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Options for Foreign Debt Management in Sri Lanka: Can we escape from IMF/ISB Debt Trap?

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by Luxman Siriwardena,
Managing Director,
Veemansa Innitiative,
Think Tank and Advocacy Group

 

The setback due to the pandemic has aggravated some of the perennial macro-economic and sectoral problems in Sri Lanka. For example, borrowing and accumulating external debts has been a practice of successive governments since 1978, which was the year of partial liberalization of the economy. During the early periods, when Sri Lanka was considered a low-income country, we were entitled to substantial grant aid as well as concessionary finances.

This relatively low interest facilities and lenient conditionalities provided incentives for the governments to keep borrowing for many development projects, from bi-lateral and multi-lateral lending agencies, irrespective of inflated costs of many of these projects. In most of these cases, financial benefits also have spilled over to Sri Lankan politicians, bureaucrats, and technocrats. Notwithstanding such leakages, these foreign funded projects increased the availability of more sophisticated infrastructure and utilities in sectors such as, electricity, highways, drinking and irrigation water, as well as the Colombo port and airports. In addition, education, agriculture and health were the prime targets of both Sri Lankan policy makers and donors/lenders.

There was a period when Sri Lanka was termed as “a Donor Darling” (see figure).

Sri Lanka became a darling of the Western donors primarily due its subservience to the West under Jayawardena-Premadasa regime). However, since we attained lower-middle income country status, concessionary funding has not been available and therefore, most borrowings have been at commercial or near commercial lending rates. In this context, the country has accumulated over US$ 34.7bn debt1 up to 2019. These borrowings have been for development projects, import of consumption items and direct budgetary support to meet current expenditure, including debt servicing. The current debt situation.

At the moment, one of the most critical challenges for the Rajapaksa administration is managing or preferably reducing Sri Lanka’s debt while meeting the current level of foreign exchange requirements and hopefully implementing necessary development projects.

While the selected development projects are generally presented to the multilateral donors; World Bank and ADB as well as bilateral lending institutions such as JICA, US-AID and similar institutions in China and European countries, seeking loan financing, the rates of lending are equal or closer to the market rates. Since 2007, borrowing through International Sovereign Bonds (ISBs), which became a common practice, has now emerged as the most serious challenge for the current government to ensure sustainability or reduction foreign debt.

The focus of this article is to discuss alternative methods of managing the debt in spite of the COVID-19 pandemic that has pushed almost the entire world (other than China) into a recession.

In this context, conventional economic policy pandits, academics and consultants recommend that the emerging economies such as Sri Lanka should seek the refuge in International Monetary Fund (IMF) Programmes. Based on the IMF guarantees the countries in foreign debt crisis will be eligible for further assistance from other multilateral and bilateral lenders, while qualifying for accessing the International Sovereign Bond Market. According to this prescription, without the support and blessing of the IMF, we have no way of securing sufficient funding for re-payment of maturing debt, balance of payment requirements or development programmes.

Since the election of the new government all our well-known economists, and many so-called experts have been promoting the above policy prescription as Sri Lanka is, according their assessment, at the verge of a default and economic collapse. Most if not, all these pandits were expecting the government will continue to proceed with the borrowing from the international markets subscribing to Samurai or Panda bonds. Surprisingly our conventional economic advisors are increasingly becoming impatient and critical of the Government for not negotiating with the IMF to enter into a programme which will be entitled and receive loan facility and more importantly in turn qualify for raising finance through ISBs. Does this process lead to a reduction of debt or payback of loans? Of course not, nor reduction of debt burden or the severity of the debt problem.

As an IMF programme is likely to impose conditionalities to meet the Fund’s debt sustainability parameters, the readers may perhaps understand that, this approach is not even to reduce the severity of the debt problem but for reducing the burden over the next few years by extending maturities probably through some form of ‘Grace Period’. The bottom line will be that Sri Lanka will continue to have challenging debt dynamics which I would like to call it as ‘IMF/ISB DEBT TRAP’ as long as we fail to achieve substantial increase of exports and FDI. In other words, we will merely be postponing and aggravating the debt problem unless we can accelerate growth by increasing production of tradable goods and services which will earn or save foreign exchange.

Cost of raising funds through International Sovereign Bonds

A sovereign bond is defined as a debt instrument issued by a national government to raise generally foreign currency requirements in case of countries such as Sri Lanka. Sovereign bonds are denominated in foreign currencies such as USD, the Euro, Japanese Yen and Chinese Yuan. The successful issue of ISBs require several steps engaging highly professional individuals and institutions including global banking giants. Under each of these steps many upfront costs are to be incurred by the government. A typical bond issue involves, fees (commissions) and other expenses. Three large components of the fees, according to a World Bank document are for the lead-managers, rating costs and legal expenses. Interestingly those transaction costs are paid at time of issuance (upfront). In spite of the competition among the banks there is little transparency specially with regard to bond issues of countries like Sri Lanka. Another major expense is often for obtaining a rating for each bond which is generally similar to the fee for the lead-managers. There are also expenses for legal counsel, marketing especially road shows, fiscal and paying agents and advisors. Cost will also depend on which markets are targeted for the road shows undertaken in major cities in developed market economies.

Throughout the Sri Lankan history of issuing ISBs people have only learned about the total value of the bond issues and subscribed but not the direct and indirect costs that have been incurred in the process, for example, officials of the Central Bank, Ministry of Finance, etc. will be travelling to several capitals in the world for negotiations, road shows and other associated events etc. incurring scarce foreign exchange of Sri Lanka. Of course it should have provided very tempting incentive for this approach

Some economists who are faithful followers of IMF policy prescriptions prefers to identify the IMF/ISB Debt Trap as the symptom not the cause of the problem. According to them the debt trap was caused by poor fiscal outcomes over many years and IMF/ISB debt was incurred to meet deficit financing.

In this article, the most pertinent and decisive issue to raise is, what should be the alternative policy recommendations of our learned economists. As we all are well aware if Sri Lanka qualifies to receive assistance from the IMF, such funding will be for as balance of payment support subject to certain conditionality which are likely to include; removal or reduction of subsidies, removal of import controls, non-strategic assets privatization, etc. and many such measures of government interventions.

Many, if not all these adjustments will be painful to the ordinary citizens and therefore, make it difficult to sell politically. If Sri Lanka for that matter, any other country in our predicament is not willing to go through an IMF austerity programme with its stringent conditionalities, what options are available for them. Let’s discuss what appears to be the economic management strategy of the current government. With the lockdown of the world economies and disruption of global value-chains, Sri Lankan government was compelled to ‘Close the Economy’ to some degree. Subsequently, the government policy makers seem to be implementing a fairly well-managed import administration scheme and associated measures to ensure enhanced foreign exchange savings. Current import management scheme has selectively targeted non-essential ‘big-ticket’ items.

In order to prevent further deterioration of the debt situation the government seems to be minimizing new borrowings for implementation of numerous development projects with commercial characteristics. Both acceding to IMF austerity programme, as well as, controls imposed by the government will have contractionary impact on the local economy. Of course, second option will reduce the confidence of capital markets, foreign equity investors and even some local enterprises. Generally, IMF programs are sold to a government in-need of balance of payment support on the basis that agreement with the Fund would pave way for the country to achieve a higher sovereign rating and confidence of the investors in ISBs.

Pertinent question here is, as learned economists, professionals and advisors, are they in a position to develop an alternative development strategy for Sri Lanka in order to overcome the current difficulties reducing the severity of the debt burden created primarily through borrowings from ISBs. It appears that the, current administration is developing a strategy that will cause less pain to the people than under an IMF program and have more positive outcomes in terms of output, employment and incomes.

Unfortunately, however, in the past, we have rarely seen Sri Lankan policy makers or even academics develop alternative concepts or strategies instead of repeating what they have learned as classical, neo-classical or Keynesian schools and reinforced by the training programs conducted by multilateral or bilateral lending agencies.

In conclusion, let me quote once again from my recently published article;

“Whatever the reasons are, instead of thinking independently on their own most of our economists parrot their mentors in the west for short-term gains like easy recognition and self-fulfillment PROMOTING THE SAME FORMULA AGRAVATING the vicious circle and perpetuating the misery of our people. Irony is that when a solution is needed the only thing some of our experts are capable of recommending is to seek refuge in borrowing from multilateral or bilateral lending agencies. Most Sri Lankans need to be reminded that, Sri Lanka has already gone under 16-IMF Programs and have reached the current predicament. This reminds us the famous saying attributed to Einstein that “insanity is doing the same thing over and over again and expecting different outcomes’’.

Signs are that the current administration is deviating from the orthodoxy and searching for innovative and pragmatic development path.

(Article is based on a key-note address delivered by the writer at the 08th International Research Conference conducted by the department of Economics and Statistics, University of Peradeniya)

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Olga Sirimanne (1923 – 2021)

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In memoriam

My darling beautiful angelic wife Olga (First batch of Air Ceylon stewardesses) and I commenced a partnership of love in Holy Matrimony on 17th June 1954. We loved each other deeply, enjoyed a blissful relationship for over 66 happy years with each other. We devoted our lives to give love and happiness not only to each other but also to all those who came to know us during our delightful almost 100 years. Beautiful incidents and memories are portrayed in several photo albums. Our friends and family loved listening to Olga’s exciting experiences and stories laced with humour and laughter as she was an excellent story teller.

Olga was blessed with three loveable children, Sunil, Laksen and a beautiful daughter Minoli; adorable grandchildren, Shelana and Sanjev, Rahel and Sariah, Kaitlyn and Taylor; great grandson, Sevan and darling niece, Ashie whose mother (Olga’s only sister) passed away some years ago. Ashie considered Olga, her ’Loku Ammie’ as her surrogate mother. Her son-in-law and daughters-in-law too loved her deeply with great respect and love. She held them fondly close to her heart with pride.

Her lifelong heart-throb was me. She always called me ‘darling’ but never addressed me as ‘Siri’ though all her friends did. Since I was ‘Thathie’ to our loving children, she too affectionately called me ‘Thathie’ even when she was on the verge of passing away. I too enduringly called her ‘Ammie’ as I loved her as much as our children.

Her gentle protective care and devotion helped me to maintain youthful looks and excellent health to celebrate my 100th birthday on 31st January 2020. She and our daughter had arranged a Holy Mass at home followed with a surprise birthday party attended by a few close friends and relations. She too received Holy Communion with blessings for the peaceful and happy years of coexistence with me. I too responded to her caring ways and helped her maintain her health and beautiful charming looks to the end.

Her 98th birthday was on 12 January 2021. She was greeted by me first thing in the morning, with loving kisses, hugs and prayers to God for giving us another year of peace and happiness. She received with warm wishes lots of beautiful bouquets and baskets of flowers, birthday cards and a countless number of telephone calls from children, grandchildren, relations, friends and loved ones here and scattered around the globe. It thrilled her to know that so many remembered and loved her.

Deep within our hearts, there was this chilling fear of the unbearable sorrow if one of us was left without the other. As age was creeping into our lives, every night we started reciting together a prayer to God before going to sleep, kissing each other and whispering, “I love you darling, God Bless you.”

The inevitable happened on 3rd February 2021 when my darling (Olga) passed away in my arms to the Kingdom of Heaven to be with Jesus. Thus, ended our happy and peaceful partnership, me afflicted with sorrow and yearning for her presence. I love you darling, my love. Rest in Peace.

Our children, Sunil, Laksen, Minoli and I wish to thank all those who attended the private funeral, sent floral tributes and messages of condolences and regret our inability to thank you individually . Please accept our heartfelt gratitude.

 

D.L.Sirimanne

leosirimanne@gmail.com

 

 

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Divided people in a distorted democracy

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The Geneva Calamity comes more from the thinking of the Ministry of Foreign Affairs, than that of the former Chilean politician who is now the UN High Commissioner for Human Rights.

It is such thinking of disaster advancement that made our Foreign Minister tell the Geneva meeting in his virtual address that Sri Lanka acted in ‘self-defence” in the fight against the LTTE’s terrorism. Was it self-defence that led to the actions of the armed forces or the fundamental right to safeguard the unitary state, sovereignty and territorial integrity of the Republic of Sri Lanka – whether Democratic Socialist or not?

The debate will go on in Geneva about our actions for self-defence, that defeated the LTTE, and what has taken place after that assurance of self-defence, that relates to wider reaching issues of Human Rights, with emphasis on responsibility and accountability.  Now that Yahapalana is no more, it is the task of the Powers of Fortune, or Saubhagya, to make its own case on how Sri Lanka relates to the international community.  This is certainly no easy task as we see the unfolding of the politics and crooked governance in Sri Lanka.

As the echoes of Geneva goes on, we are much more involved in the Easter Sunday carnage and the Presidential Commission report on it. The people are certainly puzzled as to why the planners and directors of this hugely bloody act of Islamic terrorism have not been revealed. We have the unique situation where the person who appointed this Commission of Inquiry, none other than former President Maithripala Sirisena, is to be legally punished for this carnage. 

Are we to have special satisfaction on the possibility that future Heads of State, who appoint such commissions of inquiry, will be the first accused, even in the much-delayed reports of such commissions?  There is not much hope for such satisfaction. The Head of State is the emblem of supremacy, with all the powers of the 20th Amendment to the Constitution. 

The families of the victims of that terrorist attack at the Katuwapitiya -Negombo, Kochchikade – Colombo, and Batticaloa churches, will certainly remain in search for the exposure and punishment of those who planned and carried out these situations of carnage. What we are shown is the true purpose and meaning of a Presidential Commision of Inquiry – PCoI.

We have certainly gone back to the origins of such inquiries, and the powers of Saubhagya at Rajavasala, have shown their honour to J. R Jayewardene, who brought the Presidential Commission as the show of the five-sixth majority Jayewardene Power.  Mr. Sirisena may remember how the first PCoI of the Jayewardene era, ensured the removal of civic rights to Mrs. Sirimavo Bandaranaike, the defeated Prime Minister and Mr. Felix Dias Bandaranaike, former Minister of Justice.  

Punishment of one’s political opponents is the stuff and substance of Presidential Commissions of Inquiry, and Sri Lanka is now showing the whole world how much this is a part of a Distorted Democracy. A show of power that was enabled by 69 lakhs of voters in the presidential election, followed  by the parliamentary two-thirds gained through those who bowed their so-called critical heads on ‘Dual Citizens” coming to Parliament, and the huge Muslim MP cross-over – for the benefits they must have gained – as all such cross-over politicians always obtain.

The Archbishop of Colombo, Malcolm Cardinal Ranjith, who certainly prevented the Easter Sunday carnage leading to even more bloodshed, by a few timely words of caution and Christian thinking that tragic day, must be now wanting to know why he was so keen to get the report of this Commission.  Who were the planners, the funders, the trainers and leaders of this carnage? What will the people know in the weeks and months to follow, and how much can the feelings of the families that were the bloody victims of this massacre of the innocents, be brought to some relief?

This PCoI is the answer to the political prayers of those manipulating power today. It is the answer to the continually rising Cost of  Living, the protection to those who keep destroying our forests and jungles, the safeguard for all those who keep reducing the Alimankada pathways of our elephants, it is the whistle blow of  go ahead to the forces of urban destruction, and the show-piece managers of Presidential visits to the rural people. 

The rising voices of sections of the Maha Sangha against this PCoI, the call from Christian voices to expose and deal with the planners and movers of this carnage, and the louder voices for the protection of nature and the environment, will be the cause of joy to the powers of a Deadly Dominant Democracy. It is the message of power to those who take pride in killings of the past – be it the Tigers of the LTTE, or the cases of killed, injured and missing journalists, and the abduction of children.

 The powers that be will continue to sing loud about how we acted in self-defence against the LTTE terror. The echoes of Geneva will keep ringing in the ears of manipulative politics and power. But this and other PCoI reports that are seen as the substance of crooked power, will soon lead our people and country to an Age of Disaster – an age of new confrontations and calamities. How much worse can we become than the JRJ manipulation of anti-democratic power?

 How much can we allow our people to be divided, and thus supportive of a Distorted Democracy?

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HOW REBIRTH  TAKES PLACE

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The passing away of the consciousness of the past birth is the occasion for the arising of the new consciousness in the subsequent birth. However, nothing unchangeable or permanent is transmitted from the past to the present.

(From THE BUDDHA AND HIS TEACHINGS by Venerable Narada Mahathera)

“The pile of bones of (all the bodies of) one man
Who has alone one aeon lived
Would make a mountain’s height —
So said the mighty seer.”

— ITIVUT’TAKA

To the dying man at this critical stage, according to Abhidhamma philosophy, is presented a Kamma, Kamma Nimitta, or Gati Nimitta.

By Kamma is here meant some good or bad act done during his lifetime or immediately before his dying moment. It is a good or bad thought. If the dying person had committed one of the five heinous crimes (Garuka Kamma) such as parricide etc. or developed the Jhānas (Ecstasies), he would experience such a Kamma before his death. These are so powerful that they totally eclipse all other actions and appear very vividly before the mind’s eye. If he had done no such weighty action, he may take for his object of the dying thought-process a Kamma done immediately before death (Āsanna Kamma); which may be called a “Death Proximate Kamma.”

In the absence of a “Death-Proximate Kamma” a habitual good or bad act (Ācinna Kamma) is presented, such as the healing of the sick in the case of a good physician, or the teaching of the Dhamma in the case of a pious Bhikkhu, or stealing in the case of a thief. Failing all these, some casual trivial good or bad act (Katattā Kamma) becomes the object of the dying thought-process.

Kamma Nimitta

or “symbol,” means a mental reproduction of any sight, sound, smell, taste, touch or idea which was predominant at the time of some important activity, good or bad, such as a vision of knives or dying animals in the case of a butcher, of patients in the case of a physician, and of the object of worship in the case of a devotee, etc…

By Gati Nimitta, or “symbol of destiny” is meant some symbol of the place of future birth. This frequently presents itself to dying persons and stamps its gladness or gloom upon their features. When these indications of the future birth occur, if they are bad, they can at times be remedied. This is done by influencing the thoughts of the dying man. Such premonitory visions of destiny may be fire, forests, mountainous regions, a mother’s womb, celestial mansions, and the like.

Taking for the object a Kamma, or a Kamma symbol, or a symbol of destiny, a thought-process runs its course even if the death be an instantaneous one.

For the sake of convenience let us imagine that the dying person is to be reborn in the human kingdom and that the object is some good Kamma.

His Bhavanga consciousness is interrupted, vibrates for a thought-moment and passes away; after which the mind-door consciousness (manodvāravajjana) arises and passes away. Then comes the psychologically important stage –Javana process — which here runs only for five thought moments by reason of its weakness, instead of the normal seven. It lacks all reproductive power, its main function being the mere regulation of the new existence (abhinavakarana).

The object here being desirable, the consciousness he experiences is a moral one. The Tadālambana-consciousness which has for its function a registering or identifying for two moments of the object so perceived, may or may not follow. After this occurs the death-consciousness (cuticitta), the last thought moment to be experienced in this present life.

There is a misconception amongst some that the subsequent birth is conditioned by this last death-consciousness (cuticitta) which in itself has no special function to perform. What actually conditions rebirth is that which is experienced during the Javana process.

With the cessation of the decease-consciousness death actually occurs. Then no material qualities born of mind and food (cittaja and āhāraja) are produced. Only a series of material qualities born of heat (utuja) goes on till the corpse is reduced to dust.

Simultaneous with the arising of the rebirth consciousness there spring up the ‘body-decad,’ ‘sex-decad,’ and ‘base-decad’ (Kāya-bhāva-vatthu-dasaka).

According to Buddhism, therefore, sex is determined at the moment of conception and is conditioned by Kamma not by any fortuitous combination of sperm and ovum-cells.

The passing away of the consciousness of the past birth is the occasion for the arising of the new consciousness in the subsequent birth. However, nothing unchangeable or permanent is transmitted from the past to the present.

Just as the wheel rests on the ground only at one point, so, strictly speaking, we live only for one thought-moment. We are always in the present, and that present is ever slipping into the irrevocable past. Each momentary consciousness of this ever-changing life-process, on passing away, transmits its whole energy, all the indelibly recorded impressions on it, to its successor. Every fresh consciousness, therefore, consists of the potentialities of its predecessors together with something more. At death, the consciousness perishes, as in truth it perishes every moment, only to give birth to another in a rebirth. This renewed consciousness inherits all past experiences. As all impressions are indelibly recorded in the ever-changing palimpsest-like mind, and all potentialities are transmitted from life to life, irrespective of temporary disintegration, thus there may be reminiscence of past births or past incidents. Whereas if memory depended solely on brain cells, such reminiscence would be impossible.

“This new being which is the present manifestation of the stream of Kamma-energy is not the same as, and has no identity with, the previous one in its line — the aggregates that make up its composition being different from, having no identity with, those that make up the being of its predecessor. And yet it is not an entirely different being since it has the same stream of Kamma-energy, though modified perchance just by having shown itself in that manifestation, which is now making its presence known in the sense-perceptible world as the new being.

Death, according to Buddhism, is the cessation of the psycho-physical life of any one individual existence. It is the passing away of vitality (āyu), i.e., psychic and physical life (jīvitindriya), heat (usma) and consciousness (vijnana).

Death is not the complete annihilation of a being, for though a particular life-span ends, the force which hitherto actuated it is not destroyed.

Just as an electric light is the outward visible manifestation of invisible electric energy, so we are the outward manifestations of invisible Kammic energy. The bulb may break, and the light may be extinguished, but the current remains and the light may be reproduced in another bulb. In the same way, the Kammic force remains undisturbed by the disintegration of the physical body, and the passing away of the present consciousness leads to the arising of a fresh one in another birth. But nothing unchangeable or permanent “passes” from the present to the future.

In the foregoing case, the thought experienced before death being a moral one, the resultant rebirth-consciousness takes for its material an appropriate sperm and ovum cell of human parents. The rebirth-consciousness (patisandhi vijnana) then lapses into the Bhavanga state.

The continuity of the flux, at death, is unbroken in point of time, and there is no breach in the stream of consciousness.

Rebirth takes place immediately, irrespective of the place of birth, just as an electromagnetic wave, projected into space, is immediately reproduced in a receiving radio set. Rebirth of the mental flux is also instantaneous and leaves no room whatever for any intermediate state (antarabhava). Pure Buddhism does not support the belief that a spirit of the deceased person takes lodgement in some temporary state until it finds a suitable place for its “reincarnation.”

This question of instantaneous rebirth is well expressed in the Milinda Panha

The King Milinda questions:

“Venerable Nagasena, if somebody dies here and is reborn in the world of Brahma, and another dies here and is reborn in Kashmir, which of them would arrive first?

“They would arrive at the same time. O King.

“In which town were you born, O King?

“In a village called Kalasi, Venerable Sir.

“How far is Kalasi from here, O King?

“About two hundred miles, Venerable Sir.

“And how far is Kashmir from here, O King?

“About twelve miles, Venerable Sir.

“Now think of the village of Kalasi, O King.

“I have done so, Venerable Sir.

“And now think of Kashmir, O King.

“It is done, Venerable Sir.

“Which of these two, O King, did you think the more slowly and which the more quickly?

“Both equally quickly, Venerable Sir.

“Just so, O King, he who dies here and is reborn in the world of Brahma, is not reborn later than he who dies here and is reborn in Kashmir.”

“Give me one more simile, Venerable Sir.”

“What do you think, O King? Suppose two birds were flying in the air and they should settle at the same time, one upon a high and the other upon a low tree, which bird’s shade would first fall upon the earth, and which bird’s later?”

“Both shadows would appear at the same time, not one of them earlier and the other later.

The question might arise: Are the sperm and ovum cells always ready, waiting to take up the rebirth-thought?

According to Buddhism, living beings are infinite in number, and so are world systems. Nor is the impregnated ovum the only route to rebirth. Earth, an almost insignificant speck in the universe, is not the only habitable plane, and humans are not the only living beings. As such it is not impossible to believe that there will always be an appropriate place to receive the last thought vibrations. A point is always ready to receive the falling stone.

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