Debt talks: ‘Othello’ without Iago?
By N Sathiya Moorthy
Now that President Ranil Wickremesinghe has promised to table the IMF bail-out documents in Parliament on 25 April, there will be some relief for citizens wanting out of the meaningless politico-electoral speculation of the time. It could well be back to a more serious discourse on the economy, economic recovery – how much more ‘sacrifice’ the nation would have to make, to stay afloat as an unsuccessful economy on the path to distant recovery. Yet, this is all the light at the end of the tunnel for the nation and its people every which way, comprising the society, polity, economy and security, both internal and external.
This time round, it is not just about the IMF package or the government’s commitment for early re-structuring of the external debt with sovereign nations. It is more about the immediacy of internal situation. Unlike when the crisis hit the roof, the government (independent of who was/is in power) has declared that the restructuring process would include internal debtors, as well.
It is unclear if the government will give out the domestic debt-burden along with the IMF papers. Yet, it may end up putting out the official figures in Parliament outside, or when it holds talks with important stake-holders on the domestic front.
However, according to G L Peiris, former minister now in the Opposition, the proposed domestic debt-restructuring could involve a high LKR 04 trillion in treasury bills and LKR 8 trillion in treasury bonds, adding up to a total of LKR 12 trillion. Add this to the external debt of $7.1 billion to bilateral creditors, $ 12 b in euro-bonds and $ 2.7 b in other commercial loans — and that is what the nation’s total debt-burden.
It is not that the government did not mention it, but the nation was in no mood to take it all together, as the China-India debts were always in the news with Japan following. No one really worried about the treasury bills, bonds and other commercial loans, especially when the government swore against delays in repayments.
The phrase ‘debt-restructuring’ was yet to enter the contemporary Sri Lankan lexicon. Even now, there is more talk of debt-restructuring in specific bilateral terms and not in the overall context, but the cat is slowly beginning to peep out of the bag on the domestic debt issue.
Politically suicidal
Prof Peiris, a constitutional expert and not an economist per se, has cautioned that the domestic restructuring will impact on the Employees Provident Fund (EPF) and the Employees Trust Fund (ETF), implying that they are among the big investors in the Treasury instruments. Of course, the Central Bank would also find its place in the list of creditors’ it falls in a different bloc compared to the rest.
Of course, the list includes private investors. They who are appreciative of this government’s efforts at stalling the economy’s downslide and seeking to reverse the trend of the previous year, could overnight turn against the leadership.
The government now says that putting all debts together and acknowledging the existence of a huge domestic debt is the right thing to do in political and economic terms. Clear enough, international debtors, especially non-government investors, would have been peeved at the bias in the matter of repayment and/or debt-restructuring.
The implication will be worse for the people, particularly serving, retiring and retired government servants, whose savings with the public sector mutual funds will take indeterminable time to be repaid, or utilized in between for personal needs like meeting medical or marriage expenses. Given that prices and tariffs are not expected to come down any time soon to pre-Aragalaya levels, the government decision could be an invitation for public agony, and hence democratic protests, either on the streets or in elections or both.
At a time when there is a greater urban middle class acceptance of President Ranil Wickremesinghe for reviving the dying economy to the current level of stability to be able to restore it to the original shape and size. It will again be in an indeterminable period. Any attempt at restructuring the domestic debt of the government can thus be politically suicidal for the rulers.
By extension, it can lead to greater political instability that possibly during the Aragalaya – as unlike in the past, there won’t be ‘regime change’ but instability of a much higher order. There would be no escape for the nation, then.
In this background, there is a need to take a closer look at the Opposition’s veiled allegations – more pronounced from Peiris – that the new anti-terror laws anticipate such possibilities caused also by a further economic downturn. It is too early know if the recent American promise on working with the Sri Lankan government on the economic and human rights fronts mean anything in context – or, if the latter part refers only to the UNHRC initiative.
Unilateral initiative
It is here the Indian neighbour’s silent initiative at getting a group of friendly nations to form a team of creditors to re-negotiate for re-scheduling Sri Lanka’s debts need a special mention. It is the second such term that India took the unilateral initiative. A year ago, as President Ranil Wickremesiinghe had publicly declared more than once, India was the only nation to rush all kinds of aid when the forex crisis worsened, leading to the current economic downturn.
In Washington, for the annual meeting of the member-nations in the IMF and the World Bank, the finance ministers of India and Japan met in the company of senior officials of France, for a video-con with President Wickremesinghe in Colombo and the official Sri Lankan team that was seated with them. India is incidentally also the current G-20 chair. Japan is at present the G-7 chair while France generally represents Paris Club nations in such talks.
The three, representing most bilateral creditors of Sri Lanka the world over, have since decided to work out debt-restructuring principles and in a transparent form. Staying out of it all as in the past year, China, Sri Lanka’s single largest bilateral creditor, has yet again promised to do well by Sri Lanka. No details are available, possibly with the Sri Lankan government.
Through the past year of debt-negotiations with the nation, China has taken an one-sided view of repayment. China has expressed willingness to extend more debts to the country for it to repay the pending debts to Beijing. At the international level, it means an inequitable Sri Lankan approach to debt-restructuring and repayment. This is just not on.
Such an approach could also push Sri Lankan into the proverbial Chinese debt-trap than any time in the past since the advent of the Hambantota project, a decade-plus ago. This is because for repaying China’s existing debt with interest, Sri Lanka will have to borrow more from that very nation. This, when not repaid, could spiral into a new spin, from where there would be no escape for the nation.
Groping in the dark
What does China have in mind when it says it will help Sri Lanka out of the current situation? It is doubtful if Beijing has spoken to government leaders in any detail for them to make out something concrete, to be able to present to other bilateral creditors and more so to international individual and institutional investors, who would want a preferential treatment in repayment schedule – and naturally so.
Does it mean that the Washington Three will have to grope in the dark, or will they have to accept an inequitable treatment from Sri Lanka with a stand-alone China at the other end and seeking out its pound of flesh, quick and first? Cutting it out from near the heart could serve China’s purpose. Though the Washington Three may Portio, the defence lawyer, there won’t be an Antonio left, leave alone his inability to repay other debtors.
Yes, it is all about Shakespeare’s ‘Merchant of Venice’. But there is another play of the bard, the source for the proverb, ‘Hamlet’ without the Prince of Denmark. This may seem to fit China in the nation’s debt-restructuring process. But a better comparison would be about a dark character in a darker Shakespearean tragedy: ‘Othello’ without Iago!
(The writer is a policy analyst & political commentator, based in Chennai, India. Email: sathiyam54@nsathiyamoorthy.com)
