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Shouldn’t the $500m ISB been defaulted in January 2022?

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Shouldn’t Sri Lanka have defaulted on the settlement of the ISB of USD 500 million on 18th January 2022? Wouldn’t that have saved the Forex for the import of essential items?

Defaulting debt is a very complicated and painful matter. It is not a casual or frivolous matter. It is well known that various people had suggested to the Sri Lankan authorities at various times to default on its external public debt. They gave various reasons as to why that should be done. Some opposition MPs also advised default, and in fact, found fault with the relevant officials and other authorities when it was not done. However, few persons realize that it is not possible to have selective defaults of particular sovereign loans, since many loan agreements with international creditors have “cross-default” clauses which are far-reaching. It is also likely that those persons who were calling for the default of the ISB of January 2022 were blissfully unaware that, as per the Offering Circular for the ISB of USD 500 million, the Sri Lankan Government had solemnly assured all prospective investors that “the full faith and credit of the Democratic Socialist Republic of Sri Lanka will be pledged for the due and punctual payment of the principal of, and interest on, the Bonds.”

When a sovereign forex loan is not repaid, the credibility of the country will be lost, and investors will shun that country. It will not be easy for the defaulting country to obtain new forex loans thereafter. The country’s banking system will come under a lot of pressure and face very serious difficulties when opening letters of credit and carrying out forex transactions. Forex loans and investments that were previously forthcoming to the local banks would be halted or postponed. Most forex-funded infrastructure projects will stop. Foreign Direct Investors will adopt a “wait and see” attitude. Small and medium sized import-based businesses and entrepreneurs will be badly affected. Accordingly, it would be vital to have a strategy to deal with these challenges when external debt is defaulted. Failure to do so may lead to unmanageable problems.

It is also likely that those who proposed default, won’t be around to assume responsibility when the default repercussions arise, and it will be the Government and the people that will have to face the consequences. That is why if a sovereign debt default is contemplated, it is the responsibility of the authorities to initiate and undertake a discussion on the subject and thereafter take the decision. In fact, a decision to default by a country is so serious that it should properly receive the formal approval of the Cabinet of Ministers with the advice of the Attorney General as well. Further, in view of the fact that the Parliament has already voted the necessary funds for debt servicing at the time of approving the Budget and Parliament has the final responsibility for finances, obtaining Parliament’s approval may also be in order.

Hence, even though various people urged the non-payment of the International Sovereign Bond (ISB) on 18th January 2022 and/or other debts, it must be understood that such unsolicited requests cannot be considered by officials, without proper authority or approval of the Government.

In any event, up to 11th April 2022, it was Government Policy not to default, and both Ministry of Finance (MOF) and the Central Bank of Sri Lanka (CBSL) had followed that policy faithfully since independence. However, as announced by the MOF on 12th April 2022, that policy was changed when the MOF decided to default on that day. Now that the Government has already announced the decision to default, it may be presumed that all connected issues have been carefully considered and approvals obtained. At the same time, certain key government leaders and several private sector leaders who proposed this strategy of default have stated that the forex saved by not paying the loans could be used to fund essential imports. However, many analysts have serious reservations about the materialization of that outcome.

Osman Chandrawansa
Senior Economist and
Former Controller of Exchange

Ranawaka still being considered as Finance Minister in Ranil-led Government?

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LNW earlier disclosed how MP Patali Champika Ranawaka, who had initially agreed to join a Ranil Wickremesinghe-led government, had changed his mind on May 14 upon knowing the Committee appointed for the importation of essential commodities.

However, today (16) Ranawaka has visited the Prime Minister with his close friend Dhanushka Ramanayke and held a cordial discussion, sources disclosed.

The event may turn tables restoring the previous possibility of the 43 Senankaya Chief being appointed as the Finance Minister of the new Ranil-led regime, according to sources.

Despite the decision to retain the post of Finance Minister at Wickremesinghe’s possession, a change of plans has occurred following the meeting with Ranawaka today, sources further claimed.

MIAP

http://128.199.126.103/archives/10396/ranawaka-nominated-to-post-of-finance-minister-of-proposed-national-consensus-government/
http://128.199.126.103/archives/11330/ranawaka-having-second-thoughts-on-new-government-after-rws-committee-reveal/

Export container arrivals to be halted amid diesel shortage!

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The import and export container vehicles are facing a major crisis due to the shortage of auto diesel, revealed Chairman of the All Ceylon Container Vehicle Owners Association Sanath Manjula, speaking to media.

The shortage has affected the export container arrivals in particular, he emphasised. Over 60 per cent of the country’s dollar income comes from exports, he reminded, warning that in the backdrop the transport sector could be brought to a complete standstill by tomorrow.

Despite the discussions held with the previous authorities regarding the crisis, no proper solution was provided, Manjula went on, adding that discussions were also held with the current Prime Minister.

The Union requested that five filling stations belonging to the Ceylon Petroleum Corporation (CEYPETCO) in Colombo city and one filling station belonging to the Sri Lanka Navy be allowed to fully facilitate these vehicles for refueling, as a solution to the crisis.

Manjula also noted that despite a large number of products in the investment zones being completed, they could not be transported due to the fuel crisis, warning that in the backdrop, there could be a risk of these product quotas being delivered to a different country.

MIAP

PM Wickremesinghe to address nation today at 6.30 pm

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Prime Minister Ranil Wickremesinghe is due to address the nation today (16) at 6.30 pm.

The Prime Minister’s statement will be broadcast live on all media channels.

MIAP

SJB decides to support Ranil-led government

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The Samagi Jana Balawegaya (SJB) in a statement revealed that it has unanimously decided at its parliamentary group meeting to extend the Party’s full support to every move of the current government that benefits the economic recovery of the country via the parliamentary process, however without being subjugated to the administration.

Accordingly, the SJB will not submit itself to the auctioning of MPs and will suspend its support should the government try to attract the Party members for government positions in a deviation from the basic SJB policy, the statement emphasised.

The SJB, as a responsible party, believes that saving the country from the current crisis befallen it would be essential, it added.

MIAP

If something happens to me, President should be responsible: Udayanga Weeratunga

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Former Sri Lankan Ambassador to Sri Lanka Udayanga Weeratunga in a statement calling in for protection for his life said that the President should completely be held accountable should anything happen to his life, his house set on fire or he be arrested.

In his controversial statement, Weeratunga added that should anything of the aforementioned nature happen, it will happen on the advice the President gives to his henchmen, knowingly or unknowingly.

The Rajapaksa relative questions how the President, who cannot protect a bus and even his parents’ grave, can protect the country and the people.

MIAP

Sri Lankans call for ‘action, not debate’ as new PM prepares to address nation on cost of living crisis

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Sri Lankans are experiencing an unprecedented economic crisis: gas prices have tripled since last September and food has doubled in the last few months.

By Nicole Johnstone, news correspondent, in Sri Lanka

Sri Lanka’s new prime minister, Ranil Wickremesinghe, is expected to give his first address to the nation on Monday after being appointed last week.

A new cabinet is still being formed after all 26 members resigned along with the former prime minister Mahinda Rajapaksa, whose younger brother Gotabaya Rajapaksa is still president.

The country’s economic and political crisis shows no sign of abating. Anti-government demonstrators, who have maintained a protest camp in Colombo, are calling on the president to resign.

The demonstrators are fed up with the country’s cost of living crisis. Long queues of people line up for gas and petrol and there is a shortage of most basic supplies.

At one gas shortage protest in the capital, a woman told Sky News: “I am a mother, I have one child and I can’t give them anything.”

One man called on the government to find a solution. “We need action, not debate, and we don’t need words,” he said.

Sri Lankans are experiencing an unprecedented economic crisis. Gas prices have tripled since last September and food has doubled in the last few months.

Chamali Jayamali is struggling to survive on two dollars a day – her family used to earn three dollars a day but her disabled husband’s job making paper bags at home has taken a hit because there’s a severe paper shortage in the country.

Chamali feels like she can’t get a break. With five people in the family to feed and a grandchild on the way she no longer buys chicken or fish because they’re too expensive. Instead, she cooks a vegetable curry once a day with kerosene.

Her daily cleaning salary is “useless”, she says, as she has to spend half of it paying for kerosene.

“All we have to say [to the government] is please give us some help,” Chamali says. “If not, resign and appoint someone who can do this.”

Ranil Wickremesinghe has been appointed as Sri Lanka's new prime minister
Image: Ranil Wickremesinghe has been appointed as Sri Lanka’s new prime minister
Chamali Jayamali is struggling to survive on two dollars a day
Image: Chamali Jayamali is struggling to survive on two dollars a day

The country has been hit with a perfect storm: the pandemic, the war in Ukraine and grievous economic mismanagement by the top levels of government have made the country almost bankrupt.

Sri Lanka has less than $50m (£41m) in foreign reserves and has more than $30bn (£24.5bn) of foreign debt.

In 2019, the government cut tax levels by 50% and two years later it banned chemical fertiliser overnight, drastically reducing agricultural production.

The decisions stunned economists and contributed to the country’s financial crisis.

Sri Lankans are experiencing an unprecedented economic crisis
Image: Sri Lankans are experiencing an unprecedented economic crisis

This week saw violence break out between pro and anti government forces, a night time curfew was imposed and the military patrolled the streets.

Now the country is waiting for new government ministers to be appointed and the government to stabilise.

But it’s unclear whether that will be enough to get protesters off the streets.

Sky News

SLFP seniors eyeing on ministerial posts in new government fail in mission

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A discussion was held between Prime Minister Ranil Wickremesinghe and the Sri Lanka Freedom Party (SLFP) at the Prime Minister’s Office this (16) morning.

MPs Ranjith Siyambalapitiya and Dayasiri Jayasekara joined the discussion from the SLFP side.

The two told the Prime Minister not to make any attempts on dividing the party by offering ministerial posts, warning that the new government may not be able to move further should such an attempt be made.

Accordingly, it is best that the SLFP serves in the Opposition and supports any positive move by the government without being submitted to it, Jayasekara informed, adding that any support extended by the SLFP will be decided and authorised by Party Chairman Maithripala Sirisena, according to sources.

Yesterday it was reported that five members of the SLFP were to be given ministerial portfolios of the Ranil-led government.

MIAP

Curfew to be reimposed tonight!

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Islandwide curfew will be reimposed from 8 pm tonight (16) to 5 am tomorrow (17), announced the President’s Media Unit said.

The curfew will be imposed in accordance with the Public Security Act.

Accordingly, no one will be permitted to stay on a public road, railroad, park, playground or other public area, as well as any beach, except under the authority of a written permit by an authorising officer.

MIAP

Energy Minister urges people not to queue up for fuel next 03 days

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Energy Minister Kanchana Wijesekara urged the people not to queue up for fuel the next three days until the 1190 fuel station deliveries are completed, revealing that adequate fuel will be made available with the arrival of a diesel cargo yesterday.

In a tweet, the Minister also revealed that three vessels carrying diesel will arrive in the country in the next two weeks, backed by the Indian Credit line.

MIAP