The Supply-side of Odious Debt: Disinformation on who caused Sri Lanka’s First Default
Posted on January 14th, 2023

Darini Rajasingham-Senanayake

182 economists and development experts from around the world in a statement released last week in the Guardian on Sunday observed that extensive debt cancellation was needed to give the Sri Lankan economy a chance of recovery following the country’s first-ever Default on loan payments. Sri Lanka would be a test case of the willingness of the international community to tackle a looming global debt crisis they note as the International Monetary Fund (IMF), delays help as private creditors play hardball.

The statement also alludes to Geopolitics, and notes that Instead of geopolitical manoeuvring, all of Sri Lanka’s creditors must ensure debt cancellation sufficient to provide a way out of the current crisis.”

The group of academics and economists – including the Indian economist Jayati Ghosh, Thomas Piketty, the author of the bestselling book Capital, and Greece’s former finance minister Yannis Varoufakis –note that some of the world’s most powerful hedge funds and other investors are holding up help for crisis-hit Sri Lanka by their hard-line stance in debt-relief negotiations after the country’s staged default last year. Private sector creditors such as investment companies and hedge funds were preventing a deal at this time.
Debt negotiations in Sri Lanka are now at a crucial stage,” the statement said. All lenders – bilateral, multilateral, and private – must share the burden of restructuring, with assurance of additional financing in the near term.”

Civil Society groups in Sri Lanka meanwhile note that there is need for a debate on alternatives to the IMF and Paris Club process for Sri Lanka, and other debt trapped countries of the Global South.  So too, they note that there is need for a debate in Parliament on the issues raised in the Statement regarding the crisis in Sri Lanka. This statement suggests economic and development alternatives to the ‘advice” of the Washington Consensus and Colonial Club de Paris on Debt Cancellation and restructuring.

Disinformation on the causes for Delay in Debt Restructuring

Contrary to widespread Disinformation on Sri Lanka’s Debt Default in the Corporate Media, the onus is on Euro Bond or so-called International Sovereign Bond (İSBs), traders, like BlackRock and Hamilton Reserve Bank, and their intermediaries– the Paris Club and Bretton Woods Twins (IMF and WB), to cancel the debt, and Not delay further on Debt Restructuring at this time.

Eurobond traders that charge predatory interest rates, rather than bi-lateral creditors were responsible for staging Sri Lanka’s first ever sovereign debt Default– in the first instance. The shadowy off-shore Hamilton Reserve Bank in St. Kitts and Nevis had sued the Government of Sri Lanka in New York in March 2022.

Non-OECD /PC bilateral Sovereign State creditors (India, China, Saudi Arabia, etc), which lend at lower and concessionary rates, are blamed in the media for delay in the IMF and PC debt restructuring process, but have little reason to follow Washington’s time lines for Sri Lanka’s Odious Debt restructuring.

After all, these are Sovereign State Parties who do not charge the predatory interest rates of OECD Paris Club creditors, and hence may choose to deal directly with the GoSL and people of Sri Lanka without the IMF and PC as intermediary.

The statement by the experts also notes that there are many other lower and Middle Income countries in similar debt traps and raises fundamental questions regarding the relevance and utility of the current International Financial Architecture, particularly the Washington twins and related IFIs, at this time of economic crises in the Global South. This statement suggests economic and development alternatives to the ‘advice” of the Washington Consensus and Colonial Club de Paris on Debt Cancellation and restructuring.

Odious Debt, ISBs and Supply-side Corruption

Corruption clearly has a supply side and demand side, and merely pointing fingers at Sri Lanka’s corrupt political and business elites is hardly adequate: There are 56 other countries in the Global South that are in Debt traps or near Default due to Eurobond (ISB), creditors who lend at Predatory interest rates.

While Central Bank Bondscams by successive Ranil Rajapakse regimes are primarily accountable for Sri Lanka’s Debt Default due to the odious debt accumulated though corrupt Euro Bond deals, it is increasingly clear that the Washington Twins (IMF and WB), and OECD’s Colonial Club de Paris and related accounting and legal firms like Lazard, Clifford and Chance which are part of the “Bailout Business” (as the Transnational Institute calls it),  are also part of the problem, rather than the solution.

Hence, it is mysterious that so many at the CBSL and the President of Sri Lanka, who is implicated in the 2015 Central Bank bondscams, think that the IMF’s is the Solution to Sri Lanka’s economic crisis, given that this is the 16th time that Sri Lanka has gone to the IMF!

Other solutions are clearly necessary to ensure that Sri Lanka will not be going again for the 18th time to the IMF! Given the odious nature of the Debt that caused Sri Lanka’s first ever Default as it clocks 75 years of Lost Independence, and to ensure accountablity and non-repitition, before any payment may be made to Eurobond (ISB), traders, the people of Sri Lanka have the Right to Information regarding:

a) the identities and names of the Bond holders and

b) what the Bonds funds ($12 billion), borrowed were used for?

c), the forensic audit reports of the CBSL bondscams must be made public in the interest of transparency and accountability and there should be a moratorium and ban any future borrowing from Eurobond traders.

It is noteworthy that BlackRock, Sri Lanka’s largest private creditor got huge US Government Covid-19 ‘bailout funds’ to asset strip in vulnerable countries, while the world was kept in Covid-19 Lockdowns, and economies in the Global South destroyed and debt trapped in 2020-21.

Finally, it is increasingly clear that Strategic Sri Lanka located at the Center of the Indian Ocean’s energy, trade and Submarine Data Cables (UDC) Routes is a site of hybrid economic proxy war waged by the crashing Euro-American Empire on China in this long awaited Asian 21st Century, with NATO and AUKUS in tow. Sri Lanka is also the Canary in the Coalmine for other Global South countries caught in post-Covid-19 Lockdown induced Debt traps in a post-Truth world where debt data, like Covid-19 Fatality Rates and Climate data are increasingly gamed to promote neo-colonialism.

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