Colombo, Sri Lanka – More than 180 eminent economists and development experts from around the world have made a global appeal to Sri Lanka’s financial institutions for debt forgiveness, but others are convinced it is the best way forward for the island nation. I have not.
The World Bank estimates that Sri Lanka has over $52 billion in external debt as of December. Of this, about 40% owed to private creditors, including financial institutions, while China (52%), Japan (19%) and India (12%) owed the rest to the largest bilateral creditors. increase.
Colombo defaulted in April and negotiated a $2.9 billion bailout with the International Monetary Fund (IMF).
But the IMF won’t release the cash until it determines the island nation’s debt is sustainable.
So far, prominent academics and economists have issued statements, including best-selling Capital author Thomas Piketty, Harvard University economist Dani Rodrick, and Indian economist Jayati Ghosh.PDF) call for the cancellation of Sri Lanka’s debts by all foreign creditors and measures to stem illegal capital outflows from Sri Lanka; The statement was put together by the Debt Justice Campaign Group, a global movement to “end unjust debt and the poverty and inequality it perpetuates.”
Individual investors who have lent to corrupt politicians at high interest rates will have to face the consequences of their perilous lending by writing off their debts, the academic said in a statement.
Scholars believe that private creditors Sri Lanka’s First Government Debt Default Because they made “huge profits” by charging a premium for renting. Therefore, they said private lenders that benefited from higher returns should be “willing to accept the consequences” of their actions.
However, not everyone agrees with this proposal.
WA Wijewardene, former deputy governor of the Central Bank of Sri Lanka, has said the debt forgiveness plan could lead to the collapse of the current global financial system if it is actually implemented.
Many of the academics who signed the statement are not economists, he told Al Jazeera.
“It is a galaxy of scholars belonging to the social sciences. As such, it should be critically evaluated because, if accepted into Sri Lanka, it will indeed provide a blueprint for a new global economic order.”
He added: If you destroy this, the world will collapse. I don’t know what happens after that. ”
Wijewalden told Al Jazeera that Dani Rodrick, who “strongly supported the Washington Consensus, neoliberal economic reforms around the world,” and Thomas Piketty, “of the other side,” were on the same page. He said he was surprised. Request the cancellation of the debt.
Instead, these academics and economists “should insist that accountability be established,” he said.
“Borrowed money is wasted or appropriated by the ruler, [out] people who have not benefited from it. Those rulers should be held accountable for their losses and we must fight to establish a system of governance in which they should be prosecuted for their crimes.
Wijwarden added that debt cancellation would not benefit the people, but the leaders of “corrupt tyrants.”
“Corrupt tyrants have already profited on the money they borrowed. This is known as the moral hazard problem in economics: when someone takes responsibility for you, there is no incentive to take even the least precautions to minimize it,” he said. said.
It’s time for bilateral creditors to step up
For now, Sri Lanka Central Bank Governor Nandalal Weerasinghe has urged China and India to reach an agreement on reducing the country’s debt.
“We don’t want to stay in this situation too long without meeting our obligations. It’s not good for the country, it’s not good for us. It’s not good for Sri Lankan investor confidence,” Weerasinghe recently told the BBC. rice field.
During a two-day visit to Sri Lanka on Friday, Indian Foreign Minister S Jaishankar said: New Delhi provided a loan guarantee to the IMF It was meant to pave the way forward for Sri Lanka but did not specify what those guarantees were.
Following India’s assurances, China has proposed a two-year moratorium, according to Sri Lanka’s Sunday Times.
The China Exim Bank, which is responsible for much of its lending to Sri Lanka, said in a letter to President Ranil Wickremesinghe, asking all Sri Lankan creditors that the two-year moratorium would be a short-term suspension of its debt to China. said it would be We meet to put together medium- and long-term commitments.
China has yet to issue an official statement on the matter.
The guarantee comes on the eve of a meeting of the Paris Club of Sri Lankan creditors to discuss debt restructuring measures as a prelude to IMF funding.
Dananath Fernando, chief executive of the Advocata Institute, an economic policy think tank, said China could respond to requests for loan forgiveness as similar requests would come from developing countries where China is an active lender. said to be of low quality. in Sri Lanka.
“When you offer debt relief to a country, it’s like a court order. Other countries will want the same relief,” he told Al Jazeera.
Moreover, IMF Managing Director Kristalina Georieva points out that no taxpayer would be happy to completely write off loans provided to other countries.
“It is a concept that is actually very widely shared by many Chinese officials and citizens, that China is still a developing country and therefore … they expect to be repaid for being a developing country. ,” she said at a media roundtable earlier this month.
“Haircuts in the Chinese context are therefore very difficult politically,” but the Chinese see the equivalent of extending maturities, lowering or eliminating interest rates, and finally making payments to reduce the debt burden. She added that she understands what can be achieved by
The Advocata Institute’s Fernando dismissed the demand for debt forgiveness as “unrealistic” and all creditors would end up with haircuts (reducing debt payments), coupon clipping (giving creditors the to reduce or waive). ), extending the maturity of the loan, or a combination of all three.
The Japanese embassy in Colombo did not respond to Al Jazeera’s request for comment by press time.
Trade Unions Join Call for Debt Forgiveness
Meanwhile, trade unions representing garment factory workers, a major employer and source of income in Sri Lanka, backed the call for debt forgiveness and said the economic restructuring measures demanded by the IMF as part of the debt relief plan would help Sri Lanka The government said it would be privatized. State-owned enterprises impose new taxes and increase tax rates.
Anton Marcus, co-secretary of the Free Trade Zone and General Service Workers Union, said in a statement that none of these measures “will be the answer to Sri Lanka’s current debt crisis.” The scholars’ call is that “at a time when Sri Lanka’s export manufacturing and services sector is being forced to place massive orders that threaten jobs, it should be further lobbied by all labor rights activists and the global trade union federation. I’m alive,” Marcus said.
The World Food Program estimates that 8 million Sri Lankans out of a population of 22 million are ‘food insecure’, with hunger concentrated in rural areas.
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