Is Catastrophic Collapse Imminent?

by Kumar David

An optimist would venture to say that an economic catastrophe is not imminent, using the adjective imminent literally. He would be emboldened to make this remark because a restructuring deal, maybe a tough one, seems likely to come out of the negotiations with the IMF. Since all other lenders take their cue from the IMF thanks to its expertise and experience, Sri Lanka is likely to clinch agreements of different forms with China, India and Japan; life will go on. The country seems important enough for international actors such as India, China, America, Britain, Japan and the QUAD to be concerned about; in the case of India strategic concern is natural. America threatened war if Cuba stationed Soviet nuclear missiles, and now Russia is apoplectic at the thought of NATO getting its fingers around its neck via Ukraine, Finland and Sweden. No great or regional power will allow foreign bases near its land borders or its littoral waters. India’s anxiety is no surprise but such concerns should not be a passage to America and Europe. Actually, Lanka has little relevance to the Quad strategy of encircling China and is irrelevant to NATO’s scheme to suffocate Russia. The so-called Indian Ocean strategic zone too is a myth.

Therefore, my view is that the ongoing flurry is not primarily strategic or about world-power relations; the spurt of foreign interest is political and psychological. The psychological facet is that though we know we are a bunch of s.o.bs, foreigners, poor suckers, have affection for this island, and believe it or not its undeserving people. Let’s not spoil this advantage; let’s keep the charm of genuine non-alignment alive. Competition for mating-rights gets us, petrol, cooking-gas, milk-powder, pharmaceuticals and dhal. It would have been helpful if we had slaughtered fewer Tamils and now refrain from harassing Muslims on trumped-up charges. Lanka is no dream democracy; it is the site of militant and state-terrorism and crass military-police human rights abuse at the instigation of the JR, Premadasa Snr. and Mahinda regimes. It has been a locale of brazen plunder by political leaders, and not only in the (Raja)Paksa era. Racism is widespread among the people, but then ethnic intolerance is a global pandemic.

This is all true but there is another crucial aspect. Lanka is one of few post-colonial outposts where constitutional governance, admittedly imperfect, survives. Our giant neighbour India is another. This is different from Burma, Pakistan, Cambodia, Thailand (never colonised) and 50+ countries across Africa, Central Asia and Latin America. Hence my thesis is: India and the West, though they will be tough on economic reforms (IMF, West) and political changes (India), will not allow Lanka to collapse into anarchy and chaos. The uncles and aunties crowding over our crib will throw a lifeline before we asphyxiate. Can you imagine India, the West or China standing by and doing nothing if Lanka sinks into bedlam? We do not deserve a reprieve, but international political and psychological concerns will play out to our profit to prevent catastrophic meltdown. This is my hypothesis; let’s see if events prove the hunch correct.

However, this hypothesis does not allow conclusions to be drawn about politics or the traumatic fuel crisis of this (late June) moment; fuel is the litmus test that will decide whether RW’s administration survives. So far it has been paralysed and it has failed to inspire confidence that it has a way out. It must stop deceiving the public about the state of the fuel supply-chain. It will have to find an immediate fuel fix if mounting violence outside petrol stations is to be contained. This is the moment’s do-or-die challenge.

Of course, our congenital problems will persist but sudden death will likely be averted for now, that this till the IMF negotiations are finalised and implemented. Three IMF teams visited the country, one examining fiscal balance and seeking to restore a measure of equality between government expenditure and revenue and a second looking broadly at public finances (money supply, debt, banking, financial stability, social welfare). The third team worked on debt restructuring and interacted with legal advisors cum consultants hired by the government, Lazard and Clifford Chance. Chance is a London based law firm; Lazard engages in asset management, financial services and is also an investment bank with offices in New York, Paris and London. Judged by conventional norms, we have a strong squad on our side.

The wisest stance for Parliament and the opposition (SJB, TNA and JVP-NPF) to adopt at this juncture is to allow these negotiations to proceed and do nothing to disrupt them. Walking out of parliament when critical negotiations about the country’s financial destiny are in full-swing and the 21st Amendment (maybe renamed 22?) is about to be tabled, is both imprudent and irresponsible. The protocols imposed by the IMF could, at worst, be a repletion of its old Structural Adjustment designs: laissez-faire (nearly unchecked free-markets as in JR, Premadasa Snr times), pro-business, privatisation and foreign capital oriented, inimical to state participation in the economy, hostile to state spending on welfare (health and education) and pushing for labour-market reform (easier firing, lowering real wages). To be fair however we have to wait and see, and some changes to Lanka’s economic structures are in any case justified. RW’s natural inclinations would be to go along with right-wing, market-oriented proposals.

21A (22A?) now finalised and about to be tabled in Parliament is defective; too much power retained by the president despite substantial pruning. Instead of debating and discussing these two urgent matters in the House and from there taking them to the public arena, for the Opposition to walk out of Parliament is an unbelievable act of stupidity. I am surprised Anura, Vijitha Herath and Harini fell for this senseless stunt. They must return forthwith and address the tasks that await them; that is, critically examining the protocols agreed with the IMF and proposing amendments to 21 (22) A.

The RW government should be given the space to work through this emergency (EX) period when the country is in intensive care (say a month or two), but this is not what RW seems to have in his mind. He speaks of remaining in office for much longer: “Once we have established a firm economic foundation you (the people) can hand over power to any political party you wish”. This could be one year, or maybe he has it in mind to hang on till the November 2024 (Presidential) and August 2025 (Parliamentary) elections. RW would then be governing without a mandate from the people (reasonable during an existential crisis such as now) for an extended period; this is unreasonable.

Another matter is that the emergency medications that Lanka will be forced to swallow, whether it likes it or not, to secure urgent foreign debt restructuring via IMF and space from foreign creditors, will not be much different whether Ranil Wickremesinghe or Vladimir Lenin is PM. We are in such a mess that we have to grab any rope that is thrown to us. That’s why I say, allow Ranil to steer during the emergency (EX) period – which madman wants to shoot the pilot in mid-air halfway through a flight?

RW has his known proclivities and policy preferences and some will dovetail with anticipated IMF protocols. We can criticise but may have no option but to accept some. But allowing RW to set the economic direction of the country in next medium-term (MT) say three-year period is another matter; his remit has no electoral mandate. He has a right to his preferences and proclivities but no right to impose them on the country without a mandate. I make a crucial distinction between the period of negotiations with the IMF (the emergency EX phase) and a three to five-year MT economic, financial and social programme that requires a mandate. This is the distinction between trauma-therapy urgently administered during EX and longer-term recuperation strategies to rebuild economy and society.

Will a government elected in say one year be any better? Will there be a smaller number of donkeys and crooks? Have people learnt their lesson? There is a convicted felon seated in Cabinet right now – Mr President and Mr Prime Minister please explain. A multi-billion-rupee tax-dodger has been made a Minister. The voters of Ratnapura returned a convicted murderer to parliament. But this is what we call democracy – the right of the people to choose which bunch of vampires will suck their blood next time. Unfortunately, there is no acceptable alternative to democracy; a one-party state will not survive without open revolt because of our post-Donoughmore past and also because our national ethos and psychology will not accept it. The other option, a military regime will be hell on earth, so no more mention of that.

Why has the Lankan economy collapsed? Depending on how far back you go and your preferred ideology the answers are many, and all true. The following are the most frequently adduced.

No country can withstand such an inferno of epidemics, pestilences and plagues. It is all of this that has come together in 2022 to sink the ship. If it survives for the few EX-months, then the next step is elections to empower a government for MT. My preference is social-democracy with a well thought out dirigisme (state directed) component in its economic policy package. If it is necessary to wait till next time round for the electorate to mature and elect this option, let’s wait till vox populi comes around. Most likely a centrist or centre-right alliance will be elected in an election right now (options, Sajith, Ranil-Sajith, Dulles-led SLPP). Their right or centre-right policy spaces will be defined by terms like, market-oriented, business-friendly, private-sector led development, privatisation, restructured labour-market, FDI oriented, and rather harsh on the grassroots regarding welfare and subsidies.

A social-democratic alternative will have to borrow some of this but the difference will be in implementation and orientation. Eran Wickramaratne in “A Just Tax System” Daily Mirror 27 June writes in a vein where social-democrats seeking to direct the economy (dirigisme) into just directions cannot ask for more (Was he ever a Party Member!). In recent decades, lines have blurred everywhere between avant-garde liberalism and 21st-Century social-democracy.

This brings me to a last thought. The LSSP’s Tissa is sharp and intelligent; what on earth is he doing with that spent force Vasu and two jackals Wimal and Udaya? Isn’t it as clear as daylight that the LSSP must move over and align itself with the new left (JVP, FSP etc)? Yes, yes there’s 1971 and 1989 and the five-lessons, and etc and etc. Who doesn’t know all this? I wrote the first left critique of the JVP (Ajith Samaranayake did a brilliant translation) which the Party published 50 years ago. But it’s not that same world any longer Comrade!