Why is Sri Lanka on the brink of bankruptcy


Sri Lanka is in the grip of a grave economic crisis. The country which was once a case study in the world of bourgeois economics as with a high living standard is now virtually bankrupt. The condition has gone from bad to worse that the Sri Lankan President Gotabaya had to flee the country to evade people’s wrath. Though Ranil Wickremesinghe, a leader of the United National Party (UNP), who had been prime minister of the country on six occasions and stated to be very close to the Rajapaksa family, has taken over as the new President, it is not going to beget any succour as the cause of the crumbling economy lies in the vey capitalist system itself, now at its dying stage. Globally, imperialism-capitalism is sunk in unprecedented market crisis endemic of the system and facing surge of massive protests from people. So, the imperialists are highly aggressive on weak markets with the governments there in tow. Any government irrespective of hue who intends to serve the decadent moribund capitalist system, the root of all evils, cannot but pursue anti-people pro-capitalist policies and hence cause more misery and penury to the common masses. So, the imperialist countries also lost no chance in exploiting natural resources of this serenely beautiful island country by binding the Lankan government in debt trap. It is the common toiling Sri Lankan people no matter which ethnicity, race or religion they belong to, are paying the price of prolonged pursuit of avidly anti-people policy of running a country on debt. Further, any government irrespective of hue who intends to serve the decadent moribund capitalist system, the root of all evils, cannot but pursue anti-people, pro-capitalist policies and hence cause more and more misery and penury to the common masses. Sri Lankan problem has to be understood in this backdrop.
Brief history of emergence of Sri Lankan Republic
Sri Lanka had achieved political independence from British colonial rule in February 1948. Sri Lankan capitalism grew in the womb of British colonial rule when imperialism-capitalism had already entered its decadent moribund stage, and was crippled from birth. The Sri Lankan independence struggle against the British imperialism, with both compromising and uncompromising elements and trends in it, developed as a single struggle of that country, embracing both the Sinhala and the Tamil communities. The Ceylon National Congress (CNC), a broad platform of varied forces formed in 1919, was in the leadership, itself being dominated by a compromising, yet powerful section of the rising Sri Lankan national bourgeoisie. The Sri Lankan national bourgeoisie which assumed state power by arrangement, so to say with the imperialist rulers, it could not be expected to undertake rapid industrialisation, modernisation and mechanisation of agriculture and thereby give the economy a fillip by solving the growing unemployment problem and ensuring availability of basic necessities to the Sri Lankan people. It also failed to democratise the Ceylonese society and resolve the minority Tamil nationality problem, On the contrary, the ruling Sri Lankan bourgeoisie, mortally afraid of anti-capitalist socialist revolution, went on trying every means for further division among people of Sinhalese and Tamil nationalities to keep them embroiled in fratricidal strife. It was so aggravated that LTTE or the Liberation Tigers of Tamil Eelam, a leading militant Tamils’ organization, launched a war against the Sri Lankan government in demand for an independent Tamil state comprising the Tamil-dominated north-eastern parts of the island country, based on the Tamils’ right to self-determination. As a result, for decades together, Sri Lanka had virtually been known as a country torn by violent and nearly incessant strife between the Sinhalese and the Tamil communities. This civil war also paved way for imperialist forces including Indian imperialism and later Chinese imperialism to meddle into the internal affairs of the island country and shattered the Sri Lankan economy.
Present economic crisis
Facts and figures have also found place in the media in details. So, for brevity’s sake, we are confining only to the key aspects. Sri Lanka has been having many natural resources like tea, rubber, spices, coconuts, etc. These products were being exported and every finished product required by the country was being imported. Basically, it has been a trading hub. Hence no industry worth mentioning had developed. Only tourism industry had flourished and a few textile mills were set up. Initially, exports were more or less balanced by imports. So, there was no crisis of balance of payments. But after 1960s the balance shifted. Import bill started exceeding the exports. Hence, the rulers of the country approached International Monetary Fund (IMF) to step in and fill in the gap by granting loan generously. Alongside, initiative was taken towards adopting policies of liberalizing the economy. From the latter half of 1970s, the economy was unbundled. From 1977 onwards, successive governments in Sri Lanka built the country on a precarious foundation of debt. Ever since Sri Lanka sought to manage its trade deficits with increased foreign borrowings, its external debt started climbing up. It reached at USD 1 billion in 1977 and then went on rising to as high as UDS 56 billion in 2020. 81% of this debt was from US, European imperialists, Japan and India. China was a late entrant as debt supplier. Yet there was no step taken to stem rising imports and slackening exports. Rather indiscriminate borrowings for funding big infrastructure projects, which typically have low yields and long turnaround times, have tilted the already fragile foreign exchange reserves against it. Fiscal mismanagement and Covid-induced economic downturn played their part as well. Sri Lanka, as stated above, has long relied on foreign tourists and remittances from its manpower exports for its dollar earnings. But, outbreak of Covid 19 effectively put a stop to that. As a result, the country’s official reserves fell to USD 2.36 billion in January 2022. Known external debt repayments of Sri Lanka has reached to USD 26 billion (USD 5 billion/year) over the next five years. This amount constitutes over 80 per cent of government revenue in 2020. Sri Lanka has USD 1 billion bond repayment due in July 2022. The country’s official reserves fell to USD 2.36 billion in January 2022. Its forex reserves fell to USD1.93 billion at the end of March this year. How could it meet its debt repayment obligations with this paltry reserve, let alone fund fresh imports? So, the Central Bank of Sri Lanka has announced its decision to unilaterally suspend external debt repayments of USD 51 billion. Additionally, it is seeking immediate help from the International Monetary Fund (IMF) to manage the balance of payment situation. On the other hand, inflation rate has been spiralling towards 50% along with shortages of medicines, milk powder, cooking gas, kerosene, electricity and other essential items. The number of unemployed persons is estimated as 441,997 during the fourth quarter of 2020. Now it is much more. Sri Lanka is a classic twin deficits economy which signals that a country’s national expenditure exceeds its national income, and that its production of tradable goods and services is inadequate. In fact, Sri Lanka is now facing the double whammy of high debt and rising prices coupled with widespread shortages of food, medicines and fuel sparking nationwide protests from the suffering citizens. The money borrowed obviously has not been used for peoples welfare or economic recovery but, as it appears, has been embezzled.
Intervention of
imperialist powers
It bears recall that way back in 1983, Sri Lanka had to devalue its currency to the extent of quarter of its previous worth, and opted for so called ‘open economy’ on the model of Singapore to make the economy a free-field for foreign finance capitals, particularly of the multinationals of the West. India, Japan, US and EU countries have economic interest in Sri Lanka, each having dominance at a particular historic period. In the past, Sri Lanka’s weak tax revenue was compensated by generous concessional aid from traditional donors—namely western imperialist powers and Japan. These aid flows had helped finance development (read patronage) programmes to keep the country away from the socialist bloc. But after sad collapse of Soviet socialism, shifting development priorities have significantly reduced these funds. Later China, which has emerged as a formidable imperialist power after counter-revolution, also embarked on a plan to extend its sphere of influence. More and more infrastructure projects including the multi-billion-dollar Hambantota port and Colombo-Galle Express way were awarded to China. These projects are termed as ‘White elephants’ which bled Sri Lankan economy white. Pertinent to mention here that over the last decade China has lent Sri Lanka more than $5 billion for the construction of highways, ports, an airport and a coal power plant. Forty-seven percent of Sri Lanka’s external debt stock is owed to international capital markets, 22% is held by multilateral development banks, followed by Japan having 10% of Sri Lankan external debt. Chinese debt and equity in Sri Lanka had been funding over 50 projects worth more than USD 11 billion up to 2017. Moreover, interests on some Chinese loans are as high as 6.5 per cent compared to 2.5-3 per cent for Asian Development Bank loans. And now, China has provided the Central Bank of Sri Lanka with a UDS 1.5 billion swap (currency swap is an agreement in which two parties exchange the principal amount of a loan and the interest in one currency for the principal and interest in another currency) and a USD 1.3 billion syndicated loan to the government. It is also reportedly considering to offer the island nation a USD 1.5 billion credit facility and a separate loan of up to USD 1 billion. In other words, China wants to forestall increased influence of India and Western imperialists on that country. Former President Gotabaya Rajapaksa was, of late, reported to be keen on improving relations with the Western powers in order to dispel the pro-China image of his government.
India is also equally active to woo Sri Lanka to its side. India has been a major trade partner. India’s capitalist economic- political aspirations reflected in the Indo- Sri Lankan accord of 1987 and the Free Trade Agreement of 2000. India is the fourth largest investor in Sri Lanka. All the major Indian corporate houses have investments there. India has already extended over USD 3 billion to the cash-strapped country through currency swaps, credit lines (a form of unsecured personal loan that allows one country to borrow money from others when they need it, pay it back, and borrow more without having to qualify for another loan) for importing essential items including food and medicine. At a hearing of Sri Lanka’s Parliamentary Committee on Public Enterprises in June last, the Ceylon Electricity Board Chairman MMC Ferdinando said that Former President Gotabaya Rajapaksa had told him that Indian PM Modi was insisting that a 500-megawatt wind power plant project be allotted to the Adani Group. Though he retracted from his statement later for whatsoever reason, the issue did not die down. The controversy erupted after the Sri Lankan Parliament passed an amendment to the 1989 Electricity Act to remove the provision of competitive bidding to award power projects. The opposition alleged that the main reason to amend the Act was to make way for the ‘‘unsolicited’’ Adani deal. Even Gautam Adani, the chairman of the Adani Group during his visit to Sri Lanka in last October said that he was looking forward to ‘‘other infrastructure partnerships’’ with the country apart from the Colombo port project. Needless to say, that the so-called financial assistance in the form of loans by the imperialist powers have not been acts of philanthropy but a calculated ploy to establish their economic-political hold on this troubled country.
Sri Lanka chauvinism has been mainstay in Sri Lankan bourgeois politics
The Sri Lanka chauvinism has become the mainstay in the Sri Lankan politics for long, being practised by all the bourgeois and petty-bourgeois forces just as communalism, casteism, regionalism and other parochial divisiveness are ruling the roost in capitalist India. The ethnic conflict became the rationale for state intervention in the economy, including a major boost in military expenditure. The motive and objective are the same for the ruling capitalist classes of both the countries—to drive a wedge between the oppressed and exploited people of different communities so that they cannot stand up united in their movement against capitalist exploitation, and draconian laws can be introduced on the plea of containing ethnic troubles and thereby give a lease of life to moribund capitalism, further the parliamentary parties defending and protecting the moribund capitalist system play upon these divisions among the people, engineered and fostered even with the help of state machinery to reap dividends in petty parliamentary politics.
A feuding ruling dynasty drove Sri Lanka to ruination
For the last two decades, the Rajapaksa family dynasty has held power over Sri Lankan politics. Mahinda Rajapaksa was elected as president in 2005 and the family began to dominate the political landscape. It was during Mahinda’s 10-year rule (2005-2015) that Sri Lanka heavily tilted towards China. The dynasty, too, began rampantly borrowing, first to pay for Sri Lanka’s three-decade long civil war against Tamil minority separatists, which was brought to a brutal end in 2009, then for a ‘‘super-growth’’ development spree of roads, airports, stadiums and power grids. GDP grew from USD 20bn to UDS 80bn but more than USD 14bn was borrowed in the process, and all the Rajapaksas became mired in accusations of vast-scale corruption, from bribes to money laundering. Gotabaya Rajapaksa, the fugitive ex-President, is a former military officer who has also served as secretary to the Ministry of Defence and Urban Development when Mahinda was the country’s president. Gotabaya came to power in the November 2019 presidential election. The Rajapaksa’s grasp over the government tightened further after their party, Sri Lanka Podujana Peramuna (SLPP) swept the 2020 parliamentary elections. Mahinda Rajapaksa became Prime Minister. Tightening his grip over the small nation, PM Mahinda brought two relatives to the Sri Lankan Cabinet, which means there were four Rajapaksas in the 26-member Cabinet.
Flawed policies of the
Gotabaya government
A series of missteps by the Gotabaya government aggravated an already precarious economic situation. In its desire to become the first nation in the world to go completely ‘‘organic,’’ the Sri Lankan government in April 2021 banned the import of all chemical fertilizers and pesticides without listening to the country’s agricultural scientists but paying heed to the ill advices of quacks masquerading as experts. The Gotabaya Rajapaksa government argued that it would mitigate to a large extent Sri Lanka’s foreign exchange crisis, as well as stem the rise in food prices owing to the lockdowns and other disruptions induced by Covid-19. The decision had catastrophic consequences. Farm yields fell by a whopping 33 per cent and Sri Lanka, which used to be self-sufficient in paddy cultivation, had to import rice from its neighbouring countries to make up for the shortfall. Tea production and export, a traditional foreign exchange earner, also declined substantially. Sri Lanka’s two million farmers have been protesting for months against the government’s decision to suddenly go ‘‘organic’’ and the subsequent order banning the import of chemical fertilisers in April 2021.
Next, Gotabaya government had imposed a slew of import controls. Besides chemical fertilizers, the government banned the import of luxury vehicles, chemical fertilisers and spices like turmeric to prevent foreign currency outflows. Import ban on motor vehicles came into effect in March 2020. Before the ban, Sri Lanka was spending around USD 400 million annually on fertiliser imports. Vehicle imports were worth USD 1.5 billion. For a country like Sri Lanka, which has traditionally depended on large-scale imports for most essential supplies, the sudden reversal of policy led to unprecedented problems. It crippled the manufacturing industries sector, especially apparels for which even buttons were imported. Overnight, people were staring at acute shortages, serpentine queues for petrol, diesel and cooking gas, and restrictions on the quantities of food items one could buy. Pharmacies, too, were running low on essential life-saving drugs as 80 per cent of the medicines in the country were imported. But the tipping point came when rolling power cuts, sometimes more than 10 hours a day, were imposed island-wide. Then was Gotabaya’s decision to cut down taxes particularly of the corporates. The tourism industry tycoons were blessed with 60% tax reduction. That devastated the already fragile economy and severely dented Sri Lanka’s economic recovery. The tax cuts reduced the number of registered taxpayers in the country by 35 per cent, leading to galloping rise in cost of living. The move caused revenues to fall to a historical low of 9 per cent of the GDP. The ongoing crisis in Sri Lanka, which is the worst in the history of the country, is, besides being a fallout of dying capitalism, further worsened by ruining policies of the government which ignored warning signs visible for more than a year.
Faces of the rulers changed
but not the colour
Obviously, people’s accumulated grievance, wrath and inability to bear with savage assault on their economic life were articulated in the form of countrywide movement. Protests started in the capital, Colombo, in April and spread across the country. People have been struggling with daily power cuts and shortages of basics such as fuel, food and medicines. The lack of fuel has caused petrol and diesel prices to rise dramatically.
In late June, the government banned the sale of petrol and diesel for non-essential vehicles for two weeks. Sales of fuel remain severely restricted. Schools have closed, and people have been asked to work from home to help conserve supplies. People became so desperate to bring down the Gotabaya regime that they stormed his official palatial residence in Colombo on 9 July after months of mounting public anger. Sensing danger, President Rajapaksa resigned after fleeing to Singapore. Before stepping down, he made Prime Minister Ranil Wickremesinghe acting president. Wickremesinghe declared a state of emergency across the country and imposed a curfew in the western province while he tries to stabilise the situation. He also appointed Dinesh Gunawardena, a Rajapaksa ally, as the new Prime Minister and also swore in 17 other cabinet ministers, most of whom were ministers in Gotabaya’s regime also. In one of the largest anti-government demonstrations in the crisis-hit island nation, thousands of protesters marched down the streets of Colombo’s government district, shouting slogans against the president and tearing down barricades, news agency Reuters reported. Police deployed tear gas and water cannons, but were unable to quell the unrest. Hundreds of protesters forced into Ranil’s s office also, amid calls for his resignation. The new President lost no time to bare his fascistic face. At midnight on 22 July last, the military and police armed with riot gear violently descended on the protest camps, indiscriminately beating and assaulting everyone and everything in their way, dismantling the tents in which protestors had been sleeping for over three months. All access points to the protest site were blocked ahead of the raid. Eyewitness accounts and media reports say that the military attacked many protesters, especially those trying to film the developments. Soldiers broke apart ‘one tent after the other’ in the stretch leading to Presidential Secretariat and dismantled the protest site. Protesters had been caught off-guard as they could not understand the reasons behind such an attack. There was no warning given to vacate the area by the military and police personnel before the use of brute force against the protestors.
Sustain struggling unity, develop people’s political power
In an immediate sense, people have been responding to severe political malpractice and economic mismanagement by the Rajapaksa government. Notably, all the agitations which emanated six months back are centring only on one demand, ‘President and Prime Minister to step down’. No demand to rollback their pro-capitalist policies which dipped Sri Lanka into the murky unfathomable crisis has been raised or come to the forefront. In fact, protest movements in Sri Lanka have historically taken place in bursts and have been shaped by crises. At critical moments the people have thrown out the incumbent authoritarian or otherwise unpopular regimes. There has been change of heads but the capitalist system remained unscathed. So, do not deeper crises await the suffering Sri Lankan people who have now risen above all divides, religious and ethnic differences to unleash such a massive, peaceful protest movement? They have understood from their experience that growing hardship is sparing no community or group. In such a situation, can merely a change of government really solve their problems with exploitative system remaining intact? No. Because, it does not change the coercive pillars of the capitalist state or the fundamental laws of operation of capitalist economy. Of course, the vested interests and parliamentary parties will try to usurp fruits and terminate such massive upsurge into parliamentary ends. But struggling Sri Lankan people must not fall in that trap. Our fervent appeal to the Sri Lankan people is to deeply probe into their problems. Emancipation lies in revolutionary overthrow of capitalism. But that would not come by unless there is a conscious effort fulfilling all requirement. With volcanic eruption of people’s anger and hatred, the objective condition is ripening fast. But the subjective condition i.e., establishment of ideological and organizational leadership of a correct communist party on the masses is still wanting. If there is a correct communist party, strengthen it. If not, release the struggle to build up such a revolutionary party to realize the cherished objective. But right at this hour, it is of utmost importance to preserve struggling unity of the people, sustain organized democratic movement and escalate it, evolve people’s power by forming people’s struggle committees so that those could be conducive to revolutionary movement when that would break out. History has adjured that task to all toing millions round the world including Sri Lanka.
(Source: The Print 15-08-20, 10-09-21, 16-03-22, 26-04-22, The Wire-04-09-20, 09-04-22, 11-05-22, Outlook-26-03-22, Economic Times-29-03-22, The Week 03-04-22, IndiaToday-05-04-2022, The Statesman 20-04-22, 10-05-22, India Forum 20-05-22, scroll.in 12-06-22, The Guardian-07-07-22, Indian Express-10-07-22, Amnesty.org 22-07-22, ABP 22-07-22)

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