Week after week, shortages of imported goods and rising cost of living are crippling the day-to-day lives of ordinary people. As the economic depression unfolds, the working people are squeezed by falling incomes in the informal sector and the increasing price of food. The national economy itself is in danger of grinding to a halt, as global oil prices have escalated to a three year peak further constraining the dwindling foreign reserves necessary for imports into Sri Lanka.
How did this situation of shortages in imported essential goods arise? In placing responsibility, we must analyse the economic policies leading up to this crisis by looking at who gained during those years and who stand to lose the most now. Indeed, crises bring out the deeper contradictions, including the drastic class inequalities within a country and the global processes of extraction. In short, who accumulates wealth and who is exploited and dispossessed.
Sri Lanka’s foreign earnings have always come from the sweat and suffering of its working people, particularly working women. That is the tea-plucking women toiling in the estates, the young women exploited in the garment factories and the migrant workers – including domestic female and manual male workers subject to gruelling working conditions without labour rights – in the Middle East. The tourism sector is another major foreign exchange earner, but its net benefit to the economy is subject to debate. Has the considerable investment in hotels, real estate and infrastructure – the beautification of Colombo and the expressways – brought adequate returns of foreign earnings?
The irony of Sri Lanka’s political economy is that while the working people earned the foreign exchange, the elite in this country spent it in luxurious imports; including fancy vehicles and fittings for their houses. Furthermore, the inflow of the foreign earnings were leveraged for foreign loans to expand the consumption of wealthy classes. However, as imports are reduced with the inevitable balance of payment crisis, it is the working people who are denied essential foods, where shortages such as milk foods and pulses lead to price hikes, affecting their nutrition.
The example of sovereign debt and vehicle imports is instructive; Sri Lanka as of last year is struggling to repay its outstanding sovereign bonds and has banned all vehicle imports. Starting in 2007, the foreign earnings of the country were leveraged to borrow sovereign bonds in the international capital markets; mostly with ten year terms, but some with five, six or eleven year terms. These sovereign bonds were to be repaid at average annual interest of six percent; extremely high for dollar loans as a US$ 1,000 million sovereign bond when repaid in ten years requires US$ 1,800 million.
"Over the last week, Sri Lanka has signed agreements with the Adani Group backed by India to develop the Colombo Port West Terminal for US$ 700 million and the World Bank to build rural roads with a US$ 500 million loan. We know that ports and roads are not the priority for the people"
In this context, from 2010 to 2019, Sri Lanka’s vehicle import bill was US$ 8,628 million. And the biggest headache for Sri Lanka today is the US$ 13,000 million in sovereign bonds that have to be repaid over the next many years. Here, the average each year of US$ 863 million in vehicles imports by using foreign exchange from sovereign debt requires debt payment ten years later of US$ 1,500 million each year. Multiply that debt repayment cost over ten years and the unsustainability of the sovereign debt stock becomes clear. Unable to pay for the past luxurious consumption of the elite, the country is now reduced to restricting the imports of essential foods for the people. Would it not be fair to wage a massive wealth tax on the wealthy classes and redistribute such wealth to the working classes so they can survive this crisis?
Of course, the wealthy classes and their neoliberal mouth pieces would not even want to utter“wealth tax”, just as a few years ago it was taboo to mention “import restriction”. Their solution now is to again be saved by the IMF, in the hope of borrowing in the capital markets. This strategy is unrealistic, as the capital markets are unlikely to be convinced by the IMF, and Sri Lanka may be forced to borrow at many fold the high interest rates it is already paying. The more worrying concern is that an IMF agreement is bound to come with conditionalities undermining the country’s remaining social welfare programmes. The continuous economic bombardment by the IMF and World Bank over the last forty four years have already cut the food subsidy and increased people’s social and economic burden through outright and creeping privatisation of state services.
Over the last week, Sri Lanka has signed agreements with the Adani Group backed by India to develop the Colombo Port West Terminal for US$ 700 million and the World Bank to build rural roads with a US$ 500 million loan. We know that ports and roads are not the priority for the people. However, beggars can’t be choosers, and the Government is desperate for any kind of foreign investment. Just as with China’s loans over the last few years and the speculation now about a US investment of US$ 500 million in a power plant, these are all strategic investments shaped by geopolitical interests with questionable development outcomes.
China, India and the US, and for that matter the IMF and the World Bank backed by the US, have their own agenda of exploiting Sri Lanka’s resources. Furthermore, liberalisation of trade and financial flows as well as privatisation pushed by such hegemonic actors are linked to the crisis prone dependence on imports and declining terms of trade for Sri Lanka’s exports, all in effect extracting the value produced by our working people.
The Government’s immediate priority amidst the current crisis should be food, its distribution and the people’s wherewithal for consumption. Having wasted a year-and-a-half since the pandemic with dilly dallying on relief for the people, the Government needs to urgently change its course. The Government got mud on its face after grand talk about controlling prices through emergency regulations and raiding hoarded stores; the rice millers are now setting the price of rice. Indeed, the market cannot be controlled by circulars and for that matter repression.
The reality is that the Government has limited foreign reserves for imports into the foreseeable future. If supplies of imports are unstable then it is bound to result in hoarding and price hikes. The government needs to create an alternative system of public distribution. The country did that in the 1970s with the Food Commissioner’s Department the Co-operative Wholesale Establishment, the Multi-Purpose Co-operative Societies and rationed food stamps. We may have no option but to try something similar by urgently building a new public distribution system and paying for the food subsidies with a wealth tax.
Ahilan Kadirgamar is a senior lecturer in the Department of Sociology at the University of Jaffna in Sri Lanka.
This article was originally published on Daily Mirror, Sri Lanka. Views in this article are author’s own and do not necessarily reflect CGS policy.