A conference organized to share international experiences regarding debt restructuring convened on the 10th of June at the auditorium of the Sri Lanka Foundation Institute with the participation of a group of international experts on the economy. The former Minister of Finance of Argentina, Professor Martín Guzmán of Columbia University, Indian economist and International Development Economics Associates (IDEAs) co-founder Professor Jayati Gosh and IDEAs Executive Director Charles Abugre were present at the conference titled, ‘Is There Another Way?’. A coalition of civil society organizations arranged the conference to ensure that the debt restructuring process in Sri Lanka does not violate the rights of the public.
Experts drew from their own countries’ experiences to discuss different elements of debt restructuring. Argentina, for example, is a country that has faced a continuous economic crisis since the early 2000s because of its exposure to external debt. Guzmán led Argentina’s debt restructuring in 2020, the second largest in the world after Greece’s, with a fifty-five percent reduction in the value of sovereign bonds. Similarly, Abugre drew comparisons between Ghana’s external debt crisis and Sri Lanka’s.
Abugre highlighted a significant issue concerning the economic advice offered by the International Monetary Fund (IMF). He observed that like Sri Lanka, Ghana has similarly relied on recurring IMF programs throughout its history, yet both countries have ended up in crisis. He underscored that the notion that the IMF is an impartial entity offering purely technical advice is flawed. Instead, he suggested, politics is key to understanding how it operates. Abugre emphasized the need for Sri Lanka to engage in discussions with the IMF based on its own national agenda rather than accepting the IMF’s recommendations without question.
Guzmán emphasized that countries with external debt crises should develop their own program for debt restructuring when they fall into such a crisis, with which they can compare and push back against the IMF’s approach. He mentioned that there is no systematic mechanism for debt restructuring in the current international law. Therefore, it is necessary to negotiate with different creditors and reach an agreement with them separately. Guzmán stressed the crucial role of bargaining power in this process. He asserted that countries must have clear national policies on monetary, fiscal, and productivity-related matters to negotiate effectively. He challenged the perception that countries have no choice but to adhere to the IMF’s directives, which he argued is an illusion. Drawing from his experience in Argentina, Guzmán emphasized the importance of developing an alternative Debt Sustainability Analysis (DSA) independent of IMF calculations. He cited Argentina’s successful completion of a debt restructuring program as evidence of the feasibility and usefulness of such alternatives in the negotiation process.
In her presentation, Ghosh drew from a global context to explore the ways in which the IMF encouraged Sri Lanka to borrow from international capital markets, including issuing sovereign bonds. In fact, the economic strategy of capital account liberalization adopted by Sri Lanka since the late 2000s was encouraged by the IMF. Ghosh emphasized that the charging of high interest rates by private creditors, however, already compensates for the risk of loan non-payment. Accordingly, this factor must be considered in debt restructuring efforts when thinking about how much to repay bondholders, if at all. In addition, Ghosh argued that the burden of economic reforms imposed by the IMF disproportionately impacts ordinary people, small and medium enterprises, and particularly women from low-income households. She emphasized the importance of negotiating a fair debt restructuring that does not impose the burden of adjustment on the general public, which is least responsible for the crisis. She advocated for Sri Lanka’s alignment with other debtor countries at the international level, to push back against the IMF and its role in securing the interests of private creditors within powerful countries.
