Committee for the Abolition of Illegitimate Debt

Key Takeaways

• The revised bondholder agreement may cause balance of payments Balance of payments A country’s balance of current payments is the result of its commercial transactions (i.e. imported and exported goods and services) and its financial exchanges with foreign countries. The balance of payments is a measure of the financial position of a country vis-à-vis the rest of the world. A country with a surplus in its current payments is a lending country for the rest of the world. On the other hand, if a country’s balance is in the red, that country will have to turn to the international lenders to meet its funding needs. instability even in the short term. The ISB repayments will reach approximately US$ 1.85 billion in 2025 including interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. on bilateral debt of US$ 420 million. Coupled with outflows of circa US$ 1.5 billion due to lifting the import ban on personal vehicles, an additional US$ 3.4 billion is required in 2025. Given the country’s current usable foreign reserves of US$ 5 billion, this excessively increases vulnerability to external shocks.

• The extended maturity period masks significant increases in total interest payments. From 2028,, the weighted coupon rate of interest can climb to 6.8% and following 2032, the rates surge up to 9.75% for the next six years.

• By relying on the Net Present Value analysis method, analysts and policymakers risk underestimating the true cost of debt restructuring.

• The IMF IMF
  International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.
  
  When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.
  
  As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).
  
  The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
  The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
  
  http://imf.org DSA target of 95% debt-to-GDP GDP
  Gross Domestic Product Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another. ratio assigned for Sri Lanka excludes the present value of interest payments, erroneously indicating that Sri Lanka’s capacity to repay is greater than the strongest economies as per IMF standards. Unbearable debt repayments will weaken the currency in the long run.

• Under the bondholder agreement-in-principle, Sri Lanka has effectively waived the legal right to secure a higher debt cancellation, creditors hold the right to alter the current governing law of Sri Lanka’s outstanding ISBs. There is no evidence that the external financial advisors of the government, who have a close commercial relationship with creditors, are working in the best interests of the people of Sri Lanka.

• Lender awareness that Sri Lanka debt exceeded government revenue by a factor of ten, is a clear indication of predatory lending practices. Established norms in lending were blatantly violated by creditors.