A country needs no enemies when its own politicians advise ISB default: Ajith Nivard Cabraal
Posted on January 17th, 2022

BY Madhusha Thavapalakumar Courtesy The Morning

  • Responds to JVP’s Handunnetti and SLFP’s Piyadasa and claims they have no knowledge about ISBs 
  • Questions whether foreigners would be ‘insane enough’ to supply defaulting country 
  • Says doom-sayers are spoilt children whose ‘lies have been exposed’ 

Responding to allegations that the Central Bank of Sri Lanka (CBSL) is servicing its maturing International Sovereign Bond (ISB) with a payment of $ 500 million today (18) despite facing a crippling foreign exchange shortage only because the investors of this particular bond are connected to CBSL Governor Ajith Nivard Cabraal and the  Rajapaksa family, Cabraal said that a country does not need enemies when it has politicians who call for a sovereign debt default. 

A country does not need other enemies when it has some politicians who advise the authorities to default on international loans and dishonour sovereign obligations,” stated Cabraal, speaking exclusively to The Morning Business yesterday (17). 

The CBSL is all set to settle a $ 500 million ISB today amidst calls for defaults and restructuring by politicians and economists. 

Cabraal’s comments come amidst growing calls by politicians and economists to default on and/or restructure the maturing ISB payment with the country’s official foreign exchange reserves hitting a 12-year low of $ 1.6 billion by the end of November 2021, which a month later was boosted upto $ 3.1 billion with a yuan swap from China. 

This week, former Janatha Vimukthi Peramuna (JVP) MP Sunil Handunnetti and Sri Lanka Freedom Party (SLFP) Senior Vice President Prof. Rohana Lakshman Piyadasa recently alleged that the CBSL is attempting to bankrupt the country by settling the ISB payment at a time when it cannot afford to do so. Piyadasa, in particular, claimed that this was because the friends and associates of the Rajapaksa family and Cabraal had purchased the maturing bonds on the secondary market at a discounted rate with the assurance that the repayment will be made as per the schedule. 

Samagi Jana Balawegaya (SJB) Parliamentarian Dr. Harsha de Silva on 5 January posted the following Tweet, sharing similar views to Handunnetti and Piyadasa. 

I said that the Central Bank was going to settle the $ 500 million bond on 18 Jan even if the whole country was going to suffer without food. I also said why. I will say it again. It’s because certain people bought these bonds at deep discounts guaranteeing them massive returns (sic).” 

Speaking further about the allegations to The Morning Business yesterday, Cabraal questioned whether any foreign supplier would be insane enough” to make any kind of supply” to a defaulting country and questioned if that is what these so-called politicians want”.

Referring to Handunnetti and Piyadasa, Cabraal stated: These two politicians obviously have no knowledge about ISBs or international obligations. They also have no clue about the repercussions of sovereign default.”

He claimed that it is well known that some of these persons” initially believed that Sri Lanka would not be able to settle the ISB and were then saying how terrible it would be when Sri Lanka does not settle it. 

However, when we confirmed that we have allocated the necessary funds to make the payment without default, while also accumulating the reserves to the announced levels, they started saying we should not pay it. They are just like spoiled children whose lies have been exposed,” Cabraal added. 

Verité Research Executive Director Dr. Nishan de Mel, via a Twitter post, recently stated that the $ 500 million allocated for ISB payments can help to alleviate the present crisis” if preserved for the needs of the local economy, whereas, losing it to a timely debt payment would further precipitate instead of alleviating the present economic crisis”. 

Responding to a comment on the post, de Mel further noted that if a country decided to restructure instead of paying, that is not considered bankruptcy. 

Advocata Institute through a Tweet earlier this month quoted its Chairperson Murtaza Jafferjee saying that the reason for the depleting foreign reserves is mainly because the CBSL is continuing to permit the Government to service its foreign debt. 

It seems that they are prioritising the needs of creditors over the needs of the citizens of the country,” he added. 

However, last week, Prof. Lee C. Buchheit of the University of Edinburgh Law School, at the Sri Lanka Economic Outlook 2022 organised by Nextgensl and Friedrich Naumann Foundation, stated that speaking to the bondholders to restructure payment is not feasible as such a move would require the restructuring of all private and bilateral debt. 

Colombo Stock Exchange (CSE) Chairman Dumith Fernando at a press conference last week said that it is concerning that there are growing calls for Sri Lanka to default on its ISB repayments and noted that such a default would cause severe damage to investor confidence which would be difficult to recover from. 

Last week, the Standard and Poor’s Sri Lanka 20 (S&P SL20) index last Wednesday (12) downgraded Sri Lanka to CCC” from CCC+”, keeping the outlook at the lower level, triggered by lower foreign reserves and upcoming debt obligations. This comes a little less than a month after Fitch Ratings downgraded Sri Lanka’s long-term borrowings to CC” from CCC” on 17 December last year. 

Issuing a statement, S&P stated that foreign exchange resources will be further pressured over the coming quarters by additional external sovereign debt maturities and current account requirements.

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