Debt, default, and aid

Aid giving countries such as Canada having a predilection to issue adverse travel advisories against Sri Lanka is a perplexing issue unless there are some compelling underlying reasons.

However, giving aid on the one hand and pulling the plug on the other is an ingrained behaviour. Some people may call it carrot and stick.

In any event donor countries have for long not been particular about determining where their funds go. A good proportion of these monies are under-utilised. Research has shown that foreign aid is not particularly appreciated by the citizens of recipient countries. It’s the elitist opinion maker that convinces the citizenry that aid is desirable and should be sought after.

But aid can come as a double-edged weapon. Do the recipient nations become supplicants to donor nations? Perhaps sometimes they do, but very often the recipient nations have to play along with the strategic designs of donor nations in the various regions that the donor nations seek to broaden their sphere of influence.

Benevolence

Countries such as Canada come forward extending their benevolence when countries such as ours need vaccines for example. The Canadian Government recently pledged US$ one million for instance, to strengthen Sri Lanka’s primary healthcare response to Covid. Included was a gift of some three million syringes for the purpose of administering the vaccines. There was a photograph of Minister Keheliya Rambukwella accepting a syringe box as a symbolic gesture, indicating the acceptance of the generous aid package.

All well and good, but the next thing you know is that the Canadians are retaining a dated travel advisory that asks travelers to Sri Lanka to be wary of terrorism in the country, when there has not been a terror attack in Sri Lanka since the isolated terrorism in churches in April 2019.

There is absolutely no reason for such a travel advisory but there are no Canadian apologies after it was pointed out by the Sri Lankan authorities that this travel advisory is dated at best, and is misinformed grossly in any event.

Under these circumstances it is worth querying whether the advisory is a bona fide mistake or if it is simply, carrot and stick?

Sri Lanka is now increasingly getting the largest component of its aid from unconventional donors, and this includes countries that are relatively new in the aid game. However countries such as India have not had concomitants such as blatantly flawed travel advisories when extending the hand of assistance to this country.

This country is not defaulting, and that’s against the wishes of the now default crazy Opposition. This should gladden the hearts of many in the donor nations that were under the impression that the country is on the verge of default because the ratings agencies were saying so.

However, a default on the sovereign bond did not happen. This writer has been writing about debt restructuring even before anyone took up the cry. However, restructuring does not mean default at the first available opportunity, especially when there seems to be a ratings agency putsch against us for some reason that seeks to downgrade us even before we default on debt.

The fact is that the country has maintained its viability within the systems of global finance now in place as they are for lending, borrowing and repayment. This status of credit worthiness has been maintained advisedly because there are repercussions from an actual brutal default.

Nobody least of all this writer advocated a brutal default.

Punitive

Restructuring of debt is a different story. Now, we have Eran Wickramaratne going ballistic in the media saying that the Government was more concerned about the creditor parties in the sovereign bond than it was about the ordinary people of this country.

An abrupt or brutal debt default is not going to help the ordinary people of this country. If there are default ratings given by rating agencies with no default, and adverse travel advisories being issued by countries with no relevance at all to the reality on the ground, just imagine what an abrupt and brutal default would have entailed?

It would have led to serious repercussions that are tantamount to sanctions. Even though debt default may not lead to real sanctions, the outcome could be tantamount to the imposition of a sanctions regime on this country. There would be borrowing constraints stemming from a brutal default, and that’s the last thing the country wants when it has to keep its credit rating viable because at the end of the day we cannot live on charity.

All this should have been obvious — and it is — but the Opposition calculates it’s expedient to pull the rug from under the feet of State policymakers.

That’s to be expected, but asking for a little consideration from our friends the Canadians for instance is not out of place. If the nation is not going hat in hand asking for charitable donations to see us through this situation, the least our friends could do is not be unfairly punitive when we are doing everything within our power to stay creditworthy, to stay viable, and hold our heads up as a nation that’s down for the moment but not out.

This sort of thing happened to us before when we were fighting a pitched battle against the LTTE for example, and did not have the money or the armaments to go on.

But, this didn’t mean that there was a charitable outlook from international institutions. We saw insurance premiums going up for ships at the port because every location in Sri Lanka was a terrorist threat. Despite all of this, we prevailed and remember, did not default.

Debt-restructuring on the other hand means that we act as an equal partner and not as a supplicant. It’s another matter if the country is involved in a campaign in which we collectively agitate for international debt reform with say our fellow developing countries in Latin America for instance.

In the absence of any such international movement for debt reform as there used to be many decades ago, if Sri Lanka opts for a brutal default, there is no coming out of it unscathed.

Shambles

Of course inflicting damage on the country is exactly what Eran Wickremeratne wants when he says that the regime is thinking of the creditors and not the ordinary people of the country. If we had defaulted he would have said no such thing, obviously. He would have screamed at the top of his lungs that bad Government policy caused the Government to default when a default scenario could have been prevented even at the eleventh hour.

He would have then salivated as the country got gradually shafted after our creditworthiness became a shambles, and we did not have any wiggle room — not even being able to borrow in the short term until the economy recovers and we are able to pay back.

Canada’s position on the travel advisory is clear evidence that the odds are stacked against the country. We are not, in a parallel to what happened during the terrorist battle, about to receive any reprieve as it were from the key players in the international community even when we thoroughly deserve it.

With the travel advisory, the country is not asking for any special favors at all. All we are saying is please be fair, and make that advisory fall in line with the reality in the country, which is that we have not had terrorist attacks and have been declared a top travel destination for this year by CNN, Lonely Planet and so on.

But the community of nations is never governed by the rules of fair-play and the best we can hope is that the Canadians made a mistake and would make amends by withdrawing that advisory after this country made its representations.

Nobody is going so far as to say that pandemic was engineered to make nations such as ours supplicant. But, supplicant we shouldn’t be, under any circumstances.

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