The agreement with the International Monetary Fund and the foreign lending agencies that domestic debt restructuring should take precedence over foreign debt restructuring should come a cropper since local debt restructuring may affect the banking system and employees’ provident funds.
Therefore, the government should act with the utmost responsibility regarding the dos and don’ts, says Samagi Jana Balawega MP Eran Wickramaratne.
The parliamentarian made these observations this morning while joining the Sirasa channel’s cross-section of views.
The parliamentarian who spoke further pointed out that foreign lending agencies granting loans and local banks giving loans to the government are two different situations.
There will be negative effects on the stability of local banks and the largest fund for Sri Lankan retirees, the Employees’ Provident Fund. This is if a haircut is taken when domestic restructuring is done. The parliamentarian warned that the government should not take the initiative to restructure local debt.
“We have consulted the International Monetary Fund 16 times. But during these times, we dealt only with that fund. This time we also have to deal with those who loaned us money. This looks somewhat unfamiliar to us.
Sri Lanka is trying this type of debt restructuring for the first time. But some countries have gained experience in this regard. In this situation, Sri Lanka is pushed into a corner. We have been pushed by foreign creditors, who gave us loans to restructure domestic debt before everything else.
Usually, three related methods are used for debt restructuring. The first is to extend the repayment period for the loan, and the second is to reduce the interest rate. The third is to reduce the principal amount to be paid. I have said from the beginning that we cannot do this if we restructure the domestic debt.
In particular, it is impossible to reduce the loan amount or take a haircut. This is because money’s value has decreased in rupees. With inflation, the rupee’s value has decreased. If these loans are reduced, the creditors who have given loans internally will go into crisis.
In particular, we must protect the two main banks in Sri Lanka, the Bank of Ceylon and the People’s Bank. They are currently stable. Stability should be preserved. The Employees’ Provident Fund is the largest pension fund in the country. It should remain stable. This is why I say again that the government should never reduce this debt during internal debt restructuring.
Mr. Eran Wickramaratne pointed out that if such a thing happens, one problem will be solved while another crops up.
