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.