Former Greek Finance Minister Yanis Varoufakis noted that IMF restructuring without debt write-down could lead to decades of pain as debt unsustainability has not been solved.
Varoufakis was speaking on November 22 to the State of the Nation program featuring the return of Mahieash Johnney.
IMF programs have historically defeated the goal of ensuring stability in the economy by compounding the contraction of the private sector with that of the public sector. Varoufakis said, “Do not borrow a penny unless there is a significant reduction in your debt”
Regardless of the outcome of the debt renegotiation, the country is unlikely to be able to go to foreign capital markets for the next decade and as such should not look to appease that set of creditors. The sustainability of the local economy for items not produced in Sri Lanka can be facilitated through regional trade invoiced in either Indian Rupees or facilitated by foreign party credit.
Given geopolitical tensions, both historic and recent Sri Lanka is capable of procuring its oil requirements through either Iran or Russia at favourable terms. The Trincomalee tank farm once activated can be used to obscure the origin of the oil and be traded into the broader Bay of Bengal region. The Port City project can facilitate the processing of payments.
“To think a loan from the IMF is going to solve the problems that Sri Lanka has is to oppose what has been historically fact. To convert the profits of the oligarchs and some corporations from the local currency to American Dollars so that they can take the money out before the country collapses.
They did it 20 years ago and then repeated it 5 years ago. The IMF is constantly repeating the same logic.” Even minor fixes to the system like the ban on open account imports have been thwarted by vested interests. He said, “The loan will not go to the people of Sri Lanka. It will go to creditors.” Debt restructuring of the locally issued LKR-denominated debt stock is wholly unnecessary. Debt holders have already received significant haircuts in real terms with the depreciation of the currency. It is suspicious that those supporting Aragalaya based on the current economic plight of the masses are actively pushing for economic suicide through a domestic debt restructuring.
Countries like Iceland have done very well by following a debt restructuring on their terms. Sri Lanka is already showing signs of resurgence and those looking to sabotage that progress must be called out. There are limited means to gauge equality of treatment across creditor groups.
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