Friday Apr 26, 2024
Friday Apr 26, 2024
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Sri Lanka, along with many other low- and middle-income countries, has experienced a series of financial shocks due to both external and internal factors. Global forces have caused food and energy import costs to soar and interest rates to rise, even as the currency has devalued significantly. These shocks, along with a history of policy mismanagement—and specifically the deregulation and openness that encouraged irresponsible borrowing, enabled illicit financial flows out of the country and assisted political corruption—have intensified external debt and balance of payments crises.
Over the last decade of liquidity expansion and low interest rates in the world economy, private lenders provided loans to low- and middle-income countries, at higher interest rates than for advanced countries. These higher rates were purportedly due to greater risk exposure that could make debt repayment more difficult in such countries. That risk has now materialised, firstly through a global pandemic, and then the price shocks and interest rate increases of 2022.
Private creditors own almost 40% of Sri Lanka’s external debt stock, mostly in the form of International Sovereign Bonds (ISBs), but higher interest rates mean that they receive over 50% of external debt payments. Such lenders charged a premium to lend to Sri Lanka to cover their risks, which accrued them massive profits and contributed to Sri Lanka’s first ever default in April 2022. Lenders who benefited from higher returns because of the “risk premium” must be willing to take the consequences of that risk. Indeed, ISBs are now trading at significantly lower prices in the secondary market. In this context, giving private bondholders an upper hand relative to sovereign debtors in the Paris Club and the IMF’s required debt negotiations violates the basic principles of natural justice.
In addition, the lack of transparency of the debt negotiation process and accountability of the holders of ISBs underscores the concern that risky lending to corrupt politicians (leading to what is now recognised as “odious debt”) was a significant element in generating the current debt crisis. Apart from revealing the identity of ISB holders, it is also important to disclose how ISBs were deployed, and the use of those funds.
Debt negotiations in Sri Lanka are now at a crucial stage. All lenders—bilateral, multilateral, and private—must share the burden of restructuring, with assurance of additional financing in the near term. However, Sri Lanka on its own cannot ensure this; it requires much greater international support. Instead of geopolitical manoeuvring, all of Sri Lanka’s creditors must ensure debt cancellation sufficient to provide a way out of the current crisis.
The role of multilateral organisations, particularly the international financial institutions (IFIs), such as the IMF and the World Bank, is also significant. They were founded to assist sovereign nations, particularly in contexts in which financial markets would not deliver, to ensure financial stability and prevent or reduce the impact of financial crises, and to provide resources for crucial investments required to meet social and developmental needs.
The IFIs are not currently living up to these responsibilities, at a time when they are most urgently required. In Sri Lanka they encouraged the very policies of more open capital accounts and deregulation that have led to the current crisis. They have been slow to respond to the crisis, and are apparently requiring onerous policy and fiscal conditionalities, such as moving to a primary fiscal surplus in a very short time, even as the economy continues to plunge.
The implications are already evident in the recent Budget of the Sri Lankan Government, which has unrealistic revenue assumptions that are unlikely to be met. Revenue shortfalls would then necessitate further “austerity” and likely cuts in essential public spending.
The Budget also proposes public asset stripping and privatisation of strategic lands, marine resources, energy, transport and telecom infrastructure and public enterprises. These policies will harm the most vulnerable groups in Sri Lanka, exacerbate poverty and inequality, and lead to further economic decline. Instead the focus should be on legal and regulatory changes to stem the illicit outflow of capital through transfer pricing and trade mis-invoicing over the past 15 years, which is estimated to be far more than the aggregate foreign debt of Sri Lanka, and on taxation of wealth and consumption of the super-rich.
The Sri Lankan case will provide an important indicator of whether the world—and the international financial system in particular—is equipped to deal with the increasingly urgent questions of sovereign debt relief and sustainability; and to ensure a modicum of justice in international debt negotiations. It is therefore crucial not only for the people of Sri Lanka, but to restore any faith in a multilateral system that is already under fire for its lack of legitimacy and basic viability.
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Signed by:
1. Jayati Ghosh, Professor of Economics, University of Massachusetts-Amherst, USA and India
2. Dani Rodrik, Ford Foundation Professor of Political Economy, Harvard University, USA;
3. Thomas Piketty, Professor of Economics, Ecole d’economie de Paris/Paris School of Economics, France
4. Ravi Kanbur, T.H. Lee Professor of World Affairs, Professor of Economics, Cornell University, USA
5. Atul Kohli, David Bruce Professor of International Affairs, Princeton University, USA
6. Sakiko Fakuda-Parr, Professor of International Affairs, The New School, USA
7. Gary Dymski, Professor of Applied Economics, University of Leeds, UK
8. Robert H. Wade, Professor of Political Economy and Development, London School of Economics, UK
9. Jomo Kwame Sundaram, Professor of Malaya, Malaysia; and former UN Assistant Secretary General for Economic and Social Affairs
10. Jean Dreze, Professor of Development Economics, Delhi School of Economics, India
11. Guy Standing, Professorial Fellow, SOAS – University of London, UK
12. Yanis Varoufakis, Professor of Economics, University of Athens, Greece
13. Irene van Staveren; Professor of Economics, Erasmus University of Rotterdam, The Netherlands
14. Jane Humphries, Centennial Professor/Professor Emerita of Economic History, London School of Economics/Oxford University, UK
15. Daniela Gabor, Professor of Economics and Micro-Finance, University of West England, UK
16. Ha-Joon Chang, Research Professor of Economics, SOAS – University of London, UK
17. Alfredo Saad Filho, Professor of Economics, Kings College – London, UK
18. Sanjay Reddy, Professor of Economics, New School for Social Research, NY, USA
19. Rolph van der Hoeven, Professor of Employment and Development Economics, International Institute of Social Studies, The Netherlands
20. Jungi Tokunaga, Professor of Economics, Dokkyo University – Tokyo, Japan
21. Yavuz Yasar, Professor of Economics, University of Denver – Colorado, USA
22. Ben Fine, Professor of Economics, SOAS – University of London, UK
23. C.P. Chandrasekhar, Professor and Senior Research Fellow, Political Economy of Research Institute, University of Massachusetts-Amherst, USA
24. Alicia Girón, Professor and Director University Studies Program on Asia and Africa, UNAM-Mexico
25. Costas Lapavitsas, Professor of Economics, SOAS – University of London, UK
26. Juan Pablo Bohoslavsky, Professor and Researcher – CONICET, Argentina, former UN Independent Expert on Debt and Human Rights
27. Ipek Ilkkaracan, Professor of Economics, Istanbul Technical University, Istanbul, Turkey
28. Sergio Cesaratto, Professor of Economics, University of Sienna, Italy
29. Lawrence King, Professor of Economics, University of Massachusetts-Amherst, USA
30. Mahalya Chatterjee, Professor of Economics, Calcutta University, India
31. Nancy Folbre, Professor Emerita of Economics, University of Massachusetts-Amherst, USA
32. Ravi Bhandari, Professor of Economics, Skyline Community College, USA
33. Utsa Patnaik, Professor Emerita of Economics, Jawaharlal Nehru University, India
34. Sudip Chaudhuri, Professor of Economics, Centre for Development Studies – Trivandrum, India
35. Yana Rodgers, Professor of Economics, Rutgers University, NJ, USA
36. Gunseli Berik, Professor of Economics, University of Utah, USA
37. Prabhat Patnaik, Professor Emeritus of Economics, Jawaharlal Nehru University, India
38. Lucas Chancel, Professor and Co-Director – World Inequality Lab, Paris School of Economics
39. Lee Badgett, Professor of Economics, University of Massachusetts-Amherst, USA
40. Radhika Balakrishnan, Professor of Economics & Women and Gender Studies, Rutgers University, USA
41. Randy Abelda, Professor Emerita of Economics and Public Policy, University of MassachusettsBoston, USA
42. David F. Ruccio, Professor Emeritus of Economics, University of Notre Dame, USA
43. Heidi Hartmann, Professor of Economics and International Development, American University, USA
44. Gerald Epstein, Professor of Economics, University of Massachusetts-Amherst, USA
45. Smriti Rao, Professor of Economics, Assumption University, USA
46. Naila Kabeer, Professor of Gender and Development, London School of Economics, UK
47. Barbara Harriss-White, Professor Emerita of Development Studies, Oxford University, UK
48. Aaron Schneider, Professor and Leo Block Chair – Development, University of Denver, USA
49. Kanchana N. Ruwanpura, Professor of Development Geography, University of Gothenburg, Sweden
50. Raj Patel, Research Professor, Lyndon B Johnson School of Public Policy, University of Texas-Austin, USA
51. Muthucumaraswamy Sornarajah; Professor Emeritus of Law, National University of Singapore, Singapore
52. Vinay Gidwani, Professor of Geography, Environment and Society, University of Minnesota, USA
53. Vasuki Nesiah, Professor of Practice in Human Rights and International Law, New York University, USA
54. Page Fortna, Harold Brown Professor of U.S. Foreign Security and Security Policy, Columbia University, USA
55. Shirin Rai, Research Professor of International Development, SOAS – University of London, UK
56. Suzanne Bergeron, Helen M Graves Professor of Women’s Studies and Social Sciences, University of Michigan-Dearbon, USA
57. Kanishka Goonewardena, Professor of Human Geography, University of Toronto, Canada
58. Dia da Costa, Professor of Social Justice and International Studies, University of Alberta, Canada
59. Kanishka Jayasuriya, Professor of Politics and International Studies, Murdoch University, Australia
60. Kevin Gallagher, Professor of Global Development Policy, The Frederick S Pardee School of Global Studies, Boston University, USA
61. Arjun Guneratne, Professor of Anthropology, Macalster College, USA
62. Pasuk Phonpaichat, Professor Emerita of Economics, Chulalongkorn University, Bangkok, Thailand
63. Roger Jeffrey, Professor of Development Sociology, University of Edinburgh, UK
64. Ben Selwyn, Professor of International Development, University of Sussex, UK
65. Jennifer Olmstead, Professor of Economics, Drew University, USA
66. Parthapratim Pal, Professor of Economics, India Institute of Management – Calcutta, India
67. S. Charusheela, Professor of Economics and Interdisciplinary Studies, University of Washington, USA
68. Philip McMichael, Professor Emeritus of Development Sociology, Cornell University, USA
69. John Harriss, Professor Emeritus of International Development, Simon Fraser University, Canada
70. Kendra Strauss, Professor of Labour Studies, Simon Fraser University, Canada
71. Mritiunjoy Mohanty, Professor of Economics, Indian Institute of Management – Calcutta, India
72. Pablo Bortz, Professor of Economics, Universidad Nacional de San Martín, Argentina and Researcher at CONICET
73. Padraig Carmody, Professor of Economic Geography, Trinity College – Dublin, Ireland
74. John Morrissey, Professor of Geography, National University of Ireland, Ireland
75. Michele Gamburd, Professor of Anthropology, Portland State University, USA
76. Elizabeth Dean Herman, Professor of Urbanism and Landscape, Rhodes School of Design, USA
77. Jonathan Walters, Professor of Religion and Bill Hudson Chair of Humanities, Whitman College, USA
78. Dip Kapoor, Professor of International Education, University of Alberta, Canada
79. Maggie Leung, Professor of International Development, University of Amsterdam, The Netherlands
80. David Hulme, Professor of Development Studies, University of Manchester, UK
81. Adil Najam, Professor of International Relations, Earth and Environment, Boston University, USA
82. Patrick R. Ireland, Professor of Political Science, Illinois Institute of Technology, USA
83. Rainer Kattel, Professor of Innovation and Public Governance, UCL, UK
84. Roar Høstaker, Professor of Sociology, Inland University of Applied Sciences, Norway
85. Gustavo Indart, Professor Emeritus of Economics, University of Toronto, Canada
86. Nirmala Salgado, Professor of Religion, Augustana College, USA
87. Jonathan Goodhand, Professor of Conflict and Development Studies, SOAS – University of London, UK
88. S. Subramanian, former Professor and Independent Scholar, India
89. Ann Blackburn, Old Dominion Professor in the Humanities, Cornell University, USA
90. Sunanda Sen, Levy Economics Institute – Bard College, USA
91. Namika Raby, Professor of Anthropology, California State University – Long Beach, USA
92. Maria Heim, Crosby Professor of Religion, Amherst College, USA
93. Christian Barry, Professor of Political Philosophy, Australian National University, Australia
94. Alicia Puyana, Professor of Economics, Latin American Faculty of Social Sciences, Mexico
95. R. Ramakumar, Professor of Developing Societies, Tata Institute of Social Sciences – Mumbai, India
96. Venkatesh Athreya, former Professor of Development Economics, India
97. Rahula Mukhherji, Professor and Head of Political Science, South Asia Institute, University of Heidelberg, Germany
98. Kalinga Tudor Silva, Emeritus Professor Sociology, University of Peradeniya, Sri Lanka
99. Ruvani Ranasinha, Professor of Post-Colonial Studies, Kings College – University of London, UK
100. Sushil Khanna, Professor Emeritus of Economics, India Institute of Management – Calcutta, India
101. Ishac Diwan, Director of Research – Finance for Development Lab, Paris School of Economics, France
102. Devaka Gunawardena, Research Scholar, USA
103. Sirisha Naidu, Associate Professor of Economics, University of Missouri-Kansas City, USA
104. Karna Basu, Associate Professor of Economics, Hunter College and The Graduate Centre, City University of New York, USA
105. Mwangi wa Githinji, Associate Professor of Economics, University of Massachusetts – Amherst, USA
106. Gabriel Zucman, Associate Professor of Economics, University of California – Berkeley, USA
107. Dean Baker, Senior Economist, Centre for Economics and Policy Research, USA
108. Mary Wrenn, Senior Lecturer – Economics, University of West England, UK
109. Gabriela Koehler, Economist, UNRISD, Switzerland
110. Surbi Kesar, Lecturer – Development Economics, SOAS – University of London, UK
111. Lynda Pickburn, Associate Professor of Economics, Hampshire College, USA
112. Abena Oduro, Associate Professor of Economics, University of Ghana, Ghana
113. Smita Ramnarain, Associate Professor of Economics, University of Rhode Island, USA
114. Susan Randolph, Emerita Associate Professor of Development Economics, University of Connecticut, USA
115. Vamsi Vakulabharanam; Associate Professor of Economics, University of Massachusetts Amherst, USA
116. Grieve Chelwa, Inaugural Post-Doctoral Fellow, Institute on Race and Political Economy, New School University, USA
117. Eduardo Strachman, Associate Professor of Economics, Sao Paolo State University, Brazil
118. Ingrid Kvangraven; Lecturer – International Development, King College, UK
119. Jerome Roos, Fellow in International Political Economy; London School of Economics, UK
120. Paul R. Gilbert, Senior Lecturer – International Development, Sussex University, UK
121. Sheba Thejani, Lecturer – International Development, Kings College – London, UK
122. Joshua Gellers, Associate Professor International Affairs, University of North Florida, USA
123. Nachi Mani, Associate Professor of Economics, Erode Arts and Science College, India
124. Isabella Weber, Assistant Professor of Economics, University of Massachusetts-Amherst, USA
125. Ram Manikkalingam, Director – Dialougue Advisory Group, The Netherlands and Sri Lanka
126. Bengi Akbulut, Associate Professor of Geography, Planning and Environment, Concordia University, Canada
127. Madhumita Dutta, Assistant Professor of Geography, Ohio State University, USA
128. Alessandra Mezzadri, Reader in Global Development and Political Economy, SOAS – University of London, UK
129. Alicia Y. Lamin; Lecturer in Law, Harvard University, USA
130. Chris Baker, Historian, Political Economist, Author, Bangkok, Thailand
131. Andres Arauz, Senior Research Fellow – Economics, Centre for Economic and Policy Research, USA
132. Caroline Shenaz Hossein, Associate Professor of Global Development, University of Toronto, Canada
133. Alexander da Costa, Associate Professor of Social Justice and International Education,University of Alberta, Canada
134. Jennifer Cohen, Associate Professor of Global and Intercultural Studies, University of Miami – Ohio, USA
135. Steven Jordan, Associate Professor of Integrated Studies, McGill University, Canada
136. Pratheep Kumar, Assistant Professor of Law and Economics, CVV, India
137. Sarah Small, Assistant Professor of Economics, University of Utah, USA
138. Darini Rajasingham-Senanayake, Anthropologist, Independent Researcher, Sri Lanka
139. Bart Klem, Associate Professor of Peace and Development Studies, School of Global Studies, University of Gothenburg, SWEDEN
140. Jesim Pais, Director – Society for Social and Economic Research, India
141. Lenore M. Palladino, Assistant Professor of Economics and Public Policy, University of Massachusetts-Amherst, USA
142. Kalim Siddiqui, Senior Lecturer – Economics, University of Huddersfield, UK
143. Rajni Gamage, Post Doctoral Fellow, National University of Singapore, Singapore
144. Shanaz Akhatar, Postdoctoral Researcher – International Studies, University of Warwick, UK
145. Dina M. Siddiqi, Clinical Associate Professor, New York University, USA
146. Geethika Dharmasinghe, Visiting Assistant Professor, Colgate University, USA
147. Eva Ambos, Research Fellow, University of Tubingen, Germany
148. Susan A. Reed, Associate Professor of Women and Gender Studies, Bucknell University, USA
149. Sankar Varma, Research Scholar, Kerala Council for Historical Research, India
150. Narayani Sritharan, Fellow – Development Economics, Williams and Mary College, USA
151. Ayse Arslan, Assistant Professor of Development Studies, Haceteppe University, Turkey
152. Rohith Jyothish, Assistant Professor of Political Economy, O. P. Jindhal University, India
153. Giselle Thompson, Assistant Professor – Black Studies in Education, University of Alberta, Canada
154. Priyanthi Fernando, Executive Director – International Women’s Rights Action Watch-Asia Pacific; Sri Lanka
155. Deepta Chopra, Research Fellow, Institute of Development Studies, University of Sussex, UK
156. Heloise Weber, Senior Lecturer – International Studies, The University of Queensland, Australia
157. Bishop Akolgo, Director, International Social Development Centre, Canada
158. Gilad Isaacs, Lecturer – Economics, Institute of Economic Justice, University of the Witwatersrand, South Africa
159. Chirashree Das Gupta, Associate Professor – Economics and Political Economy, Jawaharlal Nehru University, India
160. Joeri Scholtens, Assistant Professor – Geography, Planning and International Development, University of Amsterdam, The Netherlands
161. Samuel Jamiru Braima, Senior Lecturer, Fourah Bay College – University of Sierra Leon, Sierra Leone
162. Charles Abugre, Executive Director, International Development Economics Associates, Accra, Ghana.
163. Samanthi Gunawardana, Senior Lecturer – Gender and Development, Monash University, Australia;
164. Stanley Chitukwi, Chief Executive Officer, AFRES, Malawi
165. Gregor Semieniuk, Assistant Professor of Economics, University of Massachusetts-Amherst, USA
166. Sudhanva Deshpande, Managing Editor, Leftword Books, India
167. Farah Mihlar, Senior Lecturer in Human Rights, Oxford Brookes University, UK
168. Kiran Grewal, Reader in Sociology, Goldsmiths College, UK
169. Himanshu, Associate Professor of Economics, Jawaharlal Nehru University, India
170. Ajit Zacharias, Senior Scholar, Levy Economics Institute, USA
171. Sree Padma Holt, Associate Research Fellow, Bowdoin College, USA
172. Dharshana Kasthurirathna, Senior Lecturer, Sri Lanka Institute of Technology (SLIT), Sri Lanka
173. Shyamain Wickramasinghe, Postdoctoral Research Fellow, Copenhagen Business School, Denmark
174. Nimanthi Rajasingham-Perera, Associate Professor of Women’s Studies, Colgate University, USA;
175. Mythri Jegathesan, Associate Professor of Anthropology, Santa Clara University, USA
176. Bernard Anaba, Policy Analyst, The Integrated Social Development Centre, Ghana
177. Sharika Thiranagama, Associate Professor of Anthropology, Stanford University, USA
178. Amitav Ghosh, Novelist/Anthropologist, USA and India
179. Dhanusha Gihan Pathirana, Independent Economist, Sri Lanka
180. Agustina Calcagno, South Feminist Futures, Argentina
181. Roman Rafael Vega Romero, Global Coordinator, People’s Health Movement, Columbia
182. Iratxe Perea Ozerin, University of the Basque Country, Basque Country, Spain
Lack of transparency of the debt negotiation process and accountability of the holders of ISBs underscores the concern that risky lending to corrupt politicians (leading to what is now recognised as “odious debt”) was a significant element in generating the current debt crisis. Apart from revealing the identity of ISB holders, it is also important to disclose how ISBs were deployed, and the use of those funds