Pathway to marginalisation
The Sri Lankan crisis is a manifestation of the nation being reduced to a ‘battleground for neoliberal destruction’ and a ‘vessel for geopolitical power consideration’ by international organisations and regional superpowers — with its own people being pushed towards the fringe to serve global business interests
Sri Lanka, the most strategically located island nation in the Indian Ocean, which had defaulted on its USD 51 billion foreign debt in April and is in talks with the International Monetary Fund for a bailout, is battling its worst-ever financial crisis since its independence, as there is an acute shortage of fuel and other things in the nation. Recently, the government announced that it had only five days of fuel left, which led to people forming queues at gas stations. Amid the country's biggest economic crisis, people like Roshan Mahanama — former Sri Lankan cricketer — are inspiring citizens to help others. On Sunday, the cricketer shared images of him serving tea and bun to those waiting in serpentine queues at a petrol station in Colombo. It is also reported that with Sri Lanka witnessing its highest inflation on record, more Sri Lankan Tamils reached Rameswaram's shores on Tuesday midnight, seeking refuge in India.
On June 17, Sri Lanka announced a two-week suspension of schools, public offices, and transport. Through a press release dated Saturday, the Sri Lankan Public Administration Ministry urged all government employees to work from home in the wake of an acute fuel shortage to run public vehicles. Sri Lanka imports refined petroleum primarily from: Singapore, India, Malaysia, United Arab Emirates, and China.
IMF the last hope!
In May, the then Prime Minister Mahinda Rajapaksa had to resign and, in his place, new Prime Minister Ranil Wickremesinghe, a lawyer-turned politician who had been in the Parliament for 45 years, was given the charge. The 73-year-old leader, who is believed to be close to India, was appointed as the 26th prime minister of Sri Lanka by President Gotabaya Rajapaksa amidst the worst economic crisis in the country. He is widely accepted in political circles as a man who could manage the economy with far-sighted policies.
Unfortunately, till date, the situation has not improved except that on last Monday (June 20), the country's cabinet cleared a Constitutional amendment to dilute presidential powers, which could assuage protesters amid rising tensions. Tourism minister Harin Fernando tweeted that the proposal will now be sent to the country's Parliament. Many protesters accuse Rajapaksa and his influential family of mishandling the economy.
Sri Lanka suspended payment of USD 12 billion of foreign debt in April, and is seeking up to USD three billion from the IMF to put its public finances on track and access bridge financing. A nine-member IMF team, which arrived in Colombo on Monday, held talks with Prime Minister Ranil Wickremesinghe on how to restructure the economy with the IMF loan which will be Sri Lanka's 17th loan programme with the global lender. Sri Lanka seeks to secure around USD five billion in funding this year to cover repayments for fuel imports and other items bought through credit lines, and another USD one billion to bolster its foreign reserves, the prime minister's office said.
A fire sale is looming over Sri Lanka as the bailout plan is not clearly visible. The newly appointed prime minister, Ranil Wickremesinghe, has already announced that the government will privatise Sri Lankan Airlines which, prior to the pandemic, had flown to 126 destinations across more than 60 countries. It is reported that the World Bank has planned to disburse USD 700 million to crisis-ridden Sri Lanka by repurposing its existing loans!
Sri Lanka has frequently engaged with the IMF and the World Bank — the two major international financial organisations. The country joined the IMF on August 29, 1950, and has a voting share of 0.1417 per cent on the IMF's Board of Governors — sharing a common director on the Executive Board with Bangladesh, Bhutan, and India. Since joining, Sri Lanka has been the recipient of 16 IMF loans.
Experiences of Sri Lanka with IMF loans are not pleasant. It may be recalled that in April this year, the then Sri Lanka's Central Bank Governor Ajith Nivard Cabraal, who had resisted calls for an IMF bailout, resigned amid escalating protests in the island nation over the mounting economic crisis. Way back in 1985, in a research paper published in 'Social Scientist', WD Lakshman alleged that the most extensive as well as most intensive presence of the IMF and the World Bank in Sri Lanka's domestic policy scenes – both political and administrative — began with the change of regime in 1977. Sri Lanka, after 1977, had become yet another laboratory for IMF-WB experimentation.
It argued that Sri Lanka has few options other than an IMF bailout. But engagement with neo-colonial international financial institutions is actually one of the causes behind Sri Lanka's economic woes. The vulnerabilities of Sri Lanka have long made it the perfect prey for international financial organisations. The elites of post-colonial Sri Lanka intoxicated the people with money borrowed from international financial organisations and political allies. In fact, Sri Lanka was the first country in South Asia to embrace neoliberalism. The opening of its economy to the International Monetary Fund (IMF) came with the vilification of minorities and a violent onslaught on trade unions.
Citing a sample from the IMF Executive Board's 2021 Article IV Consultation Statement on Sri Lanka, 'The Diplomat' reported that these loans come at a steep cost — implementing the IMF's economic policies. Noting Sri Lanka's low tax-to-GDP ratio, they saw scope for raising income tax and VAT rates and minimising exemptions, complemented with revenue administration reforms. Directors encouraged continued improvements to expenditure rationalisation, budget formulation and execution, and the fiscal rule. They also encouraged the authorities to reform state-owned enterprises and adopt cost-recovery energy pricing. It is apprehended that after Sri Lankan airlines, more companies will be privatised and stringent austerity measures — as was experimented with Greece a decade ago — will be undertaken to bring in 'financial discipline'.
Big economies' aversion towards Sri Lankan crisis
Significant humanitarian assistance from big economies, as the situation demands, has not reached Sri Lanka yet. For obvious reasons, the Ukraine crisis has received much more attention from Western economies.
On May 21, when the crisis was at its peak, Sri Lanka received USD 27 million worth humanitarian aid including milk powder, rice and medicines from India. In addition to that, India has committed USD 1.9 billion and is in talks for an additional USD 1.5 billion in credit for fuel and other essential imports.
The European Union (EU) has announced to provide 0.2 million Euros in humanitarian assistance for first-aid, medical supplies and sanitary purchases for some 80,000 low-income families affected by Sri Lanka's ongoing economic crisis.
On June 15, the United States announced that it would provide USD six million in emergency aid to crisis-hit Sri Lanka.
The Australian federal government has committed USD 50 million to support Sri Lanka, as the country continues to struggle with its economic and humanitarian crises.
In May, the Government of Japan announced a USD 1.5-million funding to help the Government of Sri Lanka respond to the ongoing economic crisis. The funds would be used by the United Nations World Food Programme (WFP) to provide food assistance to children and families in need of support.
Beijing has offered loans of "a few hundred million dollars," Wickremesinghe told the Financial Times, while his government had been seeking to renegotiate existing debts to China, amounting to around USD 3.5 billion. Moreover, bankrupt Sri Lanka can't tap a USD 1.5 billion credit line from China as the Chinese are concerned that the International Monetary Fund may force delays in repayment because there is a condition in relation to the months of import cover that Sri Lanka needs to have in order to be able to draw on that money. Experts think that it is difficult for the Chinese to waive off the condition because this is a three-year swap which might be termed a loan and there may be pressure from IMF and others to include it in the stock of debt that Sri Lanka rescheduled and, therefore, clearly that would be a disadvantage to the Chinese. India wants the IMF to treat China on par with other creditors.
Role of India Japan & China
About 22 per cent of Sri Lanka's debt is owed to three bilateral creditors — China and Japan (10 per cent each) as well as India (2 per cent). A few weeks before becoming the Prime Minister for the sixth time, Ranil Wickremesinghe had proposed that an 'aid Sri Lanka consortium' — consisting of India, China, Japan, South Korea, the European Union, and others willing to assist — be formed to address the country's immediate economic needs. This Wednesday (June 21), PM Wickremesinghe has again told the Parliament, "We need the support of India, Japan and China who have been historic allies. We plan to convene a donor conference with the involvement of these countries to find solutions to Sri Lanka's crisis. We will also seek help from the US," he said.
India: A high-level delegation from India and a team from the US Treasury are expected to visit Sri Lanka shortly. But the two major creditors/donors — Japan and China — have not yet come out with any concrete bailout plan, though China has expressed its apprehension over Sri Lanka seeking a bailout package from the International Monetary Fund (IMF), saying that such a move would impact ongoing credit talks with Beijing.
Wary of Chinese attempts to control strategic ports in Sri Lanka, India is trying to reassert its traditional influence in South Asia. FDI from India amounted to about USD 1.7 billion during the period between 2005 to 2019. The main investments from India are in the areas of petroleum retail, tourism & hotel, manufacturing, real estate, telecommunications, banking and financial services.
On March 1, 2021, the then Sri Lankan Prime Minister Mahinda Rajapaksa said it would develop the West Container Terminal (WCT) at the Colombo Port along with India and Japan. The decision came a month after the Rajapaksa government ejected the two partners from a 2019 tripartite agreement to jointly develop the East Container Terminal (ECT), citing resistance to "foreign involvement". Both India and Japan had earlier expressed displeasure about Colombo "unilaterally" pulling out of the 2019 tripartite agreement — signed by the former Maithripala Sirisena-Ranil Wickremesinghe government. In the ECT project, agreed upon earlier, the Sri Lanka Ports Authority (SLPA) was to hold majority 51 per cent, but in the WCT proposal, India and Japan were accorded 85 per cent stake, as was the case in the nearby Colombo International Container Terminal (CICT) where China Merchants Port Holdings Company Limited holds 85 per cent, the government said. The WCT is just a couple of kilometres away from the China-backed Port City being built on reclaimed land, making it a strategically desirable spot for India.
In September, India's Adani Group sealed a deal with the state-owned Sri Lanka Ports Authority (SLPA) to develop and run the strategic Colombo Port's Western Container Terminal. In addition to this, the Adani Green Energy Limited bagged a 500-MW wind and solar plant project. It has further promised to set up two more strategic projects — 5-GW wind power project and 2-GW solar power project — in Sri Lanka for export of power to India through Cross-Border Transmission Links.
Japan: At present, about 80 enterprises with Japanese investment are in operation. They have made their investment in the fields such as manufacturing of semiconductors, printed circuit boards, safety sensors, ceramic items, cement, apparel, building and repairing ships, fabrication and installation of integrated buildings, power sector, tourism sector, infrastructure and logistics. Currently, they have invested about USD 399 million (cumulative 2020), providing about 12,000 employment opportunities for the Sri Lankan community. Compared to China, it is very modest.
China: It is alleged that Sri Lanka has succumbed to the Chinese investment trap. To substantiate this, huge Chinese investments in two strategically important ports are mostly cited.
(i) Hambantota port: Five loans were obtained between 2007 and 2014 to construct the port under the government led by Mahinda Rajapaksa. The total sum of these loans amounted to USD 1.263 billion. In August 2017, Sri Lanka's cabinet of ministers took a decision to sign a concession agreement with China Merchants Port Holdings Company Limited (CM Port) to operate the Hambantota Port as a Private Public Partnership (PPP) project under which a 70 per cent stake of the port is leased to CM Port. The remaining 30 per cent of the stake is owned by the Sri Lanka Ports Authority (SLPA), and the commercial operations of the port are handled by the CM Port and the SLPA jointly while the government of Sri Lanka still owns the port. At the time of entering into the lease agreement, Hambantota Port was valued at USD 1.4 billion and CM Port invested USD 1.12 billion as per the terms of the agreement.
(ii) The Colombo Port City: The Port City project was officially unveiled during Chinese President Xi Jinping's visit to Colombo in 2014, a year after he launched his Belt and Road Initiative — an ambitious plan to build road, rail and maritime infrastructure links across Asia and Europe to boost trade. To build this ultra-modern city, the China Harbour Engineering Company (CHEC) will invest USD 1.4bn. In return, the firm has been given 43 per cent of it on a 99-year lease. This high-tech city will host an offshore international financial centre, residential areas and a marina — prompting comparisons with Dubai, Monaco or Hong Kong. About 80,000 people are expected to live in the new city, which will offer tax holidays for those who invest and do business there. All transactions in the special economic zone, including salaries, will be in US dollars. The Port City aims to lure away multinational firms and investors already based in India, which could dent investments and job opportunities there.
With strategic assets like Colombo International Container Terminal (CICT), Hambantota port and The Colombo Port City under its control, China is all set to dominate Indian ocean trade routes as a part of its globalisation strategy.
In many ways, the Sri Lankan crisis resembles the Greece crisis of the past decade. The Port of Piraeus — a 40-sq.-km complex of container terminals, repair docks and more — now managed by a Chinese state company, serves as China's gateway into Europe and the Middle East under Beijing's Belt and Road infrastructure initiative.
Sri Lanka is likely to become another Dubai or Singapore in near future. This strategically important island nation on the Indian ocean is an example of a Third World country led by a post-colonial elite that is using people as collateral for their power considerations. The island nation has been surrendered to international financial organisations and regional superpowers as a battleground for neoliberal destruction, and as a vessel for geopolitical power considerations.
As happened in most of the global business and logistic hubs like Singapore, the locals will be increasingly marginalised and eventually vanish from the main business areas of the ultra-modern nation. The fate of Singapore's Orang Laut tribes, which includes the Orang Seletar who lived in the mangroves near the Seletar River; the Orang Biduanda Kallang from the Kallang River; the Orang Gelam at the mouth of the Singapore River; and the Orang Selat from the Southern Islands may be cited as examples. Steady influx of global elites has totally marginalised these 'first people of Singapore' who have already lost their language and culture. The glitter of Singapore also makes people forget about the Malays, whom the Singaporean Constitution officially defined as the indigenous people of Singapore. Malays still earn 25 per cent less than the national average, lagging far behind ethnic Chinese and Indians. Malays' participation in higher-education is below par with the rest of the Singaporean population, leading to a great under-representation within the professional classes, elite government positions, armed forces and police. There has always been a feeling among Singapore's ethnic 7,50,000-odd Malays who make up 13.5 per cent of the population that they are second-class citizens within their own land.
The future of the common people of Sri Lanka looks bleak. If Sri Lanka turns into another Dubai or Singapore, the indigenous people of this island nation may become the second-class citizens of their own state. Examples of Orang Laut tribes and Malays of Singapore are cases in point.
Views expressed are personal