What’s Next for Sri Lanka?

By Joint analysis of Asia Pacific Research Network and Peoples Coalition for Food Sovereignty (PCFS) | August 15, 2022

Sri Lanka, a middle-income nation by World Bank standards, has descended into a crisis so severe that it is unable to afford to feed its citizens, provide the necessary fuel for production, or maintain its institutions. 

In a matter of months, a political crisis erupted and culminated in the dramatic resignation of now-former President Rajapaksa Gotabaya. This was followed by a violent state-sponsored crackdown on activists by President Wickremesinghe, the detested successor, and now the world waits in suspense to witness what could be the tipping point of a domino effect of deep-seated crises across the entire region. 

Aragalaya: Struggle of the People
Sri Lanka has weathered various devastating crises since it gained independence in 1948, the current economic and political crisis being the worst by far. The rampant corruption of the Rajapaksa administration and the onerous lending of international financial institutions (IFIs) have led to the economic collapse of the country. 

As Sri Lanka faces its worst crisis, protesters across the country started to assemble in early April. Most striking are the Rajapaksa ouster protests in the government’s Presidential Secretariat office at Galle Face Green in Colombo. The militant movement was eventually called the Aragalaya or Struggle of the People—rightly so, as it was composed of trade-unionists, students, Catholic nuns, Buddhist monks, professionals, and farmers.

Aside from their goal of making President Rajapaksa step down, protesters called for the installation of a People’s Council composed of representatives from Janatha Aragalaya. The Council would serve as the mediating body between the people and the interim government. A constitutional referendum is also sought to introduce system-wide changes such as the people’s sovereignty. Moving forward, a cultural transformation of governance is pursued to ensure that politicians are held accountable for their faults. The massive efforts of the Sri Lankan people were successful as President Rajapaksa finally resigned on June 14, 2022.

The dilemma afflicting Sri Lanka did not appear out of the blue. Years of government corruption and nepotism compounded with the country’s reliance on imports and exports left them especially vulnerable to shocks introduced by COVID-19 and the Eastern Europe conflict. Revenues from tourism, which contribute a significant portion to their foreign exchange reserves, also saw a sharp fall during the onset of the pandemic. 

Experts have raised concern over Sri Lanka’s economic decline, as the people have suffered from increasing commodity prices, power outages, debilitating energy crisis, and record high inflation. The nation owes foreign creditors more than $51 billion, including $6.5 billion to China, which has discussed refinancing its loans. Due to depleted foreign currency reserves, the economy has had trouble acquiring and purchasing essentials, including energy, food, and medicine. The population’s ability to access and exercise their human rights has been severely hampered by this issue.

Where there are crises, fascism is also present. As the desperation of hungry communities intensifies, the Sri Lankan military further escalates the situation through aggression and violence. A social media blackout was imposed after declaring a state of emergency, an attempt to quell demonstrations, which was followed by the implementation of the nationwide curfew. Excessive and unnecessary force from the military has injured dozens of starved protesters during their flourishing mobilizations. Despite tear gas, water cannons, and even live ammunition from state forces, the people of Sri Lanka victoriously expelled the Rajapaksa regime. But their struggle is far from over. 

Simply a dollar reserve crisis?
Unless the IMF and ADB are held accountable for their role in this crisis, further investigation is impossible. The decaying condition and dependent nature of Sri Lanka’s economy is, for the most part, due to years of IMF-led neoliberal adjustments. This reorientation of their economic model was facilitated by the conditions that come with borrowing from IFIs. For decades, these institutions have been culpable in eroding the Sri Lankan economy’s capacity to fend for itself. 

Since 1965, the country has been borrowing from the IMF to finance its longstanding deficit spending. The IMF encouraged this reliance as long as Sri Lanka would comply with the IMF’s conditionalities and restructuring scheme. The ADB has also been lending money to Sri Lanka in exchange for domestic market liberalization and the privatization of social services. 

With several IFIs exercising their leverage over Sri Lanka’s economy, social services and even national industries have lost their public character. This neoliberal restructuring saw Sri Lanka become increasingly reliant on tourism and overseas workers for its income. A middle income country with unstable, if not decimated, fundamentals to feed and service its citizens; increasingly reliant on borrowings to quell deficits.

In a nutshell, this entire crisis is the product of decades of massive foreign debt with chronically shorter terms that are neoliberal in nature. Most of which were used to fund Rajapaksa’s “white elephant” projects that were inconsequential in terms of providing social services for the Sri Lankan people. 

Maturity structure and composition of Sri Lanka’s debt stock

Ultimately, it is the people of Sri Lanka, not their power elites, who endure the consequences of crony capitalism and foreign debt-induced neoliberal restructuring: devalued currencies for export-oriented production, low wages for job attraction, and high public debt for big ticket projects that drained reserves for importation. 

A tug-and-pull of increasing taxes to appease IMF creditors and increasing imports to pacify the protesting citizens is now at the center of the country’s financial policies. Sri Lanka, like other former middle-income countries, is now a devastated economy amid a global catastrophe—behold the fruit of neoliberalism.

The great irony is that the same foreign loans that left Sri Lanka in debt are being considered as the solution to their plight. 

In fact, the bailout loan package negotiations between the IMF and the new Sri Lanka government are expected to conclude soon. What is left is for the latter to further align their policies with the neoliberal framework endorsed by the former as a form of “financing assurances”. But as we’ve seen, more neoliberalism won’t be able to fix the problems it has ultimately caused.

That being said, the IMF bailout, if anything, should be seen for what it really is: another sip of the poison killing the Sri Lankan economy. IFIs might be the lenders, but they are the ones who owe the Sri Lankan people for imposing structural adjustment programs, knowing full well that their economy can neither afford to settle skewed debts nor survive the woes of neoliberalism. Similar to Rajapaksa’s fate, these IFIs must be chased away by the people.

“Over 50% of the foreign loans in the past decade were for different transport infrastructure projects that have not delivered the anticipated economic outcomes. The professionals who promoted unfound optimism in economic analysis of these projects to please their political masters must come forward and accept their responsibility for contributing to this crisis.”

Professor Amal Kumarage, a transport infrastructure expert in Sri Lanka

What now?
Going back to the present, the Sri Lankan parliament had just elected six-time prime minister Wickremesinghe to be the new president. This, despite popular calls for a transition government independent from Rajapaksa’s party. 

The most reliable way to gauge if he is a true “friend of the people”, however, is by the policies he will introduce and his approach to governance.

If a new administration is sincere in its commitment to improve Sri Lanka’s direction, then that government must work to sever the country’s dependence on foreign loans. Fundamental pillars for development such as genuine agrarian reform, national industrialization, democratic governance, and sovereign policies must be introduced. These programs will serve as the firm foundation upon which a robust national economy that enshrines people’s rights can be built.

Alarmingly, within his first 24 hours in office, President Wickremesinghe authorized the military to use any method to “restore order” and abolish “fascist protests”. State security forces conducted a raid to forcefully remove protesters from government grounds. At least nine people were arrested, while several were injured. As expected, the people of Sri Lanka consider this as a possible precursor to what is to come. 
A protester at the scene said, “[t]hey beat us really cruelly. Mr. Wickremesinghe doesn’t know what democracy is.”


The domino effect
As for the rest of the Asia-Pacific region, Sri Lanka is a lesson, both for their economies and their people. 

The same neoliberal economic trap that plunged Sri Lanka into an overlapping crisis is also crippling other nation-states in the Global South. Decades of widespread liberalization of domestic markets, deregulation of basic goods and services, and the privatization of social services have turned the region into a ticking economic time bomb. The precarious economic position of weak Asian democracies leaves them at the mercy of hegemons and their pervasive economic agenda.

Sri Lanka’s situation, however, is more than just a cautionary tale. Much more important is the narrative of the people of Sri Lanka. It sets an indignant affirmation of the power of social movements—genuine democracy in motion. As much as Sri Lanka warns us of the inevitable failure of neoliberalism, its brave people remind us that meaningful victories can only be won through collective action.

Will President Wickremesinghe’s administration continue to go down Rajapaksa’s road? Will the protesters continue their demonstrations until Rajapaksa is held accountable? Will Sri Lanka look to IFIs for more loans? Or will they maximize this opportunity to democratize their economy? These questions can only be answered in time. But what we can hold on to, in the meantime, is perfectly encapsulated in a statement from one protester: “People deserve fuel, transportation, we deserve anything citizens need.”

“Until we see no one in Sri Lanka is struggling, the protest continues.”

With contributions from Frances Marie Claire Bongon, Arriane Naranjo and Rosa Mia Santiago

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