The Debacle

KUPPI on the current economic and political crisis – intervention-3

By Sivamohan Sumathy

The economy is in shambles overburdened by unchecked debt, unregulated trade. We are in the midst of a near total collapse of our economy. This is what has brought the people, irrespective of who they identify with politically, to the streets. But it too has its history. The colonial economy instituted cash crops, to the detriment of agriculture and local production. Yet, Sri Lanka remained an agricultural country for long. From the ‘70s onwards, despite seeming spurts of booms, the country was steadily moving toward the crisis we are in today. The liberalisation of the economy ushered in a spate of economic reforms, the logic of which was, investing in export oriented light industries, like garments and tourism, and the export of labour. While tea continued to be a major industry, albeit on a reduced scale, and agriculture remained a staple in which the state invested, migration of domestic aides to the newly opened west Asian market, and export economic zones in the apparel industry became the primary revenue earners.

In the new millennium, Sri Lanka launched out on a rapid path of liberalisation, borrowing from the west and from China and India, while the fortunes of agriculture and local production fluctuated. The country’s economy began to rely heavily on the vagaries of an unstable global market. We went on a borrowing spree. In 2007, the country for the first time in its history floated sovereign bonds in the open market, becoming indebted to financial outfits like Black Rock and others, amounting to roughly 40% of its external debt.

The country invested in unrealistic ventures such as flashy upgrading of cities, ports, tourist ventures, and massive constructions, hoping for foreign investments, which fluctuations in the global economy did not forecast. In the past couple decades, the economic situation declined, and though the signs were everywhere, our political scientists, economists and political leaders did not heed them.

The COVID situation deeply impacted the country. But instead of consolidating the foreign reserves through prioritising imports, the government continued with tax cuts it had implemented for the wealthy, providing little relief to the people. The people suffered massively as productions ground to a halt. The final nail on the coffin was the ill-advised and blatantly illogical ban on fertiliser imports, pushing agricultural production into a near total failure. And now without foreign reserves, this greatly indebted country is utterly and hopelessly bankrupt

Today, leaning heavily toward India and monetary organisations based in the west like the IMF and the World Bank, to help it pull itself out of the mire, our political elite have little control over the financial and economic direction the country would take. The country has struck 16 agreements with the IMF since 1965; and a new IMF package is imminent. In their press release on conclusion to the initial with the government and other organisations in the last few days of June, the IMF mission team headed by Peter Breuer and Masahiro Nozaki states that they “made significant progress on defining a macroeconomic and structural policy package.” They have also recommended “far reaching tax reforms.” (). While one does not know what the IMF basket holds, we need to make sure that the basic requirements of life are not compromised.

IMF packages have an inbuilt solution to any deal brokered with them, broadly described as Structural Adjustment. Structural Adjustment implies, massive cuts in public subsidies and can imply the financial liquidisation of fixed assets like land. Funding for public entities like education and health, two essential services, can face severe cuts, and be turned into commodities. Such a move would be greatly ill advised and will benefit no one. Essential public entities like CEB might be privatised, driving household rates to the skies, making electricity unaffordable to the people.

A page from the annals of history is worth turning to: The 1953 harthal was a response to the price hikes brought on by the finance minister of the then UNP government, JR. Jayewardene, which increased the economic burden on the people. Today, as we stare into the abyss of severe economic constriction and a potentially dire IMF package along with conditions placed by other debtors, like India and China, we will have to seriously think about strategies of resistance and survival.

Farmers are suffering, incurring heavy losses, owing to the fertiliser ban initially and now to the shortages of inputs such as kerosene oil. There is scarcity of food. Empty promises of imports by the Prime Minister deceive people all around, both the farmers and the rest of the population. Food production is a need and we need a robust policy.With India’s greater involvement in the economy, one wonders about the plight of the fishing people as well. How are the shortages affecting this industry? Within the depletion of the seas, we need a policy that nurtures the fishing industry, even as the sea’s environment is protected.

We must see to it that the working population is protected. Labour Laws assuring protection of workers’ rights need to strengthened. Safety, especially of women, in their work places cannot be compromised. Workers’ right to unionise and their right to have access to basic amenities are principles that have to be strengthened and made concrete.

As talks are being pursued with the IMF, one is anxious about what the deal means to universal health care and free education and all the attendant facilities in these sectors that are the people’s due.These are some of the basic aspects of our economy and the political sphere that we need to reflect on.

Initiated by the Kuppi Collective, a group of academics and activists attached to the university system and other educational institutes and actions.