By: Staff Writer
October 16, Colombo (LNW):Sri Lanka has reaffirmed its commitment to debt restructuring despite facing legal challenges from the Hamilton Reserve Bank (HRB).
In a response filed by Clifford Chance US LLP on behalf of the Democratic Socialist Republic of Sri Lanka, the country refuted HRB’s claims presented in its 1 October 2024 correspondence to the US District Court for the Southern District of New York.
The HRB, a creditor involved in litigation following Sri Lanka’s 2022 sovereign default, argued that recent political changes threaten the debt restructuring plan’s progress.
It claimed that delays in the proceedings could no longer be justified due to the instability following the unexpected election of Anura Kumara Dissanayake as President on 21 September 2024.
The bank argued that Dissanayake’s victory over former President Ranil Wickremesinghe had created uncertainty about the restructuring plan’s feasibility.
Despite these assertions, Sri Lanka’s legal team maintains that the new government remains fully committed to the International Monetary Fund (IMF)-backed economic program and is actively advancing the restructuring process.
They emphasized that the leadership change has not derailed their economic recovery efforts and that they continue to align their plans with IMF guidelines.
As the case progresses under the jurisdiction of Judge Denise L. Cote, a decision on whether to grant Sri Lanka’s request for a stay in proceedings is awaited.
This decision is critical, as it will influence the nation’s ability to focus on debt restructuring without legal distractions.
Sri Lanka’s legal representatives argued that securing this stay is essential to proceed with a planned bond exchange, a key step in the restructuring process, which Citigroup Global Markets Inc. has been appointed to manage.
Sri Lanka countered HRB’s concerns about political instability by pointing to progress achieved in negotiations with international creditors.
The country stated that the restructuring terms have received validation from both the Official Creditor Committee (OCC) and IMF staff, suggesting that the recovery program is on a stable track.
However, HRB remains unconvinced, warning that President Dissanayake’s plans to renegotiate the IMF’s $3 billion bailout package and his administration’s stance against the existing framework pose significant risks.
The bank cited a legal precedent, Casa Express Corp. v. Bolivarian Republic of Venezuela, to argue against indefinite delays in sovereign debt cases, asserting that political instability, not the ongoing litigation, is the primary threat to restructuring efforts.
The dispute between HRB and Sri Lanka illustrates the complexities of managing sovereign debt during political transitions.
While Sri Lanka advocates for a stay in legal proceedings to focus on economic recovery, HRB argues that political uncertainty has already compromised the restructuring plan, making further delays unwarranted.
The outcome of this legal battle may set a precedent for how similar cases are handled when economic challenges coincide with political shifts.
