Response to Finance Ministry press release 16 April 2024 on the failure to meet agreement on ISB bond restructuring.
These initial comments are based on the first reading of the press release by the Finance Ministry moments ago. We reserve the right to make additional comments upon in-depth study of the proposals in the attachments.
At the outset, we note with disappointment that there has been no transparency in the government’s debt restructuring process even though we had requested for same. In fact, I requested for a meeting with the relevant stakeholders both as the economics spokesperson for the main opposition SJB and as the Chairman of the COPF. That opportunity was not provided, instead, a meeting with government officials was arranged to discuss the IMF program which we had no reason to attend as we anyway meet the delegation during their visits and exchanged views on the same.
From the press note, it is obvious that the government has failed to strike a deal favourable to the people of Sri Lanka. We acknowledge, however, that it is better to withdraw from the discussions than to agree to a bad deal. Having said that, the statement by the head of Hon Presidents staff that the two sides agreed on two of the four issues is not accurate when the note categorically states that no agreement had been reached, only that they ‘came closer to a meeting of minds’ if a significant additional payment was made and even then, contingent upon the government side agreeing to the bondholders remaining conditions.
The participating bondholders do not want to move away from the original macro linked bond (MLB) structure they proposed based on the performance of the Sri Lanka economy to be measured on their much higher ‘alternative baseline’ as opposed to that of the IMF. The main problem with this approach from the point of view of Sri Lanka is with their proposed structure of sharing the upside. It is not acceptable given the pain already incurred and will be incurred for decades to come by domestic creditors forced upon by the domestic debt restructuring.
It is now clear the alterative restructuring proposal by the government consisting of a mix of plain vanilla and MLB has been rejected by the bond holders. We do understand the need for some type of value recovery instrument (VRI) that could be a component of the final restructured series, but we think that to link the same to every bond takes away the freedom of a future government to manage the nation’s liabilities in the most beneficial way for Sri Lanka. It is possible to discuss the VRI structure that is detachable from the main instrument.
We are happy to note the inclusion of a discussion on a possible governance-linked bond (GLB) structure and would be interested in discussing how that can be worked into a possible instrument to be agreed upon.
We urge the government to be much more transparent in this restructuring process given that elections are around the corner and that the next government and those to come will be held responsible for honouring the conditions agreed upon by this government in its final months. We are fully aware that any unilateral suspension of meeting any of the agreed payments would mean a second default which would be an absolute disaster.
