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Sunday May 19th, 2024

Sri Lanka’s planned debt negotiations welcomed by IMF after first round ‘fruitful’ talks

ECONOMYNEXT – Washington-based International Monetary Fund has welcomed Sri Lanka’s planned negotiations with creditors after the island suspended repayments and said initial talks with a team led by Finance Minister Ali Sabry and Central Bank Governor Nandalal Weerasinghe were “fruitful”.

Sri Lanka on April 12 suspended foreign debt payments, and said they will negotiate with creditors.

“The IMF team welcomed the authorities’ plan to engage in a collaborative dialogue with their creditors,” the lender’s Sri Lanka mission chief Masahiro Nozaki said in a statement.

Sri Lanka is likely to need a reform-backed Extended Fund Facility, with debt re-structuring as a prior action officials have said. (Sri Lanka IMF program could be 400-pct plus quota EFF: CB Governor)

The IMF has said Sri Lanka’s debt is not sustainable (cannot be repaid with macro-economic adjustments like rate hikes and tax hikes only) after being locked out of capital markets and needs re-structuring (maturity extensions/haircuts) which will reduce the gross financing need for a few years.

Finance Minister Sabry said Friday he expects to appoint legal and financial advisors within the next 15 days. Sri Lanka officials were also briefed at the IMF by Lee Buchheit an expert on Latin America defaults.

Sri Lanka’s sovereign bond holdings shot up from 5 billion US dollars to 14 billion through two currency crises between 2015 and 2019 as the country was unable to buy dollars to settle foreign loans.

Now the country is scrambling for ‘bridge financing’ for imports despite due to broken peg, taking billions of dollars of consumption loans, analysts say.

The country lost access to capital markets during a third soft-peg crisis from 2020 up to now.

There is a billion dollar maturing in July 2022 but no foreign reserves or the ability to buy dollars for rupees after two years of money printing shattered credibility of the central banks soft-peg (flexible exchange rate) and triggered forex shortages.

The central bank itself is in dollar debt including to short term swap.

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“Going forward, the IMF team will support Sri Lanka’s efforts to overcome the current economic crisis by working closely with the authorities on their economic program, and by engaging with all other stakeholders in support of a timely resolution of the crisis,” Nozaki said.

Initial IMF talks were on “recent economic and financial developments in Sri Lanka, the need for implementing a credible and coherent strategy to restore macroeconomic stability, and the importance of stronger social safety nets to mitigate the adverse impact of the current economic crisis on the poor and vulnerable,” Nozaki said.

The poor are the hardest hit when Sri Lanka’s soft-peg or flexible exchange rate – which is neither a clean float with a domestic anchor nor a credible hard peg with an external anchor – fails.

The rupee collapsed from 203 to 340 to the US dollar from March to April 2022 and country wide inflation hit 21 percent in March before the effects of the depreciation had fully spread in the economy.

The rupee collapses whenever money is printed through aggressive open market operations to target an output gap (stimulus) and/or to sterilize forex sales (printing money to keep rates down after central bank finances imports or other outflows) and the country ends up at the IMF.

The failing peg has so far led to 16 IMF programs since the intermediate regime was set up in 1950 under a law devised by a US money doctor in the style of Argentina’s Banco Central de la República with extensive sterilization powers, open market operations and central bank securities.

A currency crises or forex shortages can only take place in a soft-peg/flexible exchange rate with conflicting anchors and is impossible in a float or a hard peg with a single monetary anchor.

Sri Lanka attempted to float the currency in March or ‘suspend convertibility’ after foreign reserves backing the peg were lost to sterilized forex sales.

The attempt failed and the rupee fell steeply and forex shortages persisted due a surrender rule (weak side convertibility) which force the monetary regime to be a peg and prevents a clan float from taking place.

Policy rates were also low at 7.50 percent, but has since been raised to 14.50 percent.

Treasuries yields have gone to around 20 percent which can bring more money from private saving to pay the salaries of state workers and also help roll-over maturing debt as paper, to reduce money printing.(Colombo/Apr23/2022)

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Sri Lanka seeks to draw youth into agri-entrepreneurship with 1.6bn funding

ECONOMYNEXT – Sri Lanka’s Ministry of Agriculture and Plantation Industries has earmarked 1.6 billion rupees for the establishment of 160 model farms across the island, that are to be owned and operated by youth agri-entrepreneurs.

“The Ministry of Agriculture and Plantation Industries has taken steps to allocate 1,600 million rupees to establish 160 villages in 25 districts with 6 youth agri entrepreneurship villages in each district,” Minister Mahinda Amaraweera was quoted in a statement.

“Arrangements have been made to provide an amount of one million rupees to each village under the first phase.”

The Minister said the aim of the program is to attract youth to agriculture and to introduce them to new agricultural technology, so they could target local markets and exports.

Under the initiative vegetables, fruits, plantation crops, and fish are to be harvested, and livestock products are to be produced in the villages. (Colombo/May18/2024)

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Sri Lanka Navy nabs fishermen engaged in illegal fishing

ECONOMYNEXT – Sri Lanka’s Navy apprehended eight persons engaged in illegal fishing in the seas off Ambalanpokkanei, Mullaitivu, Poduwakattu, and Trincomalee, this week.

“The operations also led to the seizure of 3 dinghies and unauthorized fishing gear employed for these illegal acts,” it said in a statement.

“The Sri Lanka Navy remains vigilant and conducts operations to combat illegal fishing in its sea and coastal areas, with a view to supporting legal fishing activities.”

The fishermen were engaging in light-coarse fishing and using unauthorized fishing nets.

They were intercepted by the SLNS Gotabaya and SLNS Walagamba of the Eastern Naval Command.

The individuals were identified as residents of Mullaitivu, Kuchchaveli and Poduwakattu, aged between 21 to 53 years.

The fishermen, dinghies and unauthorized fishing gear were handed over to the Assistant Directorate of Fisheries – Mullaitivu, and the Fisheries Inspector of Trincomalee for legal action, the Navy said. (Colombo/May18/2024)

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Fifteen years after the end of the war, victims still await justice at Mullivaikkal: Amnesty

ECONOMYNEXT – Speaking at a commemoration marking the 15th anniversary of the end of Sri Lanka’s internal armed conflict on 18 May 2009, which culminated in the brutal Mullivaikkal offensive where countless civilian lives were lost, Secretary General at Amnesty International Agnès Callamard said:

“Today’s anniversary is a grim reminder of the collective failure of the Sri Lankan authorities and the international community to deliver justice to the many victims of Sri Lanka’s three-decade-long internal armed conflict.

It is sobering to stand in the same place where, 15 years ago, countless civilian lives were lost during the last days of the war.

Ahead of this event, we have witnessed clampdown on the memory initiatives, including arrests, arbitrary detentions and deliberately skewed interpretations of the Tamil community’s attempts to remember their people lost to the war. Authorities must respect the space for victims to grieve, memorialise their loved ones and respect their right to freedom of expression and peaceful assembly.

UN investigations have found credible evidence of crimes under international law and other violations of international human rights and humanitarian law committed by those on both sides of the conflict, yet there has been little in the way of an independent or impartial national inquiry into such serious crimes.

Meanwhile, the families of those who were forcibly disappeared during the conflict have been left to search desperately for their loved ones. It is truly heartbreaking to hear from victims how long they have been demanding justice in vain.

The Sri Lankan government is best placed to provide answers to the victims, however numerous domestic mechanisms to establish accountability in the last 15 years have been mere window dressing.

The report by the UN Office of the High Commissioner for Human Rights released earlier this week too reiterates the gaping deficits in Sri Lanka’s accountability initiatives that has contributed to impunity remaining deeply entrenched.

Tens of thousands of victims and their families continue to suffer in anguish as they await truth, justice, and reparations. We stand in solidarity with them here in Mullivaikkal today.”

Background:

During the internal armed conflict from 1983 to 2009, Sri Lankan government forces and their armed political affiliates committed extrajudicial killings, enforced disappearances and acts of torture against Tamils suspected of links to the Liberation Tigers of Tamil Eelam (LTTE).

The LTTE also launched indiscriminate suicide attacks on civilian targets like buses and railway stations, assassinated politicians and critics, and forcibly recruited children as fighters.

Violations of international human rights and humanitarian law peaked in the final months of the conflict, most notably in May 2009 when some 300,000 displaced civilians were trapped between the warring parties.

It was at Mullivaikkal, a small village in Mullaitivu district in the Northern Province of Sri Lanka, where the final offensive between the Sri Lankan forces and the LTTE took place, killing at least 40,000 civilians according to UN estimates.

Each year, on 18 May, a memorial event at Mullivaikkal brings together thousands of war-affected Tamils to commemorate those lost to the war and demand justice and accountability.

The Office of the High Commissioner for Human Rights (OHCHR) this week released a report on accountability for enforced disappearances in Sri Lanka.
(Colombo/May18/2024)

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