The island must take lessons from America’s 1970s work in South America
BY Darini Rajasingham-Senanayake
“Make the economy scream,” were US President Richard Nixon’s instructions to the Central Intelligence Agency (CIA) in September 1970, as the first Socialist President of Chile, Salvador Allende’s Popular Unity coalition swept to power amid Cold War headwinds.
According to then-US Ambassador Edward Korry, a John F. Kennedy-style liberal, this meant “to do all within our power to condemn Chile and the Chileans to utmost deprivation and poverty”. There was also a massive destabilisation and disinformation campaign, as Noam Chomsky wrote in Secrets, Lies, and Democracy: “Our Government intervened massively to prevent Allende from winning the preceding election in 1964. In fact, when the Church Committee investigated years later, they discovered that the US spent more money per capita to get the candidate it favoured elected in Chile in 1964 than was spent by both candidates – Lyndon Johnson and Barry Goldwater – in the 1964 election in the US.”
The CIA planted stories in El Mercurio, Chile’s most prominent paper, and fomented labour unrest, protests, and strikes. This was the soft line, but there was also a hard line.
Three years later, President Allende, a physician by profession, was dead; killed in a CIA-backed coup that saw the establishment of one of the most repressive right-wing military regimes in South America. General Augusto Pinochet ruled Chile for 17 years and his rule was characterised by massive human rights violations, disappearances, and Dirty War operations, including “Operation Colombo”. But, economic “aid” immediately began to flow again from Washington DC.
The assassination of Chile’s democratically elected President Allende changed the course of history in a country described as “a long petal of sea, wine, and snow’ by Chilean Nobel Laureate poet Pablo Neruda. Twelve days after the coup, Neruda, a member of the Chilean Communist Party and a close advisor of Allende, also died mysteriously. After an independent investigation and declassification of State Department documents in 2015, the Chilean Government said that it was likely that Neruda too was murdered as part of the coup of September 1973.
Three years later, in 1976, the CIA backed yet another coup in South America: Chile’s neighbour Argentina saw the overthrow of Isabel Peron, who was replaced by a military junta, which triggered a Dirty War that saw thousands disappeared between 1976-1983, as the Argentine economy screamed.
Argentina, like Sri Lanka, has had numerous Washington Consensus (International Monetary Fund [IMF], and World Bank [WB]) bailouts. Protests against the IMF are underway in Buenos Aires at this time again, as Argentina continues to scream under Washington’s Monroe Doctrine redux jackboot, negotiating its 21st bailout (US President Theodore Roosevelt officially invoked the Monroe Doctrine to justify sending troops to the Dominican Republic, Nicaragua, and Haiti in the first decades of the 20th Century).
History repeats as farce in another continent
Today, economy and society are screaming in Colombo, Sri Lanka, which knows not of Chile’s infamous “Operation Colombo”, for which General Pinochet was stripped of his Presidential impunity.
As the cost of living soared in June with real and staged fuel and food shortages, amid the “aragalaya”, a partial regime change operation was effected with US-backed United National Party Leader Ranil Wickremesinghe becoming the President after the country defaulted on $ 26 billion in US dollar-denominated debt in April of this year.
At this time, IMF austerity measures are being rolled out ex-ante an actual “bailout” agreement with the US- and EU-based private creditors who caused the strategic Indian Ocean island’s debt trap and default. New York-based BlackRock, Sri Lanka’s biggest private creditor, which got huge Covid-19 bailouts from the US Government, is prominent among them. An outfit called the Hamilton Reserve Bank, a shadowy offshore tax haven based in St. Kitts and Nevis, has sued the Government of Sri Lanka (GoSL) for defaulting on bond payments of US $ 250 million.
Sri Lankans meanwhile face a grim future of US dollar debt colonialism, as the Sri Lankan rupee has plummeted against an increasingly weaponised US dollar, while the rising US dollar has compounded the local currency cost of servicing foreign debts denominated in US dollars – the global reserve currency, increasingly of last resort.
Hence, some analysts have hence called for de-dollarisation and trading in a basket of currencies, and sourcing oil and gas from Russia, whose sanctions-hit ruble ironically remains the strongest currency against the US dollar. The global-local debtocracy, from Argentina to Sri Lanka, and its failed policies, seems set to continue if the readouts of the IMF and World Bank meetings last week are true.
Ironically, while protests are set to continue, few among Colombo’s human rights activists and “aragalaya” stars had heard of “Operation Colombo” in Santiago de Chile in 1974, which saw the disappearance of 119 dissidents. Amnesia amid propaganda operations and “dream films” like Sri Lankan film director Asoka Handagama’s Alborada, with pretensions at postcolonial avant guard chic and vibes of the Me Too movement seem almost Kafkaesque, despite the best efforts of director Handagama. The protestors who capitalised on the genuine economic grievances of citizens had a limited agenda for US dollar colonialism, debt cancellation, and justice. Some groups of the “aragalaya” were even seen holding pro-IMF posters.
It is increasingly clear that the strategic Indian Ocean island has fallen victim to full spectrum dominance, digital colonialism-enabled cyber operations, as much as to the lender of last resort’s debt trap neo-colonialism and the international sovereign bond “bailout business” after a staged default for the first time in April of this year.
However, given that this is Sri Lanka’s 16th IMF negotiation, and the fact that key bilateral creditors have not replied to the IMF and Paris Club of Euro-American private creditor nations’ (plus Japan) invitation to debt restructuring talks, it would be prudent for the island nation to consider alternatives to the Washington Consensus path.
After all, the IMF promise of an insignificant loan of $ 2.9 billion over four years with massive “shock treatment” of the economy and the society, to enable the country to borrow from private markets again, is counterproductive to extricating the country from the current debt trap. Indeed, a moratorium and ban on borrowing from private markets which hold almost 50% of Sri Lanka’s US dollar-denominated debt would be logical.
The IMF wants China and India, Sri Lanka’s biggest bilateral donors, to co-ordinate in its “common framework” for a debt reduction “haircut” with creditors on the pretext of “burden sharing”, but whether these Asian giants would sit with Euro-American private bond traders convened by Japan on behalf of the Organisation for Economic Co-operation and Development’s (OECD) Paris Club is an open question.
India and China are sovereign States and parties with their own geopolitical ambitions to match the Euro-American Paris Club and Washington Consensus, as an Asian century dawns again with the Indian Ocean region and Asia being the centre for global growth.
Hence, should not the Central Bank of Sri Lanka (CBSL) and the GoSL engage directly with the Asian giants China and India on debt restructuring and a sustainable development path outside the Paris Club-, IMF-, and Japan-led donor meeting and common framework, which has been extensively critiqued by leading economists who recently called for debt cancellation in Zambia with debt justice the UK?
Making the global economy scream in the Asian Century
The dawn of what has been widely deemed the “Asian Century” after around 200 years of Euro-American global hegemony and dominance of world history has placed Sri Lanka front and centre of a Cold War and Colonialism 2.0. The Asian Century is the projected 21st Century dominance of Asian politics and culture, given demographic and economic patterns.
It is increasingly apparent that the US empire, with its 750 military bases all over the world and global reserve currency weaponised by sanctions and rising interest rates, would “not go quietly into the night”. Rather, increasing sanctions and interest rates by the Federal Reserve to curb seemingly self-inflicted inflation in the US and the EU appear to be a “solution” designed to make the global economy scream. Is this an attempt to thwart the Asian Century and ensure that globalisation, which had benefitted the emerging economies, is reformatted to serve the crisis-driven Euro-American financial and military empire?
Be that as it may, Sri Lanka, located at the centre of the Indian Ocean, increasingly appears to be the canary in the coalmine of global South countries facing a US dollar debt tsunami in the aftermath of Covid-19 induced lockdowns.
While the IMF and World Bank at their fall meetings this month in Washington DC focused on high interest rates and inflation in the West and the war in Ukraine with grim predictions, no one mentioned copious money printing in the Eurozone or the US Government’s mammoth $ 31 trillion debt. The IMF was long on dire predictions and short on solutions for the debt tsunami and impoverishment sweeping the global South and massive inequality the world over.
There was something Covid-esque about the Washington Consensus theme song “the worst is yet to come” for the global economy as they roll out “solutions” designed to shrink the economy and make society scream. We have heard it all before with the past two years of Covid-19 “panic-demic”.
Indeed, the same failed IMF recipes are on offer in Sri Lanka, where IMF-inspired austerity measures and massive tax increases on the working class seem designed to shrink the economy to fit the dire predictions for 2023 and make the economy scream louder. At this time, IMF-inspired reforms include higher energy, electricity, and water prices, and a soaring cost of living for hapless citizens caught in a debt trap not of their own making.
Meanwhile, private market creditors who made big profits lending at predatory rates in places they deem “frontier markets”, now seek to profit from an IMF firesale of Sri Lanka’s strategic assets and State-owned enterprises (SOEs) enabled by the staged default. These include land, energy, transport, and telecom infrastructure, as a Cold War in the Indian Ocean region ramps up.
Rather than be compelled to bear the cost of their speculative investments in so-called “frontier markets”, these OECD creditors now seek to benefit again, ex-ante the IMF-Paris Club debt haircut.
The ongoing planned IMF-inspired “firesale” of Sri Lanka’s strategic assets attests to the fact that the island is now deep in US dollar debt trap colonialism, in the wake of four years of hybrid economic war-fuelled exogenous shocks to make the economy scream.
Valuable SOEs and energy infrastructure are being unbundled and sold off to creditors and vulture funds like BlackRock and their partners like Adani and Ambani, as the Sri Lankan Rupee depreciates against an increasingly weaponised US dollar.
As the global economy screams, the staged default and turbulence in Sri Lanka has enabled the Washington Consensus to move in to take control of economic, trade, and energy policy autonomy and sovereignty. This is stymying the possibility of de-dollarising and buying oil and gas from sanctions-hit Russia at discount rates.
American author John Perkins’ famous book, Confessions of an Economic Hitman, offers direct testimony highlighting how the creditor-debtor relationship built around the US dollar and the international institutions created to administer the rule-based order has contributed to the deprivation of sovereignty of many struggling nations, especially those rich in exploitable resources. By design, not only Governments, but entire populations, were meant to fall helplessly into the US dollar debt trap.
Exogenous economic shocks as hybrid economic war tactics
While the debt crisis in Sri Lanka is primarily the result of poor governance and political corruption, a series of hybrid war-style exogenous economic shocks over the past four years have also contributed significantly to the debt trap over the past four years.
A series of shocks including mysterious Islamic State (IS)-claimed attacks on hotels and the tourist-dependent economy in 2019, followed by two years of economically devastating Covid-19 lockdowns and other hybrid war operations, such as the lawfare programme against Russia’s Aeroflot airlines in June of this year by external actors, enabled the “shock doctrine and disaster capitalism”, à la Canadian author Naomi Klein, and contributed to the debt trap and default.
The mysterious 2019 Easter Sunday attacks claimed by the IS, on seafront tourist hotels and fisheries livelihoods, saw the economy careening into a tailspin with extended security lockdowns. However, inexplicably, the World Bank in July 2019, “upgraded” Sri Lanka to an upper middle income country (MIC). The MIC status renders concessionary borrowing difficult and forces countries to borrow from US and EU private capital markets. These now hold the lion’s share, almost 47%, of the strategic island’s debt.
The 2019 hybrid war attacks were then followed by two years of economically devastating Covid-19 lockdowns recommended by the World Health Organisation. These caused knock-on institutional debilitation, a corruption pandemic, and digital colonialism in 2020 and 2021. Then in 2022, staged fuel shortages triggered by US sanctions on Russia brought the economy to a standstill.
The hacking of production and food supply chains due to fuel shortages and lockdowns were accompanied by a psychological operation of fear amid loud promises of “famine” in the lush tropical island as protests mounted.
As the economy screams, it is clear that Cold War headwinds are buffeting the strategic Indian Ocean island located among the busiest energy, trade, and undersea data cable routes in the world, and hence perpetually in the crosshairs of big power rivalry as the Euro-American Cold War on China revs up.
But as the Nord Stream One and Two gas pipelines connecting Russia to Germany in the North Sea come under attack as part of hybrid energy wars in Europe, it is clear that Sri Lanka would need to seek alternatives to the IMF path and up its game in the field of maritime domain awareness, which may need stretching and recalibration.
The strategic island’s Navy will be certainly called on to protect its ocean floors, which contain submarine or undersea data cables that keep the internet and global financial system going.
Sri Lanka may need to strengthen its Navy and repurpose its military forces for a new generation of hybrid cyber wars. It would hence be logical for the cash-strapped Government to develop a plan to earn some money from its extensive maritime exclusive economic zone by taxing the undersea data cables and their Google, Apple, Facebook, Amazon, and Microsoft clients. However, it is unlikely that the lender of last resort would assist such an endeavour to make the strategic island solvent and independent.
Solutions and the good news: Alternatives to the IMF and Paris Club
It is increasingly clear that in the event that the IMF and Paris Club process fails or drags on, contingency plans would be needed and it is imperative that Sri Lanka engage earnestly to meet unexpected exigencies that could arise, also given Cold War geopolitical rivalries.
The good news is that the CBSL Governor noted in a press briefing recently that the country can, on a monthly basis, cover its import bill with its export earnings, if it can get rid of the debt and interest overhang.
In this context, the simplest and most elegant solution to the US dollar debt crisis would be the outright cancellation of private market US dollar-denominated debt, which amounts to almost 50%, with a ban on future borrowing from international sovereign bond traders. Once this is done, restructuring the bilateral and multilateral debt with creditors who are more flexible would be relatively straightforward, through extending timeframes for repayment and further debt cancellation.
This path forward is not rocket science in a world swirling in odious and illegitimate debt, with the US being the most indebted country on the planet. However, because of a huge amount of disinformation, data manipulation, and exaggeration regarding both the quantum of debt and the causes of the default, this relatively simple and elegant solution to Sri Lanka’s debt crisis has been obscured and elided.
A concomitant lack of transparency on the IMF, the Paris Club, and Lazard process and the opaque nature of international sovereign bonds, given that bondholders’ identities are not disclosed, has rendered debt restructuring needlessly complex and a rabbit hole of infinite regress. Meanwhile, the manipulation of Sri Lanka’s status as a middle income country to fit various Washington Consensus narratives are underway, with the Government undecided on whether it is a low income country or not.
While the IMF has deemed Sri Lanka’s debt “unsustainable” on unknown parameters, a simple solution to making Sri Lanka solvent and keeping its economy going is securing a supply of oil and a gas supply to keep industry and manufacturing going, given the US dollar debt trap. In the context of maintaining friendly relations with all countries while not succumbing to Western bullying, negotiating to buy oil at a discount from India and Russia would significantly ease the economic situation. Fuel is the largest item for which foreign exchange is needed. This would also pre-empt the IMF-inspired firesale of energy infrastructure, which will certainly negatively impact Sri Lanka’s national energy security.
A second key aspect to the sustainable recovery of the economy is diversifying export markets and products through the transfer of technology and value adding, particularly in the fisheries and mineral sectors, which are low-hanging fruit, so to speak. Right now, Sri Lanka is dependent on export markets in the West that use threats of sanctions and tariffs while weaponising human rights at the United Nations (UN) Human Rights Council. While periodic EU threats of Generalised Scheme of Preferences plus and minus removals seem to terrify large parts of the colonised business community, they have however not spurred them to find alternative markets.
Another key point in sustaining economic activity amid IMF austerity measures designed to shrink the economy is returning kerosene oil, which is used by poor folks and fisherfolk to the previous subsidised price to enable Sri Lankans to harvest their protein from their extensive ocean.
Sri Lankans do not need digitalised cash handouts from the IMF or the UN Development Programme to sweeten the sale of their assets; what is needed is enabling folks to earn a living wage. In this context, it would be important that the Ministry of Foreign Affairs and the CBSL implement the Russian Mir card payment system in Sri Lanka’s banking system. Now that the Russian airline is flying again to Colombo, it would be necessary and important to welcome Russian tourists to jump start the tourist economy in the island and enable Mir card transactions, while also buying Russian oil and gas at discount rates, perhaps with India’s help.
Finally, as Asia unites to withstand divide and rule agendas in order to claim the 21st Century, a transformation predicted for a generation now – when power would shift from the US and Europe to Asia and other places – is demonstrably underway. Nevertheless, small countries and civil societies, from Chile to Sri Lanka, may yet be also called upon to pull their weight in order to ensure that colonial and Cold War history does not repeat – as tragedy or farce – in the global South.
(The writer is a social and medical anthropologist)
…………………….
The views and opinions expressed in this article are those of the author, and do not necessarily reflect those of this publication.
US making the SL economy scream
19 Oct 2022
US making the SL economy scream
19 Oct 2022
The island must take lessons from America’s 1970s work in South America
BY Darini Rajasingham-Senanayake
“Make the economy scream,” were US President Richard Nixon’s instructions to the Central Intelligence Agency (CIA) in September 1970, as the first Socialist President of Chile, Salvador Allende’s Popular Unity coalition swept to power amid Cold War headwinds.
According to then-US Ambassador Edward Korry, a John F. Kennedy-style liberal, this meant “to do all within our power to condemn Chile and the Chileans to utmost deprivation and poverty”. There was also a massive destabilisation and disinformation campaign, as Noam Chomsky wrote in Secrets, Lies, and Democracy: “Our Government intervened massively to prevent Allende from winning the preceding election in 1964. In fact, when the Church Committee investigated years later, they discovered that the US spent more money per capita to get the candidate it favoured elected in Chile in 1964 than was spent by both candidates – Lyndon Johnson and Barry Goldwater – in the 1964 election in the US.”
The CIA planted stories in El Mercurio, Chile’s most prominent paper, and fomented labour unrest, protests, and strikes. This was the soft line, but there was also a hard line.
Three years later, President Allende, a physician by profession, was dead; killed in a CIA-backed coup that saw the establishment of one of the most repressive right-wing military regimes in South America. General Augusto Pinochet ruled Chile for 17 years and his rule was characterised by massive human rights violations, disappearances, and Dirty War operations, including “Operation Colombo”. But, economic “aid” immediately began to flow again from Washington DC.
The assassination of Chile’s democratically elected President Allende changed the course of history in a country described as “a long petal of sea, wine, and snow’ by Chilean Nobel Laureate poet Pablo Neruda. Twelve days after the coup, Neruda, a member of the Chilean Communist Party and a close advisor of Allende, also died mysteriously. After an independent investigation and declassification of State Department documents in 2015, the Chilean Government said that it was likely that Neruda too was murdered as part of the coup of September 1973.
Three years later, in 1976, the CIA backed yet another coup in South America: Chile’s neighbour Argentina saw the overthrow of Isabel Peron, who was replaced by a military junta, which triggered a Dirty War that saw thousands disappeared between 1976-1983, as the Argentine economy screamed.
Argentina, like Sri Lanka, has had numerous Washington Consensus (International Monetary Fund [IMF], and World Bank [WB]) bailouts. Protests against the IMF are underway in Buenos Aires at this time again, as Argentina continues to scream under Washington’s Monroe Doctrine redux jackboot, negotiating its 21st bailout (US President Theodore Roosevelt officially invoked the Monroe Doctrine to justify sending troops to the Dominican Republic, Nicaragua, and Haiti in the first decades of the 20th Century).
History repeats as farce in another continent
Today, economy and society are screaming in Colombo, Sri Lanka, which knows not of Chile’s infamous “Operation Colombo”, for which General Pinochet was stripped of his Presidential impunity.
As the cost of living soared in June with real and staged fuel and food shortages, amid the “aragalaya”, a partial regime change operation was effected with US-backed United National Party Leader Ranil Wickremesinghe becoming the President after the country defaulted on $ 26 billion in US dollar-denominated debt in April of this year.
At this time, IMF austerity measures are being rolled out ex-ante an actual “bailout” agreement with the US- and EU-based private creditors who caused the strategic Indian Ocean island’s debt trap and default. New York-based BlackRock, Sri Lanka’s biggest private creditor, which got huge Covid-19 bailouts from the US Government, is prominent among them. An outfit called the Hamilton Reserve Bank, a shadowy offshore tax haven based in St. Kitts and Nevis, has sued the Government of Sri Lanka (GoSL) for defaulting on bond payments of US $ 250 million.
Sri Lankans meanwhile face a grim future of US dollar debt colonialism, as the Sri Lankan rupee has plummeted against an increasingly weaponised US dollar, while the rising US dollar has compounded the local currency cost of servicing foreign debts denominated in US dollars – the global reserve currency, increasingly of last resort.
Hence, some analysts have hence called for de-dollarisation and trading in a basket of currencies, and sourcing oil and gas from Russia, whose sanctions-hit ruble ironically remains the strongest currency against the US dollar. The global-local debtocracy, from Argentina to Sri Lanka, and its failed policies, seems set to continue if the readouts of the IMF and World Bank meetings last week are true.
Ironically, while protests are set to continue, few among Colombo’s human rights activists and “aragalaya” stars had heard of “Operation Colombo” in Santiago de Chile in 1974, which saw the disappearance of 119 dissidents. Amnesia amid propaganda operations and “dream films” like Sri Lankan film director Asoka Handagama’s Alborada, with pretensions at postcolonial avant guard chic and vibes of the Me Too movement seem almost Kafkaesque, despite the best efforts of director Handagama. The protestors who capitalised on the genuine economic grievances of citizens had a limited agenda for US dollar colonialism, debt cancellation, and justice. Some groups of the “aragalaya” were even seen holding pro-IMF posters.
It is increasingly clear that the strategic Indian Ocean island has fallen victim to full spectrum dominance, digital colonialism-enabled cyber operations, as much as to the lender of last resort’s debt trap neo-colonialism and the international sovereign bond “bailout business” after a staged default for the first time in April of this year.
However, given that this is Sri Lanka’s 16th IMF negotiation, and the fact that key bilateral creditors have not replied to the IMF and Paris Club of Euro-American private creditor nations’ (plus Japan) invitation to debt restructuring talks, it would be prudent for the island nation to consider alternatives to the Washington Consensus path.
After all, the IMF promise of an insignificant loan of $ 2.9 billion over four years with massive “shock treatment” of the economy and the society, to enable the country to borrow from private markets again, is counterproductive to extricating the country from the current debt trap. Indeed, a moratorium and ban on borrowing from private markets which hold almost 50% of Sri Lanka’s US dollar-denominated debt would be logical.
The IMF wants China and India, Sri Lanka’s biggest bilateral donors, to co-ordinate in its “common framework” for a debt reduction “haircut” with creditors on the pretext of “burden sharing”, but whether these Asian giants would sit with Euro-American private bond traders convened by Japan on behalf of the Organisation for Economic Co-operation and Development’s (OECD) Paris Club is an open question.
India and China are sovereign States and parties with their own geopolitical ambitions to match the Euro-American Paris Club and Washington Consensus, as an Asian century dawns again with the Indian Ocean region and Asia being the centre for global growth.
Hence, should not the Central Bank of Sri Lanka (CBSL) and the GoSL engage directly with the Asian giants China and India on debt restructuring and a sustainable development path outside the Paris Club-, IMF-, and Japan-led donor meeting and common framework, which has been extensively critiqued by leading economists who recently called for debt cancellation in Zambia with debt justice the UK?
Making the global economy scream in the Asian Century
The dawn of what has been widely deemed the “Asian Century” after around 200 years of Euro-American global hegemony and dominance of world history has placed Sri Lanka front and centre of a Cold War and Colonialism 2.0. The Asian Century is the projected 21st Century dominance of Asian politics and culture, given demographic and economic patterns.
It is increasingly apparent that the US empire, with its 750 military bases all over the world and global reserve currency weaponised by sanctions and rising interest rates, would “not go quietly into the night”. Rather, increasing sanctions and interest rates by the Federal Reserve to curb seemingly self-inflicted inflation in the US and the EU appear to be a “solution” designed to make the global economy scream. Is this an attempt to thwart the Asian Century and ensure that globalisation, which had benefitted the emerging economies, is reformatted to serve the crisis-driven Euro-American financial and military empire?
Be that as it may, Sri Lanka, located at the centre of the Indian Ocean, increasingly appears to be the canary in the coalmine of global South countries facing a US dollar debt tsunami in the aftermath of Covid-19 induced lockdowns.
While the IMF and World Bank at their fall meetings this month in Washington DC focused on high interest rates and inflation in the West and the war in Ukraine with grim predictions, no one mentioned copious money printing in the Eurozone or the US Government’s mammoth $ 31 trillion debt. The IMF was long on dire predictions and short on solutions for the debt tsunami and impoverishment sweeping the global South and massive inequality the world over.
There was something Covid-esque about the Washington Consensus theme song “the worst is yet to come” for the global economy as they roll out “solutions” designed to shrink the economy and make society scream. We have heard it all before with the past two years of Covid-19 “panic-demic”.
Indeed, the same failed IMF recipes are on offer in Sri Lanka, where IMF-inspired austerity measures and massive tax increases on the working class seem designed to shrink the economy to fit the dire predictions for 2023 and make the economy scream louder. At this time, IMF-inspired reforms include higher energy, electricity, and water prices, and a soaring cost of living for hapless citizens caught in a debt trap not of their own making.
Meanwhile, private market creditors who made big profits lending at predatory rates in places they deem “frontier markets”, now seek to profit from an IMF firesale of Sri Lanka’s strategic assets and State-owned enterprises (SOEs) enabled by the staged default. These include land, energy, transport, and telecom infrastructure, as a Cold War in the Indian Ocean region ramps up.
Rather than be compelled to bear the cost of their speculative investments in so-called “frontier markets”, these OECD creditors now seek to benefit again, ex-ante the IMF-Paris Club debt haircut.
The ongoing planned IMF-inspired “firesale” of Sri Lanka’s strategic assets attests to the fact that the island is now deep in US dollar debt trap colonialism, in the wake of four years of hybrid economic war-fuelled exogenous shocks to make the economy scream.
Valuable SOEs and energy infrastructure are being unbundled and sold off to creditors and vulture funds like BlackRock and their partners like Adani and Ambani, as the Sri Lankan Rupee depreciates against an increasingly weaponised US dollar.
As the global economy screams, the staged default and turbulence in Sri Lanka has enabled the Washington Consensus to move in to take control of economic, trade, and energy policy autonomy and sovereignty. This is stymying the possibility of de-dollarising and buying oil and gas from sanctions-hit Russia at discount rates.
American author John Perkins’ famous book, Confessions of an Economic Hitman, offers direct testimony highlighting how the creditor-debtor relationship built around the US dollar and the international institutions created to administer the rule-based order has contributed to the deprivation of sovereignty of many struggling nations, especially those rich in exploitable resources. By design, not only Governments, but entire populations, were meant to fall helplessly into the US dollar debt trap.
Exogenous economic shocks as hybrid economic war tactics
While the debt crisis in Sri Lanka is primarily the result of poor governance and political corruption, a series of hybrid war-style exogenous economic shocks over the past four years have also contributed significantly to the debt trap over the past four years.
A series of shocks including mysterious Islamic State (IS)-claimed attacks on hotels and the tourist-dependent economy in 2019, followed by two years of economically devastating Covid-19 lockdowns and other hybrid war operations, such as the lawfare programme against Russia’s Aeroflot airlines in June of this year by external actors, enabled the “shock doctrine and disaster capitalism”, à la Canadian author Naomi Klein, and contributed to the debt trap and default.
The mysterious 2019 Easter Sunday attacks claimed by the IS, on seafront tourist hotels and fisheries livelihoods, saw the economy careening into a tailspin with extended security lockdowns. However, inexplicably, the World Bank in July 2019, “upgraded” Sri Lanka to an upper middle income country (MIC). The MIC status renders concessionary borrowing difficult and forces countries to borrow from US and EU private capital markets. These now hold the lion’s share, almost 47%, of the strategic island’s debt.
The 2019 hybrid war attacks were then followed by two years of economically devastating Covid-19 lockdowns recommended by the World Health Organisation. These caused knock-on institutional debilitation, a corruption pandemic, and digital colonialism in 2020 and 2021. Then in 2022, staged fuel shortages triggered by US sanctions on Russia brought the economy to a standstill.
The hacking of production and food supply chains due to fuel shortages and lockdowns were accompanied by a psychological operation of fear amid loud promises of “famine” in the lush tropical island as protests mounted.
As the economy screams, it is clear that Cold War headwinds are buffeting the strategic Indian Ocean island located among the busiest energy, trade, and undersea data cable routes in the world, and hence perpetually in the crosshairs of big power rivalry as the Euro-American Cold War on China revs up.
But as the Nord Stream One and Two gas pipelines connecting Russia to Germany in the North Sea come under attack as part of hybrid energy wars in Europe, it is clear that Sri Lanka would need to seek alternatives to the IMF path and up its game in the field of maritime domain awareness, which may need stretching and recalibration.
The strategic island’s Navy will be certainly called on to protect its ocean floors, which contain submarine or undersea data cables that keep the internet and global financial system going.
Sri Lanka may need to strengthen its Navy and repurpose its military forces for a new generation of hybrid cyber wars. It would hence be logical for the cash-strapped Government to develop a plan to earn some money from its extensive maritime exclusive economic zone by taxing the undersea data cables and their Google, Apple, Facebook, Amazon, and Microsoft clients. However, it is unlikely that the lender of last resort would assist such an endeavour to make the strategic island solvent and independent.
Solutions and the good news: Alternatives to the IMF and Paris Club
It is increasingly clear that in the event that the IMF and Paris Club process fails or drags on, contingency plans would be needed and it is imperative that Sri Lanka engage earnestly to meet unexpected exigencies that could arise, also given Cold War geopolitical rivalries.
The good news is that the CBSL Governor noted in a press briefing recently that the country can, on a monthly basis, cover its import bill with its export earnings, if it can get rid of the debt and interest overhang.
In this context, the simplest and most elegant solution to the US dollar debt crisis would be the outright cancellation of private market US dollar-denominated debt, which amounts to almost 50%, with a ban on future borrowing from international sovereign bond traders. Once this is done, restructuring the bilateral and multilateral debt with creditors who are more flexible would be relatively straightforward, through extending timeframes for repayment and further debt cancellation.
This path forward is not rocket science in a world swirling in odious and illegitimate debt, with the US being the most indebted country on the planet. However, because of a huge amount of disinformation, data manipulation, and exaggeration regarding both the quantum of debt and the causes of the default, this relatively simple and elegant solution to Sri Lanka’s debt crisis has been obscured and elided.
A concomitant lack of transparency on the IMF, the Paris Club, and Lazard process and the opaque nature of international sovereign bonds, given that bondholders’ identities are not disclosed, has rendered debt restructuring needlessly complex and a rabbit hole of infinite regress. Meanwhile, the manipulation of Sri Lanka’s status as a middle income country to fit various Washington Consensus narratives are underway, with the Government undecided on whether it is a low income country or not.
While the IMF has deemed Sri Lanka’s debt “unsustainable” on unknown parameters, a simple solution to making Sri Lanka solvent and keeping its economy going is securing a supply of oil and a gas supply to keep industry and manufacturing going, given the US dollar debt trap. In the context of maintaining friendly relations with all countries while not succumbing to Western bullying, negotiating to buy oil at a discount from India and Russia would significantly ease the economic situation. Fuel is the largest item for which foreign exchange is needed. This would also pre-empt the IMF-inspired firesale of energy infrastructure, which will certainly negatively impact Sri Lanka’s national energy security.
A second key aspect to the sustainable recovery of the economy is diversifying export markets and products through the transfer of technology and value adding, particularly in the fisheries and mineral sectors, which are low-hanging fruit, so to speak. Right now, Sri Lanka is dependent on export markets in the West that use threats of sanctions and tariffs while weaponising human rights at the United Nations (UN) Human Rights Council. While periodic EU threats of Generalised Scheme of Preferences plus and minus removals seem to terrify large parts of the colonised business community, they have however not spurred them to find alternative markets.
Another key point in sustaining economic activity amid IMF austerity measures designed to shrink the economy is returning kerosene oil, which is used by poor folks and fisherfolk to the previous subsidised price to enable Sri Lankans to harvest their protein from their extensive ocean.
Sri Lankans do not need digitalised cash handouts from the IMF or the UN Development Programme to sweeten the sale of their assets; what is needed is enabling folks to earn a living wage. In this context, it would be important that the Ministry of Foreign Affairs and the CBSL implement the Russian Mir card payment system in Sri Lanka’s banking system. Now that the Russian airline is flying again to Colombo, it would be necessary and important to welcome Russian tourists to jump start the tourist economy in the island and enable Mir card transactions, while also buying Russian oil and gas at discount rates, perhaps with India’s help.
Finally, as Asia unites to withstand divide and rule agendas in order to claim the 21st Century, a transformation predicted for a generation now – when power would shift from the US and Europe to Asia and other places – is demonstrably underway. Nevertheless, small countries and civil societies, from Chile to Sri Lanka, may yet be also called upon to pull their weight in order to ensure that colonial and Cold War history does not repeat – as tragedy or farce – in the global South.
(The writer is a social and medical anthropologist)
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The views and opinions expressed in this article are those of the author, and do not necessarily reflect those of this publication.
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Discover Kapruka, the leading online shopping platform in Sri Lanka, where you can conveniently send Gifts and Flowers to your loved ones for any event. Explore a wide range of popular Shopping Categories on Kapruka, including Toys, Groceries, Electronics, Birthday Cakes, Fruits, Chocolates, Automobile, Mother and Baby Products, Clothing, and Fashion. Additionally, Kapruka offers unique online services like Money Remittance, Astrology, Medicine Delivery, and access to over 700 Top Brands. Also If you’re interested in selling with Kapruka, Partner Central by Kapruka is the best solution to start with. Moreover, through Kapruka Global Shop, you can also enjoy the convenience of purchasing products from renowned platforms like Amazon and eBay and have them delivered to Sri Lanka.Send love straight to their heart this Valentine's with our thoughtful gifts!