By Darini Rajasingham-Senanayake*
COLOMBO | 30 November 2024 (IDN) — At Annual Meetings in Washington in October, International Monetary Fund head Kristalina Georgieva claimed Sri Lanka as a debt restructuring ‘success’ story.[i] Left unsaid was that Sri Lanka’s external debt had ballooned from $26 billion to a purported whopping $100 billion during two years of “reforms’ under the IMF’s Extended Fund Facility (EFF)![ii]
A month later, the island’s newly elected Cabinet, led by President Anura Kumara Dissanayaka, signed off on an official “bond exchange” with International Sovereign bondholders (ISB). The President had made a U-turn on election pledges to renegotiate agreements with the IMF and ISB that were widely perceived as detrimental to the country.
Euphemistically called ‘the invitation’ printed on paper with a gold embossed letterhead, the Ministry of Finance, Planning and National Development announced the launch of the “bond exchange’ of “outstanding international sovereign bonds totalling approximately USD 12.55 billion as of 25 November 2024”. The invitation was clearly designed to bailout predatory bondholders, private creditors, and hedge funds, the largest being BlackRock, in lieu of odious debt cancellation and significant haircuts sought by citizens, trade unions and 182 international economists calling for Debt Justice for Sri Lanka. [iii]
In a nutshell, the bond exchange would ensure that the county would soon exit the default stage in 2022 to borrow once again from the same predatory ISBs, ironically, and pay them back under terms and conditions to be specified later. The latter includes opaque macro-economy linked (MLB) vanilla, blue, green, and strawberry bonds that are flavoured and sweetened to mask the odious debt restructuring operation (DSA) that increasingly looks like a corruption racket. MLBs are designed to deepen the geostrategic island’s Eurobond debt trap and extend the IMF’s bailout business.
Other debts to be paid?
Why did President Dissanayaka do a volte-face on his promise to renegotiate IMF and ISB agreements, fight against corruption, and restore Sri Lanka’s economic sovereignty by signing agreements made by the previous regime accused of corruption without vetting by the Cabinet? After all, ISB and IMF mission and mandate creep into Domestic Debt Restructuring (DDR), had seen the appropriation of local pension funds to pay off bondholders while debt numbers had exploded.
Had the President betrayed the people’s mandate and hopes vested in him—less than a month after his party swept to power, and if so, why? Were there other debts to be paid to external actors who enabled his National People Power (NPP) party’s dizzying ascent to power? From just three seats at the last general election in 2019, the NPP had now secured a record 159 seats!
The NPP capitalized on the US National Endowment for Democracy (NED) funded Aragalaya protest movement and social media campaign to sweep to power. Thus, the ISB ‘bond exchange’ agreements were hastily signed without review by the newly appointed Cabinet despite the party’s massive two-thirds Parliamentary majority, which had been received just two weeks earlier in a General Election.
The NPP came to power on a promise to restore economic sovereignty and fight corruption. The President had earlier reversed the privatization of the Ceylon Electricity Board and Sri Lankan Airlines that the IMF had long promoted.
Fragility and resilience: Dual narratives or economic gas lighting?
While the visiting IMF team leader Peter Breuer praised Sri Lanka’s “resilience” and economic turnaround last week in Colombo, President Dissanayaka claimed that the county’s economy was too ‘fragile’ to risk displeasing the bondholders and IMF and hence the agreement must be signed immediately.
“The reality in front of us now is that we have no time to check whether these agreements are beneficial or harmful to us, as these are the results of nearly two years of discussions,” he said. “We cannot go forward if we continue through another two years to study and renegotiate the previous agreement.” Meanwhile, IMF Senior Mission Chief Peter Breuer emphasized the importance of policy continuity, stating that Sri Lankan “authorities have committed to staying within the guardrails of the programme.”
The bond exchange agreements had been negotiated with ad hoc groups of ISBs and the Official Creditor Committee (OCC) of the colonial Club de Paris and London Club over the past two years by the previous Ranil Rajapakse government with a gravy train of international advisors and Economic Hitmen including Lazard and Clifford Chance. These had known conflicts of interest, given links to ISBs!
Economic hit men’, wrote John Perkins in his best-selling book Confessions of an Economic Hit Man’, are highly paid professionals who cheat countries around the globe out of trillions of dollars” in the name of Development assistance.[iv]
Hence too, the rush to ‘launch the bond exchange’ sans review by the newly appointed Cabinet pledged to fight corruption, despite the agreement being negotiated by the previous Ranil Rajapakse regime, accused of corruption and successive bond scams at the Central Bank. After all, a responsible new government would normally review such agreements—especially those with long-term implications for the country’s economic security.
Of course, US Ambassador Julie Chung had done her fair share of confusing matters by spreading fear psychosis in October as the tourist season began. Chung warned that terror attacks were due in the debt-trapped county, prompting fears that tourists would stay away. This would damage the tourism-dependent economy and render the ‘resilient’ island’s economy ‘fragile’.
IMF’s timing: Economic hitmen, gaslighting the public
The explosion of Sri Lanka’s external debt numbers from $ 26 to $100 billion in just two years was mainly due to ISB-IMF mission and mandate creep into local rupee-denominated domestic debt—enabling the conflation and inflation of debt numbers. Of course, exchange rate manipulation also helped.
Mission creep into domestic rupee-denominated debt, which is an internal matter for sovereign states under the EFF, also enabled plunder of the Employment Provident (EPF) retirement funds of working people to pay off predatory bondholders as part of the new “bond exchange” operation, including through opaque Macro-economy Linked Bonds (MLB) and scams.
Despite IMF claims to fight corruption, the new NPP government was given little time to review the bond exchange agreements drafted by the previous regime.
Indeed, the IMF team led by Peter Breuer arrived in Colombo from Washington even before the new Cabinet of Ministers was sworn on November 18! The visit seemed perfectly timed to bamboozle the new Cabinet of Ministers into signing the ISB Bond Exchange agreement negotiated by a previous Ranil Rajapakse regime accused of high financial crimes and bond scams, without review. Not surprisingly the new bond exchange agreement as several economists have pointed out would extend and arguably deepen the debt—setting up the country for a new default.
This raises the question: Was there bipartisan collusion between the former and newly elected governments for a new ISB bond exchange scam that was brokered by the IMF ?
It is increasingly apparent that the IMF’s Debt Restructuring Agreements (DSA), rather than reducing debt traps, seem designed to deepen and extend them. Indeed, the EFF is aptly named!
This may partially explain why Sri Lanka is on its 17th IMF program and Argentina on its 23rd at this time. Moreover, there are 55 other countries across Africa, Asia and South America in post-COVID-19 debt traps and the IMF’s neocolonial bailout business at this time. DSAs enable and precipitate successive defaults.
Regardless of whether they charge predatory interest, the IMF Principle of ‘compatibility of treatment’ of creditors has been challenged by multi-lateral and bi-lateral creditors. So, too, the practice of “lending into arrears” appears designed to enable a victim of loan sharks to once again borrow from the same loan sharks and bondholders whose identities are undisclosed—to pay them back.
Does this fact not behove the lender of last resort to do a governance diagnostic and corruption review of its own and ISB practices and the related gravy train of accounting and legal firms which?
Double standards on corruption: Bad faith and moral hazard
The Washington twins claim to fight corruption and seek good governance; However, the practice of ‘lending into arrears’ has enabled some predatory bondholders whose identities are secret to enter into bad faith negotiations via opaque Macro-economy Linked Bonds (MLB), designed by Economic Hitmen who represent them. These have turned debt restructuring into rocket science with jargon-filled numbers games and Lawfare. This includes the Hamilton Reserve Bank that filed a court case in New York to trigger Sri Lanka’s first-ever Sovereign Default in 2022.
While the IMF discusses the need for governments to engage in ‘good faith’ negotiations with creditors, there appears to be no concomitant requirement that predatory creditors also negotiate in good faith.
Many predatory hedge funds, such as BlackRock, which partners with Adani and is a good example, have assets that exceed the wealth of many debt-trapped nations. Yet, as part of the new bond exchange agreements, the EPF retirement funds of working citizens of Sri Lanka would be plundered to pay unnamed bondholders, which raises the question of Moral Hazard.
As pointed out in an open letter signed by 182 international economists calling for debt justice for Sri Lanka, lenders who made enormous profits charging predatory interest rates citing risk should not be enabled to make more enormous profits when risk matures.[v] This is particularly true of countries subject to incessant exogenous economic shocks—such as mysterious ISIS terror attacks, COVID-19 lockdowns and other forms of hybrid maritime and climate warfare.
It is increasingly clear that the IMF would benefit from a corruption review of ISBs and their practices, which constitute the ‘supply-side’ of Odious debt in Global South countries—if it is serious about fighting corruption.
After all, there are 55 countries in or near post-COVID-19 default, which means that corruption is not exclusively a Sri Lankan or global south problem! As they say, the fish rots from the head!
A ‘bankrupt’ Middle Income Country: More economic gas lighting
Instead of debt cancellation and significant haircuts sought by national experts and citizens campaigning for debt justice, the new ‘Bond Exchange Invitation’ foisted on the people of Sri Lanka appears to be an invitation to another default. Simultaneously, the current MLBs are designed to enable bigger profit for bondholders.
The repackaging of odious debt as MLBs was based on the Washington Twins’ claim that since Sri Lanka is a Middle Income Country (MIC), it was NOT eligible for significant debt cancellation and substantial haircuts available to Less Developed Countries (LCS), which were sought by academics and activists. Rather, it must pay the predatory bondholder’s whose names remain secret handsomely over the next decade.
Remarkably, the Washington twins claim that the purportedly ‘bankrupt’ country is actually an MIC, and hence must pay off bond holders—either by plundering banks and risking an economic meltdown, or by plundering the Employees Provident Fund!
This is, of course, a false choice, riven with moral hazard, bad faith and logical contradiction. Such false choice arguments often distract from the economic gas lighting, Lawfare, pumping and dumping of Global South countries subject to staged defaults and the waiting arms of the lender of last resort.
Finally, since Sri Lanka, listed as a Middle Income Country, is purportedly ‘bankrupt’ simply because it lacks exorbitantly privileged US dollars, the new government may need to focus on de-dollarizing and pivoting to BRICS—in the interest of Debt Justice for citizens.
As they say: ‘the devil is in the detail”. (To be continued)
*Dr Darini Rajasingham-Senanayake is a social and medical anthropologist with expertise in international development and political-economic analysis. She was a member of the International Steering Group of the North-South Institute project: “Southern Perspectives on Reform of the International Aid Architecture”. [IDN-InDepthNews]
Photo: High-Level IMF Team Meets Sri Lankan Government to Discuss Economic Reforms. Source: President Media Division (PMD).
[i] https://www.imf.org/en/News/Articles/2024/10/25/sp102524-annual-meetings-plenary
[ii] https://www.lankaweb.com/news/items/2024/10/25/sri-lanka-met-with-bondholders-aims-to-exit-default-as-soon-as-possible-central-bank-governor-says/
[iii] https://debtjustice.org.uk/press-release/ghosh-piketty-and-varoufakis-among-182-experts-calling-for-sri-lanka-debt-cancellation
[iv] https://www.google.com/search?client=firefox-b-d&sca_esv=6fd31b653be79d6e&sxsrf=ADLYWIIHSBrYN5V7vvcrtSqC3peL-LbZpg:1732851191392&q=confessions+of+an+economic+hitman&udm=7&fbs=AEQNm0Aa4sjWe7Rqy32pFwRj0UkWd8nbOJfsBGGB5IQQO6L3J9LTkYkTMsFy3KExiuH6ofO9k4fklbg-dHv8qWa0fUb_E_KneDn2PajwjlidgD0oczEQsqgRXrkWlQ-aXxjUDbW01GHxVHmBRfT57dxt0_jaXxVXpIGVrim9Yhhx3lQkOA7J90I&sa=X&ved=2ahUKEwiNqtjdzYCKAxXMka8BHUmBB1AQtKgLegQIFBAB&biw=1198&bih=607&dpr=1.5#fpstate=ive&vld=cid:c21300e3,vid:btF6nKHo2i0,st:0
[v] https://debtjustice.org.uk/press-release/ghosh-piketty-and-varoufakis-among-182-experts-calling-for-sri-lanka-debt-cancellation
