Editorial

The visit of the Indian External Affairs Minister this week to Sri Lanka almost had that viceregal air to it. Unlike in the bad old days of not so long ago when black flag demonstrations heralded India’s ham-handed intervention in Sri Lanka’s internal affairs, the intercession this time was more subtle though no less insistent in pursuing its own national interest at the expense of Sri Lanka’s.

Outwardly, there was a show of a helping hand to a neighbour in distress. In reality, it was a press-ganging to implement long pending agreements for a piece of Sampur near Trincomalee, a piece north of Mannar, to have their ‘technicians’ installed in Lanka’s air and naval bases and for good measure, apply pressure to have their puppet regime installed in a provincial council in the North – all for a billion dollars and a little more, repayable of course.

All this was lost on the general public in Sri Lanka which was prepared to take any handout from even the devil to ease the economic pain they were going through. All the nationalists who paraded the streets against foreign interference stayed home lest they earned the wrath of the public standing in one queue or the other for their daily needs. They even applauded the visiting Minister as he toured Indian assets in this country giving their approval for doing what local Ministers were not doing.

For all the platitudes about friendship with its neighbours, India gave its loan to Sri Lanka only after the agreements were signed in Colombo first. Clearly, there was a trust deficiency and the advantage taken from this country’s economic plight. A blanket denial by the Defence Ministry that Sri Lanka’s national security has not been compromised impresses no one.

There is a well-orchestrated media blitz in India of Sri Lankan families coming by boat to Tamil Nadu to escape “starvation” in Jaffna which has an eerie ring to the 1987 Indian intervention. Today, India is again portraying itself as the Good Samaritan, but in India’s book it was a good time to strike as Sri Lanka was in dire straits and drifting towards a China-centric economic policy that was detrimental to India’s strategic interest. As the famous saying goes about the stark realities of geopolitics; “There are no permanent friends, no permanent enemies …. only permanent interests”.

IMF: The long road ahead

The laboured decision to eventually go to the International Monetary Fund (IMF) proved ultimately the only option for the Government that was getting besieged by competing demands from India and China to which it kept going seeking loan after loan. It was mayhem out there with demands by both countries for access to Sri Lanka’s harbours, while the President was dithering on what to do otherwise.

This Government must, therefore, take the blame for the inordinate delay in going to the IMF. Economists, like the scientists who kept telling the Government not to ban chemical fertiliser imports, were ignored. For more than a year and a half independent experts were telling the Government to go to the IMF without any further ado.

Voicing the views of these experts who know something about the economy and the way it was nosediving, way back on March 3, 2019 — during the Yahapalana Government, we said the Government of the day was carrying on the same Rajapaksa-the-First policy of footloose commercial borrowings from abroad and raising the foreign debt from USD 10 billion in 2014 to USD 15 billion in 2018; that it was following myopic short-term goals mortgaging Sri Lanka to international lenders “to the hilt”. (Budget: Sri Lanka confronts looming rollover crisis | The Sunday Times Sri Lanka) Budget: Sri Lanka confronts looming rollover crisis | The Sunday Times Sri Lanka

On July 25 last year (2021), eight months ago, we asked the new Finance Minister Basil Rajapaksa to engage in a “meaningful dialogue with the IMF” to identify changes in economic policy which the IMF can support so that Sri Lanka can access international markets when needed, partly to avert a foreign exchange crisis, and partly to address a Balance of Payments shortfall. We wrote about 500,000 additional households falling into poverty and called for a viable livelihood support programme as a “safety net” for the poor. (New Finance Minister faces tough choices | Print Edition – The Sunday Times, Sri Lanka) New Finance Minister faces tough choices | Print Edition - The Sunday Times, Sri Lanka

Fast forward to what the IMF has said in February, 2022. It calls for a string of similar strategies by Sri Lanka including strengthening fiscal consolidation based on quality revenue measures and revenue expenditure rationalisation: increase policy interest rates; a flexible foreign exchange rate; phase out import restrictions; a cost effective energy policy; a social safety-net and inter alia, a plan for debt sustainability.

Those in high office wore blinkers and ill-advised the President, a war hero of only a few years back, now facing the ignominy of jeering citizens marching to his private residence. It has also displayed the pitfall of an Executive Presidency where the most powerful person running the country sitting in an ivory tower is insulated and divorced from ground realities, often to his or her own peril.

The Finance Minister goes to the IMF in two weeks, and yet, the worry is, what is his team? Macroeconomics is not for him. We understand even at this late stage there is an effort to take on board the expertise of those who are not mere political apparatchiks, but nevertheless have an abiding love for the country and possess the skills of negotiating with international monetary funds. We are witnessing runaway inflation with pressures that will intensify, the Ukraine war compounding matters. The inane Forex policy through 2021 has resulted in an amended budget requirement, and an IMF bailout programme will only reduce some pressures on foreign resources.

While medium-term prospects for Sri Lanka look bleak, even with an IMF programme, it very much depends on these experts the Government has at its disposal — not the cloistered experts, and possibly multinational law and financial services firms to negotiate with the IMF for a package that will bail itself out of this economic quagmire it has thrown the entire country into.