The Presidential problem

President Ranil Wickremesinghe inadvertently caused a stir in markets last week. In a public conference held by the Advocata Institute, he mentioned that the legal and financial advisers representing Sri Lanka for the foreign debt restructuring are also “looking at” local debt. Second, and the more important issue, is “have you got to look at the local debt?” President Wickremesinghe told an economic forum organised by the Colombo-based think tank.

While this was posed as a hypothetical, the President of a country with a tattered economy merely mentioning such an event to be non-zero possibility is not anticipated nor appreciated. This caused a knee-jerk uptick in treasurer rates as the markets perceived this risk and responded by asking for a higher premium. Wickremesinghe hinted that a rupee debt restructure would entail “far reaching consequences”, little did he expect his statement to be the trigger.

While the President was driving the market into a frenzy, Central Bank Governor Dr. Nandalal Weerasinghe has not budged on his position. He has indicated that the Government’s position on debt restructuring is as was declared in April, with no restructuring of local rupee debt. 

He pointed out that local debt has already been hit by a “real haircut” owing to the steep currency depreciation and inflation seen. Therefore, any additional pressure may be a step too far. Furthermore, the Central Bank appears to be doing everything in its power to keep rates on treasuries low. In the Bill auction held yesterday, the 3-month bill, the shortest in tenor, which was supposed to gather Rs. 35 billion, went above and beyond its limit to accept 60 billion in total.

This over acceptance of short-term paper managed to keep the six-month and one-year rate subdued below the rate of 30%. However, going forward the market expectation is likely to expect more risk and in response more return as Colombo is yet to present a plan out of our mess.

Economic woes aside, the overgrowing mistrust in the Government is approaching new levels, not expected by a historically moderate party President. This began with the forceful expulsion of the peaceful protestors of the Aragalaya. Moreover, crackdowns have begun on those seen as unruly, beyond a court ordered definition. While the Parliament itself saw widespread damage and destruction, perpetrators of the Presidential Palace siege are being given prominence.

President Wickremesinghe who recently in a speech identified that “our country suffered disputes due to disunity” has also been criticised for issuing an order that can be used against certain sexual and gender minorities in Sri Lanka. 

Allowing bigoted law enforcement institutions to, without a warrant, due process or justified probable cause, commit individuals to search and arrest. This could easily be expanded against ethnic and religious minorities and would likely lead us down the same path the Government took in July of 1983.

Once the immediate economic crisis is resolved, Wickremesinghe proposed that Sri Lanka must look to the future with system changes including a new political system alongside the societal upgrades, to suit the needs of the 21st century. With this in mind, Wickremesinghe said that the island nation will have to go for higher taxation including on wealth, with hints of regressive taxation. 

The gap between the haves and have nots have been widening in the last 10 years according to him and has resulted in a more vulnerable poor in the country, who are not being protected under the current context. While Wickremesinghe expresses confidence that through a unified effort, Sri Lanka can realise its true potential, he does not seem keen to take these steps to unify and correct.