IMF medicine won’t remedy Sri Lanka’s economic crisis

Ranil Wickremesinghe, President of Sri Lanka (Photo: CC)

The ultimate trump card of capitalist political leaders in underdeveloped countries is to promote racism and religious divisions. The purpose of this article is to examine the nature of the deep economic crisis facing the country during the Ranil-Ranjapaksa regime. To hide the crisis faced by the capitalist regime and to mislead the people, capitalist rulers throughout history have made shameless attempts to show that they are its protectors by inciting racism and religious sectarianism. This so-called ‘racial courtship’ is not limited to capitalist parties and is equally found among all mainstream political parties in Sri Lanka, including Samagi Jana Balawegaya, Janatha Vimukti Peramuna (National Peoples Balawegaya), Pohottu Party, UNP, Sri Lankan Party, and others.

The latest drama of the Ranil-Rajapaksa regime, which perpetuates racism and bigotry, is the despicable attempt to prosecute Natasha Edirisuriya, a stand-up comedian who presented an artwork, and Jerome Fernando, a popular Christian priest. People like Galagoda Atte Gnanasara, Elle Gunawansa, and Dan Priyasad, who have been hiding during the last period of struggle, have come out to prepare the ground for the Rajapaksas to, once again, set the country on fire with racism, according to the government’s wishes. It is very clear that the Minister of Police, Tiran Alas, and the government have been abusing the law as they needed. They follow are silent about the fact that the so-called law they use to insult religion is not implemented against people like Dilith Jayaweera, the owner of the pro-government Derana electronic media. Moreover, the fact that Tiran’s law does not apply to Samantha Bhadra, a monk who publicly declared that the Kandy Temple tooth relic is a “pig’s tooth”, shows that the law is something that can be misused by the rulers. All these dramas are planned and carried out to mislead the entire oppressed people, including the working class, who are suffering from a huge crisis.

The World Bank has announced in a recent report that Sri Lanka’s economy will collapse further in 2023. It forecast that the economy will drop by 4.3% in 2023. Only Sri Lanka will have a negative economy among the countries in South Asia. The report further indicated that India’s economy will grow by 7.2%, Maldives’ economy by 6.6%, Bangladesh by 5.2%, Bhutan by 4.5%, Nepal by 4.1%, and Pakistan by 0.4%. According to the World Bank, Sri Lanka is in 18th place among the poorest countries in Asia, the country with the highest poverty being Afghanistan. In 2020, Sri Lanka’s per capita income was $3720 but by the end of 2022, it had decreased to $3380. According to the World Bank, Sri Lanka’s poverty rate, which was 11.3% in 2019, rose to 25% by 2022. These statistics show that poverty in Sri Lanka, which has a population of 22.5 million, has increased to 5.5 million and, according to the data of the Statistics Department of Sri Lanka, the number of poor families in Sri Lanka is 1,498,649. Despite the boasting of ministers, including Ranil, the gross domestic product of $88.5 billion in 2021 has collapsed by $11.4 billion to $77.1 billion in 2022. Before 2020, Sri Lanka was a middle-income country but during Gotabaya Rajapaksa’s regime, Sri Lanka was declared a low-income country.

The wealthiest 20% of families consume 51.3%of the country’s total income or gross national product. Also, as stated by the Central Bank, domestic debt is 15 trillion Sri Lankan rupees ($47 billion). The total foreign debt of the country is LKR12.5 trillion.

In the meantime, an important thing to understand is that these days the hopes placed on the strengthening of the rupee against the dollar is a very temporary phenomenon. Import restrictions are still in place and there are restrictions on the flow of capital out of the country. But this is also against a background where Sri Lanka does not pay its foreign debts. Accordingly, in the near future, with the easing of import restrictions and the start of foreign debt payments, the rupee will inevitably depreciate. According to a recent prediction by Bloomberg, the value of the dollar may increase to around LKR350 by the end of this year.

International Monetary Fund

In this background, according to the agreement the Sri Lankan government has with the International Monetary Fund (IMF), 71% of those agreements must be completed by September to receive the second loan installment. However, at the beginning of June, only 29% of those agreements had been completed, according to ‘Verité Research’, an economic research institute. After President Ranil Wickremesinghe’s recent visit to France, Sri Lanka’s banking system was closed for five days to carry out domestic debt restructuring, which may have caused the financial crisis to worsen. The agreement with the IMF will be, in effect, for four years, and its first review is scheduled for next September. Accordingly, some of the main points affecting the restructuring of domestic debt can be mentioned here. The first thing is the failure of the government to increase the revenue within the country. The second thing is to continue unlimited borrowings. The third issue is the inability of the government to reduce the gap between the government’s income and expenditure.

Thus, the next three months will be a very crucial period for the Ranil-Rajapaksa government. The reason for this is that with debt restructuring, the government has to face serious challenges both domestically and abroad. According to the agreements made with the financial fund, the government of Sri Lanka should come to an agreement with the foreign bilateral creditors, as well as with the commercial creditors in the country. A major non-bank source of government borrowing is the Employees’ Provident Fund. When private sector workers retire, the only hope they have to see them through the rest of their lives is their hard-earned income. It is no secret that all the governments that have ruled the country, for some time, have misused the Provident Fund to a greater or lesser extent. It has been revealed that the loss to the workers’ fund by binding the provident fund and misusing it in the stock market is LKR24.000 billion. The report presented by the Auditor General of the Government has clearly revealed that the welfare fund has been illegally misused for the needs of the government.

With this background, if the government cuts off the loans taken from welfare, there is a big possibility that the workers will receive only the contribution without the interest. The entire working class should immediately take action against this robbery of money carried out by the Ranil-Rajapaksa government. Moreover, it has been the position of the Bankers’ Association that if the loans taken by the government from the local commercial banks are restructured, i.e. if the loans are written off, it can have a strong impact on the stability of the banking system. It seems that Ranil’s government has become bankrupt and is unable to provide an answer to this theoretical question.

A good indication of the disorganized process of the capitalist government in Sri Lanka is shown by the huge gap between the government’s income and expenditure. The total revenue of the government in 2022 is LKR2,021 billion. Even so, the government’s expenditure is LKR4,472 billion. Accordingly, it appears that expenditure is more than double the income. Moreover, because of the decrease in demand for the ready-made clothes produced in Sri Lanka due to the economic crisis, garment factories are closing rapidly and a large number of workers who worked in those institutions have lost their jobs. Unemployment may also go up as the construction industry is facing a serious crisis, and a large number of small and medium-scale projects have been abandoned, due to the lack of raw materials to sustain them. Krishna Srinivasan, director of the International Monetary Fund’s Asia-Pacific Department, stated at a press conference in early May that the Sri Lankan government must complete the domestic debt restructuring before approving the $3 billion loan. This situation shows that, as Ranil Wickramasinghe often quotes from the Sinhala drama, ‘Hunuwataye Kathawa’, the space available for Ranil to cross the vine bridge has fallen to a very narrow area, just like Grusha got off the vine bridge to save the child.

The next few months will be a critical period for the capitalist government, as well as the working class. The Ranil-Rajapaksa government is working to bring in one repressive law after another to prevent rising opposition to the government: the Anti-Terrorism Act, the Mass Media Regulation Act, the Conduct of Elections Act, the Act to Amend Agro-Industrial Land Law, the Labour Laws Amendment Act, which withdraws labour rights, are the main ones. The government had to withdraw the Anti-Terrorism Act temporarily due to national and international pressure. A draft has now been tabled to bring in a Broadcasting Regulation Act. This is a step taken to abolish what remains of capitalist democracy.

This includes the ability of the government to define anything as it likes and take serious decisions against it. For example, the newly appointed committee has been given the power to arrest, revoke or temporarily suspend media licences and take legal action against them if they publish news that harms national security, public order, and the national economy. The trade union movement must immediately take united action to defeat such pernicious laws and to win the demands for commensurate wage increases against the unsustainable cost of living rise. Also, all anti-government political parties and groups should immediately take the lead for common action against the forced postponement of the proposed local government elections. Unfortunately, major political parties, such as Sajith Premadasa’s, Samagi Jana Balavega, and Anura Kumara Dissanayake’s, National People’s Balavega, show no readiness to take such a step. In this environment, the working class can no longer delay taking the lead for a one-day general strike, as an initial step.

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July 2023