By Darini Rajasingham-Senanayake*
COLOMBO | 26 May 2024 (IDN) — Calls for divestment from BlackRock and other International Sovereign Bonds (ISB), have echoed across Columbia, Yale and many non-Ivy League universities in the United States recently. BlackRock is heavily invested in weapons companies fueling a genocidal war in Palestine. However, the International Monetary Fund’s (IMF), debt restructuring operations in the Global South appear designed to ensure BlackRock’s enhanced profitability.
BlackRock, the world’s biggest investment fund manager and Sri Lanka’s largest private creditor, has over $10 trillion in investments around the world. An estimated 55 countries are in ISB Eurobond debt traps, in or near Default at this time.
From Argentina to Zambia, Global South countries have been subject to IMF ‘debt sustainability treatment’ after their currencies depreciated against the “exorbitantly privileged US dollar’ instantly impoverishing citizens. This, despite US government debt being $34 trillion and counting, with questions raised about America’s debt sustainability also given the Rise of the BRICS and ongoing de-dollarization in what has been termed ‘the Asian 21st Century. Estimates are that one billion is added every100 days to the US government debt.
BlackRock got huge US government Covid-19 ‘bailout funds’ under the CARES Act to asset strip the world during the World Health Organization’s panicdemic lockdowns and global economic meltdown in 2020-21.
Hit by a series of exogenous economic shocks to “Make the Economy Scream”, including mysterious Islamic State (ISIS), claimed attacks on tourist hotels in 2019, and burning ships spilling oil, toxic waste, and plastic pellets along the coast, not to mention two years of the Covid-19 Lockdowns; debt-trapped Sri Lanka staged its first ever Sovereign Default in April 2022. This was amid distracting Aragalaya protests and a regime change operation. The Rupee crashed– just when the new Cold War between ‘America first’ and China Rising ramped up in the Indian Ocean, enabling the Washington Consensus to effectively capture the strategic island’s Economic Sovereignty and policy autonomy in the name of’ Debt Restructuring’.
Blue and Green Washing BlackRock and Partner Adani
BlackRock, Sri Lanka’s biggest private creditor, is heavily invested in weapons manufacturing and fossil fuels. Facing criticism, the company has been trying to green, blue and pink-wash itself by marketing Environment, Social and Governance bonds (ESG), or Debt for Nature Swaps (DFNS), a.k.a. green and blue bonds, as well as, by funding UNWOMEN programs.
BlackRock’s South Asia partner is India’s richest man Adani, who appears to have achieved a lucrative settlement ex-ante any collective agreement with the bondholders given geopolitical headwinds and high levels of corruption. Sri Lanka sits on major Indian Ocean energy trade and Submarine Data Cable routes.
Adani closely allied with the Modi government in Delhi, has secured the environmentally and geopolitically sensitive Mannar and Pooneryn basins in the northwestern seas, purportedly for ‘green energy’ wind farms with unsolicited bids to the Ranil Rajapakse government whose bond scams at the Central Bank of Sri Lanka (CBSL), enabled staging the country’s first ever sovereign default in 2022.
There have been protests by local fishermen and fisheries cooperatives in Mannar as well as, environmental organizations due to depleting fish catch and the environmental impacts of some wind mills already installed in Mannar.
In a nutshell, ESG, DFNS or Green and Blue bonds as part of ISB debt restructuring would see the financialization of Mother Nature based on questionable carbon credit calculations and ‘Anthropocene’ science-fiction, ‘climate catastrophe’ narratives, while depriving local fishers and farmers of access to their traditional fishing and forest areas, impacting their livelihoods—in the name of ‘environment protection’.
Meanwhile, last year, women’s organisations and activists around the world signed a petition that accused the United Nations agency responsible for promoting gender equality of ‘pink-washing BlackRock”!
They argued that UNWOMEN’s collaboration with BlackRock gave the company ‘a veneer of feminist approval it clearly does not merit’. UN Women was compelled to terminate its contract with BlackRock over its “record of prioritising profits over human rights or environmental integrity”.[i]
An IMF Firesale: CBSL prioritizes Bond Holders
Now as Sri Lanka’s debt restructuring drags into a third year amid a flurry of meetings with bond holders and the IMF in London, Paris and Washington DC., the priority appears to be securing private lender’s profit margins and interests, regardless of the fact that they lend at predatory interest rates citing risks in Global South countries, and the fact that many had already made profit.
Given the IMF’s principle of the ‘parity of treatment’ of creditors, regardless of whether they lend at predatory or concessionary rates, there has been little effort to ensure Odious Debt cancellation. Nor has there been a serious attempt at poverty and debt reduction, aside from handouts via the Asswessuma program given persistent high levels of corruption at the newly reformed CBSL.
Transparency appears low priority given that the names of the bond holders who own 40 percent of Sri Lanka’s debt stock are secret. Meanwhile, China is routinely blamed for the debt trap and delays in the global corporate media echo chamber.
Ironically, the IMF-EFF debt restructuring operation appears designed to force debt trapped countries to keep borrowing from the same predatory private lenders (ISBs), responsible for the Odious Debt and Default in the first instance—in order to pay them back with a minimal haircut!
It is clear that Sri Lanka’s ISB debt trap is being deepened and extended, also given IMF mission and mandate creep into Domestic Debt Restructuring, and new proposals for Macro-economy linked Bonds (MLB).
Previously, Environment, Social and Governance Bonds (ESG), has been proposed, supplemented by an IMF Firesale of strategic assets and State Owned Enterprises (SOE). These include prime coastal and hill country lands, energy, telecom, and transport infrastructure, with the latest being a Bill in Parliament to fragment and privatize the national electricity system. The latter has elicited powerful protest from the Trade Unions of the Ceylon Electricity Board who also argue that it threatens national energy security. There are 12 cases ongoing against this bill in the Supreme Court at this time!
Last week there was a furor at Colombo’s BIA Airport over the US-backed Ranil Rajapakse regime outsourcing immigration and emigration services, including visas issue, to a foreign Company staffed by Indians, whose parent company is BlackStone, just like the deal with BlackRock’s South Asia partner, Adani ex-ante any debt restructuring agreement.
Meanwhile, the Bill and Melinda Gates Foundation has set up an office within President Ranil Rajapakse’s office—purportedly to collect and game national data! The national milk production company, Highlands, meanwhile was sold off to India’s other Oligarch- Ambani of Amul.
Sri Lanka Telecom and Sri Lanka Insurance, both highly profitable SOEs are also on the IMF privatization list.
Triple Jeopardy? IMF Mission Creep and Firesale
At this time, Sri Lanka seems to face not double, but triple and quadruple jeopardy given IMF mission mandate creep into Domestic Debt Restructuring (DDR), with partner in crime the newly privatized and “independent” CBSL. The strategic Indian Ocean island is subject to an IMF Firesale of national assets and SOEs regardless of their profitability as part of required reforms for an IMF Extended Fund Facility (EFF), bailout of a mere $ 3.9 billion over 4 years,
IMF ‘s mission and mandate creep into DDR has enabled conflating local rupee denominated domestic debt with external USD denominated debt, and inflating Sri Lanka’s debt numbers, while upending the country’s economic sovereignty and policy autonomy. DDR along with MLBs would effectively enable ISBs to link and access the country’s Employment Provident Funds (EPF).
The CBSL manages the biggest pension fund in Sri Lanka, the EPF, which is assessed now at Rupees. 3.4 trillion. As agreement with private lenders remained elusive, the newly privatized and IMF-reformed CBSL, appears to have prioritized the interests of Eurobond holders, and facilitated the IMF’s mission and mandate creep into DDR, and the EPF. This would enable wealth transfers from the working people’s retirement saving to the Eurobond holders a.k.a. the global one percent.
IMF mission creep into DDR has enabled private creditors like BlackRock to link debt restructuring to the country’s biggest pension fund – the Employment Provident Fund (EPF) —jeopardizing the savings of millions of working people.
Debt restructuring morphs into Rocket Science
Civil society groups have called for a 10-year moratorium and ban on government borrowing from Eurobond markets; and debt restructure ONLY of multilateral and bilateral loans leveraged at concessionary rates. Almost 50 percent of Sri Lanka’s interest payments are to ISBs that charge predatory rates, rather than multilateral or bilateral creditors
The MLB and ESG, (also called Green and Blue Bonds or DFNS), proposals for Sri Lanka’s $26 billion external debt restructuring have been made by the French accounting firm Lazard and Clifford and Chance that although hired by the Government of Sri Lanka, seem to represent the interests of the colonial Club de Paris group of private creditors and ISB holders.
The proposed MLBs and ESG bonds willy-nilly, link everything, including national assets and EPF funds to Debt and its restructuring via convoluted numbers games. They also include financializing Mother Nature with un-scientific carbon credit calculation in the form of Debt for Nature Swaps (DFNS), and belie basic science, logical analysis, and monitoring and evaluation criteria.
Under the aegis of IMF-EFF, debt restructuring appears to have morphed into ‘rocket science’ with jargon-filled numbers games supported by IMF mission and mandate creep. This begs the question: Are Principles of Scientific thought such as simplicity, logical rigour in abeyance in an era of AI enhanced virtual reality, big data algorithms, and fudged figures in the absence of accurate data and baselines?
The obtuse and convoluted linking of debt restructuring to unachievable and arguably incalculable macro-indicators and outcomes, also violate basic principles of development program Monitoring and Evaluation. After all it is an M & E truism that indicators must be SMART— that is, Specific, measurable, Achievable, Relevant and Time bound.
Debt Neocolonialism: MLBs and IMF Mission creep
The proposed MLBs are NOT specific, measurable, achievable or relevant. Indeed, the entire exercise is conceptually flawed, obscurantist, and designed to extend IMF mission creep both spatially and temporally –violating Sri Lanka’s economic sovereignty and policy autonomy. They are designed to extend Debt Neocolonialism and perpetuate predatory lending practices of the colonial Club de Paris private lenders at the expense of debt trapped citizens of the Global South.
Clearly, IMF debt restructuring should be strictly limited, contained and shrunk. MLBs have been also extensively critiqued by Gihan Pathirana and other economists from the Institute for Political Economy who argue that they would ‘fleece’ the country.[ii] Future generations would be forced to pay down debt with a depreciating local currency given manipulated exchange and interest rates.
Whether by design or accident, the dragging negotiations with Eurobond holders masks the ongoing privatization of State owned Enterprises and asset stripping of the strategic Indian Ocean island nation under the rubric of ‘economic reforms’ needed for the IMF-EFF disbursements.
Under the IMF-Extended Fund Facility (EFF), negotiations among partners-in-crime, the CBSL and BlackRock and its South Asia partner Adani and other bond holders, the IMF has literally extended itself all over the strategic Indian Ocean island, making deep inroads into Sri Lanka’s economic Sovereignty and policy autonomy to conduct a Firesale and privatization of strategic assets – with land, energy, telecom, transport sector infrastructure being targeted as they were under a previous US Millennium Challenge Corporation (MCC), project.
Whither Economic Sovereignty and Natural Justice
‘Too many cooks may spoil the debt restructuring soup’! It seems that there were no adequately qualified national or even Asian regional accounting and legal experts and firms to represent Sri Lanka in IMF-EFF debt negotiations with ISBs. Hence, the French firm Lazard and Clifford and Chance was hired by the Ranil Rajapakse regime to represent Sri Lankan citizens!
Despite talk about MLBs and ‘Governance linked Bonds’, the IMF and Paris Club consultants do not differentiate between “illiquidity’ and “insolvency” of a country, and there has been no accurate valuation of national assets. [iii]
Colonial power/knowledge hierarchies and information asymmetries appear endemic and embedded in IMF and OECD Paris Club debt restructuring operations. Both un-transparent (the bond holders’ names are secret) and unnecessarily complex, the current’ IMF-EFF debt treatment’ process seems designed to give the upper hand and power balance to private creditors. The process itself is riven with logical errors, fudged figures, data inconsistencies, and solely lacking in transparency and accountability to vulnerable people.
Simultaneously, MLBs and ESGs mask the fact that the current process of IMF-EFF debt restructuring would deepen and extend the county’s debt trap for decades, with future generations having to pay down the USD debt, further eroding Sri Lankan citizen’s economic sovereignty and policy autonomy.
It is increasingly clear that the IMF’s debt restructuring operations are part of Sri Lanka’s Odious debt problem, rather than the solution. The IMF seems to be more than ever in need of reform given the erosion of Sovereignty and principles of Natural Justice in its practice, as was pointed out in a statement signed by 184 international economists and development experts in January 2023, including Professors Jayathi Ghosh, Thomas Piketty, Dani Rodik, Yanis Varoufakis and others:
“Private creditors own almost 40% of Sri Lanka’s external debt stock, mostly in the form of International Sovereign Bonds (ISBs), but higher interest rates mean that they receive over 50% of external debt payments. Such lenders charged a premium to lend to Sri Lanka to cover their risks, which accrued them massive profits and contributed to Sri Lanka’s first ever default in April 2022. Lenders who benefited from higher returns because of the “risk premium” must be willing to take the consequences of that risk. Indeed, ISBs are now trading at significantly lower prices in the secondary market. In this context, giving private bondholders an upper hand relative to sovereign debtors in the Paris Club and the IMF’s required debt negotiations violates the basic principles of natural justice.[iv] [IDN-InDepthNews]
The first part of this article appeared on 14 March 2024: https://indepthnews.net/the-wealth-of-nations-and-the-poverty-of-theory/
Image source: ‘The Wealth of Nations’ by Adam Smith, Penguin Books
[i] https://www.theguardian.com/global-development/2022/aug/10/campaigners-call-on-un-women-to-pull-out-of-blackrock-partnership
[ii] https://island.lk/sri-lanka-being-fleeced-through-debt-restructuring-says-economic-analyst/
[iii] https://island.lk/akds-fixation-on-assets-vs-liabilities/#google_vignette
[iv] https://debtjustice.org.uk/wp-content/uploads/2023/01/Sri-Lanka-debt-statement.pdf
