The Guardian: Experts warn hedge funds furthering Sri Lanka crisis

By Al Mayadeen English
Source: The Guardian
9 Jan 2023 16:53

Economic experts warn in a statement that hedge funds are holding back crisis relief to Sri Lanka, noting the latter could end up with a terrible deal.

Women queue in line in Colombo, Sri Lanka to buy kerosene (AP).

182 economists and development specialists from across the world claim that some of the most powerful hedge funds and other investors are delaying crucial aid to crisis-stricken Sri Lanka because of their adamant attitude in debt-relief negotiations following the Asian nation's $51 billion default last year.

The group of specialists maintained in a statement provided to The Guardian on Sunday that massive debt cancellation was required to give the economy a chance to recover, and that Sri Lanka will serve as a test case for the international community's readiness to address a looming global debt crisis.

According to the statement, “Debt negotiations in Sri Lanka are now at a crucial stage,” adding, “All lenders – bilateral, multilateral, and private – must share the burden of restructuring, with assurance of additional financing in the near term.”

The majority of Sri Lanka's external debt stock, the statement made to the Guardian revealed, is held by private creditors, who own over 40% of it in the form of international sovereign bonds. However, because of the higher interest rates attached to these bonds, private creditors acquire more than 50% of the country's external debt payments.

“Such lenders charged a premium to lend to Sri Lanka to cover their risks, which accrued them massive profits and contributed to Sri Lanka’s first-ever default in April 2022," the statement explained.

"Lenders who benefited from higher returns because of the ‘risk premium’ must be willing to take the consequences of that risk,” the specialists added.

The 182 economists worry that Colombo would receive a terrible deal as a result of the harsh attitude taken by private creditors. The International Monetary Fund will only offer a loan after the Washington-based group is sure Sri Lanka's obligations are manageable.

With a looming widespread 2023 recession and increased global interest rates, the experts' statement highlighted that “The Sri Lankan case will provide an important indicator of whether the world – and the international financial system in particular – is equipped to deal with the increasingly urgent questions of sovereign debt relief and sustainability; and to ensure a modicum of justice in international debt negotiations."