Dr. Darini Rajasingham-Senanayake

International Monetary Fund head, Kristalina Georgieva, claimed Sri Lanka as a debt restructuring ‘success’ story at the Annual Meetings in Washington last month.[i]  Left unsaid was the fact that the geostrategic county’s debt had ballooned from $ 26 billion to a purported whopping $100 billion during two years of debt restructuring under the IMF’s Extended Fund Facility (EFF), reforms![ii]

Nor did Georgieva dwell on the BRICS summit held earlier that week in Kazan, Russia, where there were renewed calls for reform of the Bretton Wood Twins (IMF and World Bank), amid talks on de-dollarization. The US dollar had been weaponized in multiple forms, not just sanctions, against many emerging Global South economies, particularly those caught in post-Covid-19 debt traps that are subject to the lender of last resort’s bailout business.

The IMF Managing Director did however call for more information on the BRICS new payment system, which was discussed as an alternative to the current US controlled SWIFT international trade settlements and payment system in Kazan. SWIFT leaves countries vulnerable to brow beating and US exchange rate manipulation in the context of hybrid economic proxy wars on China’s Belt and Road (BRI), partner countries as well as, sanctions hit Russia, Iran, Venezuela etc.

At this time the United States has sanctioned an Indian firm which is in a consortium with a Russian firm to manage Sri Lanka’s Mattala Airport, official data showed.[iii] This was to develop and run the Chinese build Mattala International Airport in Hambantota. The project in the geostrategic Indian Ocean island would bring much needed investment and showcase enhanced collaboration among the BRICS big three Asian powers- China, India and Russia- but is now on ice. Sri Lanka remains in the cross-hairs of big power rivalry.

BRICS Challenge to the IMF’s Savior Image

Sri Lanka formally submitted an application to join BRICS and the New Development Bank at the meeting in Kazan, where President Putin hosted China’s President Xi and Indian Premier Modi along with other Global South leaders.

The new Government in Colombo led by President Anura Kumara Dissanayake would be hoping to leverage regional growth and support from the Global South in the Asian 21^st Century”. However, no senior Minister from Sri Lanka attended the meeting in Kazan, perhaps in deference to Washington.

Nevertheless, the rise of the BRICS has clearly challenged the claim that ‘there is no alternative’ to the IMF.

Indeed, around the world and in Sri Lanka skepticism about the IMF’s claims to be a ‘Savior’ are growing since under IMF Debt Restructuring Agreements (DSA), and principles the debt seems to deepen, rather than reduce. The IMF’s principle of ‘compatibility of treatment’ of private International Sovereign bond (ISB) creditors regardless of whether they charge predatory interest rates seems particularly odious.

Pumped and Dumped into a MIC Trap?

Sri Lanka has been pumped and dumped before by the Washington Consensus and related rating agencies. Although the country was declared bankrupt” due to an apparent shortage of exorbitantly privileged dollars, the country remains South Asia’s wealthiest in Real Terms of Purchasing Power Parity (PPP). It is second to Maldives in GDP per capita, and has the best regional human and social development, and Physical Quality of Life (PQLI) indicators in the region. 

In 2019 the island was pumped and dumped into a Middle Income Country (MIC) trap by the World Bank. MIC status forces countries to borrow from private markets at high interest rates, rather than access concessionary multilateral or bi-lateral loans even in times of crisis.

In the wake of a series of dramatic exogenous economic shocks, such as, the mysterious 2019 ISIS claimed Easter terror attacks on the tourism dependent economy, followed by two years of Covid-19 lockdowns, and a series of hybrid war maritime disasters like the MV Pearl episode, the county was forced to a staged its first ever sovereign default in 2022—into the waiting arms of the Washington Consensus.

Default was staged amid international Lawfare by the shadowy off-shore Hamilton Reserve Bank of St Kitts and Nevis, which filed a court case in New York, while distracting Araglaya protests and a US-backed soft regime change operation was ongoing in Sri Lanka. The latter brought to power the Ranil Rajapakse government and its local and diaspora economic hitmen to negotiate with the IMF and 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.

At this time, Government of Sri Lanka negotiations with the Official Creditor Committee (OCC), made up of the colonial Club de Paris and London Club that represent ISBs, under the IMF aegis have resulted in a massive increase in the island’s US dollar denominated debt numbers –if the governor of the Central Bank of Sri Lanka (CBSL), Nandalal Weerasinghe is to be believed.

As well, there have been draft agreements with the OCC and other bondholders that many national economists have pointed out are detrimental to the Sri Lanka people’s and national interests, as these would soon result in another default.

Meanwhile, proposals by the representatives of ISBs for Macro-economy linked bonds have turned debt restructuring into ‘rocket science’ replete with jargon filled numbers games in the absence of debt data security, while enabling the predatory private creditors sweetheart deals.[iv] MLBs would ensure that Sri Lanka continues to borrow at predatory rates from the same ISBs that are principally responsible for the debt trap in order to pay them off—for decades to come!

It is hence too that de-dollarization has become a necessity for countries caught in US dollar ISB Debt traps, and subject to IMF economic reforms and debt restructuring principles such as the ‘compatibility of treatment’ of creditors, regardless of whether they charge predatory interest rates. Moreover, IMF reforms include crippling austerity measures that shrink national economies and penalize working people whose retirement funds are looted to pay anonymous ISB bond holders, the largest being BlackRock, along with the sale of valuable National Assets, resources and infrastructure.

A Mandate for Debt Justice: ISB-IMF Mission Creep and Economic Sovereignty

At the General Elections last week, the new left-leaning government of President Anura Kumara Dissanayake’s National Peoples Power (NPP) party swept to power on a mandate to fight corruption– from by citizens tired of the permanent ‘polycrisis’ in the geostrategic island.

This week an IMF team from Washington, led by Peter Breuer is due in Colombo for the 3^th review of the EFF. Various booby trap draft agreements with bondholders and their Official Creditor Committee (OCC), made by the previous unelected Ranil Wickramasinghe regime, implicated in bondscams at the CBSL would also be discussed.

Particularly egregious was the appropriation of the pension funds of working people, the Employment Provident Fund (EPF) to benefit unnamed ISB holders. This was accomplished through IMF and ISB mission and mandate creep into domestic debt restructuring, now euphemistically called denominate debt optimization (DOO).

DDO effectively violated the country’s economic sovereignty and policy autonomy. The IMF’s mandate is to deal with External US-dollar denominated debt and not the local currency debt of sovereign states.

ISB macro-economic linked bond and IMF mission and mandate creep into Sri Lanka’s domestic debt restructuring enabling appropriation of EPF funds was legitimated on the basis that the county is an Upper Middle Income Country (MIC) and must pay off the Odious debt.

This is in lieu of the debt cancellation and significant haircuts sought by Sri Lankan and international experts in an open letter to the IMF[v], the representatives of the ISBs have claimed that either national banks must pay the  creditors, or the EPF must be plundered for the same.

This is fundamentally a false choice: A narrative riven with bad faith and moral hazard that violates core principles of Debt Justice. It has also served to distract from and enable the unethical ISB appropriation of retirement funds of working people, the Employment Provident fund (EPF) to benefit unnamed ISB holders, the largest of which is BlackRock.

President AKD and his new government would be hence called upon at this time as part of their fight against corruption to roll back the IMF and ISB’s mission and mandate creep into DDO, that has caused the ballooning of debt from USD 26 billion to a whopping $ 100 in the past 2 years, which sets the country up for another Default. DDO has eroded Sri Lanka’s Economic Sovereignty, policy space and autonomy and must be rolled back.

Likewise, restoring exchange controls against the parking of foreign currency which is due to the county, particularly review of the tourism sector in the context of a massive land grab would be another high priority for the new government.

Compounding Odious Debt and Economic Hit Men: International networks of Financial Corruption

National experts and economists who have long demanded outright Odious Debt cancellation instead of backroom sweetheart deals masked as ‘haircuts’ linked to Macro Economy linked Environment, social and governance (Green and Blue Bonds), Club have been sidelined. The debt and development industry’s neocolonial power/ knowledge hierarchies are clearly visible in the fact that the Government of Sri Lanka was compelled to hire expensive foreign consulting companies rather than draw on national experts and advisors in its negotiations with the IMF and ISBs. That is aside from selected NGO think tanks like Verite Research.

Sri Lanka’s massive debt increase amid endless negotiation with bondholders has been accomplished by a veritable gravy train of international accounting and legal firms, advisors and Economic Hitmen. Prominent among these are; Lazard, and Clifford and Chance that are supposed to represent the debt trapped citizens of Sri Lanka. The organized and coordinated nature of the process which protects the bondholders and keeps their names secret are suggestive of corruption racket.

While national political and business corruption in bond trading and derivaties may be seen as the ‘demand side’ of corruption and Odious Debt, the supply-side of compounding Odious debt is clearly ISBs holders– whose names are kept secret.  The latter stand to benefit from sweetheart debt restructuring deals under the IMF-DSA between government officials in debt trapped countries. This also accounts for the dramatic increase of Sri Lanka’s US dollar debt in the past 2 years of IMF EFF which has enabled neocolonialism and extended Washington’s tentacles and grip on the geostrategic island nation that is perpetually in the cross-hairs of big power rivalry in the Indian Ocean.

The explosion of debt numbers games in the past two years was done in cahoots with the previous unelected President Ranil Wickramasinghe regime which was implicated in a series of bondscams at the Central Bank of Sri Lanka (CBSL) in 2015. The subsequent chilling murder of the principle witness in the Court case against Wickramasinghe, Mr. Dinesh Shaftter in December 2022, effectively shut down the case against Wickramasinghe just as IMF-ISB debt restructuring commenced, and remains a mystery.

It is increasingly evident that while the demand side of Odious debt may be corrupt politicians and their business crony networks, the supply-side of Odious debt is primarily predatory private Eurobond creditors and un-named International Sovereign bond (ISB) holders, whose interests the IMF appears to represent and their networks and gravy train of consulting firms.

However, the IMF never talks about ISB corruption. However, it may need to do a corruption diagnostic of ISBs, particularly, BlackRock if its claims to fight corruption and promote good governance are to be taken seriously.

Meanwhile, for the new anti-corrupt government in Colombo, updating and reinstating the Exchange Control Act No. 24 which was repealed in November 2017, leading to the US Dollar shortage and staged Default in 2022, would be high priority for the new government. This is necessary also in the context of increased Digital Colonialism in key Sectors such as Tourism, where funds due to the country remain parked overseas.

Finally, de-linking Debt Justice and Climate Justice, along with reversing and containing and ISB-IMF mission and mandate creep in the form of DDO that has eroded Sri Lanka’s Economic Sovereignty while magnifying external debt would no doubt be a priority for the new Government led by President AKD at this time–to ensure Debt Justice for Sri Lanka.

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[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://economynext.com/us-sanctions-indian-firm-involved-in-deal-with-sri-lankas-mattala-airport-186347/

[iv] https://indepthnews.net/wealth-of-nations-and-the-poverty-of-theory-debt-restructuring-as-rocket-science/

[v] [v] https://ipe-sl.org/sri-lanka-debt-justice-collective-writes-open-letter-to-imf-on-ddo/