The Yahapaalana Legacy and Three Major International Events/Processes driving Sri Lanka to Bankruptcy-by Michael Roberts
Source:Thuppahis
I sent Mr TRUTHSEEKER Two Questions, prefaced by a general statement: namely: “I am no good in economic assessments
Q-11 = I have no doubt that some or all of the Rajapaksas have accumulated monies …. AND that corruption at many levels of government had some draining impact, BUT has all that been a major factor?
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Q 22 … Has’nt the USA induced IMF programme dating from 2009 or so –as payback for Sri Lanka’s temerity in rejecting Hilary Clinton’s programme** — been a MAJOR FACTOR in the present situation [after the pro-US Sirisena govt fell from power]?
…. with Lanka’s China-leanings being a further inducement towards this payback pressure?
Michael
TRUTHSEEKER responded thus, 26 April 2022
Q11 = No corruption involved in this instance. The figures speak for themselves. There is no way any govt would have been able to avoid a financial meltdown given the massive payments put upon the country by the previous Yahapalana govt taking $12 billion in International Sovereign Bonds (ISBs) in their years of 2015-2019. This in addition to the rest of the external debt the country was carrying.
Unlike other debt taken, ISBs are very difficult to manage because they have to be paid out at maturity irrespective of any circumstances, since default is not an option with its concomitant damaging effects on the country’s creditworthiness. Whereas appeals are possible for restructuring or rescheduling other types of debt to multilaterals or bilaterals or institutions. The first is a ‘hard default’ if not paid on due date and the second ‘structured default’ is what we’ve now committed to through IMF program. But default it is and ratings agencies have downgraded SL further to abysmal level.
It was irresponsible of the Yahapalana govt to put this heavy ISB burden on Sri Lanka’s already poor economy. This legacy then made payments completely unsustainable with two years of pandemic and finally the Ukraine war has aggravated a condition that was already calamitous.
An important question they need to answer is what the Yahapalana administration did with the $12 billion taken?
– There was no war to fight as in final years of 2005-2009
– There was no reconstruction needed for every part of the country as in 2009-2014 resulting from destruction of 30 years of war.
– There was no infrastructure development, no development projects set up, no connectivity projects, no urgently needed new power generation plants (the last one set up was the Norochcholai coal fired plant under MRs govt).
People have been told for political reasons that “corruption” was the reason for the financial crisis and are convinced money “stolen” would have been able to pay for essential imports. But have a look at payouts needed for maturing ISBs shown in the graph below vs govt income which had collapsed for past two years as a result of the pandemic’s impact:
– $5 billion per year lost from tourist income
– $5 billion per year lost from workers inward remittances
– Exports coming down to a standstill practically, same as other countries
– 38% of 2020 budget having to be allocated to Covid19 expenditure.
To be fair, what went wrong in the equation of trying to struggle through somehow without going to IMF was the completely unexpected Ukraine war breaking out in February. THAT was the last straw on top of pandemic.
But ultimately it was a question of choosing priorities – and imports of essential items should have been prioritised over debt repayments, whatever the default consequences or solutions entailed.
The reason for the govt finance people keeping on trying to somehow make the ISB payments as they fell due was because going to IMF causes so much hardship to a country’s poor people. As is now happening with depreciation, sky rocketing prices for imports of fuel, petrol, diesel, etc. People are going to get even more angry and violent when all this kicks in. The stability of the country is very much at threat – and may leave SL open to inimical influences.
Is this the IMF capitalist agenda at US bidding? Pakistan recently is a good example of manipulation. Imran Khan was inclining to China, but had to go to IMF for a bailout package as the backing gives credibility to creditors. So, $6 billion was approved, but only half at $3 billion was given until “stability” was achieved, and Imran Khan lost power. New govt came in and IMF immediately approved and gave $11 billion!
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Q22 – Yes, the underlying agenda is political and not economic – regime change is being manipulated just as it was in 2015 when US funded it with $450 million spent via NGOs to get Yahapalana govt in. This time they are determined to get the Rajapakses out for good because MR and GR are the only ones who will stand up to international pressure, as proven in 2009, and are determined to keep SLs sovereignty safe. Geopolitical games are hard to withstand.
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My Truthseeker piece details ISBs taken with dates of issue and maturity. One graph below shows trajectory of external debt taken from 1978-2019 under various govts.
