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Southern Voices to be Heeded: A Call for Debt Justice, Debt Cancellation and Transparency in IMF Negotiations

BY The Coalition for Economic Democracy in Sri Lanka (CEDSL)

In the wake of two years of economically devastating Covid-19 lockdowns, quantitative easing, and money printing globally, we call on international actors to heed the people’s demands for a debt jubilee and cancellation as a priority.

We wish to draw your attention to key issues regarding the current debt crisis and its social, political and economic impacts which are not adequately represented in the public discussion, yet crucial to the well being and security of Sri Lanka’s citizenry.

A Call for Debt Justice

International support is welcome to ease the economic burden on the people of Sri Lanka which includes shortages of fuel, food and medicines that impact livelihoods and health, increasing poverty and inequality. However, due to an International Sovereign Bond (ISB) debt trap and the depreciation of the Sri Lankan Rupee against the United States Dollar (USD), sustainable solutions are needed rather than the short term sale of strategic assets that benefit ISB holders and hedge funds that sustain dependent development.

In May-June, 2022, Sri Lanka’s debt was estimated to be USD 51 billion with current debts of USD five billion to be paid to ISB holders and hedge funds like BlackRock, which secured huge US Government ‘Covid-19 bailout’ funds to asset strip and impoverish countries around the world during the economically devastating Covid-19 lockdowns.

Contrary to widespread media disinformation about the sources of debt and the causes of default, this is the first time that Sri Lanka, in April of this year, defaulted as an independent State. It is the debt owed to ISBs that amounts to almost 50% that has caused the default at this time.

The Asian Development Bank and the World Bank have indicated willingness to roll over their multilateral debt, so too the bilateral debt holding Asian countries including Japan, China and India. Along with debt cancellation, there is a need for de-Dollarization and trading in a basket of currencies. The loss of such autonomy and sovereignty due to the ISB debt tap and the International Monetary Fund (IMF) stepping in to devalue the currency is at the root of the current shortage of food, fuel, meds, fertilizer, gas, etc. The purported shortage of ‘exorbitantly privileged’ Dollars is the most devastating impact of the entire “staged” default.

While the return of stolen assets by the Rajapaksa family, some of who are US citizens, is vital, we believe that there is an even greater need for debt justice, a debt jubilee and debt cancellation and the current international financial architecture is not fit for purpose, particularly, the IMF which works for the global 1% and imposes austerity on the rest.

Transparency in IMF Negotiations

The gross lack of transparency in the ongoing negotiations between the IMF and a Government that lacks legitimacy but purports to represent the citizens is a consequence of an inherently unequal relationship between Sri Lanka and the IMF, where the US and former European colonial powers have overwhelming decision making power. While the IMF demands ‘transparency’ and that all creditors be treated ‘equally’, the names of the ISB holders behind Sri Lanka’s default are a closely guarded secret!

In 2019, Sri Lanka was classified by the World Bank as an upper middle income country, making it ineligible for concessionary development loans, and forcing it to borrow from private capital markets at high interest rates. The new Government that came to power cut taxes causing a significant loss of Government revenue. The 2019 Easter Sunday bombings and the policies undertaken during two years of militarized Covid-19 lockdowns and mass injections have triggered the current debt crisis leading to the staged default.

In 2019, Sri Lanka was classified by the World Bank as an upper middle income country, but just three year later in 2022, certain international actors want Sri Lanka to be re-classified a ‘least developed country’, and the island to join the world’s poorest of the poor – in Washington Consensus parlance, a “highly indebted poor country”.

Least developed country status will mean a significant loss of economic and foreign policy autonomy and sovereignty at a time when it is vital that Sri Lanka and other developing countries act in their own self interest rather than be forced to join geostrategic blocs that are being formed in the Indian Ocean region such as the Quadrilateral Security Dialogue at this time of Cold War 2.0.

We consider that the peoples’ sovereignty and national policy autonomy is being undermined through non-transparent deals with politicians who are not democratically elected and have a history of amassing ‘odious debt’, the burden of which citizens are being forced to bear. Particularly notable on the accumulation of odious debt are the current odious, newly appointed Prime Minister Ranil Wickremesinghe, implicated in the country’s biggest financial fraud over the Central Bank Treasury Bond scam, and President Gotabaya Rajapaksa, a US citizen until 2019, whose family wallows in nepotism. They are now negotiating with the IMF to sell national assets?!

There is a clear pattern of disinformation, exaggeration and fear generation regarding Sri Lanka’s debt in local and global media messaging. This understates the intrinsic wealth of the nation, its strategic assets, and the strengths of this country given the failure to differentiate between illiquidity and insolvency in the context of a proposed IMF fire sale of assets and State owned enterprises (SOEs).

The IMF’s traditional approach to debt restructuring though privatization of SOEs, austerity
measures, and the fire sale of assets of countries merely causes more problems and places the
burden on the poor as is evident from Argentina, to Greece and Lebanon. However, odious
debt is equally an outcome of speculative and reckless ISB lending sans due diligence to
Governments that lack legitimacy and are known to be corrupt. In fact, the IMF which works
for the Global 1% is a part of the problem and not the solution. So too are the processes of
datafication, the manipulation of matrices, indices and algorithms to ensure ‘pumping and
dumping’ of countries into the middle income country debt trap, least developed country or
highly indebted poor country status and Paris Club ‘solutions’ of the asset stripping of
countries.

Any bailout of the country should not lead to the bailing out of the corrupt political and
bureaucratic elites whose policies, corrupt governance and deals have caused the present
crisis of unprecedented scale in our country. The international institutions and people in Sri
Lanka should work together to ensure that these elites and related oligarchs are held
accountable and appropriately dealt with. So too the ISB traders who engaged in reckless
lending.

Southern Voices to be Heeded

There is an urgent need for Southern voices and perspectives in development, debt
cancellation and debt justice in the international aid architecture as many countries in the
Global South face a similar situation of odious debt as an outcome of speculative and reckless
lending by ISB traders who must be also held accountable (per OXFAM report on “Inequality
kills”).

The demand of many Sri Lankans is for debt cancellation and de-Dollarization and trading in
a basket of currencies, not IMF re-structuring; for example, to enable the purchase of
discounted oil and gas from sanction hit Russia perhaps in exchange for tea. Sri Lanka should
have the economic and foreign policy sovereignty to source its needs from any country that
offers good value for money.

A firm “no” to the IMF fire sale of strategic assets and asset stripping: A list has already been
prepared of strategic lands, airports, ports, transport, telecom frequencies and energy
infrastructure to be privatized. The dastardly sale of the Yugadhanavi Power Plant to US
based New Fortress has already further compromised national energy security and policy
sovereignty and autonomy.

Today, the interests of Sri Lanka are being represented by foreign law firms, Lazard and
Clifford Chance in so called IMF negotiations with ISB traders. On numerous occasions,
Lazard, which has been involved in both advising on privatisation and then profiting
from its advice, has undervalued the price of State companies, enabling its asset
management branch to purchase the stock at low prices and re-sell it for
considerable profit (per S.T. Vila and M. Peters’ “The privatization industry in Europe”).

If the debt negotiations are so complex that Sri Lankan law firms and accountants cannot
represent the interests of the citizens of the country, and the debt data is itself contested, the
debt is odious, its holders unknown, and the negotiations lack transparency, then fundamental
questions arise regarding the legitimacy, transparency and accountability of the very process
of so called IMF negotiations. Such concerns were also raised in IMF negotiations in Greece,
Lebanon and Argentina and other countries.

The United Nations Charter and international law affirm the right of peoples to self
determination and permanent sovereignty over their wealth, resources and economic activity
as a precondition for the realisation of all human rights. So too, the principles of sovereignty
and the independence of States, equality in relations with other States, and national policy
making autonomy cannot be eroded by global Covid-19 and other ‘pandemic’ and climate
catastrophe narratives.

Sustainable Solutions: Long Term, Medium Term, Short Term

We seek much more than debt relief, and demand debt justice. While the crisis in Sri Lanka is
being framed as a “humanitarian disaster”, it is quite clear that it is more complex with
economic, political, social and geopolitical dimensions and dynamics. Solutions must hence
be duly designed, tailored and targeted to improve the lives of the most vulnerable, and to
restore sovereignty to the people of Sri Lanka and their State.

1. We demand a debt jubilee and to write off the odious debts held by ISB debt holders
like BlackRock (that also holds Adani stock), that engaged in reckless lending that has
debt trapped several countries including Sri Lanka. Covid-19 saw the greatest transfer
of wealth in human history from the bottom of the economic ladder to the top.

2. We call on the Government to urgently begin a process of de-Dollarization and to
trade in a basket of currencies in order to restore Sri Lanka’s monetary sovereignty
and pursue a course of development that promotes South-South cooperation and
responds to the needs and aspirations of the Sri Lankan citizenry. The relevance of the
current international development architecture for Sri Lanka and other debt trapped
countries in the Global South must be questioned. Sri Lanka needs to reconsider its
relations with institutions like the IMF, the World Bank, the Organisation for
Economic Co-operation and Development, and the Paris Club of Donors in a manner
that affirms not dismantles its sovereignty and policy autonomy, both exercising the
ability to negotiate as an independent country free of IMF conditionality and US
sanctions, and working in the interests of its citizens.

3. We call on the Government to immediately stop all initiatives and actions underway
for the privatisation of strategic assets, including lands, airports, ports, telecom
frequencies, transport and energy infrastructure, and reverse all actions already
commenced or implemented as valuations did not consider the island’s geostrategic
value and security concerns.

4. We call on the Government to develop a national energy and food security policy,
taking full cognisance of the current global energy wars, geopolitics and ‘climate
catastrophe’ discourses that force small States to bear the carbon costs of the global
military business industrial complex. Of utmost importance in ensuring food security
is the maintenance of food supply chains, and the prioritization of fuel for the
fisheries and agriculture sectors in the context of fuel rationing, the rationalization of
taxation, and targeting the wealthy – to enable the most vulnerable groups such as
farmers, fishers, precarious workers in the informal sector, and small and medium
term enterprises to regain their livelihoods. In the absence of such a policy, climate
narratives like the rush to “green energy” and organic fertilizer without an adequate
transition plan and transfer of technology given the island’s tiny carbon footprint has
contributed significantly to the current fuel, food and economic crisis in Sri Lanka and
in other parts of the Global South.

5. The strengthening of governance and Government institutions is paramount to address
the effects of Covid-19 lockdowns which gave rise to a pandemic of corruption and a
lack of accountability due to national institutions and oversight agencies being
debilitated under the guise of lockdowns, holidays due to staged fuel shortages, de-
centralization and inept digitalization. Services like public transport can be improved through more energy efficient and environment friendly measures and the abolishing
of duty free car permits for politicians and the privileged ‘professional’ class. Finally,
there is an urgent need for a “buy local” State led consumer education programme so
that citizens support local industry and manufacturers.

(The CEDSL which is a group of concerned academics, activists, agricultural, fisheries and
industrial workers, students, business persons, trade unionists, and professionals based in the
country and overseas, including the diaspora, and who uphold the values of economic rights
and justice in public policy making, is comprised of Jeremy Liyanage, Dr. Dharshana
Kastiriaratne, Dr. Darini Rajasingham-Senanayake, Dr. Michael Roberts, Prof. R. Cheran, Prof.
Jayadeva Uyangoda, Prof. Kristian Stokke, Dr. Sankajaya Nanayakkara, Dr. Sharry Aiken, Dr.
Rohini Hensman, Herman Kumara, P.C. Nathan, Lacille De Silva, Ranjit Seneviratne, Hiran Fernando,
Thiyagaraja Waradas, Latheef Farook, Dr. Asoka Bandarage, Ananda Weerasekere, Gamini
Lindagedara, Peter Rezel, Asoka Siriwardena, Bernard Edirisinghe, Sunil Bastian, Lukshman
Gunesekera, Abdul Majeed Mohamaad Naoshaad and Dharmasena Yakandawela)