PART 1

The debt trap of neoliberal economic policy

The Indian Minister for External Affairs, a veteran diplomat, addressing a meeting of representatives of political parties at New Delhi to discuss the economic and political crisis in Sri Lanka, arising from sovereign debt default, with possible fallout effect of economic refugees in the Indian province of Tamil Nadu, with historical and other connections to the Tamil population of Sri Lanka, stated, “There are very strong lessons to be learned from the turmoil in Sri Lanka, including lessons of fiscal prudence, responsible governance, and abandoning a culture of freebies….” What remained diplomatically unstated was, who were the major beneficiaries of the Sri Lankan government’s indiscriminate financial largesse and profligacy, and why was Sri Lanka now bankrupt; whereas under the leadership of late Sirimavo Bandaranaike of the Sri Lanka Freedom Party, Prime Minister of Sri Lanka from 1960-1965 and from 1970-1977, the country achieved the highest indices in Human Development Index, in health, education, nutrition, and child and adult mortality, among all the countries of South Asia, including India.

Sri Lanka, with a population of 21,597,349 million people, is an example of “Capitalism on Steroids" with the political elite first under the leadership of Junius Jayewardene of the United National Party and his successors from both mainstream Sri Lankan parties and others from 1978 onward opting for the "neoliberal" economic path of the "Washington Consensus", or the so-called “Market Reforms” of “liberalization and privatization” from 1978 onward; approximately fifteen years before India, as dictated by the United States-dominated World Bank and IMF, with Transnational Companies, and by most favored, local business houses and the political elite of Sri Lanka squandering the country’s savings, revenues, and the national budget.

Sri Lanka’s economic policies were influenced by foreign capital pursuing policies for 1% in their own countries and abroad. “Sri Lanka is one more example of a country led after 1977 by a post-colonial elite that has been using its people as collateral for unearned economic and political power." In South Asia more than one country succumbed to these policies, now adversely impacting several economies.

The nature of these policies to enrich both foreign capital and the local comprador business and political elite, allied with and patronized by foreign capital, was camouflaged for decades in Sri Lanka, initially by state-sponsored pogroms against minorities, and thereafter, a brutal civil war that lasted for over three decades, with continuous attacks on minorities; initially on Tamils, followed in recent years by serious persecution and attacks on the Muslim minority, including descendants of Arab traders who had traded with and settled in Sri Lanka.

The people of Sri Lanka were in the crossfire of a deliberately orchestrated civil war and a hyper-corporate monopolized media ‘black’ propaganda, directed against both Tamils and Muslims. Recently, a court in Sri Lanka issued summons to a political leader in respect of what is known as the "Easter bombings”; a covert political bombing operation, in which innocent citizens lost their lives.

The economic collapse is not surprising, as, from the very outset, the pogroms and civil war were a planned diversion to camouflage the steady sinking of the Sri Lankan economy, which had lost its sovereign policy direction of meeting the needs of the majority of the Sri Lankan population, even as "crony capitalists, businessmen and elite" along with their foreign partners looted the Sri Lankan economy. 

The Sri Lankan rupee has been in free fall against the dollar from March 2022 onward, with severe shortages of food, fuel, fertilizers, and medicines among other necessities and a soaring inflation rate of more than 50%. The global corporate media and the corporate-owned Indian media, resorting to the same anti-minority propaganda in India, to conceal the real nature of financial and economic policies, are propagating that Sri Lankan bankruptcy and debt are directly linked to Chinese loans and investments, which is deliberate disinformation and far from the truth. Approximately 80% of Sri Lankan debt is owed to Western financial institutions, to the G7, and to the Asian Development Bank. Two-thirds of this debt, approximately 64.6%, is owed in US dollars. “Sri Lanka has a history of having gone through 16 economic stabilization programs” with the Washington-dominated International Monetary Fund.” (1)

The approximate figures of the percentage of foreign debt owed by Sri Lanka to various entities and countries come as follows (2):

1. 47% of Sri Lankan debt comprises market borrowings from private Western financial institutions, including Blackrock (US), Ashmore (Britain), Allianz (Germany), UBS (Switzerland), HSBC (Britain), J.P. Morgan Chase (US ), and Prudential (US);

2. 13% of Sri Lankan debt is owed to the Asian Development Bank (a strategic and financial asset controlled by the USA);

3. 9% debt to the World Bank;

4. 10% debt to China;

5. 9% debt to Japan;

6. 9% is owed to others and includes the debt of 2% owed to India. 

India has extended an urgent $4 billion credit line to Sri Lanka for the purchase of food, fuel, fertilizers, and medicines from the country, in an attempt to prevent the political collapse of the Sri Lankan state; to continue the political status quo responsible for the crisis, aware that these events in Sri Lanka will impact developments in South Asia, in countries facing a similar debt trap; and to alleviate severe economic distress of the people of Sri Lanka. Russia sent urgent fuel supplies in response to the crisis. Sri Lanka was one of the earliest diplomatic assignments of the eminent Foreign minister of the Russian Federation, Sergey Viktorovich Lavrov, many decades ago a junior diplomat at the Soviet Embassy in Sri Lanka.

Faced with a serious economic crisis and the non-availability of basic necessities, after years of a state-imposed civil war and attacks on minorities by state-sponsored pogroms, Sinhalese, Tamils, Muslims, and Christians finally united in a people’s movement the ‘Aragalaya’ (Sinhalese for ‘Struggle’), a movement of the majority of the citizens of Sri Lanka, against the organized corruption and loot of the Sri Lankan economy by Sri Lankan business and political elite, represented by successive parties in the government in Sri Lanka, with the dominant political family of the Rajapaksas in recent decades, among the worst offenders. The people’s anger was directed at the Presidential estate, under occupation for several days; private houses of leading state functionaries and others, who looted the economy, were set on fire. These tragic and violent events are a direct consequence of the inevitable trajectory of "neoliberalism" or the "Washington Consensus" adopted in recent decades by several countries, including in South Asia, amounting to colonialism by financial means, with many countries succumbing. The policy of military occupation and war directly or through proxies was reserved for those countries unwilling to permit financial re-colonization. 

The economic health of all the countries of South Asia is under the scanner, with past policies under scrutiny, despite brave attempts to scapegoat the war in Ukraine and the lockdown of COVID-19 as responsible for serious unemployment and inflation in this region, and notwithstanding jobless growth of the best and brightest Corporate sector, among them "crony capitalists", living off state contracts and largesse, privatizations of state assets, and public sector bank loans. The "lockdown" imposed by the WHO, the IMF, the Bill and Melinda Gates Foundation, major Pharmaceutical companies, and leading governments, which was a war on several economies worldwide to conceal the seriousness of the "Second Great Depression" in the Western heartlands and blame serious economic downturn and distress on COVID-19 did devastate several economies and aggravated the already financial crisis in Sri Lanka. The adverse impact of the lockdown cannot be underestimated, however, the problems of the Sri Lankan and other South Asian economies began in the period before the lockdown.

South Asia, once, one of the world’s most prosperous regions before British colonization; once the pivot for the British Empire which used the material and human resources of the Indian subcontinent and other regions of South Asia to occupy other countries and regions, including the Arab world, and for the opium wars against China, which began the century of humiliation inflicted on the Chinese people... this potentially prosperous region once again faces distress. Afghanistan is in a state of economic collapse, with foreign reserves stolen by the United States, after decades of aggression and occupation by the US, UK, NATO, and allied forces, using Pakistan as a base for military operations against Afghanistan, being a strategic region and to launder profits from the drug trade into western financial institutions. Afghanistan was converted by the military occupation of NATO powers into a NARCO state; the direct consequence of the so-called Al-Qaeda and Mujahideen war incited by the "collective west" against the progressive People’s Democratic Party government in Afghanistan, allied with the former Soviet Union. Pakistan now is in a politically and economically fragile state; the floods are only the last straw of the trajectory of its serious economic and political crisis linked to the financial profligacy of successive governments, along with decades of runaway military expenditure on adventurist policies to vanquish its neighbors for strategic depth, by cross-border terrorism and war, as dictated by its Western alliance.

Significantly many of Pakistan’s former leaders, political and military, have their homes in London. None of the World Bank appointees in the successive governments of Pakistan have been able to restore the health of the Pakistan economy. Nepal is vulnerable, and presently politically fractious, due to increasing foreign interference in its internal politics. The debt-to-GDP ratio of Sri Lanka is approximately 120%; Sri Lanka has low foreign exchange reserves, insufficient to meet external liabilities and payments of approximately more than 56.3 billion dollars of foreign debt. In 2020, Pakistan’s debt-to-GDP ratio was 76%, with precarious foreign exchange reserves, and the government was unable to meet its monthly import liabilities without extensive loans. India’s debt-to-GDP ratio is 95.5%, with foreign exchange reserves dwindling, presently facing jobless growth and high inflation; approximately 42% of India’s national revenues are disbursed to its foreign creditors from the West. Bangladesh has the lowest debt-to-GDP ratio of 34.6 of the countries in South Asia; however, Bangladesh is also facing declining foreign exchange reserves due to turmoil in its export markets in Europe and the United States.

The crisis in Sri Lanka began decades ago with the leadership of Sri Lankan Prime Minister Junius Jayewardene of the United National Party, Prime Minister of Sri Lanka from 1977 to 1978, who assumed office as President for a decade from 1978-1989, after converting Sri Lanka from a parliamentary system into a presidential form of government, reversing earlier economic policies which had benefited the people of Sri Lanka and began the pogroms and persecution of the Tamil minority. The crisis continued under the successors of the two major national parties and their alliance partners, including in the governments dominated by the Rajapaksas, the worst offenders. The Rajapaksa political family has dominated the political landscape of Sri Lanka for almost two decades. Sri Lanka became an economic ‘basket case’ over several years. This economic crisis in Sri Lanka was foreseen by an Indian diplomat, an expert in South Asia economic issues, as early as the mid-nineteen eighties. Sri Lanka sought loans every few years from the International Monetary Fund to pay major Western creditors and the G7 group, descending into a debt trap.

After the recent major uprising by the people of Sri Lanka, under the united banner of "Aragalaya", reacting to the seriousness of the economic situation, the inaccessibility of basic necessities, and runaway prices of food, medicines, fuel, fertilizers, and energy, among other essential commodities, increasing by 50%, accompanied by severe power cuts and long queues at petrol and gas stations... following all that a state of emergency was declared by Ranil Wickremesinghe of the Centre-Right United National Party. Wickremesinghe is the former prime minister of Sri Lanka in five separate stints, who has served in several governments of the United National Party, from his initial appointment as deputy minister in the government of Junius Jayawardene. Ranil Wickremesinghe does not have a majority in Parliament and has formed a so-called "National government" of all parties. Ranil Wickremesinghe is politically and personally close to the notorious political family of the Rajapaksas; this government has been formed by the very Sri Lankan political and business elite responsible for the crisis to postpone the day of political reckoning for their political and economic crimes against the people of Sri Lanka, including the pogroms against minorities and the brutal civil war. 

Ranil Wickremesinghe has once again sought a loan from the IMF, which has extended 16 loans to Sri Lanka, imposing economic pre-conditions for granting loans, which unfairly transfers the burden of austerity onto the backs of the working and middle-income citizens of Sri Lanka, though it is the Western banks and financial institutions and the Sri Lankan business, corporate, and political elite, who have benefitted from the profligate use of these loans. The IMF imposed "conditionalities" as a pre-condition for loans, which are meant to keep up with the past policies of the "Washington Consensus" to protect and exclude the local business and political elite and the foreign creditors and banks responsible for the country’s debt trap, as in Greece, from the "equality of sacrifice" required for the repayment of the loans, thus burdening the mass of working people and middle-income classes responsible neither for the financial profligacy nor for the massive corruption and crony capitalism, directly related to the acute economic crisis and the freebies given to the crony business elite.

The much-touted "success" of decades of "neoliberal" economic policies and the so-called growth rates and "jobless growth" are visible in the economic collapse of Sri Lanka. This pattern of economic and financial collapse is now visible in several countries, where a political and economic oligarchy under the smokescreen of necessary “market reforms” seized control of the national budget and revenues and all the fiscal and financial policy, with ‘Democracies’ and ‘Republics’ hollowed out and legislative majorities installed, controlled, bought and dictated to entirely by financial power.

For those who have succumbed to the indiscriminate "mantra", or "gospel truth", or "fatwa" of "market reforms", "liberalization", and "privatization", as the only solution to the challenge of economic development and modernization of economies all over the world, hard days have arrived. From country to country, it can no longer be concealed that market reforms, liberalization, and privatization do not automatically yield the necessary results for the growth of an economy, and the pursuit of these policies does not lead to the long-term development of the nation and its people; as distinguished from the gross enrichment of a few "crony corporate houses", many of who enter the Forbes list of the richest people because of government policies on the backs of state sector banks and financial institutions, by creating monopolies and looting the national economy of their countries.

Every economic reform and financial policy decision has to be assessed in the context of the real value added to the economy; the benefit to all sectors of the economy; and employment opportunities and programs for all citizens in basic areas, such as employment, minimum wages, nutrition, health, education, transportation, subsidized housing, and pensions. In several countries, including in South Asia, where most governments have ceased to be functioning democracies, we are witnessing financial and banking policies directed to the enrichment of a few, with an economic policy wholly subordinate to the interests of an oligarchy or crony capitalists, whose ventures are funded entirely from State and Public Sector Banks, leaving a trail of Non-Performing Assets of Banks or "unpaid bad loans" of the corporate sector and big businesses. The banks have thereafter to be routinely capitalized by printing notes until one day the debt "bubble" bursts as in Sri Lanka and the government declares bankruptcy, followed by a state of emergency and compulsion to form a so-called "national government", cobbled together by the same corporate, business, and political elite responsible for the economic collapse.

References: 

1. Multipolarista, Ben Norton, 'Real debt trap: Sri Lanka owes vast majority to West, not China,' July 11, 2022.

2. Multipolarista, 'Real debt trap: Sri Lanka owes vast majority to West, not China,' July 11, 2022.

3. Reuters report, ‘Sri Lanka’s ousted President may return home by September,'  August 23, 2022. 

4. The Washington Post, Gerry Shih and Hafeel Farisz, ‘Inside the Collapse of the Rajapaksa Dynasty in Sri Lanka,' May 22, 2022.