The Sri Lankan government announced a “temporary” default from April 12, which is unprecedented in the country’s history. This announcement marks a new stage in the economic and political crisis in Sri Lanka.
At a press conference on April 12, Central Bank Governor Nandalal Weerasinghe said, “We have lost the ability to repay external debt. It has come to a point where paying off the debt is difficult and impossible. Finance Ministry Secretary Mahinda Siriwardena said a “comprehensive restructuring of these bonds (debts) will be required”.
The announcement came as hundreds of thousands of people have been protesting in Colombo and across the country for more than a week demanding the immediate resignation of Gotabhaya Rajapakse and his government. These protests have drawn widespread support amid unbearable price hikes and shortages of basic necessities such as fuel, medicine, cooking gas, electricity and necessary food items.
Sri Lanka’s economy has been hit hard – first by the pandemic, then by the US-NATO conflict with Russia in Ukraine – leaving the country desperately short of the foreign currency needed to pay for imports. In March, foreign exchange reserves fell to less than $2 billion. The country has about $35 billion in external debt with $6 billion in repayments due during the rest of the year and a whopping $25 billion by 2026.
The country’s banking sector has been affected by the default of international rating agencies, such as Fitch, which are already placing Sri Lanka’s public and private banks on downgrade watch.
The announcement of a temporary default on foreign loans is not a repudiation of foreign debt. The government has assured all creditors that debt repayments will be made, with interest for the period of delay. He further guaranteed that “debt restructuring proposals can be presented to creditors for consideration” and will be in line with the recommendations of the International Monetary Fund (IMF).
Nearly half of the country’s external debt is commercial borrowing, while others include loans from the World Bank, Asian Development Bank, China, Japan and India. The government also promises “good faith” talks with countries that have lent money.
The IMF released its assessment of the country late last month, along with a draconian austerity package. It included increasing income and value added taxes; increase in fuel prices and electricity tariffs; institute a flexible market-determined exchange rate; commercialization and privatization of public enterprises; deep incursions into government spending; and further reduction of price controls and subsidies.
The IMF will impose even tougher conditions in talks over an emergency bailout with the Sri Lankan delegation led by Finance Minister Ali Sabry, which is due to leave on April 18. The package aims to insure creditors and bail out Sri Lanka’s business and financial elites by imposing new burdens on workers.
With Sri Lanka’s economy bankrupt, the timing of the announcement is a political move aimed at pressuring the people to accept IMF terms. The government will pretend that it had no choice and that people have to swallow the bitter pill. All parties – government and opposition – as well as the unions will call on workers “to be patient” to allow the economy to recover.
What is brewing is social devastation in Sri Lanka on an unprecedented scale. When Greece declared bankruptcy in 2015, the “troika” of the European Commission, European Central Bank and IMF dictated brutal conditions imposed by the pseudo-left Syriza regime and devastated the working class.
These included the massive destruction of jobs in the public sector, deep cuts in salaries and pensions, a sharp rise in the value added tax which reduced the purchasing power of workers and the privatization of infrastructure. energy, ports and transport. Large sections of the population were reduced to poverty within months.
Like the working class in Greece, Sri Lankan workers are not responsible for this crisis. Nor should they accept the burdens that the IMF, the government and the ruling class as a whole will try to impose. Why should hunger and starvation stalk the island to pay off the banks and protect the profits of a wealthy few!
The huge levels of debt can be attributed to the reactionary communal war waged by successive governments in Colombo not only to defeat the separatist Liberation Tigers of Tamil Eelam, but to crush any Tamil opposition to blatant communal discrimination. Money was repeatedly borrowed to buy weapons and to expand the army to one of the largest per capita in Asia.
After the war ended abruptly in 2009, the government of President Mahinda Rajapakse maintained the huge army and its occupation of the north and east of the island. The regime has borrowed money, hand in hand, for a massive infrastructure upgrade with the aim of transforming Colombo into a financial and commercial hub for South Asia. Local and foreign investors received substantial tax breaks, and businessmen and politicians profited, including through fraud and corruption, while more than 60,000 slum dwellers were evicted from their homes.
In a nationally televised speech on Monday, Mahinda Rajajpakse, currently prime minister, cynically attempted to blame the economic crisis on the protest movement, saying that with every second of protest in the streets, “our country loses opportunities to receive dollars.He denounced the protests as a “threat to democracy” and, in a thinly veiled threat, recalled how the previous government used the army and death squads to crush the opposition in the past.
The Socialist Equality Party (SEP) has defined a socialist action program for the working class to defend its class interests. It calls on the working class to build action committees in every workplace and neighborhood, independent of unions and all capitalist parties, to mobilize the industrial and political strength of the working class.
This will provide the means to rally the rural poor and oppressed in the fight for the abolition of the autocratic executive presidency, the repeal of all repressive laws and the defense of the social rights of workers.
The SEP defined a series of policies, including the repudiation of foreign debt. The working class has not contracted this debt and must not be forced to pay it by the destruction of its jobs and its standard of living.
The government has declared bankruptcy, but the wealthy elite, big business and financial speculators have resources. The PES calls for the seizure of the wealth of billionaires and the nationalization of banks and big business, under the democratic control of the working class, to ensure that the social needs of the majority are met.
The struggle for such demands leads inexorably to the struggle of the working class for power and the establishment of a workers’ and peasants’ government to implement socialist policies, as part of the struggle for socialism internationally. . Only in this way can the current economic and social crisis be resolved in the interest of the workers and not of a few rich people.