Victory for Capital – Danger for Democracy Part II: Intertwined Power Structures in International Debt Restructurings
Sri Lanka has voted – but the room for maneuver for the new left-wing president, Dissanayake, is severely limited. He campaigned on a promise to renegotiate the loan program with the IMF and the ongoing debt restructuring negotiations. However, just two weeks after taking office, he abandoned this plan and accepted a debt deal that is heavily in favor of the creditors.
In Part I of this blog series, I discussed the importance of renegotiation and the social and political consequences of Dissanayake's about-face. In Part II, I will now examine how the ongoing legal proceedings between Hamilton Reserve Bank and Sri Lanka offer insight into the complex mechanisms used to exert pressure on the new president.
Blog by Malina Stutz (erlassjahr.de)
Background: Between crises, lawsuits, and austerity measures
Despite multiple crises and high debt service burdens, Sri Lanka long tried to continue paying its creditors and avoided debt restructuring negotiations . This changed in the spring of 2022, when the oil- and wheat-importing island nation was once again severely impacted by the global economic consequences of Russia's war of aggression against Ukraine. In April 2022, the country had no option but to suspend repayments and begin debt restructuring negotiations.
Public creditors – including the German federal government – as well as a large portion of private creditors agreed to negotiate a debt restructuring with Sri Lanka. As is customary, the public creditors made this conditional on the acceptance of an IMF loan program. Under this program, Sri Lanka was subjected to harsh austerity measures, while the debt relief provided was entirely inadequate.
However, one private creditor, Hamilton Reserve Bank , refused negotiations from the outset: In June 2022, the investment bank, based in the tax haven of St. Kitts and Nevis, filed a lawsuit in the New York court demanding full and immediate repayment of its claims.