Sunil Hadunnetti’s balderdash on International Sovereign Bonds

Recently, prominent NPP politician and former COPE Chairman Sunil Hadunnetti’s comments in an interview with Neth FM – a popular radio station in the country – on the features of International Sovereign Bonds (ISBs) went viral on social media and created a sparkling debate, particularly in the cyber space. Airing his views during the radio discussion, former MP implied that Sri Lanka’s bondholders would not cause a dispute in the event the Government defaults its ISB commitments, as the coupon rate of bonds includes the risk premium associated with the sovereign debtor. Given Hadunnetti’s inaccurate assertion, the public could develop an erroneous understanding about the features of sovereign bonds issued in the international capital market.

The claim of Hadunnetti – who is tipped to become Minister of Finance in a future NPP administration – can be easily repudiated by citing the lawsuit filed by the Hamilton Reserve Bank (HRB) in June 2022 against the Sri Lankan Government in a New York federal court. HRB, which holds more than $ 250 million of Sri Lanka’s ISBs, initiated litigation seeking full payment of principal and interest. The bank in the claim pointed out that bonds which are primarily held by US retirement systems remain indefinitely in default and unpaid, causing American retirees tremendous suffering from potentially massive losses of up to 80% of their original investment value. The plaintiff further alleged that due to Sri Lanka’s default, it is owed $ 250.19 million in principle and $ 7.35 million in accrued interest. 

The controversial remark of Hadunnetti, who has been the chief spokesman of the JVP/NPP on economic affairs for a considerable period of time, raises serious questions about the credibility of the NPP’s stance on this critical issue of the Island’s outstanding ISB obligations. This baffling interpretation comes at a time when the authorities are expected to reach an in-principle deal with bondholders by the second review of the IMF program.

The nation has witnessed propagation of crank theories over the last few years, particularly with regard to the economic policy, and the continuation of such practices would mislead the general public apart from undermining efforts towards economic recovery. The entire country paid a heavy price due to the implementation of Modern Monetary Theory – a doctrine discarded by mainstream economics, yet impetuously advocated by former Central Bank Governor W.D. Lakshman – illustrating the adverse effects of trying out such fringe concepts.

Hadunnetti’s misrepresentative explanation follows a similar confusing insinuation expressed by another leading NPP advocate on economic matters, Professor Anil Jayantha at the Sri Lanka Economic Summit which was held late last year. During a panel discussion at that forum, Professor Jayantha hinted that a future NPP Government would refrain from honouring what he described as odious debts that had been borrowed by previous Governments. Odious debt is not a concept officially recognised in international law. No national or international court or governing body has ever invalidated sovereign obligations on the grounds of odious debt. The concept of odious debt is raised when the Government of a country changes hands violently either through overthrow by another country or internal uprising. Hence, it is obvious the notion referred by Professor Jayantha cannot be applied in the Sri Lankan context.

No political movement can claim eligibility for governance merely based on anti-corruption rhetoric and criticism. When the pursuit towards economic recovery with the assistance of the IMF and our bilateral creditors is underway, it would be naïve to experiment with unorthodox concepts that have no acceptance. The absence of coherence and clarity in the NPP’s economic policy has been highlighted by numerous observers and disseminating crank concepts only validate such apprehensions. More than ever, Sri Lanka needs to be governed by a political outfit who possess a clear and unambiguous economic program which is consistent with the acknowledged norms and laws of the prevailing international order.