Sri Lanka’s Fiscal Tug-of-War: From Bond Markets to Electoral Dynamics

The million-dollar question now is: would the IMF’s contribution to debt restructuring, democracy and good Governance entail forcing Sri Lanka to once again borrow from predatory private markets to hold elections this year despite the history of bond scams?

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A lotus tower and a walking man's reflection can be seen from a waterway in Colombo, Sri Lanka, on July 23, 2023.

With the wisdom of hindsight, the Root Causes of Sri Lanka’s first-ever Sovereign Default, staged three years ago on the eve of 75 years of ‘Independence’ from the British Raj are clear.

When the Default happened in March 2021, there was too much Aragalaya protest hype and confusion to discern the deep structures, transnational financial networks, and vested interests (including members of the Lankan Diaspora who belong to the global financial elite) embedded in Sri Lanka’s debt pile up:

Amid protests at the soaring cost of living, the claim was that Sri Lanka, South Asia’s wealthiest country with the region’s best human and social development indicators, was “bankrupt” because it lacked exorbitantly privileged U.S. dollars to buy food and fuel. This was after the shadowy off-shore Hamilton Reserve Bank had filed a case in the New York courts against the country for non-payment of a small amount of interest owned.

The Default in the lush and fertile geostrategic Indian Ocean Island was staged just in time for the International Monetary Fund (IMF) and World Bank’s Spring Meetings in Washington DC, where Sri Lanka because the posterchild for 56 other Global South countries, also caught in post-Covid-19 Eurobond debt traps as Cold War tensions escalated between the West and China that is often accused of debt-trapping countries because of its Belt and Road Initiative (BRI).

Hybrid Economic Warfare

As the World Bank had named Sri Lanka an Upper Middle Income Country (MIC) in 2019, compelling borrowing from private Eurobond capital markets that charge predatory interest rates, the country appeared to have been “pumped and dumped” into a ‘Middle Income Trap’. This was in the wake of a series of hybrid economic war-style exogenous shocks to “make the economy scream”, such as the mysterious Islamic State (ISIS) claimed terror attacks on tourist hotels followed by two years of brutal COVID-19 lockdowns.

Sri Lanka’s first (and one hopes last Default) after 74 years of “independence” at this time has enabled the Washington Consensus (IMF and W.B.) to take control of the strategic island’s economic sovereignty and policy autonomy in the name of ‘debt restructuring’. Meanwhile, the IMF’s External debt restructuring has rapidly crept into domestic debt, conflating and inflating a debt data numbers game even as the IMF claimed to be deeply concerned about good Governance, democracy, and its elections in the geostrategic Indian Ocean Island.

Bond Scams for Elections?

After the International Monetary Fund (IMF) Staff Visit to Sri Lanka last month, Mission Chief Peter Breuer noted Sri Lanka is showing the first signs of recovery as it finds itself in an election year, and therefore, what happens before the elections as well as after them will be crucial for the economic recovery”.[1]

As Sri Lanka marks 76 years of purported ‘Independence” amid renewed Eurobond U.S. dollar debt colonization and financial Lawfare, with an IMF Firesale of Strategic national assets ( coastal and highland land, energy, transport and telecom infrastructure), ongoing, some fundamental questions arise about the role of the IMF and its debt restructuring operations: Of particular concern is the lack of transparency regarding the names of Sri Lanka’s Sovereign Bondholders, past and present, particularly in the context of previous Central Bank bond scams in 2015 seemingly also to fund elections and Ranil Wickramasinghe’s United National Party’s electoral campaigns.

Elections are a time of ‘Bread and Circuses” or handouts and religious pageantry for the masses, with bond scams to buy votes for the political and business elites who dish out freebies for votes. With elections scheduled for later this year, the “bankrupt” Ranil Rajapakse regime recently asked the United Nations (U.N.) for help to fund Vesak Celebrations (Buddhist celebrations) in May, seemingly taking a cue from Indian Prime Minister Modi’s Ram Temple extravaganza in ahead of the election to be held later this year.

During the 2015 Central Bank bond scam, members of the ruling United National Party and related political and business elites benefited handsomely from the sovereign bond debt to the country.

Breuer also noted, “During our visit, we listened to political parties, their perspectives and angles of their economic policy perspectives. So, of course, what takes place in Sri Lanka in the run-up to the elections and afterwards will impact the country’s recovery and growth path and how it disengages itself from the ongoing crisis,” he said.

The strong expectation, Breuer noted, is that Sri Lanka would reach a deal with its commercial Eurobond creditors by the following IMF review on Sri Lanka.

Central Bank Bondscams and Assassinations

While the IMF and its advisors have shown great interest in Sri Lanka’s election outcomes governance and corruption reduction, there was no mention of the fact that back in 2015, ahead of the Presidential and General Elections, two bond scams were conducted at the Central Bank of Sri Lanka (CBSL), which was then headed by Singapore citizen Arjuna Mahendran, a school friend appointed by then Prime Minister Ranil Rajapakse, now President. They were advised and in the thrall of the Washington Consensus and related advisors and Economic Hitmen on bond trades.

The 2015 CBSL bond scams took place at a time when the U.S. Millennium Challenge Corporation (MCC), Compact was co-incidentally being prepared, along with the Special Operations Forces Agreement (SOFA), while Ranil Wickreamsinghe a.k.a Ranil Rajapakse was in power.

Both agreements were, however, later rejected by the people of Sri Lanka and then President Sirisena, fearful of the possibility of U.S. boots on the ground and military bases in the strategic Indian Ocean island back in 2019. This, of course, necessitated a regime change operation, and voila, the mysterious hybrid economic war style ISIS claimed Easter Sunday attacks were manifest—to ‘Make the Economy Scream’!

Once the bond scam fraud at the country’s highest financial institution, CBSL, was exposed to have been carried out by Mahendran’s son-in-law of Perpetual Treasuries, Mahendran was sacked, and there were various local investigations, and Bondscam Reports written with numerous footnotes by Ministers, Dr Harsha de Silva among them

However, the Forensic Audit Report by international firms that investigated the bond scams which could have revealed the names of the Bond Holders who benefited from the primary placement scams and ensured accountability, were buried by the new CBSL governor—Dr. Indrajit  Coomaraswarmy.

Had the culprits of the 2015 CBSL Bond scam been identified and held accountable, likely, Sri Lanka would not have ended up in a Eurobond debt trap and Default in 2021, which has enabled the IMF to effectively dictate economic policy to the hapless and beggared citizens whose currency crashed with the Default. Ironically, Coomaraswarmy now provides IMF advice to the Government of Sri Lanka regarding its Debt Servicing while enabling the IMF mission to creep into domestic debt restructuring.

The final blow to any investigation into the CBSL bond scams of 2015 was the mysterious assassination a little over a year ago of the primary witness in the court case, Mr Dinesh Shaffter, in broad daylight in Colombo. So much for accountability and good financial Governance!

The Million Dollar Question

The million-dollar question at this time is will the bankrupt Ranil Rajapakse regime form a bipartisan or multi-partisan pact to borrow from the same predatory private market bond traders that caused the Default in the first instance to fund elections this year as part of its IMF debt restructuring deal with commercial creditors?

The IMF’s debt restructuring operations are conducted in tandem with the colonial Club de Paris, which represents Eurobond traders that charge predatory interest rates, along with selected firms like Lazaad, Clifford and Chance that have a long history of deal-making sans transparency and debt-trapping developing countries through local-global networks of financial corruption and insider trading as happened during the Bond scams at the Central Bank of Sri Lanka (CBSL), also with elite members of the S.L. Diaspora in 2015.

While some discerning civil society organizations and academics have called for a ten (10) year moratorium and eventual ban on ALL Government borrowing from private creditors as they charge predatory interest rates, the largest being BlackRock (fronted by Adani in South Asia), will the politicians form a multi-partisan pact to borrow from Eurobond markets in the name of “Democracy” and elections—turning vice into a virtue–what some political scientists call “money politics” and corruption rackets?

In other words, would the bankrupt Ranil Rajapakse regime, with so many bond scams to their credit, persuade the opposition parties to have recourse to borrowing from the same private market, Eurobond traders that caused the 2021 Sovereign Default, to fund their election campaigns and the elections? Would not such an attempt amount to a bi- or multi-partisan corruption racket in a devil’s bargain to fund electoral ‘democracy’ among the various political parties anxiously jostling for power?

Would the ends (elections) justify the means (more borrowing from predatory commercial lenders to heap more debt on the people with a second default soon) in the name of electoral democracy?

Funding elections with bond scams may be legitimate and justify stashing away some derivatives in off-shore banks listed in the Panama Papers! The IMF and its gravy train of advisors and economic hitmen are well known for making hard bargains to extract from the people while de-risking and bailing out predatory bond traders.

Who benefits from Bond scams and Financial Crime?

Sri Lanka’s first-ever sovereign Default in 2021, which triggered rapid rupee depreciation against the exorbitantly privileged U.S. dollar and instantly impoverished the working people, enabled international creditors, Eurobond traders, and related financial networks represented by the colonial Club de Paris and the International Monetary Fund that had already made a killing with predatory interest rates, to effectively take over the peoples’ economic sovereignty and national policy autonomy in the name of “debt restructuring”.

Since the 2021 Default, there have been endless talks and numbers games played around the volume and quantum of debt and the “haircuts” to be dished out among various creditors amid talk of parity of treatment, but few outcomes that benefit the people.

With the wisdom of hindsight and the statement of 183 International Economists and development experts released in January 2022 (available at the Debt Justice, UK website), it is now quite clear that Sovereign Bond Commercial creditors that charge predatory interest in partnership with local and Sri Lanka Diaspora networks of elite political, business and financial corruption were the principal beneficiaries and root cause, of and for the country’s first-ever Sovereign Debt Default in 2021.

After all, the Default was caused by recent borrowing from private markets and bond traders, the largest being BlackRock, with Norway’s Sovereign Wealth fund a close second.

Although throughout its 75 years of “independence”, Sri Lanka had borrowed for development work, the country was able to pay back because the loans from bilateral or multilateral lenders, taken at concessionary rates, until the Default in 2021.

Once the World Bank upgraded the country to a MIC and forced it to borrow from private Eurobond markets during times of exogenous crisis, debt mounted, and the Government was cast into a MIC trap and Defaulted.

The million-dollar question now is: would the IMF’s contribution to debt restructuring, democracy and good Governance entail forcing Sri Lanka to once again borrow from predatory private markets to hold elections this year despite the history of bond scams? And if so, would these be Green and Pink Washed Environmental, Social and Governance (ESG) Bonds to also fund Asswessuma poverty alleviation payments to entrench Aid Dependency?

Finally, in the age of Artificial Intelligence (AI), with easily gamed debt data fiction, Sri Lanka’s first Default at this time increasingly looks like a form of ‘hybrid economic warfare’ waged by the Sovereign-wealth-fund-holding-global-elite and the BlackRocks of the world against the systematically impoverished peoples of the Global South.

Indeed, Default as a form of hybrid economic warfare against the Global South as a new round of Euro-American Debt Colonialism ramps up appears to be just the most recent iteration of Richard Nixon’s infamous instructions to the Central Intelligence Agency (CIA) to “Make the Economy Scream” in Chile in 1973 to destroy Dr. Salvador Allende, South America’s first socialist President and head of state at the height of the Cold War.

[Written by Darini Rajasingham Senanayake for IDN-InDepthNews]

Sri Lanka Guardian

The Sri Lanka Guardian is an online web portal founded in August 2007 by a group of concerned Sri Lankan citizens including journalists, activists, academics and retired civil servants. We are independent and non-profit. Email:

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