On April 12, the government announced that Sri Lanka would suspend foreign debt and interest payments and that Sri Lanka would no longer be able to repay its debt. The UNP responded immediately and issued a statement to that effect. The UNP has only one seat in parliament, which is represented by the former prime minister. Neither the Samagi Jana Balawegaya, the main opposition party in the country with a larger number of parliamentary seats, nor other parties, including the Janatha Vimukthi Peramuna (JVP), was seen saying anything on the day.
Over the past few months, representatives of the opposition, including Dr. Harsha de Silva, have expressed the view that a country defaulting on its foreign debt is a simple task. They have been urging the government to stop repaying foreign loans since last January.
But former central bank governor Ajith Nivard Cabraal never took that step, and he continued to use his personal connections to raise money through hard work, seeking help from various countries. And debt servicing was continued.
He did not succumb to the popular notion of “Defaulting”. But the new Governor of the Central Bank, Nandalal Weerasinghe, instead of trying to raise money within four days of taking office, chose the easy, popular way of defaulting on loans.
What happens next?
What is emerging now is that no commercial bank in Sri Lanka will be able to obtain confirmation for its letters of credit (LC) from a globally recognized foreign bank. For example, if we are going to buy fuel, we must issue a letter of credit to our fuel supplier if that supplier requests confirmation from a bank in the United States for the relevant letter of credit we should provide it. Only then will the supplier accept the letter of credit and ship the fuel to Sri Lanka. In many import transactions in this way, suppliers require confirmation of our letter of credit from a foreign bank. But with the current situation, no commercial bank in Sri Lanka can obtain such confirmation for its letters of credit.
Accordingly, there is a risk that in the future that we will not be able to import any commodities including essential food items, medicines, fuel, and gas based on letters of credit. We will cover the situation on these letters of credit and their consequences in a separate article.
The people of this country will feel the seriousness of this only when the current political turmoil in the country subsides. It will be clear then why former Central Bank Governor Ajith Nivard Cabraal did not agree to default on the loans, despite months of pressure from the opposition.
If Ajith Nivard Cabraal has committed an offense against the law of the land, it should be dealt with separately. But debt repayment is not like that.
He went to foreign countries and continued to borrow and continued debt servicing. Now the new authorities have done something easier and worse. Only the UNP realized this immediately.
The UNP never proposed to default. Because they were aware of the serious consequences here as a political party that had previously ruled. Opposition MPs such as Dr. Harsha de Silva and Patali Champika Ranawaka, as well as economists on Facebook, who have repeatedly suggested to use the money for consumption except for default, will continue to say certain things when this completely crashes in the future.
It is especially important that the UNP pays immediate attention to this action and even comes forward to respond. Governing a country is not as easy as holding press conferences or speaking on stage. It could not be done through mere popularism at all.
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