ECONOMYNEXT – Sri Lanka as a middle income country has to negotiate with multiple creditors simultaneously partly due to geopolitics which is a complex process, President Ranil Wickremesinghe has said.
“We have the Paris Club, but then our largest bilateral debtors are outside of the Paris Club, India and China,” President Wickremsinghe told a forum at Germany’s Berlin Dialog.
“As far as the Paris Club goes, India has decided to go along with the Paris Club, but China doesn’t want to get onto that platform.
“Now this has nothing to do with Sri Lanka, we are caught in a geopolitical rivalry.”
Sri Lanka also has to talk with private creditors.
“We have to talk with the Paris Club, plus India, then we’ll talk to China and then go back to the London Club,” Wickremesinghe said.
“I mean it’s a difficult process for many countries, I know most won’t make it there and to begin with, it’s going to take time.”
About 18 percent of Sri Lanka’s 36 billion US dollars of external debt is owed to China, almost all of which came in the last 15 years.
“China, meant joining the BRI (Belt and Road Initiative), we’ve got projects there – some good, some not that,” Wickremesinghe said.
“But that’s our fault, we are the ones who selected those. But now all of us are getting targeted if we’re in the BRI.”
Sri Lanka loaded up debt from both China and yield chasing sovereign bond holders in the run up to the US housing bubble and even more later as the Fed and pumped liquidity driving interest rates down.
About two billion dollars of Chinese funding also came from a syndicated loan as the country ran into forex trouble from flexible inflation targeting.
The first wave of Latin American debt crises happened in the 1980s after a period of bad monetary policy from the US from the late 1960 and into the 1970s that allowed the countries to load up on commercial debt.
When the US tightened in 1980 Latin American countries which did not tighten in tandem collapsed. Newly opened Eastern European countries also followed. (Colombo/October4/23)