Sri Lanka’s new president faces a problem shared by too many developing countries: Western-imposed austerity | Ahilan Kadirgamar

SRi Lanka is at a historic moment. Facing the worst economic crisis since the Great Depression and having defaulted on its foreign debts for the first time, the country recently saw unprecedented protests demanding systemic change. Former President Gotabaya Rajapaksa was literally chased away in 2022 when protesters stormed his home and swam in his pool. The political parties and their offshoots that have ruled the country since independence are disintegrating. Take Anura Kumara Dissanayake. During the previous presidential elections in 2019, he received only 3.8% of the votes. This week he was sworn in as president.

The new president belongs to the Janatha Vimukthi Peramuna (JVP) party and leads the new center-left coalition National People’s Power (NPP). The JVP was involved in two major uprisings in the early 1970s and late 1980s, which resulted in the loss of tens of thousands of lives – mass violence was committed by both the JVP and the state. But the party has come a long way from its mix of revolutionary Marxist-Leninism and Sinhala ethno-nationalism, and has now moved into the centrist mainstream. From its roots in the country’s rural south, the party has reshaped its base in the suburbs and small towns and even courted the middle class by tackling the issue of corruption. The electoral conquest of state power depended on the unprecedented economic crisis, while the country patiently waited for the political winds to change.

Yet the victory comes in unenviable times, as the bankrupt country is subject to strict austerity measures in line with the the terms of an agreement with the Washington-based International Monetary Fund (IMF). financial institution that has long promoted cuts to social services in developing countries in the name of freedom market.

The previous government did not even consider negotiating terms with the IMF. The country was more than willing to bow to world powers and manage its economy according to the standards and recommendations of Western institutions. These economic policies have benefited the country’s elite, while the burden of VAT increases, market energy prices, the halving of real wages for many, and the doubling of the cost of living have all hit working people. Restructuring of domestic debt, under pressure from international bondholders – consisting of large hedge funds and other financiers – was also necessary to meet the IMF’s debt sustainability analysis (DSA). This now means that the pension funds of working people, such as garment workers and tea pickers, will lose half their value over the next sixteen years. Meanwhile, wealthy investors in the financial sector have escaped unscathed, with their investments untouched.

The central challenge for Dissanayake is to obtain a better IMF agreement. And it is this tension between a new president pursuing social change and the old IMF, which remains committed to the interests of global finance and markets, that is likely to develop in the coming weeks and months.

Sri Lanka is heading for parliamentary elections in seven weeks’ time, and it is Dissanayake’s strength in parliament, and the national consensus he can forge, that will determine his negotiating position at the IMF and the extent to which he can challenge the country’s elite. can keep his leg. bay.

At the heart of any renegotiation are the IMF’s objectives. According to this, Sri Lanka must reduce its public debt to 95% of GDP and spend 4.5% of GDP annually on servicing external debt once the IMF program is completed. This amounts to 30% of all government revenue coming from debt servicing – a great scenario for Sri Lanka’s creditors, especially the international bondholders to whom $12.55 billion is owed. But with little debt relief, the reality is that Sri Lanka could eventually default again.

In this context, pressure is increasing on Dissanayake to continue following the IMF’s course. From the elite in the capital Colombo to the Western media, there is a lot of talk that a former Marxist cannot work with the IMF and manage the economy. This amounts to a kind of sabotage. It is important to point this out While the so-called “IMF bailout” amounts to about $60 million per month over the life of the program, Sri Lanka’s foreign earnings (exports, service income and employee remittances) are now about 30 times that amount, at $1,800 million dollars. In other words, the president will stick with the IMF program not because of the financial resources, but because of international political pressure and the fear of isolation.

Lessons can be learned from elsewhere here – especially Kenya. The president, William Ruto, was elected in 2022, a year after an IMF deal, and eventually the red carpet was rolled out for him in Washington for sticking to the neoliberal program. But within two years, mass protests against austerity and state repression have marred the country. In Sri Lanka, as in about seventy developing countries around the world in debt crisis, the same questions arise. Will they continue to pledge their national policies to bondholders and the IMF, or will they look for alternative avenues for development financing and negotiate a way out of the crippling IMF programs?

Dissanayake will have to walk a tightrope. For a country and peoples experiencing the worst phase of dispossession since independence, international solidarity should mean providing space for the country’s reconstruction. Because if Dissanayake fails to transport the population, the xenophobic and polarizing forces that have plagued Sri Lanka for decades will be waiting in the wings.