Despite the many economic challenges the country faces, Sri Lanka up to now has not defaulted on the repayment of its foreign debt. That has stood the country`s creditworthiness in good stead. Given the ever-mounting debt, both domestic and foreign, whether the track record that has hitherto been maintained is sustainable or not is an open question. It is in this context that the UNP statement that a future government led by it will not honor the USD 500 million bond issue that the government is floating raises issues that are, to say the least, troubling. Fortunately this matter was discussed in parliament last week when both the government and the opposition had their say. Whether the public was enlightened at the end of the debate is another matter. The vast majority of the people, wrestling with the cost of living and the struggle to make ends meet, are understandably not interested in subjects like these. Their worries belong to the micro-economic sphere of rice and curry and bread and dhal as well as electricity and fuel prices and not macro-economics.
As is common in this country, allegations were made and names were named in the course of the debate. Prime Minister Ratnasiri Wickramanayake pointed a finger at a leader in the domestic banking scene and accused him of misleading the leader of the opposition. Another Singapore-based businessman who held senior office here during the Wickremesinghe administration was also mentioned as a conduit of misinformation. Friends and foes must admit alike that Mr. Ranil Wickremesinghe is among the more knowledgeable of our political leaders with a firm grasp of economics, history both of this country and the world and much more. He has also been privileged to hold senior positions in the J.R. Jayewardene, Premadasa and D.B. Wijetunge administrations and has served both as prime minister and leader of the opposition. All of this has given him vast experience and he will not easily swallow what are commonly referred to as ``dead ropes.``
We do not know whether Wickremesinghe went out on a limb when his party made the statement that a future UNP-led government will not honor the bonds the incumbents intend to issue. These bonds are guaranteed not by the government presently in office but by Sri Lanka itself and whether a future government can legally repudiate them or not remains to be seen. Whether it is possible or not, a threat like that will naturally affect confidence. Obviously big international banks like the Hongkong and Shanghai Banking Corporation (HSBC), J.P. Morgan and Barclays who, together with the state-owned Bank of Ceylon will be the lead managers, book runners and underwriters to the issue will advice themselves on the risks, if any, they run flowing from a threat like the like that of the UNP`s before they begin to raise the required funds. If that exercise does not take off as a result of the threat, political parties of whatever hue - not only in this country but elsewhere - would have found themselves a new and deadly weapon of limiting fund raising abilities of governments in office.
Friday`s Daily News gave lead play to Prime Minister Ratnasiri Wickramanayake`s statement in reply to Wickremesinghe`s. But Wickremesinghe`s own speech was all but blacked out with just a single paragraph quoting him saying that the government had slashed subsidies to please foreign banks who have agreed to provide loans. It is this kind of unfair reporting that casts doubts on the government`s case. Other media reported what the opposition leader said and the fact that these reports did not have him repeating his party`s threat about not honoring the bonds may have suggested to some that this was a kite flown at a lower level of the UNP. Nevertheless, at Friday`s Nittambuwa meeting Wickremesinghe did say that they had written to HSBC on this matter. So whatever he did or did not say in parliament, it looks as though that particular die is cast. Wickremesinghe`s case, in effect, as stated in his parliamentary speech was that the country was getting into a dangerous debt situation and that during the 10 years that the bonds the government was seeking to raise are repaid, as much as USD 800 million would be spent. He also alleged that certain assurances on reducing vital consumer subsidies have been made by government to make the bond issue possible. The prime minister, while claiming the bond will stabilize the rupee and boost the economy accused Wickremesinghe of being jealous of the government`s economic achievements.
Certainly the bonds which will cost less than commercial borrowing abroad will help better manage the fast depreciating exchange rate, galloping inflation and other fiscal problems confronting the government. Given the government`s track record of profligacy and politically opportunistic acts including overloading an already bloated public sector with thousands of new employees recruited to keep its supporters happy, the public will have little confidence that expensive borrowings will be necessarily invested where it is needed ? on vital infrastructure like roads, ports etc. Governments of whatever hue are far too adept at applying temporary palliatives that will buy them votes and extend their tenure than do what is necessary for the national wellbeing. Given the hardships that ordinary people face today, any opposition worth its salt will necessarily exploit impending subsidy cuts if this is contemplated to make foreign borrowing possible. Government will of course argue that it has not reduced welfare but global market prices of commodities like oil, wheat flour and milk powder that is sending up prices. But Citizens Perera and Silva are not concerned about such arguments. Their pockets are not deep enough to yield the cash necessary to keep their families fed. In this context the lavish lifestyles of the political class is doubly infuriating as there are no signs whatever of these worthies serving themselves less gravy from public coffers.