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Message: <blockquote data-quote="rocat90" data-source="post: 19928968" data-attributes="member: 452168">International Sovereign Bonds     Now, let us take the International Sovereign Bonds, or ISBs. Yes, the new Government has issued 2,150 million in ISBs in 2015.      If one takes a cursory glance at the history of ISBs, it becomes clear  that it was during Rajapaksa’s time the ISB program was started. In  fact, there is nothing wrong with ISBs if used for productive purposes,  and in 2014 his Government issued $ 1,500 in such bonds. But, as far as  we know, by and large the proceeds were not used for the intended  purposes but instead for general budgetary support.     In addition to the ISBs that year Rajapaksa’s Government used SriLankan  Airlines and the National Savings Bank, among others, to issue  international bonds for an additional $ 175 million and $ 250 million  respectively bringing the total international bonds, both sovereign and  corporate, to $ 1,925 million.     The year prior to that, in 2013, his Government got NSB to issue $ 750  million in five-year international bonds for the highest ever interest  rate of 8.875% plus fees when the global five-year benchmark was only  1.3%. Some may recall that the then Chairman, who was brought in after  the infamous transaction where NSB purchased shares of the bankrupt ‘The  Finance Company’ for a hugely inflated amount, was replaced by a ‘yes  person’ to proceed with the same as he was not willing to enter in to  another disaster. For those interested, NSB purchased shares of TFC for  Rs. 49.50 while today the shares are trading at just Rs. 3.25.     The unbiased reader will appreciate that it is not easy to make drastic  adjustments to the current ISB program which has been set in motion  many years ago; meaning to pay back the amount without rolling over.  Nevertheless, the present Government is doing its very best to bring the  program to a manageable level, and utilise the proceeds for useful  capital expenditure. The overall objective is to reduce the debt to  equity ratio in projects by increasing foreign direct investments on  public-private-partnership basis, among others.           The hidden loans     A point to note is that, as referred to earlier, Rajapaksa used  SriLankan and NSB as well as the Urban Development Authority, the  National Water Supply and Drainage Board and the Road Development  Authority among others to ‘hide’ the debt from the national debt figure  so that he could argue that national debt to GDP was coming down.     The argument was that these State-Owned Enterprises had strong balance  sheets and could borrow and repay on their own. However, it is well  known that none of these SOEs have the capability of paying back the  massive loans they have taken and at the end of the day the treasury is  called upon to make payment. The recent exposé on the way SriLankan had  borrowed and how it is becoming an unbearable burden on the Government  to service the loans is a clear example of how wrong the thinking was;  or perhaps how arrogant the decision makers were with no concern about  being responsible to society.     These ‘hidden loans’ are part of the $ 1 trillion that the Prime  Minister has been speaking on recently for which a forensic audit is to  be conducted to get accurate details. </blockquote>

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