Behind Sri Lanka’s current protest wave (plus Tracing the historic roots of the island’s economic crisis)
By Chris Slee
April 28, 2022 — Links International Journal of Socialist Renewal — Sri Lankan police opened fire on a demonstration in the town of Rambukkana on April 19, killing one man and injuring 14.
The demonstration was part of a wave of protests that has spread throughout Sri Lanka in recent weeks, sparked by an economic crisis. The country has suffered shortages of food, medicine, petrol, diesel, cooking gas and other commodities. There have also been electricity blackouts.
The protesters blame official corruption and nepotism, and have called for the resignation of president Gotabaya Rajapaksa and his government. Rajapaksa’s cabinet resigned on April 3, but the president did not.
Corruption and nepotism are certainly part of the problem. Mahinda Rajapaksa (prime minister), Basil Rajapaksa (finance minister) and other members of the Rajapaksa family held prominent positions in the government.
However, Sri Lanka’s problems are not limited to the behaviour of one family. British colonial rule left Sri Lanka dependent on the export of a few commodities, notably tea. Little has been done to diversify the economy.
Tourism has been affected by the COVID pandemic. The war in Ukraine has raised the cost of importing oil and grain.
Another problem is excessive spending on the armed forces, which diverts resources away from social welfare and production for people's needs. Even after the end of the war against the Liberation Tigers of Tamil Eelam, who were fighting for an independent Tamil homeland in response to the oppression of the Sri Lankan state, Tamil areas in the north and east of the island remain under military occupation.
Up to now there has been only limited Tamil participation in the current wave of protests. No doubt this is largely due to severe repression in Tamil areas. But Tamil distrust of a protest movement that is predominantly Sinhala in composition may also be a factor.
Yet, the movement is not exclusively Sinhala. There has been significant participation by Muslims, which is positive given that the government has a history of promoting anti-Muslim prejudice.
Is Sri Lanka heading towards further turmoil: Roots of the 2022 economic risis
By Shiran Illanperuma
April 8, 2022 — Links International Journal of Socialist Renewal reposted from Jamhoor — For the first time in the history of the republic, the upper crust of Sri Lankan society has taken to the streets in protest. Or so it seems. Facing unprecedented price hikes and 13-hour power cuts, the comfortable, consumption-driven lifestyle of Colombo’s middle-class has become increasingly untenable. Their anger and sense of betrayal is palpable.
In the upper-middle-class suburb of Rajagiriya, apartment-dwelling white-collar workers, IT and advertising professionals, artists, actors, and comedians, alongside informal sector workers and tuk-tuk drivers, chant “Gota go home!” – referring to Sri Lankan President Gotabaya Rajapaksa. Many who once condemned unions for disrupting traffic with protests, have taken to the streets themselves, because they are unable to pump petrol. How did the enlightened liberal turn into an anarchist revolutionary overnight?
The deprivation is a multi-class affair, of course. Farmers, fishers, day laborers, self-employed workers, manufacturing workers, white-collar workers and small-business owners have all faced the brunt of inflation. In spite of the cross-class nature of this crisis, international media coverage, including in the New York Times, has focused predominantly on middle-class anxieties, with their slogans, placards and hashtags written in English – a language not spoken by 75% of the population.
Memes on social media advocate ousting all 225 elected MPs. One screamed, “Gota go home, Sajith stay home, Anura don’t even think about it” – referring to the current President, Opposition Leader, and the leader of a left-leaning opposition party, respectively. While seemingly radical, these slogans reflect a deep-seated mistrust of politics itself, which has been cultivating in middle-class consciousness over the last decade. Curiously, this very mistrust of politics allowed Gotabaya – an outsider to the political establishment who presented himself as a technocrat rather than a politician – to come into office in the first place.
Prices soared after the government floated the exchange rate in preparation for an IMF bailout of yet another balance-of-payments crisis. While Africans and Latin Americans have taken a stance against the IMF and austerity, the Sri Lankan middle-class, on the other hand, demand that the President resign because he did not go to the IMF sooner! Placards shared by middle-class protestors on social media include slogans such as “Call the IMF” and “Follow the IMF you stupid”.
For several years, a cluster of Western-funded think tanks, advocacy groups and big media houses have been grooming a coterie of economists, researchers, and journalists, old and young, to rebrand neoliberalism. Its face is no longer the white-haired, authoritarian, union-busting patriarch as represented by General Pinochet in Chile, or J.R. Jayawardena in Sri Lanka. Rather, it is the young, aspirational, middle-class women and men who champion socially-progressive ‘woke’ causes such as feminism, the LGBTIQ+ movement, and minority rights. Protests articulating raw outrage without an alternative policy, plan, or program, are ripe for cooption by neoliberal ideology and international finance capital, represented by the IMF and comprador merchant capital interests.
Sri Lanka appears to be sleepwalking into further turmoil.
Roots of the crisis
There are two interpretations of President Gotabaya Rajapaksa’s rise to power in 2019. The first, oft-repeated in Western media, is that the 2018 Easter Sunday bombings that killed 269 people brought issues of national security to the fore of public consciousness, and created a political opportunity for a strongman with a military history like Gotabaya. Indeed, he declared his presidential aspirations just four weeks after these attacks. Gotabaya is seen as an ethno-nationalist leader, who stirred majoritarian hatred against minorities to win the election.
This compelling narrative, peddled by Western media, portrays Sri Lanka as an orientalist powder keg of primordial ethnic hatred, and misses some crucial pieces of the puzzle. A year before the Easter attacks, Gotabaya’s party, the newly formed Sri Lanka Podujana Peramuna (SLPP), swept the 2018 local elections with 40.47% of the vote. These elections were held well before ethnicized clashes that occurred across the country months later. The Rajapaksa family’s political comeback (Gotabaya’s brother Mahinda served as President from 2005-15) was written on the wall well before the Easter Attacks.
This is not to say that chauvinism is not an ingredient in the Rajapaksa project, but that its importance is overstated to the neglect of an understanding of class. The second perspective on Gota’s rise to power is that the family’s comeback was initiated less by ethnicized fervor, and more by the neoliberal policies and corruption of the previous government, which had entered into an IMF agreement in 2016. Withdrawals of subsidies on fertilizer and fuel had sparked protests by farmers and fishers across the country – the SLPP’s main voter demographic. A multimillion-dollar bond scam allegedly conducted by the Central Bank governor had dismayed the middle-class which was hopeful for an end to corruption. High indirect taxation had driven up the costs of living for the urban working classes. High interest rates and import liberalization had affected the fortunes of the domestic agricultural and manufacturing sector.
It is in this context that the SLPP ran on a vaguely anti-neoliberal and pro-national-capital campaign, sweeping to a stunning victory in the 2019 Presidential election, and a two-thirds majority in the 2020 parliamentary election. The party, or at least its supporters, also signaled that they would move Sri Lanka out of the orbit of US imperialism by refusing to sign the USA’s Millennium Challenge Compact (MCC), or to reinforce military agreements with the USA. They also promised to thwart Indian ambitions to take control of a terminal at the Port of Colombo, formerly promised to the state-owned port operator.
Botched industrial policy
One of the SLPP administration’s early moves in 2019 was to appoint heterodox economics professor WD Lakshman as Governor of the Central Bank. Lakshman’s appointment was poorly received by comprador capitalists and economists at large because he was well known as an ardent critic of the IMF and neoliberal policies. The appointment indicated a modicum of ideological conviction by the government – not for socialism, but for a national capitalist industrialization inspired by the East Asian Tigers growth model.
The Central Bank under Lakshman, alongside the Ministry of Finance under Prime Minister Mahinda Rajapaksa, moved swiftly to create a macroeconomic framework favorable to capital accumulation. The previous government’s agreement with the IMF was discontinued. Tax and interest rates were flattened. The exchange rate was fixed. A few imports were restricted. This macroeconomic framework saw corporate profits and stock prices rise, despite the ongoing Covid-19 pandemic reducing real economic activity. Cracks appeared when the country’s institutions, underfunded and weakened since liberalization policies implemented in 1977, were unable to provide a regulatory framework to discipline capital and ensure that the benefits of these policies led to industrialization and increasing wages.
The first budget promised the creation of a development bank, and credit quotas to ensure liquidity would be pumped by banks into productive sectors like manufacturing and agriculture. This never materialized. Policies of forced currency conversion, commonly employed in East Asia and Vietnam during industrialization, were bypassed through black markets. Low rates and fixed exchange rates were abused by importers who were hoarding commodities, and exporters who were hoarding their dollars abroad, creating artificial shortages of both. Politically connected merchants bypassed import restrictions through corruption and bribery. Without sound surveillance mechanisms, institutional capacity, and political will, the government could not, and would not, move beyond macroeconomic tinkering.
To make matters worse, soaring prices of food and energy in the wake of the pandemic threatened to deplete import-dependent Sri Lanka’s foreign-currency reserves and send domestic prices soaring. The state-owned Ceylon Petroleum Corporation (CPC) – formed when a center-left government nationalized English and US oil monopolies in the 1960s – had little strategic reserve capacity to store oil when prices dropped in 2020. Despite being warned of the inevitable oil price hikes, the CPC was unable or unwilling to enter into forward contracts to manage risk and maintain price stability. Similarly, Sri Lanka’s Paddy Marketing Board, which bought over 20% of paddy production before liberalization, had little market share to challenge the private paddy mill owners who, in an unabashed display of power, announced the price of rice on national TV, in defiance of government-mandated price controls. All of this represented an utter failure of the state to manage prices of essentials, either through state-market participation or through top-down price controls.
As the foreign-currency crisis worsened, little attempt was made to lower consumption and prioritize essentials. Sri Lanka has the highest number of automobiles per capita in South Asia, guzzling enormous amounts of fuel, the country’s single largest import. In spite of fuel shortages, roads remained clogged with traffic. Without rationing, private vehicle owners with large tank capacities were hoarded fuel, while tuk-tuks and motorbikes got far less. Sri Lanka’s closed economy in the 1970s had queues and rationing to ensure that every family at least received some rice. In contrast, today’s crisis has queues but no system of rationing, so those with high incomes can purchase more, while those with meagre incomes go hungry. The neoliberal solution of market-based pricing provides no answer at all without stronger state-market participation.
Finance capital and colonial underdevelopment
In the midst of all this, global finance capital has also played its part. Foreign embassies, including EU representatives, publicly urged the government to lift already too-meagre import restrictions, often ending missives with thinly veiled threats to politicize domestic human rights issues.
Furthermore, credit ratings agencies (CRAs) downgraded Sri Lanka amidst the pandemic, effectively reducing the government’s ability to increase spending or borrow funds to provide relief amid a pandemic-induced recession. While the crisis has been framed as partially caused by the so-called ‘Chinese debt-trap’, in reality only 10% of Sri Lanka’s external debt is owed to China. In fact, predominantly Western banks, financial institutions and hedge funds, held over 40% of Sri Lanka’s external debt — in the forms of International Sovereign Bonds (ISBs) — in 2021. Notably, 70% of Sri Lanka’s ISBs were issued between 2016 and 2019 while the previous government was undertaking IMF reforms. Consequently, Sri Lanka came out with a bigger debt stock and higher debt-to-GDP ratio than when it began the reforms. In response to the worsening foreign exchange crisis, Sri Lankan sovereign bond holders such as BlackRock and Ashmore Group announced that they had hired a legal adviser for potential debt restructuring talks with Sri Lanka. This added to the uncertainty caused by credit rating downgrades.
Sri Lanka’s debt crisis dates further back to the colonial plantation economy it inherited from the British Raj. When Sri Lanka gained dominion status in 1948, the economy was divided into a peasant sector dominated by subsistence agriculture, and an export-oriented plantation sector dominated by cash crops such as tea, rubber and coconut. The country’s first government, on the advice of the World Bank, recklessly squandered foreign-currency reserves while avoiding major industrial investment. By the 1960s, terms of trade began to shift irrevocably, as the export of primary products and raw materials could not sustain the country’s consumption of imported manufactures. Sri Lanka sank into a trade deficit and was pushed into the IMF’s arms in 1965. The attempt at a policy of import-substitution was insufficient and further destabilized by powerful comprador interests, attempted coups, and a youth insurrection. Later, the first OPEC crisis hit the country hard, forcing it into a long bloody period of liberalization characterized by fire-sales of national assets, union-busting, and ethnicized youth insurrections. Since then, Sri Lanka’s trade deficit and debt stock have only grown, alongside a gradual deindustrialization of its economy.
Ironically, members of the very same comprador capitalist class, which arbitraged around the Gotabaya administration’s botched industrial policy, have now been appointed to advise the President in carrying out the coming wave of ‘liberalization’. While neoliberal economists fantasize about fiscal consolidation and perfect competition, the fact is that the very same class of comprador rentiers that benefited from a brief de-liberalization of the economy, will also benefit from liberalization. Only the largest firms in Sri Lanka could survive the IMF-mandated onslaught of high taxes, high interest rates, and high input prices from currency devaluation. These same firms will most likely be the first in line to pick up national assets for cheap in a potential privatization program. Their monopolies will likely expand, and the country’s economic structure, based on unindustrialized agriculture and services, will get weakened even further.
Industrial policy: Nipped in the bud
The middle-classes yearn to go back to their old patterns of conspicuous consumption. The working classes yearn for the bare minimum to keep their families fed. The comprador merchant bourgeoise yearn to go back to the easy pattern of buying cheap and selling dear, betting against a depreciating currency. Meanwhile, global finance capital will not allow Sri Lanka, or any other developing country for that matter, to industrialize, preferring to cage it as a captive market. Conscious industrial policy has been nipped in the bud, and the tragedy is that the neoliberal lobby frames it as a failure of industrial policy itself.
Once considered the economic basis for liberal democracy, a strong welfare state, and national sovereignty, it seems the language and policies of industrialization have been erased from the national consciousness of Sri Lankans of all classes and political affiliations. In its place lies a shallow, socially engineered politics of identity, welfarism and anti-corruption, one that poses many questions, but provides few answers. Gota may very well go home, but the contradictions that produced him, and the disciplining hand of international finance capital, are here to stay.
Shiran Illanperuma is a journalist and economic research analyst. He is interested in Marxist political economy and economic history.