By TU Senan –
An IMF authorised budget has been unleashed on Sri Lanka. In the budget speech there was an attempt to use a paltry list of meagre ‘goodies’ to hide the ‘instrument of darkness’ – severe austerity. Sections of the media attempt to make something of the few rupees of reductions on potatoes and dal. In fact, it has now been nicknamed the ‘Patola Budget’ in reference to the utter tastelessness of that vegetable but even that is a deception: this budget has the bitterest of aftertastes in its real intentions.
The small amount cut from funding defence is being redirected as part of the significant increase in the allocation for the president’s and prime minister’s office. Outrageously, the finance minister justified a severe cut in education funding by claiming the “reduction is due to unused 32 billion rupees from the last budget”, as though the education sector is in no need of new investment. Health and other significant services also face the shop. Privatised higher education is now on the cards, as well as profiteers getting their hands on what is left of telecom, transport and housing. On the one hand, there is an increase in working hours for university lecturers and, on the other, a significant tax concession for the super-rich.
This is a budget formed in full compliance with the IMF which recently sanctioned a loan of $1.5 billion. An additional loan from the World Bank and Japan adds up to around $2.2billion. The agreement with the IMF and the budget proposals read the same.
The IMF loan is linked to direct attacks on the living standards of workers and farmers. The intention is to reduce the fiscal deficit to 3.5% by 2020, which was an impossible aim even during the period of significant growth in the last decade. What is buried beneath jargon such as ‘fiscal consolidation’, ‘state enterprise reform’, ‘investment facilitation’, etc, are plans to reduce the budget allocation for welfare and other state services, to increase tax, and to promote privatisation. The government already raised VAT from 11% to 15%. Disgracefully any critique of the impact of these attacks is dismissed by finance minister, Ravi Karunanayake as “hysteria created by the media”, as though no one is affected by it.
IMF budget cannot deliver
Despite the deep economic crisis faced by the west and China, small economies could continue to produce low level growth. However, as we have seen in Brazil – and are beginning to see in Sri Lanka – a sharp fall in growth can devastate the living conditions of millions of workers and create political and economic turmoil. Falling demand across the world has also reduced Sri Lanka’s exports to the lowest level in years. Foreign direct investment has fallen sharply. This is matched by rising inflation and trade and budget deficits – which pushed the government to print more currency, and eat into the ever-diminishing reserves in 2015. These measures, while postponing the crisis temporarily, have actually contributed to intensifying it. Outstanding debt is now said to be approaching 76% of GDP!
Knowing no way out of this, the right-wing UNP(United National Party) government has taken the usual route to borrow more and spend less. This will shatter the lives of tens of thousands of people who are already suffering. But that is of no concern for the IMF and World Bank who have found their new best ally in the UNP.
IMF control of the budget and subsequent foreign policy will also further intensify the multi-polar tension that is mounting in the South Asian region. China’s interests continue to be challenged as Sri Lanka’s tilt towards the west increases. Oddly the new budget also announces that Sri Lanka will consider joining the Trans-Pacific Partnership (TPP). Even the US political elite could not manage to secure domestic support for such trade deals, let alone the support of the masses in the Pacific and Indian Ocean – both US presidential candidates floated withdrawal of support for TPP. It is just another indication of how far the UNP is willing to travel and how far away it is from the reality on the ground.
Increased Misery Fuelled
The IMF and World Bank’s relations with poor countries have always been of a neo-colonial character: one that binds the neo-colonial countries’ economy and foreign policy to the western and US capitalists’ interest in general. Concealed under the term ‘structural adjustment’ is the drive towards the dismantling of any remaining state welfare services and the foot on the accelerator pedal to boost the private sector. Trade deals and so-called ‘foreign direct investment’ open up a countries’ wealth to plunder.
This further exacerbates the conditions and, lo and behold, the factors that drive the government to borrow more are upped. This borrowing spiral leads towards an even deeper debt crisis – or sovereign debt crisis, like we saw in Argentina in 2001 when it was forced to default on its debt of $93 billion following IMF-led budget restrictions. The IMF and World Bank get their money through repayment, interest payments and trade deals. It’s the mass of workers who lose their jobs; farmers lose their subsidies – and lives, students are forced to pay higher fees for their education. These are the losers.
The devastation, including many deaths, caused by IMF-led austerity policies in Greece over recent years has been so enormous that even the IMF was forced to admit at one point that it has been too “sanguine about the devastation austerity would wreak havoc on Greece”. Of course, the Greek debacle is dismissed as an ‘isolated case’, or due to Greeks being ‘lazy’ – and the rotten policies continue.
The US pro-1% government, which has a 16.4% voting rights in the World Bank and 17% of the IMF, controls most of the decisions and policies pushed forward. The G7 countries together hold 45% of votes. With this enormous power, the policies dictated are in line with the profit interests of the rich of these states. These policies have directly contributed to an increase in poverty and death. The IMF stands accused of directly contributing to reducing 13 million Ecuadorians to poverty, and horrific conditions are being created in countries like Indonesia. UNICEF estimates that the IMF helped to push 60 million into poverty. Oil-rich Nigeria is currently going through an enormous economic crisis, with mass layoffs and non-payment of wages for months for the civil servants, etc. This is mainly thanks to privatisation schemes led by the western capitalist institutions.
Sticking to its traditional ‘remedy’ of reliance on finance capital and privatisation can cause a severe political crisis for the UNP and the capitalist elite as a whole. It is important to remember that the semi-populist pledges, such as the ‘100 day programme’, are a key factor that put them back into power. A small rise in education funding allocation is what held back the student protests. Failure to deliver on the promises to the Hill country workers has already sparked militant action. The best that the UNP can hope for is that the opposition remains divided.
Even if they have any hope of resorting to Keynesian measures, as indicated by the finance minister a few times, they may not be able to deliver them. This weakness will further reduce their popularity among the masses. The Sirisena wing of the SLFP remains leaderless. Their support for the UNP-led government could be shaken if the crises intensify – we would see a majority of that wing jump ship in no time.
These austerity measures will not go unchallenged. Already doctors and students, teachers, Hill country plantation workers and others have shown their willingness to struggle. After a long time there is now the possibility that various trade unions could come together to coordinate action.
The notorious president JR Jayewardene, who created the executive presidency, crushed workers’ trade unions and paved the way for the long war with the Tamils. He was considered ‘successful’ from a capitalist point of view. That period of triumphalism for capitalism is coming to an end. His nephew Prime Minister Ranil Wickremesinghe is caught in its tail end and doesn’t have the wind on his side. Once again his ‘reign’ may not last long.
jim softy / November 18, 2016
Why do we need a finance minister, A prime minister, their deputy ministers and professionals to give IMF to make the budget. Because, they are very costly.
IMF wants to privatize the Central bank. Ranil wanted tax rich people during the 100 day govt. Now, he is silent and tax poor people with VAT and give tax breaks to car importers, dutey free car imports, not to pehsant farmers but to farmers who have 1000 of acres.
Dim _Sum / November 18, 2016
“” it has now been nicknamed the ‘Patola Budget’ in reference to the utter tastelessness of that vegetable but even that is a deception: “”
You are no vege to know how to eat snake-gourd keep to katuru murunga and beat your drum.
Dinuk / November 18, 2016
Great title for the IMF – fair is foul, and foul is fair!
Christine Legard-Blackguard who head IMF is facing a massive corruption case in France today. Crony Capitalism and growing the wealth and inequality gap while stocking wars and conflict is the IMF great game with Washington!
timbuttu / November 18, 2016
sorry but she refused to give the $1.5 billion. Then on a Thursday under Obama instructions Samanta Power flew down to New York IMF and requested Christine Lagarde to pay.Christine had to oblige as she need her 2nd term as she was woman (in her own words) This loan had a spiraling effect of providing $3.2 billion.
The Sinhalese have a tradition of going to the Indian dosa kadde eating until they are full and walking away. Isn’t that your comment of IMF??
The IMF loans are of long duration and small interest while Chinese are short term and high interest.
THE IMF DID NOT START THE WAR BUT BUDDHA GOD. DALAI LAMA IS AN ATHEIST AND DOES NOT TOUCH MONEY. NOW LOOK AROUND THE ISLAND.
Sri Lanka folk were relieved of devaluation and high prices on 2 occasions once thanks to Indian swap of $1.5 billion on 15/01/2015 and this. But await the government is going in for another bond for $10 billion by X’mas.
It does not help to go to war. USA is 21 trillion in debt but has resources while Lanka has only a cheap labour market which is common in the 3rd world.
Dude / November 18, 2016
Fair is foul and foul is fair – Great title Senan, for Ranil Wickramasinghe and his Jara-palanaya partnership with Arjuna Mahendran at the Central Bank.
The political culture of corruption and impunity for financial crimes has reached new heights in Sri Lanka under Ranil and Sirisena with help from the IMF and collaboration of Mahinda Rajapaksa.
This is globalization for the global 1 percent!
Don Stanley / November 18, 2016
Why does IMF not use its so called great expertise and research to trace and return funds looted by corrupt politicians in the global south and stored in off shore bank accounts in the global north?
This is what Ravi K should ask IMF – the lender of last resorts to do. After all IMF is supposed to be doing global financial governance, rather than cultivating poverty and inequality!
Dinuk / November 18, 2016
Ranil Wickramasinghe is digging his grave.
The epidemic of corruption and looting of Sri Lankan people and economy by politicians of the Diyawenna Parliament of Morons is so massive and epic that the courts are paralized by the sheer number of cases.
Cases are also delayed for years as with cases against Mahinda Jarapassa family. This is because moda Ranil thinks and pretends that MR is needed to pass a useless new constitution. This is the bargain that Ranil has with MR. The fact is that it is political corruption that is the root cause of Racism in Sri Lanka, because corrupt politicians use racism to distract the moda masses from their greed and corruption and looting of the county.
Justice system under the corrupt clown Wijedasa Jarapassa has also been crippled beyond redemption it seems.
Amarasiri / November 18, 2016
RE: Fair Is Foul – IMF Budget Unleashed
“An IMF authorised budget has been unleashed on Sri Lanka. In the budget speech there was an attempt to use a paltry list of meagre ‘goodies’ to hide the ‘instrument of darkness’ – severe austerity. Sections of the media attempt to make something of the few rupees of reductions on potatoes and dal. In fact, it has now been nicknamed the ‘Patola Budget’ in reference to the utter tastelessness of that vegetable but even that is a deception: this budget has the bitterest of aftertastes in its real intentions.”
IMF controls the money. If you want money from them, you have to do what they ask you to do.
After all that is what Sirisena has been doing. The MPs have been bribed with Vehicles. didn’t MaRa Mara ChaTu MaRa do the same?
The President Sirisena, turned out to be a Turncoat*, Traitor**, Gona*** Mala-Perathaya**** Sirisena, who deceived those voters ands sold himself to the Rajapaksa and his cronies.
See he is smiling, but not eating Pathola, but eating like a Mala-Perathaya.
Mala-Perathaya**** Somebody who eats off the dead, like Sirisena accepting Santghosams, largesse, from the Rajapaksa killers, on the Mala-Peretha smile.
Amarasiri / November 18, 2016
“The notorious president JR Jayewardene, who created the executive presidency, crushed workers’ trade unions and paved the way for the long war with the Tamils. He was considered ‘successful’ from a capitalist point of view. That period of triumphalism for capitalism is coming to an end. His nephew Prime Minister Ranil Wickremesinghe is caught in its tail end and doesn’t have the wind on his side. Once again his ‘reign’ may not last long.”
The Economic Reality is hitting home. The Situation is precarious. The Fools, Modayas and Mootals cannot comprehend it.
The Economy was manged by the Paras from 1948 with an average IQ of 79, compared to 108 for Singapore. See where Singapore is today!
The problem is that there are only a few sectors that will have growth, like tourism. The country is running out of maids to send to the Middle East, and besides the Middle East is running out of money to employ expatriate workers.
The official estimate of what Sri Lanka currently owes its financiers is $64.9 billion — $8 billion of which is owned by China. The country’s debt-to-GDP currently stands around 75% and 95.4% of all government revenue is currently going towards debt repayment.Sep 30, 2016
Sri Lanka’s Debt Crisis Is So Bad The Government Doesn’t Even Know How Much Money It Owes
Trying to develop its infrastructure to increase its economic potential has plunged Sri Lanka deep into a pit of debt, pushing the country to the brink of bankruptcy and prompting an IMF bailout.
The official estimate of what Sri Lanka currently owes its financiers is $64.9 billion — $8 billion of which is owned by China. The country’s debt-to-GDP currently stands around 75% and 95.4% of all government revenue is currently going towards debt repayment.
This debt situation is clearly not sustainable, but there’s more:
In addition to racking up large amounts of government debt via the usual channels, it’s now becoming evident that the previous government also utilized state-owned enterprises to take out additional loans on its behalf. While the full extent of this extracurricular lending seems unknown, current estimates peg it at a minimum of $9.5 billion — which is all off the books of the finance ministry.
“We still don’t know the exact total debt number,” Sri Lanka’s prime minister admitted to parliament earlier this month.
Much of Sri Lanka’s pile of debt accrued in the process of initiating an entire buffet of large-scale and extremely expensive infrastructure projects under the direction of former president Mahinda Rajapaksa.
Between 2009 and 2014 Sri Lanka’s total government debt tripled and external debt doubled, as the country engaged in a number of costly undertakings — such as attempting to build a new, multi-billion dollar city in the middle of a jungle (which includes the world’s emptiest international airport), constructing one of the most expensive highways ever made, as well as other pricey endeavors, such as spending $42 million just to remove a rock from the harbor at Hambantota.
But this doesn’t necessarily mean that Sri Lanka’s current administration is doing much better. Under President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe, who came to office at the beginning of 2015, domestic debt grew by 12% and external debt by 25% without starting any new large-scale infrastructure projects.
This fact has not gone unnoticed by former president Mahinda Rajapaksa, who recently issued a series of public taunts, claiming that with the money the current administration has so far borrowed he could have built “two Mattala Airports, one Hambantota Port, one Norochcholai Coal Power Plant, one Colombo-Matara Highway, one Colombo-Katunayake Highway, not one, but two Colombo Port cities and one 500 MW Sampur Coal Power Plant…”
Sri Lanka may be in a debt trap that it can’t get out of. This year alone $4.5 billion is due to foreign lenders and next year $4 billion is owed — bills which the country has not yet figured out a way to pay.
Various interim solutions to the debt crisis have been proposed, such as offering debt-for-equity swaps to countries, such as China, that Sri Lanka owes big and privatizing and outright selling loss-incurring SOEs, which have yet to receive much interest.
The IMF did agree to provide Sri Lanka with a $1.5 billion bailout in the form of a loan in April after the country agreed to a set of criteria to attempt to right the course of its wavering economy. However, as reported by East Asia Forum, Sri Lanka’s Central Bank has stated that it is their intention to secure an additional $5 billion in loans after receiving these funds — and corresponding seal of approval — from the IMF as the debt trap continues getting deeper.
Correction 10/3/2016: the $42 million rock was removed from Hambantota not Colombo.
vas / November 18, 2016
This lot and the past lots disgusts me. They have neither thr intelligence nor the vission to run this country but are holding on to power and gradually draining off its assets and pauperising. The ill otten dealt is taken and deposited abroad. It is time the people demand from politicians to leave the arena.
Hela / November 18, 2016
Senan has fairly accurately captured the current situation which allows him to predict the impending implosion. Sirisena+Ranil+CBK cannot blame others but themselves for exacerbating it.
The danger is…..in order to save the ruling class, the crisis and the resultant anger could be consciously directed towards another major inter ethnic clash (the age old release valve of the ruling class). Clear signs are already there.
Bala / November 19, 2016
Nothing much to disagree. Hope at least the PM would read this.
Your comment on students being silent following a small allocation might not be accurate. JVP and its other wing (Gunarathnam party – which has a false facade to mislead the students and masses as JVP lost it credibility long ago), is well funded and supported by the same forces which control the budget in Sri Lanka.
Look into the past, you will see that all these student demonstrations and other protests are non-crucial and timed and orchestrated as such that there will not be a significant impact on the regimen that the JVP covertly support.
There is no protest against the real invaders. Only symbolic demonstrations. And it is assured that there will never be a real uprise as long as the JVP divulge the energy through its lines, using Gunarathnam fellow to fool the students.