Sri Lanka: Debt And The Crisis Of Survival

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The transfer of financial and resource wealth from poor countries in the Global South to the rich countries in the North is not a new phenomenon. It has been an enduring feature throughout centuries of both classical and neocolonialism.

Between 1980 and 2017, developing countries paid out more than us$4.2 trillion solely in
interest payments,
dwarfing the financial aid they received from the developed countries during that period.

Currently, international financial institutions – notably the IMF and the World Bank – remain outside political and legal control without even“elementary accountability.”

As critics in the Global South point out,“The overwhelming power of financial institutions makes a mockery of any serieffort for democratization and addressing the deteriorating socioeconomic living conditions of the people in Sri Lanka and elsewhere in the Global South.”

Financialization and debt

Corporate and financial deregulation
that accompanied the rise of
neoliberalism starting in the 1970s has given rise to financialization, and the increasing importance of finance capital.

As more and more aspects of social and planetary life are commoditized and subjected to digitization and financial speculation, the real value of nature and human activity are further lost. As a 2022 United Nations Report points out, food prices are soaring today not because of a problem with supply and demand but due to price speculation in highly financialized commodity markets.

A handful of the largest asset management companies, notably BlackRock (currently worth $10 trillion), control very large shares in companies operating in practically all the major sectors of the global economy: banking, technology, media, defense, energy, pharmaceuticals, food, agribusiness including seeds, and agrochemicals.

Financial liberalization advanced when interest rates dropped in the richer countries after the global 2008 financial crisis. Developing countries were encouraged to borrow from private international capital markets through International Sovereign Bonds (ISBs), which come with high interest rates and short maturation periods.

Although details are not available to the public, BlackRock is reportedly Sri Lanka's biggest ISB creditor. Most of Sri Lanka's foreign debt is ISBs, with more than 80% of the country's debt owed to Western creditors, and not – as projected in the mainstream narrative – to China.

IMF debt financing requires countries to meet its familiar structural adjustment conditions: privatization of state-owned enterprises (SOEs), cutbacks of social safety nets and labor rights, increased export production, decreased import substitution and alignment of local economic policy withand other Western interests.

These are the same aims as classical colonialism – they are just better hidden in the more complex modern system and language of global finance, diplomacy and aid.

A vast array of policies exacting these aims are well under way in Sri Lanka, including the sale of state-owned energy, telecommunications and transportation enterprises to foreign owners, with grave implications for economic independence, sovereignty, national security and the well-being of its people and the environment.

The IMF approach does not address long-term needs for bioregionalism, sustainable development, local autonomy and welfare. A small vulnerable country such as Sri Lanka cannot change the trajectory of global capitalist development on its own.

Regional and global solidarity and social movements are necessary to challenge the deranged global financial and economic system that is at the root of the current crisis.

Global South resistance

Since the 1970s, major collaborative projects have been initiated by developing countries and UNCTAD to develop a multilateral legal framework for sovereign debt restructuring.

Yet they are futile in the face of the powerful opposition of creditors and the protection given to them by wealthy countries and their multilateral institutions, and the UN has failed to uphold commitment and implement a debt restructuring mechanism.

Sri Lanka was a global leader in efforts to create a new international economic order, the non-aligned movement and the Indian Ocean as a Zone of Peace in the 1960s and '70s.

In the early years of their political independence, countries throughout Asia, Africa and Latin America sought to forge their own paths of economic and political development, independent of both capitalism and communism and the Cold War.

These included African socialist projects such as Tanzania's ujamma , import substitution programs in Latin America, and left-wing nationalism and decolonization efforts in Sri Lanka and many other countries.

Almost without exception, these nationalist efforts failed, not only because of internal corruption and mismanagement but also persistent external pressure and intervention.

Massive efforts have been made by the Global North to stop the Global South from moving out of the established world order. A case in point is the nationalization of oil companies owned by Western countries in Sri Lanka in 1961 and the backlash against the left-nationalist Sri Lankan government that dared to make such a bold move.

The Western response included the 1962 hickenlooper amendment passed in theSenate stopping foreign aid to Sri Lanka and to“any country expropriating American property without compensation.” As a result, Sri Lanka lost its creditworthiness, the domestic economic situation worsened, and the left-nationalist government lost the 1965 elections (with some covertelection support ).

Observing those developments, political economist richard stuart olsen wrote that“the coerciveness of economic sanctions against a dependent, vulnerable country resides in the fact that an economic downturn can be induced and intensified from the outside, with the resulting development of politically explosive 'relative deprivation'”

These observations resonate with Sri Lanka's current repetition of the same vicicycle: an externally dependent export-import economy; worsening terms of trade; foreign-exchange shortage; policy mismanagement; external political pressure; debt crisis; shortages of food, fuel and other essentials; mass suffering; and political turmoil.

Geopolitical rivalry

Sri Lanka's present economic crisis – the worst since the country's political independence from the British –
must be seen in the context of the accelerating neocolonial geopolitical conflict between China and thein the Indian Ocean. Many other countries across the world are also caught in the neocolonial superpower competition to control their natural resources and strategic locations.

There is much speculation as to whether the debt default on April 12, 2022, and political destabilization in Sri Lanka were “staged” or intentionally precipitated to further the United States'“Pivot to Asia” policy, the Indo-Pacific Strategy and the Quadrilateral Alliance (US, India, Australia and Japan) in its competition to confront China's $1 trillion Belt and Road Initiative and counter China's presence in Sri Lanka.

It is widely recognized in Sri Lanka that“the policy of neutrality is the best defense the country has to deter global powers from attempting to get control of Sri Lanka because of its strategic location.”

Although former president Gotabaya Rajapaclaimed to pursue a “neutral” foreign policy, the Rajapaksas were seen as closer to China than the West.

After prime minister Mahinda Rajapaand president Gotabaya Rajapawere forced to resign, Ranil Wickramasinghe – a politician who was resoundingly rejected in the previelections by the electorate but is a close ally of the West – was appointed as president in an undemocratic transition of power.

To what extent were Sri Lanka and its people victims of an externally manipulated“shock doctrine” and a regime-change operation, sold to the world as internal disintegration caused by local corruption and incapability? While it is not possible to provide definitive answers to these issues, it is necessary to consider the available credible evidence and the geopolitics of debt and economic crises in Sri Lanka and the world at large.

Paradigm shift

As the loof global power shifts from the West and a multipolar world arises, new multilateral partnerships are emerging for development financing, such as the New Development Bank (NDB) – formerly referred to as the BRICS (Brazil, Russia, India, China and South Africa) Development Bank – as alternatives to the Bretton Woods and other Western-dominated institutions.

However, given controversial projects such as China's Port City and India's Adani Company investments in Sri Lanka as well as their projects elsewhere, it is necessary to ask if the BRICS represent a genuine alternative to the prevailing political-economic model based on domination, profit and power.

Dominant political power in our era is about propaganda, control of narratives and exploiting ignorance and fear. In the face of worsening environmental and social collapse across the world, there is a practical need for a fundamental questioning of the values, assumptions and misrepresentations of the dominant neoliberal model and its manifestations in Sri Lanka and the world.

At the root of the crisis we face is a disconnect between the exponential growth of the profit-driven economy and a lack of development in human consciousness , that is in morality, empathy and wisdom.

Ultimately, dualism, domination and the unregulated market paradigm need to be examined to find a balanced path of human development, based on interdependence, partnership and ecological consciousness.

Such a path of development would uphold the ethical principles necessary for long-term survival: rational use of natural resources, appropriate use of technology, balanced consumption, equitable distribution of wealth, and livelihoods for all.

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