WASHINGTON DC, May 11 (IPS) – Sri Lanka is in the midst of an unprecedented economic crisis. Faced with a shortage of foreign exchange and an inability to repay foreign debt, the country is unable to pay for its food, fuel, medicine and other necessities. Despite the austerities that will be followed, a aid International Monetary Fund (IMF) has been accepted as the only way out of the bad economic situation.
Opposition political parties and citizens across the country blamed widespread corruption and mismanagement by the Rajapaksa government for the crisis, and demanded the resignation of the President and Parliament.
Prime Minister Mahinda Rajapaksa did so on 9 May 2022. However, objector at Galle Face Green and elsewhere was unable to offer an alternative leadership body or a viable roadmap for the future. The country is still engulfed in confusion, chaos and volatile political deadlock.
To understand the complexity of the current crisis, and to prevent us from falling back into the same crippling debt cycle, it is necessary to move beyond domestic politics and the relentless news cycles of news organizations. corporate media and explore some of the fundamental global economies that are often overlooked. and geopolitical dimensions.
The Global Inequality and Debt Crisis
The transfer of financial wealth and resources from poor countries in the global South to rich countries in the North is not a new phenomenon. It has been an enduring feature throughout the centuries of both classical and neo-colonialism.
At the beginning of 1989, developing countries owed foreign creditors 1.3 trillion dollars U.S. dollar. That is, “just over half of their combined gross national product and more than two-thirds of their export earnings”.
Recently, the effects of the war in Ukraine and the Covid-19 crisis have been exacerbated debt burden of developing countries. These countries have struggled to pay their accumulated debts due to the expansion of capital flows from high-income countries to lower-income countries after the 2008 global financial crisis. Financial liberalization spurred by strong global interests, including that of the IMF, as interest rates fall in richer countries.
This enables developing countries to borrow from private international capital markets through International Sovergein Bonds (ISBs), which have high interest rates and short maturities.
Financial liberalization facilitated by the IMF and developed countries working with domestic elites in poor countries has created a “hierarchical and asymmetrical international financial architecture”.
As a December 2021 Report published by The Bretton Woods Project pointed out that this inequality framework creates “macro-economic imbalances, financial weakness, and exchange rate instability that can trigger a debt and/or currency crisis and limit the economic policy autonomy of affected countries in the pursuit of domestic goals”.
The Jubilee Debt campaign of the international NGO (soon to be called Debt Justice) has shown that 54 countries currently going through a debt crisis. According to World BankSri Lanka owes $15 billion in bonds, mostly in dollars, out of a total of $45-50 billion in long-term debt.
The country needs between $7 and $8.6 billion to repay its debt by 2022, while it only has $1.6 billion in reserves at the end of March 2022. The downgrade of Sri Lanka by rating agencies like Moody’s has made it even worse. increased difficulties to borrow more to pay. out of debt.
The devaluation of Sri Lankan Rupees A 32% gain since the start of the year has made it the ‘worst performing currency in the world’, exacerbating the plight of the people of Sri Lanka.
The multilateral Asian Development Bank and the World Bank own 13% and 9% of Sri Lanka’s external debt, respectively. Present, China is Sri Lanka’s largest bilateral lender, owning about 10% of total foreign debt, followed by Japan which also owns 10%.
About half of Sri Lanka’s total external debt (55% by some estimates) is through market loans ISB. Property manager BlackRock, Inc. and Ashmore Group Plc., along with Fidelity, T Rowe Price and TIAA are among the main ISB creditors of Sri Lanka. However, information about the ownership of the ISBs – including a $1 billion ISB due to expire on July 25, 2022 – was not publicly disclosed.
Sri Lanka is in talks with the IMF to restructure and pay off its huge debt. The IMF’s structural adjustment would include the familiar privatization process, cuts to the social safety net, and the alignment of local economic policy with American and Western interests, damaging This adds to the living standards of the local working population and inevitably leads to wider wealth disparities and repeat debt crises.
Debt Crisis and Geopolitical Rivalry
The economic crisis provides an opportunity for external powers to expand economic exploitation and geopolitical control. In the context of Sri Lanka, this means India, the US and China.
Great Neighborhood of Sri Lanka India extended a $1 billion line of credit to provide essential food and medicine. The Sri Lankan Government stated that there were no conditions attached to Indian loans. However, Sri Lankan analysts believe the deals have been made for Indian company exclusive access to investments on the island.
Sri Lanka is strategically located on the sea lanes of the Indian Ocean. More than 80% of global seaborne oil trade is estimated to pass through the bottlenecks of the Indian Ocean. Strange though skip by the global media, Cold War Between China and the Quadruple Alliance (USA, Japan, Australia and India) there was control of Sri Lanka and the Indian Ocean.
Sri Lanka is part of China’s $1 trillion Belt and Road Initiative, which includes the port of Hambantota and the island’s Port City. On the other hand, the United States signed a Cross-service and conversion agreement (ACSA) with Sri Lanka on 4 August 2017, facilitating military logistical support.
The US is also looking to sign a State of Force Agreement (SOFA), which would effectively turn Sri Lanka into a US military base. Although the proposed United States Millennium Challenge Treaty has not been signed due to local protests, the treaty’s goals – US control land, transport and communication infrastructure in Sri Lanka – continues unabated.
Given that Sri Lanka is a tense theater of geopolitical competition, the Sri Lankan debt crisis cannot be understood simply as an economic crisis. It can, in fact, be a ‘staged default‘designed to push Sri Lanka into an IMF bailout that would complete the island’s service to a US-dominated economic and political agenda?
Alternative sustainable approaches
Young people ‘Gotta Go Home!’ Protesters demanding the resignation of President Gotabaya Rajapaksa appear to be unaware of the global dynamics of the Sri Lankan crisis. Perhaps the local and foreign interests guiding the protests might want to keep it that way.
They certainly do not encourage the protesters to participate global call for much needed debt cancellation, debt swap and capital market regulation loans to prevent a debt crisis from occurring in the first place. However, at least some Sri Lankan experts are concerned about the impact of an IMF bailout that has offered short- and long-term alternatives. solutions. They realized that while exploitative colonial and neo-colonial policies had turned Sri Lanka into a country of poverty and despair, the island was rich. natural resources and human capital.
If the land, ocean and graphite, ilmenite and other mineral resources are used sustainably, Sri Lanka can be economically self-sufficient and prosperous. There is also much to be learned from Sri Lanka’s pre-colonial history in this regard, particularly its irrigation civilization.
The Committee on Public Accounts (COPA) has revealed that there are sufficient fuel and natural gas fields in Mannar . Basin to meet the needs of the entire country for 60 years. If an abundant source of sustainable solar and wind power is also used, Sri Lanka can not only become energy self-sufficient but also an energy exporter. Biological humanism, economic democracy and food and energy sovereignty are the only way to a sustainable future to Sri Lanka and other indebted countries, and to the world at large. To overcome the dominant forces looking for a way monopoly control for the natural environment and humanity, people – especially young people – need to wake up and work together to fight the destructive greed that is stalking and threatening to destroy us.
Asoka Bandarage is Distinguished Professor (Adjunct) at California, Institute for Integrative Studies. She is the author of Colonialism in Sri Lanka (Mouton), Separatist Conflict in Sri Lanka (Routledge), Women, Population and Global Crisis (Zed), Sustainability and Health (Palgrave McMilllan). ) and many other publications on global politics-economics and South Asia.
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