Darini Rajasingham-Senanayake

At Annual Meetings in Washington last month International Monetary Fund head, Kristalina Georgieva claimed Sri Lanka as a debt restructuring ‘success’ story.[i]  Left unsaid by the IMF’s Managing Director was that Sri Lanka’s debt had apparently 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 under the EFF agreement, having done a U-turn on election pledges to re-negotiate agreements with the IMF and bondholders that were widely perceived to be detrimental to the county.

Euphemistically called ‘the invitation’ printed on paper with a gold embossed letter head, the Ministry of Finance, Planning and National Development announced the launch of the bond exchange’ of outstanding international Sovereign bonds totaling approximately USD 12.55 billion as of 25 November 2024.” The bond exchange was clearly designed to bailout predatory International Sovereign Bondholders (ISB), 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. [iii]

In a nutshell the bond exchange would ensure that the county would soon exit the Sovereign Default staged in 2022, in order to borrow once again from the same predatory ISB lenders, ironically, in order to pay them back under terms and conditions to be specified later, including opaque Macro-economy linked vanilla, blue, green and strawberry bonds, flavoured and sweetened to mask the odious debt restructure operation (DSA). This would of course deepen the geostrategic island’s Eurobond debt trap and extend the IMF’s bailout business. After all, ISBs were primarily responsible for Sri Lanka’s odious debt pileup in collusion with corrupt politicians that led to the geostrategic county staging a first ever Sovereign Default in the wake of two years of Covid-19 lockdowns.

Had the President done a volte-face on his promise to renegotiate IMF and ISB agreements and the fight against corruption in order to restore economic sovereignty eroded by ISB-IMF mission and mandate creep into Domestic Debt Restructure? Had President Dissanayake 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 that helped a dizzying ascent to power?

The ‘bond exchange’ agreements were signed without review by the newly appointed Cabinet despite the National People Power (NPP) party’s massive two-thirds Parliamentary majority 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 Gaslighting?

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.

Moreover, 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 with 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.

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 in normal circumstances would review such agreements –especially those with long term implications for the economic security of the country.

Of course, the US Ambassador Julie Chung had done her fair share to confuse 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 and Gaslighting the Public

This explosion of debt numbers was largely due to ISB and IMF mission and mandate creep into local rupee denominate domestic debt enabling the conflation and inflation of external dollar denominated debt numbers. DDO also enabled plunder of the Employment Provident (EPF) retirement funds of working people to pay off predatory bond holders as part of the new bond exchange” operation that would last for over a decade.

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 implicated in bond scams. Indeed, the IMF team led by Peter Breuer arrived in Colombo from Washington even before the new cabinet of Ministers elected to fight corruption and mismanagement was sworn on November 18!

The IMF team’s 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 extends and arguably deepens the debt setting up the country for a new default.

This raises the question: was there bi-partisan collusion between the former and newly elected governments for a brand new bond exchange scam -brokered by the IMF as part of a debt restructure agreement (DSA)?

What is increasingly apparent is that the IMF’s Debt Restructuring Agreement (DSA) and EFF agreements rather than reduce debt traps, are designed to deepen and extend them. The EFF is aptly named! This may partially explain why Sri Lanka is on its 17^th IMF program and Argentina on its 23^rd at this time. Moreover, there are 55 other countries across Africa, Asia and South America in similar post-Covid-19 ISB deb traps and the IMF’s neocolonial bailout business at this time.

Often DSA seem to enable and precipitate successive defaults, also given the IMF’s principle of ‘compatibility of treatment’ of creditors regardless of whether they charge predatory interest. This has been challenged by multi-lateral and bi-lateral lenders. So too, the practice of lending into arrears” which appears designed to enable a victim of loan sharks to once again borrow from the same loan sharks whose identities are undisclosed—in order to pay them back. This despite the IMF claiming to fight corruption and seek good governance.

In Sri Lanka’s case the IMF’ ‘Lending into arrears’ appears to have enabled predatory lenders whose identities are secret (including the Hamilton Reserve Bank presumably) to enter into bad faith negotiations with debt trapped counties with opaque macro-linked bonds, even as the county is forced to borrow from the same predatory ISBs.

Double Standards on Corruption: Bad faith and Moral Hazard

While the IMF talks up the need for governments to engage in ‘good faith’ negotiations with lenders there appears to be no concomitant requirement that predatory lenders whose names are kept secret to also negotiate in good faith.

Many of the predatory ISB lenders, BlackRock being a good example have assets that exceed the wealth of many debt trapped nations.

Moreover, under the new bond exchange agreements, the EPF pension funds of working citizens would be plundered to pay down predatory ISB 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 big profits charging predatory interest rates citing risk, should not be enabled to make bigger profits when risk matures.[iv] This is particularly true of countries subject to incessant exogenous economic shocks – such as terror attacks, Covid-19 lockdowns and hybrid maritime warfare.

However, instead of debt cancellation and significant haircuts sought by national experts campaigning for debt justice, the ‘bond exchange’ agreement has been foisted on the people of Sri Lanka with the Washington Twins claim that since Sri Lanka is a Middle Income Country (MIC), it was ineligible for debt cancellation and substantial haircuts.

Rather, the IMF and ISB claim that since the purportedly ‘bankrupt’ country is actually an MIC, it must pay off the bond holders either by plundering banks and risking an economic meltdown or by plundering the Employees Provident Fund EPF!

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, and pumping and dumping of countries subject to staged default, and into the waiting arms of the lender of last resort. As they say: ‘the devil is in the detail”

TO BE CONTINUED

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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://debtjustice.org.uk/press-release/ghosh-piketty-and-varoufakis-among-182-experts-calling-for-sri-lanka-debt-cancellation

[iv] https://debtjustice.org.uk/press-release/ghosh-piketty-and-varoufakis-among-182-experts-calling-for-sri-lanka-debt-cancellation