Exclusive: Japan seeks meeting of Sri Lanka’s creditors on debt crisis

Exclusive: Japan seeks meeting of Sri Lanka’s creditors on debt crisis

TOKYO, Aug 26 (Reuters) – Japan is seeking to hold a Sri Lanka creditors’ conference in hopes it could help resolve the South Asian country’s debt crisis, but uncertainties cloud the outlook of any discussion, said three people familiar with the planning.

Tokyo is open to holding talks between all creditor countries aimed at pulling Colombo out of its worst debt crisis since independence, but it is unclear whether China’s main creditor will join and a lack of clarity remains over Sri Lanka’s finances, a source told Reuters.

Japan would be ready to chair such a meeting with China if it speeds up the process of settling Sri Lanka’s debt, estimated at $6.2 billion on a bilateral basis at the end of 2020, the source said.

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President Ranil Wickremesinghe told Reuters last week that Sri Lanka would ask Japan to invite major creditor nations to talks on bilateral debt restructuring. He said he would discuss the issue with Prime Minister Fumio Kishida in Tokyo next month, when he is due to attend the funeral of slain former prime minister Shinzo Abe. Read more

Tokyo, the second largest creditor, has an interest in saving Sri Lanka, not only to recover its $3 billion in loans, but also for its diplomatic interest in controlling China’s growing presence in the region.

S&P Global downgraded defaulted Sri Lankan government bonds this month after missing interest and principal payments. The island nation of 22 million people off the southern tip of India, with debt at 114% of annual economic output, is in the midst of social and financial upheaval from the impact of the COVID pandemic -19 on top of years of poor economic management.

An International Monetary Fund (IMF) team met with Wickremesinghe on Wednesday to discuss a rescue package, including the restructuring of $29 billion in debt, as Colombo seeks a $3 billion aid package from the IMF . Read more

The President met the Japanese Ambassador the same day.

Tokyo believes a new “platform” is needed to bring creditors together, the sources said.

“Sri Lanka is running out of time since it defaulted on its debt. The priority is for creditor countries to agree on an effective plan,” a source said.

“Japan is keen to get things done. But it’s not something Japan alone can raise its hand and push through,” the source said, adding that cooperation from other nations was crucial.

The Japanese Foreign Ministry declined to comment. Sri Lanka’s central bank and finance ministry did not immediately respond to requests for comment. An IMF spokesman declined to comment.


Concerns include rivalry and territorial tensions between major Chinese and Indian creditors, while Sri Lanka is expected to pledge to reform its finances and disclose more information on its debt, the sources said.

Last month, shortly after Wickremesinghe took office when his predecessor fled the country, Chinese President Xi Jinping wrote to him that he was “ready to extend support and assistance to the best of my ability to President Wickremesinghe and to the people of Sri Lanka in their efforts”. “. Read more

But the sources said securing Beijing’s cooperation on a debt restructuring was complicated by factors such as a large number of lenders and China’s reluctance to take a “haircut” on its loans and reduce Colombo’s debt burden.

A Chinese Foreign Ministry spokesperson told Reuters that Beijing was “willing to stand with relevant countries and international financial institutions and continue to play a positive role in helping Sri Lanka address its difficulties.” current situation, reduce its debt burden and achieve sustainable development”.

Japan hopes to see a new debt restructuring framework akin to that put in place by the Group of 20 major economies targeting low-income countries. Sri Lanka does not fit into this “common framework” because it is classified as an emerging middle-income country.

“It needs to be a platform where all creditor countries participate” to ensure they all take a fair share of debt cancellation, another source said. The third said: “Until these conditions are met, it will be difficult for the talks to succeed.

The common framework, launched by the G20 and the Paris Club of rich creditor countries in 2020, provides debt relief primarily through extending debt payment terms and reducing interest payments.

Some people involved believe an initial meeting of creditors could take place in September, but a source said it would “take a little time, maybe several months”.

Restructuring talks are only possible after the IMF reviews Sri Lanka’s debt, the sources said.

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Reporting by Tetsushi Kajimoto and Takaya Yamaguchi in Tokyo; Additional reporting by Yoshifumi Takemoto and Kentaro Sugiyama in Tokyo, Uditha Jayasinghe in Colombo, Eduardo Baptista in Beijing and David Lawder in Washington; Written by Leika Kihara and Tetsushi Kajimoto; Editing by William Mallard

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Robert P. Matthews