As the week closed the Central Bank and the Finance ministry sought to unveil the long-awaited domestic debt restructuring plan, a prerequisite to attain debt sustainability demanded by the IMF.Ironically, Governor Nandalal Weerasinghe who had vehemently opposed any tinkering with domestic debt last year had to headline the news conference to announce the very same move he had resisted for months.
Be that as it may, Weerasinghe cogently put forward a rationale for locals too to share the pain at a time when the country is asking its foreign creditors to take a 30 percent haircut on sovereign bonds they hold.
The Domestic Debt Optimisation (DDO), an euphemism for cutting debt, has spared commercial banks. That could put to rest, at least for now, the fears of a run on banks. Governor Weerasinghe argued that the banking sector already shoulders a disproportionate share of the tax burden by paying over 50 percent while the rest of the corporates pay only 30 percent.
The governor also warned that the cost of a financial sector collapse would be unbearable for the country and the economy which is already in a perilous state.
While there may be merit in his argument, the Central Bank chief is breaching the first principle of any debt restructure, that is to treat all creditors on comparable terms. While bonds held by banks are spared, the same bonds held by pension funds, notably the Employees Provident Fund, are not. The tenure of bonds held by pension funds are to be extended. The coupon interest rate is also to reduce from 12 to nine percent from 2025.
Although rupee-bonds held by banks are spared, dollar-denominated Sri Lanka Development Bonds (SLDBs) are on the chopping block. The worst case for SLDB holders is to take a 30 percent haircut, lock in the rest of the money for six years and get 4.0% interest.
The best case for SLDB holders is to exchange the dollar bond for depreciated rupees and get 1.0 percent more than the central bank’s policy rate after locking the money for 10 years.
The governor argues that this should improve the balance sheets of battered commercial banks as he had asked them to provision a 35 percent cut on the SLDBs. With Thursday’s announcement of a 30 percent haircut, the commercial banks will see their balance sheets improve slightly.
Some central bankers also speculated that the extended bank holiday weekend was not to prevent a run on banks, but to stall a sharp rise in the price of depressed bank shares at the Colombo bourse! Whether battered investors will have any appetite for bank shares is to be seen on Tuesday when the Colombo Stock Exchange reopens for trading.
The political fallout of the restructure is most likely to be with the EPF funds. The Central Bank and the government must level with the workers. No restructure can be a good thing, but to sell it as a deal that will give better returns is just rubbish. One panjandrum of the government has already said that “domestic debt optimisation” (DDO), an euphemism for cutting debt, is as good as “no debt restructure.”
The Central Bank is guaranteeing that the EPF, and other pension funds, will get 12 percent interest on their government bonds till 2025 and thereafter nine percent. What is the value of any assurance from the government or a central bank that is already in default?
The EPF by statute was required to invest a vast majority of their funds in government securities which till Thursday were considered gilt-edge investments. The shenanigans of the EPF in investing in the stock exchange and being used as a victim of pump-and-dump scams is well known. No one has been brought to account for those misdeeds, but millions of taxpayers are once again asked to share the pain of nursing a bankrupt nation to viability.
The Wickremesinghe administration has the requisite majority in parliament to push through the debt restructure, but there is nothing to stop EPF members or and SLDB holder seeking legal redress. But any court process could only make the pain linger longer.
Friday 22nd September, 2023
Opposition Leader Sajith Premadasa yesterday created quite a stir in Parliament by demanding to know why President Ranil Wickremesinghe had taken some SLPP MPs to New York. Premadasa said those who were responsible for bankrupting the country must not be allowed to junket at the expense of taxpayers. He must have struck a responsive chord with the irate public, but going by his line of reasoning, the question is whether any member of the current Parliament can be considered eligible to accompany the President during his foreign visits. All the MPs are responsible, albeit to varying degrees, for the country’s bankruptcy caused by unsustainable debt, which accumulated under successive governments.
All governments, after 1977, borrowed heavily from both domestic and foreign sources, making the country’s debt unsustainable, and mismanaged the economy. They allowed their members and cronies to indulge in corruption and steal public funds, and did nothing to prevent the waste of state resources. The Gotabaya Rajapaksa government, which was characterised by mismanagement, inefficiency, corruption and waste, precipitated the economic collapse, which would otherwise have taken a few more years to manifest itself.
Thus, all those who were members of the governments led by the UNP or the SLFP, and the SLPP MPs are responsible for the current economic mess. The same goes for the MPs who supported terrorism, which bled billions of rupees, if not dollars, from the national economy for years, and drove investors and foreign tourists away, thereby severely retarding the country’s economic growth.
Most MPs, including those who craftily marketed Gotabaya as a messiah and duped the public into voting for him, have sought to absolve themselves of the blame for the current economic crisis by claiming that they were not aware that the country was heading for bankruptcy, and nobody warned them. But is there any need for anyone to provide these self-proclaimed mavens with such information? They are known for their economic punditry, aren’t they?
On listening to our legislators, who speak very authoritatively on virtually anything either in Parliament or elsewhere, one wonders whether they are omniscient. Some of them would have the public believe that they have found out what the police and special committees and commissions have failed to ascertain all these years; they claim to be aware of who masterminded the Easter Sunday terrorist attacks!
Besides, they play the roles of prosecutors and judges and conduct trials in the House, to all intents and purposes, although the Constitution says the judicial power of the People shall be exercised by Parliament through courts, tribunals, etc., except in regard to matters relating to the privileges, immunities and powers of Parliament and of its Members. While claiming to be so knowledgeable and usurping the powers of other institutions, these worthies have had the audacity to claim that they were not aware that the economy was nosediving and the country was heading for bankruptcy!
Even some SLPP dissidents including former Cabinet ministers have claimed that they had been kept in the dark about the state of the economy, and the declaration of the country’s bankruptcy came as a surprise to them! Among them are some experts who never miss an opportunity to parade their knowledge of economic and financial affairs. Their claim is tantamount to a confession that they neglected their legislative duties and functions, and did not keep a watchful eye on the economy. Will they be able to convince the public that they are capable of managing the economy better?
One cannot but fully endorse the Opposition Leader’s demand that no MP who is responsible for the country’s bankruptcy be allowed to spend public funds on foreign junkets.
Grave diplomatic issue
Thursday 21st September, 2023
The recent killing of a prominent Sikh activist named Hardeep Singh Nijjar, in Canada, has triggered a diplomatic row between Ottawa and New Delhi. Canada lost no time in ordering an Indian diplomat out of the country, accusing India of having had a hand in the assassination. Denying Canada’s allegation, New Delhi reacted with a tit-for-tat diplomatic expulsion.
The so-called great powers have carried out numerous assassinations on foreign soil over the past several decades, with the US and Russia leading the pack. So, it is only natural that the spy outfits of powerful nations become the prime suspects when the people who are hostile to them happen to be murdered in other countries.
The diplomatic fallout of Nijjar’s assassination shows how concerned powerful nations such as Canada and India are about what they consider threats to their sovereignty. In a hard-hitting statement on the expulsion of its diplomat, the Indian External Affairs Ministry said Canada’s allegations sought to ‘shift focus from Khalistani terrorists and extremists, who have been provided with shelter in Canada and continue to threaten India’s sovereignty and territorial integrity’. Referring to Ottawa’s allegation against India, Canadian Foreign Minister Melanie Joly said, “If proven true, this would be a great violation of our sovereignty and of the most basic rule of how countries deal with each other.” (Emphasis added.)
Curiously, going by the Canadian Foreign Minister’s statement, the basis of Ottawa’s angry reaction is a mere allegation that has not been proved yet. Shouldn’t Canada have investigated the allegation against India thoroughly and made an informed conclusion instead of plunging head first into lighting the diplomatic blue touchpaper, as it were?
Whether India had a hand in the assassination at issue, one may not know, but what it has said about Canada stands scrutiny; Canada harbours foreign terrorists of all sorts, and, worse, it allows terror fronts to influence its policies simply because they are capable of delivering block votes and campaign funds to the Canadian political parties and politicians, who are no better than their Sri Lankan counterparts notorious for looking after the interests of lawbreakers in return for votes and campaign funds. This, Canada is doing while claiming to be promoting democracy and human rights globally. Can a country that allows terrorist groups and their fronts to use its soil and institutions to raise funds and drum up international support for violent conflicts in other countries expect the world to buy into its claim of being a champion of democracy?
Meanwhile, the US has called for an investigation into the assassination of the Sikh activist in Canada, according to foreign media reports, but one should not be so naïve as to think that Washington is driven by a genuine desire to get at the truth and ensure that justice is served. While making much-publicised calls for investigations for the consumption of the world, Washington is likely to intervene to reconcile Canada and India, for they are its strategic allies, and it does not want them to be at loggerheads.
The US is no respecter of human lives when it comes to safeguarding its interests. How it handled the assassination of Washington Post journalist Jamal Khashoggi is a case in point. The US intelligence agencies concluded that Saudi crown prince Mohammed bin Salman had approved the killing of Khashoggi inside the Saudi consulate in Istanbul, in 2018, but Washington did not target Salman with sanctions, financial or otherwise.
India has realised that it is really hurtful to have other countries harbouring terrorist groups who pose a threat to its sovereignty and territorial integrity. Ironically, it once did to Sri Lanka exactly what it has accused Canada of doing at present; it sheltered Sri Lankan terrorists.
If only the great powers heeded the Golden Rule, and did unto others as they would have others do unto them.
House of hypocrites
Wednesday 20th September, 2023
Opposition politicians are making the most of Channel 4’s recent claim that the Easter Sunday attacks were part of a political conspiracy, and the Rajapaksa family and its loyalists in the state intelligence agencies were behind it. They are flogging the issue really hard in a bid to gain political mileage, which they are badly in need of, on the pretext of trying to have justice served for the victims of the carnage.
The past few days have seen the Opposition top guns going ballistic in Parliament, condemning the government and demanding an international investigation into the Easter Sunday terror attacks. Curiously, while calling for a fresh probe, they are demanding that criminal proceedings be instituted against certain individuals on the basis of the recommendations made by the Presidential Commission of Inquiry (PCoI), which investigated the Easter Sunday bombings. They find themselves in a contradiction. If they consider the PCoI findings credible enough to be the basis for criminal proceedings or any other form of punitive action against the persons they are hauling over the coals, why should they ask for a fresh probe, international or otherwise?
The Opposition yesterday renewed its call for legal action against Senior DIG Nilantha Jayawardena, who was the Head of the State Intelligence Service at the time of the Easter Sunday attacks. Speaking in Parliament, Chief Opposition Whip Lakshman Kiriella vehemently protested against a government decision to hold a meeting where Jayawardena was scheduled to brief the MPs on the ongoing investigations into the Easter Sunday attacks. He called for an explanation, condemning the government for having promoted Jayawardena.
The government should have implemented all PCoI recommendations, especially the one that former President Maithripala Sirisena and those who held key positions in the state intelligence agencies at the time of the 2019 terror attacks be prosecuted. But it found itself in a dilemma because Sirisena had closed ranks with the SLPP. It must be regretting its decision not to have him prosecuted because he has welcomed Channel 4’s allegations against the Rajapaksas and called for an investigation thereinto. He seems to consider them credible evidence, which will help prove his innocence! He is trying to wriggle out of trouble at the expense of the Rajapaksas!
The Opposition is right in condemning the government for having promoted the police officers whom the PCoI has asked the Attorney General to prosecute for their failure to prevent the Easter Sunday attacks. But it should not be selective in calling for action against those the PCoI has held accountable. Let the Opposition bigwigs be urged to read at least the pages 470 and 471 of the PCoI’s final report, wherein it is clearly stated that the entire Yahapalana government was accountable for the tragedy. The PCoI has said: “Since 2015 the Government did not give priority to national security … failed to properly appreciate the magnitude of the threat faced by the country due to IS and Islamic extremism and other forms of extremism. This was aggravated by the breakdown in trust between President Sirisena and Prime Minister Wickremesinghe …. The dysfunctional Government was a major contributory factor for the events that took place on 21st April 2019. The Government including President Sirisena and Prime Minister [Wickremesinghe] is accountable for the tragedy. (Emphasis added.)
Thus, as we argued in a previous comment, it is clear that all those who were in the Yahapalana Cabinet in 2019 are also accountable for the tragedy, and have no moral right to condemn others. They are currently in the UNP and the SJB.
The SJB MPs, who held Cabinet posts in the Yahapalana government ought to explain why they did not press for criminal action against the police and military officers concerned or an international investigation into the carnage, while they were in power. Equally culpable are those who backed the crumbling Yahapalana government, which neglected national security and did nothing to neutralise threats to the country; they include the JVP and TNA politicians.
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