It took exactly one year for the IMF to agree to concede Sri Lanka’s appeal to help face the unprecedented economic crisis that is confronting the Island nation. Though referred to as a bailout, the USD 2.9 billion Extended Fund Facility (EFF) will hardly help Sri Lanka in the long term. In fact, it has been criticised as exacerbating the debt crisis than resolving it.

In a nutshell, this is a loan that will assure other creditors to keep lending to Sri Lanka when the country is unable to service her existing loan commitments. In the meantime, Sri Lanka is to raise its Government revenue by increasing taxes and giving up the State’s stake in State-Owned Enterprises (SOEs). Whether this alone will suffice to flatten the debt burden is unclear.

Instead of onetime payment, the IMF bailout will be disbursed in eight tranches, spread over four years. To qualify for each subsequent tranche, IMF must be satisfied that all its conditions have been fulfilled by the Government of Sri Lanka (GoSL). IMF has warned that if GoSL, after receiving the first few tranches abrogates the agreement by not complying with the conditions, then GoSL may never approach the IMF again.

We too, have duly agreed and have publicly pledged to see through the entire gamut. In fact, even before the IMF Executive Board met to discuss the Sri Lankan matter and decide if to grant the EFF, GoSL began working on the conditions. By the time the IMF Executive Board met, GoSL had already fulfilled IMF’s preconditions.

IMF Conditions Put GoSL in Difficulty

These are not easy conditions and are bound to make any government unpopular. Fulfilling these conditions is made even more challenging for the incumbent administration, considering it is an offshoot of the discredited Gotabaya Rajapaksa Government with its former two-thirds majority in Parliament scattered.

Already, the trade unions are in action, organising its members into protesting on the streets over the hike in taxes and utility bills. Little do they seem to be realising that slowing the economy, even for a day, will only push the GoSL further into the IMF grip. It is a pity that these unionists, some with the best brains in the country, are yet to envision ways to revive the economy so that our dependency on the IMF and other multilateral, bilateral and commercial creditors lessens.

Immediately after the IMF Executive Board agreed to the USD 2.9 billion EFF, the GoSL announced its intention in privatising some of Sri Lanka’s most lucrative SOEs. Somehow, between 01.09.2022 (when GoSL reached an agreement with the IMF at staff level) and 20.03.2023 (when the IMF Executive Board approved the agreement the GoSL reached with the staff level) the precondition ‘loss making’ that would qualify the SOEs for privatisation has fallen.

On 23.03.2023, Finance Ministry announced that the Cabinet has approved the divestment of shares of:

• SriLankan Airlines Ltd., including SriLankan Catering Ltd.

• Sri Lanka Telecom PLC

• Sri Lanka Insurance Corporation Ltd.

• Canwill Holdings Pvt. Ltd., (Grand Hyatt Hotel)

• Hotel Developers Lanka Ltd., (Hilton Hotel Colombo),

• Litro Gas Lanka Ltd., including Litro Gas Terminals (Pvt) Ltd., (LPG retailing)

• Lanka Hospital Corporation PLC

This is bound to anger the people even more – especially as many Sri Lankans hate the word ‘privatisation’. For them, this is synonymous with ‘colonisation’.

When Sirima Bandaranaike’s Governments of 1960-65 and 1970-77 took over Sri Lanka’s strategic assets from the private sector, most primarily owned by the Western Governments, into State-control and management, that move was termed as ‘nationalism’. This was to restore the rights and heritage of the people of the land.

In this process, Sinhala entrepreneurs, such as planters, who owned tea estates on a large scale, too, lost the assets that they earned under the most difficult conditions. Yet, stripping off Sinhala entrepreneurs of their livelihoods was hoorayed as the general public could not differentiate between a foreign owned asset and a Sri Lankan -owned asset. As far as they were concerned, anything owned by a private party is anti-national.

It was this mindset that destroyed the private sector in the 1970s decade. Opening the economy in 1977 revived the private sector. While it did not kill the public sector, it also did not rectify the causes that made most of the SOEs a failure and cost the Bandaranaike Government its credibility. Without understanding these causes, if the present government attempts to privatise these assets, it will be akin to Sirima Bandaranaike’s failed effort. Only this time, the effort is to change the ownership of these enterprises from State to private (while Bandaranaike’s attempt was to change from private to public). Either way, this kind of abrupt moves would be too much of a socioeconomic shock to the country.

As things stand as it is, the incumbent Government may not have much of a choice. While the Bandaranaike Government policies on ‘nationalising’ were entirely their own policies, the incumbent Government’s efforts at privatising is not theirs alone. This Government is left with little choice, but to comply with a western oriented multilateral creditor. The backlash from so-called nationalists would be inevitable and severe.

Yet, the already unpopular government, having inherited this course set for an IMF bailout, must now brace itself for the attack. It is almost against the will of the people this Government thus must steer the IMF conditions into fulfillment.

India’s Barely Acknowledged Support

In this context, it is a wonder that India is yet to be hailed as Sri Lanka’s saviour. After all, from day one since Sri Lanka publicly acknowledged the enormity of its economic crisis, India had stood firmly by Sri Lanka’s side. Without any of the conditions that would directly put the GOSL too much at odds with its people, India had extended USD 3.9 billion to Sri Lanka. Sri Lanka’s economic woes are not due to the global pandemic of 2020-21, nor is it due to any particular one incident. It is a collective missteps taken over the past decades. Judging from the trade union actions, it is clear that as a nation we still do not have clarity on the issues affecting our country negatively.

We do not want taxes increased, subsidies reduced or SOEs to be owned or managed by the private sector. Likewise, our graduates prefer to join the State as opposed to the private sector and that is only for the pension. This is the leading attribute that makes SOEs inefficient and loss-making enterprises. Any investment, whether private or public, is viewed with extreme suspicion. Instead of working out the disadvantages, it is used as an excuse to nuke the project altogether. Such is our disdain for new investments.

It is against this background that India supported Sri Lanka, even after the self-declaration of bankruptcy. In other words, India supported Sri Lanka purely on faith – not really knowing when repayment would be done. Of course, India has her own expectations from Sri Lanka, but that is besides the point.

India, as expressly articulated, it wants to establish Sri Lanka as family. Hence, India’s External Affairs Minister Dr. Jaishankar’s pronouncement that blood is thicker than water.”

Sri Lanka ought to feel heartfelt gratitude to India for staying steadfast at our side when most of the world was shying away. However, judging by the comments made by the Sri Lanka Foreign Minister Ali Sabry, to the Indian media during his recent visit to India, it is not appreciation, but fear that was communicated. From the interviews given, it was obvious that Minister Sabry was extremely cautious as not to offend India. He categorically assured that Sri Lanka’s priority is India’s security. He asserted that Sri Lanka will not allow any other, in any guise to compromise India’s security. Thereby, he effectively weakened bridges with every other nation that does not see eye-to-eye with India, but has been our all-weather friend. Since the very onset of this economic calamity, India has been extending strong support on the basis that a friend in need is a friend indeed. Yet, we are prostrating before India in servitude. The reasons for this different positions adapted by the two countries will be discussed in the next column.

ranasingheshivanthi@gmail.com

(The views and opinions expressed in this column are writer’s own and do not necessarily reflect the official policy or position of Ceylon Today)

By Shivanthi Ranasinghe