Image: DOMESTIC SOLUTIONS: Former Central Bank Governor Ajith Nivard Cabraal - Photo: 2023

Sri Lanka: Bailed Out, Boxed In

By Neville de Silva*

LONDON, 2 April 2023 (IDN) — That was irony surely. Last April Sri Lanka defaulted on its debt payments for the first time in 75 years and declared itself bankrupt.

It was the ignominious result of accumulated loans taken by leaders of successive governments for their lavish spending on wasteful projects and glitterati lifestyles, not to mention bribery, corruption and abuse of state assets.

Since then, Ranil Wickremesinghe, who temporarily assumed the country’s leadership after then President Gotabaya Rajapaksa fled the country in July following mass protests demanding his resignation and ouster of his family-led cabinet, negotiated with the IMF for a rescue package to put the country’s economy back on its feet.

After almost a year of arduous effort, late last month the IMF approved a US$2.9bn bailout, opening the doors for more loans from multilateral sources, friendly governments and private lenders that could lead to at least US$ 7 bn in new loans while negotiations continued for the other $50 bn or so of accumulated debt to be ‘restructured’ as the IMF euphemistically called.

As President Wickremesinghe proudly announced to parliament a few days back, the IMF’s approval of the bailout and tabled documents detailing the agreement, the first “tranche” of $330m that seemed like a token gesture, was delivered to the doorstep, clearing the way for more borrowings to tide over the crisis.

As news spread, bursts of firecrackers here and there, greeted the “good news”. Most of the celebratory burst came, understandably, from outside Wickremesinghe’s UNP party headquarters and some from supporters of the Rajapaksa-led SLPP.

The SLPP had vociferously opposed any truck with the IMF when Gotabaya Rajapaksa was president following the then Central Bank Governor Nivard Cabraal’s mantra of domestic solutions as the road to salvation. 

Now it was clinging to Wickremesinghe for political survival just as the president, the new Central Bank Governor and the Wickremesinghe inner circle were clinging to the lifeline thrown by the IMF.

But this celebration was not spontaneous. It was orchestrated by the party machinery that had nothing positive to crow about for quite some time with opinion polls showing that public support for both the UNP and SLPP had dropped to less than 10%.

The possibility of more loans was hailed as a victory for President Wickremesinghe, now viewed as the new Messiah come to rescue the country-and the rather discredited Rajapaksa family—from the economic morass into which a collective of 21st century leaders had pushed Sri Lanka.

The irony is how many of those who lit firecrackers and possibly cooked the traditional “kiributh” (milk-rice) served on festive occasions, knew of the IMF’s dubious reputation, what happened to some of the countries that took the medicine prescribed by the Washington doctor or even understands the implications and intricacies the IMF deal entails and what awaits them as the Sri Lanka-IMF agreement is played out over the next several months.

How many of those who applauded that day—be it SLPP loyalists in parliament or party cadres outside their headquarters or at home—realise that more borrowings mean more debts adding to the accumulated debts, even if the intended restructuring which the IMF drably calls “haircuts” does lead to some reductions in the amounts due or stretching the pay-back date over a longer period.?

If the government opts for more loans as it certainly would have to do to tide over the current crisis; revive the economy and ensure the import of vital medicines, and other essentials now restricted or in short supply, it would mean that present and future generations which the president and his advisers say they are expecting to provide for, would be the ones who would have to pick up the tabs to pay the debts.

How many of the new generation will be around to do so? Right now, even today’s professionals and technically and technologically-qualified are leaving the country in their thousands unable to bear the economic squeeze they have to endure.

With sharp hikes in personal income tax—another of the IMF ‘conditionalities’ to raise domestic revenue—and the worsening economic squeeze, 1.1 million Sri Lankans left the country last year, the average monthly departure somewhere around 94,000.

Of them only 27.8% left with confirmed employment, according to Central Bank data. The others apparently were in search of jobs or leaving to join family members already settled abroad.

The Sri Lanka Medical Council was quoted as saying that 2,206 doctors had left up to August last year with the numbers bound to be even higher since then, draining the country’s once-touted free health services of medical, technical and nursing staff and in dire straits through corruption and maladministration.

What is increasingly clear is that as a result of acceding to IMF diktats, Sri Lanka is fast losing its professional, technical and technologically-qualified personnel, threatening also the president’s hopes of turning the country into a technology-IT hub in South-Southeast Asia.

Admittedly Colombo’s glitterati who have made their money one way or another, are constantly packing-out five-star hotels and other upmarket specialist restaurants in town as though it was the Last Supper.

There seems to be no dearth of money around, though the government appears to have nothing of it, even to pay for local council elections that constitutionally should be held, compelling some to seek recourse from the Supreme Court (SC).

The SC determined that the elections should be held as the Election Commissioner promised and the Secretary to the finance ministry should release the money to make elections possible.

But such is the combined power of the executive and legislature today, justice is being squeezed and virtually threatened. The Finance Ministry secretary did not respond to the apex court ruling and no money was released.

Meanwhile a government MP raised a privilege issue calling on parliament to summon the judges before parliament’s privileges committee to inquire into what was claimed as breach parliament’s privileges.

This was used by State Minister for Finance to call for a halt to all proceedings including the Supreme Court ruling until parliament completes its inquiry. These have all been ruses to ensure elections are not held- at least for several months-for fear of defeat.

One might well ask what all this apparent jiggery-pokery has to do with the IMF agreement.

Space limits do not permit a detailed description of Sri Lanka’s commitments to the IMF save to say that the Fund had set out 15 tasks which the government needs to fulfil. Positive action by Sri Lanka is expected before the Fund would proceed to the next step which is considering the second tranche.

One of the most important commitments is that Sri Lanka continues “the ongoing efforts to tackle corruption…. including anti-corruption legislation.” The Fund states that “a more comprehensive anti-corruption reform agenda should be guided by the ongoing IMF diagnostic mission that conducts an assessment of Sri Lanka’s anti-corruption and governance network.”

Addressing the media after announcing the IMF approval, President Wickremesinghe said the government would shortly present to parliament this new anti-corruption Bill which would be the toughest in South Asia.

Together with the World Bank and the UN, it would include a stolen asset recovery initiative incorporated into the new Bill.

Given Sri Lanka’s notorious history of bribery and corruption among politicians, their crony corporates and officials which has lost the country trillions of dollars in assets over the years, there is many a slip twixt the cup and the lip as rampant corruption has continued to ravage the country despite the “ongoing efforts” IMF refers to.

Sri Lanka has had a substantive number of anti- bribery and corruption laws and newly established institutions to implement them and hold the corrupt accountable. But, by and large, they have proved ineffectual and the guilty have got away because political interference, threats against independent and honest investigators by their seniors and politicians and even with judicial help at times.

Criminally convicted corrupt politicians have served as cabinet ministers while others under investigation have also been ministers.

However strong the law, it will serve little purpose if not implemented with vigour and without interference irrespective of who is under investigation. It also requires the judiciary to function freely as an independent arm of the parliamentary democratic system Sri Lanka professes to practice.

With the help of other international institutions, if this new venture genuinely intends to deal with the cancer eating into Sri Lanka’s body politic, then some of the other sacrifices people will have to make under the IMF deal, might be worth it after all.

*Neville de Silva is a veteran Sri Lankan journalist who held senior roles in Hong Kong at The Standard and worked in London for Gemini News Service. He has been a correspondent for the foreign media including the New York Times and Le Monde. More recently he was Sri Lanka’s Deputy High Commissioner in London. [IDN-InDepthNews]

This article was issued by Asian Affairs (London).

Original link:

Image: Former Central Bank Governor Ajith Nivard Cabraal. Source: Asian Affairs

IDN is the flagship agency of the Non-profit International Press Syndicate.

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