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Message: <blockquote data-quote="rocat90" data-source="post: 19928956" data-attributes="member: 452168">Truth behind the $ 6,361 loans of the present Government     The accusation by the former President     Former President Mahinda Rajapaksa has been repeating ad nauseam over  the last few weeks that the present Government has taken $ 6,361 million  in foreign loans in its 15-month lifespan thus far but hadn’t even  built a culvert with that money.      He says that he could have built two Mattala Airports, one Hambantota  Port, one Norochcholai Coal Power Plant, one Colombo-Matara Highway, one  Colombo-Katunayake Highway, not one, but two Colombo Port cities and  one 500 MW Sampur Coal Power Plant with that money.      Finally, he says that the present Government is incapable of running  the country and that he should be given the opportunity once again to  ‘rescue’ Sri Lanka.        <a href="http://static.ft.lk/ftadmin/wp-content/uploads/2016/03/28230445/fg4.jpg" target="_blank"><img src="http://static.ft.lk/ftadmin/wp-content/uploads/2016/03/28230445/fg4.jpg" alt="" class="fr-fic fr-dii fr-draggable " style="" /></a>           The calculation of the $ 6,361 in loans     Rajapaksa’s calculation of the $ 6,361 million the present Government borrowed is as follows:     1. Currency swap of $ 400 million in March 2015 and $ 1,100 million in  May 2016. So in currency swaps, the total is $ 1,500 million.     2. International Sovereign Bond of $ 650 million in May 2015 and  another $ 1,500 million ISB in October 2015. So in ISBs, the total is $  2,150.     3. Sri Lanka Development Bonds totaling $ 2,711 during the tenure of the new Government.     So, adding together all of the above Rajapaksa comes up with the grand  total of $ 6,361 million ‘debt’ that the present Government got into in  the last 15 or so months. Let us analyse them one by one.           Currency swaps     What is a currency swap? It is a swap; meaning an exchange. In a  central bank currency swap, two central banks exchange a particular  currency with another with an agreement to unwind that swap at a given  date at a given exchange rate and or a given interest rate.<a href="http://static.ft.lk/ftadmin/wp-content/uploads/2016/03/28230446/sg5.jpg" target="_blank"><img src="http://static.ft.lk/ftadmin/wp-content/uploads/2016/03/28230446/sg5.jpg" alt="" class="fr-fic fr-dii fr-draggable " style="" /></a>     India has such swap agreements with each SAARC country for up to $  2,000 million on which they can draw if needed. In fact, during  Rajapaksa’s rule, in September 2014, Sri Lanka also entered in to a $  1,600 million (or Yuan 10 billion) swap agreement with China.      While most of the time currencies are exchanged, sometimes they are  not, but is structured as a short-term loan to be paid back with  interest. In the recent case of India, I understand it was the latter.     These short term exchanges are, for the most part, used to either tide  over currency pressure or to directly settle bilateral trade  transactions. And these take place all the time around the world. As at  present US, Canada, Euro Area, Switzerland, Japan, Australia, China,  Australia, UK, India, Brazil, Singapore, Indonesia, Pakistan, Korea  besides Sri Lanka and dozens of others have various swap agreements  between and among them. They utilise them based on need.     Rajapaksa attempts to portray that Sri Lanka got in to ‘debt’ with  India to the tune of $ 1,500 million in currency swaps. The reality is  quite different.     A $ 400 million swap was entered into in April and unwound in October.  Another $ 1,100 million swap was entered into in September 2015 and  unwound in March 2016. This means the ‘short-term loans’ were taken and  already settled. The two central banks can at any time re-enter into  swaps to be unwound at agreed upon dates as per the SAARC or any other  specific currency swap agreement. I believe they have entered into  another $ 400 million short-term swap recently to be unwound soon and  are discussing another $ 700 million swap. These, as described are  short-term facilities that are cleared in a matter of months at the most  (the $ 1,500 million referred to has already been settled) and not the  kind of ‘debt’ as implied.  </blockquote>

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