Advisor to the Sri Lankan Government and Professor of Law Lee Bucheit noted that IMF resources were at risk if they were used to ‘pay existing creditors in full.’ Bucheit further called on the need for the fund to carry out programs that have a reasonable chance of succeeding.
Bucheit has implored the IMF to ‘withhold any significant cash disbursements until existing lenders have agreed to provide the needed debt relief.’ Sri Lanka’s debt has traded at significant discounts implying haircuts by international creditors.
Sri Lanka has also used a ‘Most Favored Creditor Clause’ to prevent any creditor from holding out. Bucheit said, “Viewed from the other end of the telescope, the MFC clause is intended to deflate any expectation on the part of other lenders that by delaying engagement in the process they may be able to secure a sweeter deal down the road.” TP
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