It is now apparent that Sri Lanka’s finances over the past two years have been handled by a bunch of incompetent cronies who have delivered the most inglorious of situations; a sovereign default. As Sri Lanka defaults on its debt, creditors have begun to sue the country.
It was reported this week that a bondholder who holds more than $250 million in Sri Lanka’s international sovereign bonds has sued the country in a US court. Hamilton Reserve Bank Ltd., which is registered in the tax haven of St. Kitts and Nevis, filed suit this week in federal court in New York seeking full payment of its principal and interest.
The Central Bank announced in April this year that it would suspend all debt repayments until a restructuring negotiated with its creditors. After a 30-day grace period to pay $78 million expired in May with the government unable to repay its lenders, the country was officially in sovereign default or bankruptcy in the eyes of the world. In total, Sri Lanka is expected to default on $12.6 billion in foreign bonds as the economy faces its worst crisis fueled by a lack of foreign currency and runaway inflation.
It is also reported that several of Sri Lanka’s creditors have now formed a group which will collectively negotiate debt restructuring with the government. Considering the previous experiences of countries such as Argentina and Greece that have faced sovereign defaults, these debt restructuring talks are going to be delicate, painful and complicated, requiring them to be handled with the highest degree of professionalism and competence. Creditors, who are mostly private entities, will not care about the state of the country or the welfare of its people when negotiating a reasonable repayment plan. Their interests will primarily be governed by the interests of their clients and the need to claim as much principal and interest as are owed to Sri Lanka.
As Argentina testifies, these talks can take many years and sometimes force governments to prioritize debt repayment over the interests of citizens. Creditors who can flood a government, especially an incompetent third world country like Sri Lanka, with international litigation will force governments to part with their foreign currency, even giving up basic necessities such as food and medicine. for his people.
Therefore, the main need of the hour is a competent group of officials advised by experts if necessary to negotiate a comprehensive debt restructuring program with Sri Lanka’s international creditors. Preventive and proactive engagement can avoid lengthy and costly international litigation, as similar litigation is now initiated by the Hamilton Reserve Bank. The International Monetary Fund has also called on Sri Lanka to restructure its debt before it can negotiate a support package. The IMF noted in April that Sri Lanka’s public debt was unsustainable and that the country needed to take steps to restore debt sustainability before any IMF lending, including the Emergency Rapid Financing Instrument.
None of the culprits responsible for the total economic collapse that resulted in a sovereign default have been held accountable. Worse still, there is not even legal or administrative action initiated to find those responsible and hold them accountable. More than incompetence is responsible for calamity and good faith; there is enough evidence to suggest that there is malpractice and criminality in the management of the country’s finances. While debt restructuring negotiations are ongoing, those responsible for the current economic calamity should be held criminally responsible for the damage they have caused.