, and to twist Langkang from China side to his side, he forced the loan to Langkang. Now the Philanthropist Georgieva insists on a loan restructuring plan, though no plans have so far forced on Langkang to release any part of the IMF donation. The comedy is The Injustice Minister Deal Dasa who is in India for more loans. It is at that time Evil dropped the bomb that India had forced them with and unwanted loans. To save his mission, what Deal Dasa did was he says that it is India’s loan that has saved Langkang’s financial back from being broken, so he begs for more loans from India. Aliya Saber in China, with his own begging bowl. (Remember a few years ago Aliya’s elder brother, Hakeem Nana said that it was Tamils who show their beggar wounds to beg?) We don’t know how our philanthropist’s heart is going to be hurt while Evil Emperor was trying to please her by hitting India hard, but Deal and Aliya begging back again in the creditors countries who yet to give any restructuring agreement for the IMF donation to be released with taking a future accusation of that it was IMF who dumped the last straw that broke the back of the Evil’s camel Langkang.

  • 1
    1

    RW is living his dream, hobnobbing with Royalty, World Leaders, Economists and Financiers – all as Head of State of a banana republic created by his kith and kin in previous decades, and in more recent times those very near and dear to him, and himself. The man has the hide of a Rhinoceros.

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