International Credit Agencies Imposing “Sanctions Clauses”in Agreements with Sri Lanka in Anticipation of Economic Sanctions by West Against the Country.

08-modi-singh6By Ranga Jayasuriya

This week, the global insurance giant, American International Group (AIG), announced that it was pulling out from Sri Lanka, effective from 31 August. The decision to withdraw from the Sri Lankan market was first communicated as early as June this year. AIG’s share in the local insurance market is a meagre 0.3 per cent and its withdrawal is unlikely to have an impact on the local market.

An AIG statement attributed the pull out to the on -going effort to streamline its operations. General Manager of AIG’s Colombo office, Baldev Singh was on record as saying, “the decision was based on the assessment of current size, future potential cost of capital and various other performances and economic indicators.”

In the same week, US based fund Janus sold shares in Conglomerate, John Keells Holdings, resulting in a net foreign outflow of 4.52 billion rupees (US $34.73 million), the worst net foreign selling on the Colombo bourse since 25 March 2010.

The local currency fell due to heavy dollar demand and a moral suasion by the Central Bank capped the depreciation.

The two events may appear unrelated, but not so, if you add the third: A leading Sunday English newspaper reported last week that international export credit agencies have begun imposing ‘sanction clauses’ into agreements with Sri Lanka, in anticipation of potential international sanctions. The ‘sanction clauses’ would mean that the local partners would have to pay a higher premium to the lending agencies if the sanctions are imposed. The newspaper also added that the Attorney General’s Department has opposed.

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