UNP threatens not to repay huge govt. loansThe US$500 million bond issue the Central Bank is raising from commercial banks to fund infrastructure investments for which foreign aid has been already pledged has prompted the United National Party (UNP) to plan an unusual course of action. A party spokesman said they plan to write next week to HSBC, JP Morgan and Barclays, the three joint lead managers of the commercial loan raising, questioning their collusion in corrupt activities of this Government. UNP lawyers are considering whether to bring in the corruption angle based on the fact that the government is resorting to medium term (10 year) loans for mega infra-structure projects , some of them unlikely to "get off the ground". UNP spokesmen, including party leader Ranil Wickremesinghe, have also gone on record that in the event of the UNP coming to power between 2007 and 2017 (the duration of the bond repayment), it would not honour the agreement and suspend payments. Mr. Wickremesinghe, addressing a massive joint opposition public rally at Matara on Friday said the government was seeking commercial loans for infrastructure projects that are said to be funded by China (Norochcholai power and Hambantota harbour), southern highway (Japan), Colombo harbour (ADB). He said for 22 projects the government has requested US$500 million in foreign aid. “Then why is the government seeking US$ 500 million in a bond issue when some of these projects have already got foreign aid?” he asked. Economists reject the view that state contracts can be terminated by another governing party. Dr Muthukrishna Sarvananthan, Researcher at the Point Pedro Institute of Development, says a government is legally entitled to enter into a contract with another party and that cannot be undone in the event of a new government being installed. “That is impossible unless there is some agreement to end such a contract,” he said. The recent seismic survey contract of oil deposits with Norway’s TGS-NORPEC, entered into by the former UNP government, is a case in point. When the Mahinda Rajapaksa administration wanted to terminate it, it had to pay US$8 million. Among other problems in the bond issue that raises issues of corruption is that the projects ear-marked for these loans are already in the aid pipeline. Some are also possible non-starters like the coal power project in Trincomalee and the investment and tourism zones there. The Central Bank in its offer document said the funding is needed for infrastructure development like the Hambantota Port, the Weerawila Airport, the Colombo Kandy Highway and other infrastructure projects. Dr Sarvananthan said that though an MoU was signed between the Sri Lankan and Chinese governments during President Rajapaksa’s visit there earlier this year for concessionary funding of the Hambantota port project, in reality what had been offered is a commercial loan. “There is a realisation now that it would be better to go to the commercial market for a loan than take the Chinese offer,” he said. He also said it is unclear for what purpose the loan is. “It may be for government expenditure including defence.” The US$500 million bond issue itself will result in the government – though the public – coughing out a phenomenal Rs 100 to 139 billion over 10 years to 2017 on interest payments alone, according to a UNP analysis. That’s the standard commercial bank rates, banking sources said, adding that it’s a high 7 percent against 1 percent in concessionary financing. Whether the Central Bank can raise such an amount is also questionable given its recent borrowing performance. Last year Central Bank governor Nivard Cabraal led a roadshow to Singapore to promote a short term bond for Rs 100 million. Though the official line subsequently was that the entire amount was subscribed for by foreign banks, Dr Sarvananthan said the Central Bank was unable to raise that amount. “I heard it was about US$70-80 million.” The Central Bank in its offer document said the reasons for a bond issue were many. Among them are that with increasing per capita income, Sri Lanka’s access to concessional financing will not be increasing in the medium term and thus necessitates the need to make Sri Lanka’s presence felt in the international capital market. Supporting the government’s initiative to achieve rapid infrastructure developments and discovering the price internationally for Sri Lankan bonds, are among other reasons, according to the Bank which also emphasised Sri Lanka’s strong willingness to repay its debt. The UNP in its comprehensive analysis on the bond issue and its negative impact on the economy, gave two scenarios on how much it costs the economy. It said: a) Assuming a 5% p.a. currency depreciation of SLRs/US$ over 10 year period results in a 2017 Rs/$ exchange rate of – 183 Rs/$, the repayment of the bond proceeds received in 2007 at current exchange rate 112 – Rs 56 billion will work out to; Total repayment cos: Principal + Interest in 2017 = Rs 195 billion Syndication loan: Bank of Ceylon borrowed and gave to the government at least USD 200m, helped by HSBC. On the conflict: “localized nature of the conflict”. But, planning to intensify the war Page 230 of MC 10 year development plan: “Government may need to mobilize 200-400 million dollars annually from international capital markets to in addition to expected concessionary financing”. Already direct borrowing of USD 400m; indirect at least USD 200m and now another USD 500m.It’s completely irresponsible borrowing, the UNP said. |
|
||
|| Front
Page | News | Editorial | Columns | Sports | Plus | Financial
Times | International | Mirror | TV
Times | Funday
Times || |
| |
Copyright
2007 Wijeya
Newspapers Ltd.Colombo. Sri Lanka. |