14 June, 2024

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IMF, Sri Lanka’s Resource Curse & Privatization Of The Central Bank

By Darini Rajasingham-Senanayake

Dr. Darini Rajasingham-Senanayake

The Wealth of Nations and the Poverty of Theory: IMF, Sri Lanka’s Resource Curse, and Privatization of the Central Bank

With the world distracted by kinetic wars in Ukraine and Gaza, a hybrid economic proxy war against the Global South and China’s Belt and Road Initiative (BRI), for global connectivity is unfolding at this time of new Cold War: Across Asia, Africa and South America. 56 Low and Middle Income Countries have been ensnared in Covid-19 Lockdown-induced Eurobond debt traps sprung by private creditors and International Sovereign Bonds (ISB), that charge predatory interest rates.

An unprecedented number of Sovereign Defaults have happened in the past 2 years according to a Fitch report[1]. From Argentina, Ecuador and Surinam, to Ghana, Lebanon, and Sri Lanka local currencies and citizen’s labour have been dramatically depreciated against the ‘exorbitantly privileged’ United States dollar. This, despite America’s $34 trillion debt and counting, also to fund environmentally destructive wars and the NATO- QUAD war machine. Rapid currency depreciation also triggered brain drain that these countries can ill afford.

While China is often blamed for ‘debt-trap lending’ to developing countries, Eurobond debt neocolonialism and defaults have enabled the Washington Consensus’ International Monetary Fund (IMF), to mission and mandate creep into Domestic Debt Restructuring (DDR), magnifying the numbers. As the US raised interest rates, countries in Eurobond USD debt traps were subject to further exogenous economic shocks to “Make the Economy Scream’.

Under IMF ‘debt treatment’ that increasingly includes ‘governance reforms’ purportedly to combat corruption, controversial new legislation was enacted to ensure the “autonomy’ the Central Bank of Sri Lanka (CBSL) last year[2]. The CBSL was the hub of a series of bond scams in 2015 that caused the accumulation of Odious Debt leading to the staging of Sri Lanka’s first Default in 2022.

However, the recent scandal over massive staff salary increases at the now “autonomous’ CBSL indicate that the much hyped IMF ‘governance reform’ and new legislature may have had the opposite effect: Was the country’s apex financial institution effectively privatized, enabling its capture and control by external actors and financial Consultants in order to advance the Washington Consensus’ economic and geostrategic interests?

At this time, GDP and Macro economy linked bonds, including ‘Debt for Nature Swaps’ or Environment Social and Governance debt bondage (ESG Bonds) are proposed by the colonial Club de Paris and advisors of Sri Lanka’s private creditors at IMF debt restructuring negotiations. Unsurprisingly, the result of the new CBSL legislature on the IMF’s behest seems to be the erosion of parliamentary oversight of the CBSL, as well as, national economic sovereignty, policy autonomy which may enable new bond scams and corruption scandals.

Calls for Reform of the IMF: Debt treatment that deepens the debt trap?

Perhaps it was also because Sri Lanka was an unlikely country to default that the UN Secretary General Antonio Guterrez recently called for reform of the IMF and World Bank, to reflect the interests of the Global South and the role of the BRICS in a multipolar world![3] The BRICS after all have beaten the G7 economies.

Discussing the effectiveness of the Breton Woods Institutions to meet contemporary needs, Guterrez said that besides the unrepresentative character of their power structure and orientation, they are undercapitalized and too small for the current global needs. “The truth is that they became too small”. “The paid-in capital of the World Bank as a percentage of global GDP today is less than one-fifth of what it was in 1960” he noted. “So we obviously need a meaningful capitalization of those institutions”.

At this time, the IMF’s debt restructuring programs seem to have 3 pillars: The main one being, to ensure that indebted countries keep borrowing from the same predatory ISB ‘vulture funds’ like BlackRock, the world’s biggest hedge fund and Sri Lanka’s main creditor, that caused the accumulation of Odious Debt in the first instance, ironically, to pay them off. This in collusion with incompetent and corrupt local politicians, Central Bankers and their business cronies. With IMF mission creep into Domestic Debt Restructuring (DDR), the debt was passed on to hapless citizens, including with local Employee Provident Funds!

The second pillar of IMF debt restructuring is a series of reforms, primarily, austerity measures to downsize government expenditures, while ramping up taxation—measures to effectively shrink rather than grow the economy.

The third pillar is the privatization and Fire sale of strategic assets, (land, energy, telecom transport infrastructure etc.), that would also reduce state revenue and beggar the people as utility prices rise. All this ensures deepening neocolonial debt bondage to erstwhile imperial masters.

IMF debt restructuring operations appear primarily designed to deepen and extend the duration of Eurobond debt traps and keep the IMF and the private creditors and their colonial Club de Paris representatives, along with selected accounting and legal firms, such as, Lazard and Clifford and Chance in business. The system is rigged also with debt data manipulation and no transparency on the identity of the bond holders.

Simultaneously, debt trapped Global South countries like Sri Lanka that are subject to IMF debt treatments that deepen ISB debt bondage and neocolonialism are increasingly being enlisted as foot soldiers in the west’s new Cold War, that is now a hot war in the Red Sea. The Sri Lankan Navy reportedly had a couple of US donated Frigates joining US led anti-Houthi Operations in the Gaza war theater.

The hybrid economic proxy war is being fought primarily in the world’s oceans and space- via cyber operations, with Law fare, biological and climate warfare (weather modification with Directed Energy Weapons DEW), propaganda and Disinformation campaigns with data manipulation, deep fakes and Artificial Intelligence (AI) hype. All this spells out the fact that the push with Over the Horizon Operations (OTH), for Full Spectrum Dominance (FSD), of debt colonized geostrategic Global South countries like Sri Lanka.

An Unlikely Default in an Unsinkable Aircraft carrier

Sri Lanka, located at the center of the Indian Ocean on some of the world’s busiest trade, energy and Submarine or Undersea Data Cable Routes (UDC), was an unlikely country to stage a Sovereign Default in the “Asian 21st Century”.

The strategic island beloved of tourists remains the wealthiest country in the South Asian region (in per capita GDP terms), with the best human and social development indicators. It was listed by the World Bank as an “upper Middle Income Country” (MIC) in 2019. The country has been referred to as ‘valuable real estate’ and an “unsinkable aircraft carrier”.

The fertile and lush tropical island, is capable of growing its own food, and is marine and mineral resource rich. However, three years after being upgraded to an upper MIC by the World Bank, in 2022, it was declared ‘bankrupt’ and staged it first ever Sovereign Default. Pumped and dumped? This, simply because it lacked exorbitantly privileged US dollars, to purportedly buy food and fuel during a mysterious fuel embargo on ships carrying oil and gas to the country while everyone was distracted with the Aragalaya protest chaos strategy!  On taking office in the course of a seamless regime change operation the President laughably promised Famine and 15-hour power cuts to spread fear and enable the IMF’s mission creep!   

Geostrategic Resource Curse

Although US dollar poor, Sri Lanka is rich by every other metric. Not all the data and theory in the world can trump empirical reality – at least for social scientists. A visit to any other South Asian country would make clear that the island has better infrastructure and PQLI despite the debt data numbers games to promote Default and the famine narrative.

Sri Lanka’ first Sovereign Default in 2022 was triggered after the shadowy off shore Hamilton Research bank in the Caribbean filed a court case in New York for non-payment of a small amount of interests amid the National Endowment for Democracy (NED) funded Aragalya protest Chaos Strategy for seamless regime change that brought to power the current ruling Ranil Rajapaksa regime in Colombo.

The geostrategic island has been long irresistible to the US-led NATO war machine that has over 800 military bases around the world. This is increasingly so with the US pivot to Asia and economic Cold War on China. Arguably, the island suffers from a geostrategic ‘resource curse’, also because of the failure of its political and business elites to diversify and industrialize the economy in the post-independence period.

As the US pivoted to Asia, hybrid economic war operations to ‘Make the Economy Scream” with various exogenous economic shocks escalated. These include the mysterious ISIS claimed Easter Sunday attacks on tourist hotels in 2019, followed by two years of economically devastating Covid-19 lockdowns, punctuated by burning ships MV Pearl and Diamond also targeting the ports and fisher’s livelihoods, as well as the Aragalaya operation. These shocks enabled borrowing bingers by incompetent and corrupt politicians on private markets that charge predatory interest, leading to the staged Default and IMF mission and mandate creep into deepening the USD debt trap!

We are living in a neocolonial world, not a post-colonial world. It is increasingly clear that Sri Lanka was debt trapped by Eurobond traders like BlackRock that got huge Covid-19 bailout funds from the US government under the CARES Act to asset strip in the global south as economies melted down due to lockdowns and supply chain disruption, in collusion with Washington-backed local elites because of its geostrategic location for the West’s hybrid economic proxy war on China and its BRI.

As the dust settles, and the truth leaks out about an unlikely sovereign default, US Secretary for South and Central Asia, Donald Lu invented a ”Sri Lanka comeback story” a few weeks ago at the United States Institute for Peace. Meanwhile, in the name of good Governance at the IMF’s behest the CBSL appears to have been privatized– if the recent scandalous staff salary increases are any indicator—undermining the country’s apex finance institution’s accountability to the citizens and parliament.

The million-dollar question at this time is: Was the “autonomous” CBSL’s staff salary increase related to future acceptance of GDP macro economy linked debt restructuring proposed by the colonial Club de Paris that represents the private creditors now marketing Debt for Nature Swaps or Green and Blue washed Bond and scams, although civil society groups have called for a moratorium and ban on GoSL borrowing on private markets?

(To be Continued)


[1] Sovereign Defaults at Record High. https://www.nst.com.my/business/2023/03/894458/sovereign-defaults-record-high-says-fitch

[2] The Central Bank of Sri Lanka (CBSL) is the apex financial institution in Sri Lanka. The CBSL Act No. 16 of 2023 (CBA) brought into law in September 2023, supersedes the Monetary Law Act (MLA) No. 58 of 1949 that established the CBSL In 1950 as a semi-autonomous body. Under the new act, the CBSL shall be autonomous and accountable. https://www.cbsl.gov.lk/en/about/about-the-bank/overview

[3] IndepthNews: UN Chief calls for reform of IMF, World Bank, stresses BRICS roll: https://indepthnews.net/un-chief-urges-reform-of-imf-world-bank-stresses-bricss-role/

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Latest comments

  • 3
    12

    So Dr. Darini Rajasingham-Senanayake has stricken again, her position intact, one that some would even call conspiratory, and may accuse her of being paranoid.
    .
    But couple of quick questions to Dr. DRS:
    .
    (1) Why would some countries fail and not others – doesn’t the responsibility to rise economically lie with the respective country, its people and leaders, taking advantage of whatever economic conditions that prevail? If they have failed can we really blame the IMF?
    .
    (2) Now the horse has bolted, what else could we do – other than further seeking the assisstance of the neo-colonialists (to use her own words and concepts), as the external borrowings are from them – unless she suggests that we default – is that an option?
    .
    On another note, this is the second writer now within the course of few days that has referred to both the 2015 Bond issue and the recent pay hike for employees by the CBSL as scandalous- yet the key board warrriors and apparent financial pundits that frequent the commments section that hold views to the contrary, do not seem to raise any objections with these authors.

    • 2
      9

      Cont’d…. (in case the previous comment gets cut short due to word limit)
      .
      Instead they resort to various other tacts of mud slinging and making personal insults directed at other commenters who agree with the authors.
      .
      It’s time these key board warriors and various other pundits take up their issues with the experts who opine the respective views if they want expert answers to their questions?
      .
      Time to grow some spine and own up your views and positions and directly question the experts themselves.

      • 6
        0

        “Instead they resort to various other tacts of mud slinging and making personal insults”
        I suppose, in Thoththa Baba’s opinion, describing others as frauds, imposters, and “government school idiots ” doesn’t amount to personal insult. Those who dish it out shouldn’t whine when they can’t take it themselves.

    • 7
      0

      So, Mummy didn’t pull little baby’s foot out of his mouth? So sad. Maybe baby should learn to make his own decisions without depending on authors or “experts”.

      • 8
        0

        “The CBSL was the hub of a series of bond scams in 2015 that caused the accumulation of Odious Debt leading to the staging of Sri Lanka’s first Default in 2022.”🤣🤣🤣🤣
        I really don’t see how 11 billion RUPEES of debt could cause 57 billion DOLLARS of default a few years later. Perhaps Ruchira Baby could enlighten us dumbos?

        • 8
          0

          “Perhaps Ruchira Baby could enlighten us dumbos?”.
          .
          Ruchira has turned out to be “Aruchi [unappetising]” due to close association to Lester the joker.
          .
          Ayyo- blindness has no limit.
          🫣🫣🫣🫣🫣🫣🫣

          • 7
            0

            LM,
            ““The CBSL was the hub of a series of bond scams in 2015 that caused the accumulation of Odious Debt leading to the staging of Sri Lanka’s first Default in 2022.”
            According to Ruchira, the above was written by an “expert”. 🤣🤣🤣

    • 0
      1

      Yes, Rajapaksas were doing every kind of power-wielding of alternate global monetary dallying. But the complex process of building up the country from the heart of its people and land-potential was beyond their intellect. Now Ranil and Rajapaksas are using each other to do the same via only the mainstream USA way. We direly need a normal, grounded, commonsensical, non-megalomaniacal political party to take over the reins of the government viz. JVP w/o a SJB alliance.

  • 5
    1

    I agree with Ruchira. The bankruptcy in Sri Lanka is entirely self-created. There is no point in blaming the creditors who like every Shylock is willing to give loans. Our ills arose from corruption of the Rajapakses and their minions, not forgetting former Presidents like Chandrika who siphoned money into their own coffers. The Supreme Court has said as much. So, there is no point in the waxing rhetoric about the Third World debt trap. The prudent will not fall into these traps. There is little talk in the article about the Chinese loans for the trophy projects-nelun pukuna, the Rajapakse airport, the Port City, the cricket grounds, etc,. etc. We have to cure ourselves before throwing stones at the IMF, though we have to think more carefully about the IMF programme and whether it would work.

    • 0
      4

      I think there may have been more fundamental reasons like overall bad economic governance by successive governments since CBSL was first established by JRJ’s initiation in 1950. If you are familiar with Dr. W. A. Wijewardena’s writings he elaborates how the ill disciplined finance ministers used the CBSL to finance their budget deficits without focussing on real economic growth causing inflation to set in and exchange rate to go down and the rupee to depreciate. These fundamental flaws may have been at the heart of the problem. It I believe is a chronic one though the immediate collapse occurred due gross mismanagement by Gota’s regime. The whole thing was years in making waiting for the right time to surface. That’s why I believe we need a fresh start with fresh faces and fresh almost everything….

  • 3
    1

    Progressive regional powers with ambitions for global power must be encouraged. The scourge of the planet has been the dominance of the Western power-centres that mercilessly exploited the Global South, after slavery was abolished and imperial colonial projects involving genocide were declared unethical and illegal under international law. Sri Lanka has been infested with duplicit and corrupt officials and politicians for many decades, thus grossly reducing the country’s ability to honor genuine credit offered by powers like China. A radical change in the status quo is required if future generations are to have any hope of surviving in that resplendent isle blessed with nature’s bounty but cursed by greedy parasites. Only a new emerging force can bring about this paradigm change.

    • 1
      4

      “A radical change in the status quo is required if future generations are to have any hope of surviving in that resplendent isle blessed with nature’s bounty but cursed by greedy parasites. Only a new emerging force can bring about this paradigm change.”
      .
      True.

  • 0
    6

    Despite Gota’s mismanagement of the economy, I am still convinced the primary cause of the now legendary “bankruptcy” was COVID-19. Foreign remittances and tourism revenue dropped significantly at the same time. Along with garment exports, these are the foundation of the economy. Keeping in mind, a default (aside from the underlying causes) is not a drawn out event. It’s Either the payment is made on time or not.

    “Had the pandemic not struck, tourist arrivals would have been more than 2 million in 2020.” Just how badly did COVID-19 affect tourism? “In comparison with the decline in tourist arrivals of 18% in 2019 (due to the Easter attacks), 2020 has witnessed tourist arrivals declining by 73%.”

    “In 2019, tourism was the third-largest foreign exchange earner for Sri Lanka, with the first and second positions being those of remittances and textiles and garments, respectively (see Figure 3). Foreign exchange earnings from tourism decreased to 13.7% of the total foreign exchange earnings in 2019 as compared to 15.9% recorded in 2018. In terms of US Dollars, the total tourist receipts in 2019 were estimated at $3,606.9 million compared to $4,380.6 million observed in 2018, with a drop of 17.7%.”

  • 0
    4

    Excellent analysis by DS! It is the complete truth of course. However, that is the West’s only means of survival. Due to their historical colonizations, there is no other avenue for them other than to go the neo-colonial way. They will stop at nothing. Vietnam was their survival via communist suppression. But balancing of global finances and budgeting have come a long way since then.

    The question is why do WE want to emulate them? There are other avenues that a country like Sri Lanka can conduct its affairs without latching onto any one superpower to produce infrastructure upon infrastructure not conducive towards our people’s ability and our climate. We can sit howling about why they look grander and more polished than us, but if you cook more closely, our polishment lies far deeper. We look silly trying to act like the old colonials and Americans (anyone seen the Royal-Tho -parting?).

    • 0
      4

      Futile, e.g. to develop a billionaire base like USA. They have different histories and reasons for their being. USA’s billionaire base sustains their dollar – their only means of survival. They tax them extra from time to time to balance out their budgets….but it will never reach a 50% capitalism. We, as an ancient agricultural base need a ground-zero Capitalistic base that can go up to 25%. They can, and will readjust their finances quite well without us. They might seduce Indian with this (they will experience the booms of dips of capitalism with 100’s of millions affected), but we as a small country will find it far easier to go a more prudent way.

    • 0
      1

      ….but if you look* more closely,…..

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