 Hello, you are watching People's Dispatch and we are joined by Ahil and Kadir Ghamar once again to talk about the economic crisis in Sri Lanka. And the last segment with him, we talked about the political crisis, what the government has been doing, what is the kind of opposition that's emerging. Today, we are going to be talking about details of this economic crisis. Thank you, Ahil and so much for talking to us again. And one of the key questions that has emerged right now is basically about shortages. We see that despite all these months, the shortages of fuel, the shortages of essentials, even food for that matter, have continued. So why is it that there's new government in town? There's been a lot of talk with international players, international agencies. Why is it that these shortages still continue? One, the way forward for Sri Lanka, whether it's the opposition, the JAB, the president, or our newly appointed central bank governor and finance secretary, along with Prime Minister Ahil Ekramasena, there is a consensus that the solution is to continue on the liberalization path with the support of an IMF agreement. So they're very wary of undermining the market, so to speak, whatever that might mean. So they want the market to function. So there are huge shortages. Sri Lanka is going around with a begging ball to India, to even Bangladesh for lines of credit to be able to import essential goods like fuel and medicines and even food grains. But at the same time, the reality is if you look at the data, every month, we're getting about $1.3 to $4 billion in foreign earnings, $1 billion in export earnings, and about $300 to $400 billion in foreign remittances. But that amount every month is from the central bank, is provided to the commercial banks and they're giving LCs for traders to go and get their imports. Now, I would argue that this is a time, and so the lines of credit, for example, from India, India has been very generous almost, I think, $3 to $4 billion in credit lines, with which we are importing fuel, medicines and even rice and so on. But I would argue even these foreign earnings should be mobilized through a public distribution system to be able to import the essential goods, but the government is not doing it, right? Because there's a lot of pressure to adhere to the IMF conditionality, so austerity, plus allowing the market to function. For me, this is a disastrous part to take right now because on the ground, we are seeing production completely being abandoned. Farmers have lost faith, there's not enough fertilizers, they were hammered over the last year, so they would rather keep cash and just to be able to purchase food rather than take the risk of producing. The government should be actually giving leadership and that's why we need political change. The president and the prime minister are completely incapable of providing leadership at this point, and give a guarantee to the farmers to produce for small produce because we're going into a food crisis, a very severe food crisis, and we're really concerned about famine type of conditions emerging. So production has been disrupted, but we're counting on the market to work, and it's plain for everyone to see the cues are characteristic of the fact that the market is not working. So I characterize this as not just a business disruption or a business cycle. This is a depression, this is not a recession, Vienna depression. Even the IMF claims Sri Lanka is going to have minus 6.5% GDP growth this year. I think it's going to be much worse than that, and you can then hope the market to fix this. This is exactly what happened globally in the 1930s with the Great Depression, but that kind of orthodoxy is prevailing and the consequences are going to be very severe. I keep repeating that and quoting Nobel Prize winner Amitya Sen on famines. Famines are not just caused by shortages of food. We can import food grains, but if livelihoods are collapsing, how much are you going to give in subsidies or cash transfers? And for how long can you do it? You have to get livelihoods going. You have to let the democratic process ensure that people's demands are heard by a government. So politically, the democratic process is being stored by certain modes by the president and the prime minister with the support of very powerful international actors. And there's no support for to resume livelihoods. Effective demand in the economy has been completely undermined with this view that the market would fix the problems. I'm saying the IMF conditionalities could really make it worse. Do we have any details on what might be some of the concrete aspects which they'll focus on? The irony is that what we have publicly from the IMF is their staff report made publicly in February, March. Now Sri Lanka, even before we entered into the IMF agreement, we have started to implement those recommendations. So for example, they wanted interest rates to be raised in March, April from 6% to 14%. The central bank interest rates are 14%. Now, what does that mean for businesses if they're getting all overdraft facilities, they have to pay close to 30%. Pawning rates for rural people, the gold jewelry is their emergency asset. Rates for pawning by the state banks were at 9%. Now, it has gone up to 25%. They're probably going to lose their emergency asset with this depression. They wanted the exchange rate to be floated. Now, the Sri Lankan rupee, it was artificially kept strong, but nevertheless has gone from 200 rupees to 360 rupees to the US dollar. Now, that extra 160 rupees has been passed on to the consumers. So, we're seeing the price of bread has tripled. A pound of bread which was costing 60 rupees six months to a year before is now costing 180 rupees. So, the price of rice has more than doubled. So, what we are seeing in rural livelihoods for the informal sector and Sri Lanka's economy over 60% of it is the informal sector. Their wages have not changed and they are now down to eating one or two meals a day. There's been a freeze on government spending and what does that freeze mean? That any kind of construction work and so on and all that is coming to an end. So, even if you're a farmer, even if you're a fisher for off season you depend on mass and work, right? This kind of informal. So, all that has been shut down and they are still talking about keeping inflation low. This is not inflation as we historically know it with the economy overheating. These are price hikes being transferred both because of the Ukraine war. Global commodity prices have gone on. They're being transferred. You can take interest rates up to 50% and you're still not going to bring those prices down if the global prices are going up and those prices are transferred through this exchange rate depreciation. So, we are already implementing the conditionalities of the IMF even before we go for an IMF agreement. So, in a way after the IMF agreement they're going to continue to come up with austerity measures in terms of balancing the budget. But even before that austerity has already set you in a severe way inside Sri Lanka and we're seeing the consequences of it. The IMF is also playing hardball on the question of debt restructuring. You will recall that Sri Lanka unilaterally defaulted on its 51 billion US dollars of debt owed to the in terms of sovereign bonds, to commercial borrowings in the capital markets, to bilateral donors like China, India, Japan and so on. There was a push by sections of the neoliberal think tanks for this default because they thought once you default Sri Lanka has no choice but to continue on the path of going for an IMF agreement. But what in reality has happened is that it's made it much further as we expected. First, Sri Lanka to get any kind of bridge financing even until the IMF agreement because for example, Japan is the big donor of us. Your 10% of our external debt is to Japan just like 10% is to China. Now they are saying until you restructure your debts and we know that you're going to repay, you're not going to lend you any. And the IMF is also saying that Sri Lanka has to restructure its debt before it can go forward with the IMF agreement. So we're caught in this trap right now and we are going to have to give favorable terms to our donors to be able to come to a debt restructuring agreement and before we go to the IMF. Now there's a lot of international attention on Sri Lanka I think and perhaps that's the reason why the West is so much interested in Sri Lanka as well because there are a number of other countries in Sri Lanka she was now I mean you're seeing the kind of crisis deep in Pakistan, Nepal's external sector is precarious and many Latin American and African countries because because of the sort of neoliberal path many of these countries have taken the commercial borrowing so much higher interest costs that can't be paid and the disruption of the pandemic has created a conjecture and Sri Lanka might be the first set of countries that others are going to follow. So how debt restructuring is going to work, what kind of response there is going to be to austerity measures, what kind of IMF agreement is going to come about. So Sri Lanka is also being seen as a test case of how the West and our commercial land is going to react to this. So there's a lot at stake not just for Sri Lanka I think but for the broader world in terms of what Sri Lanka is going through. Happy and I learned one last question very quickly because you mentioned a lot of proposals that are coming up from the left-hand progress spaces you mentioned some of the proposals you've also been involved in both at the political and the economic level recognizing the gravity of both these crises and how these crises are very closely integrated together. So could you maybe take us through some of the most urgent steps that you think need to be taken right now by those in power to sort of avert as much this crisis possible. In terms of our external sector we really have to prioritize right our foreign earnings of course in the short term we do need support from various bilateral donors and so on and concessionary loans where possible but we have to prioritize our foreign earnings towards importing essential goods because as I mentioned you know without fuel the economy just completely comes to a halt without food and medical imports we would descend into a humanitarian disaster. So that kind of prioritizing is paramount and that means not just you know the market is not going to work here right the state has to take responsibility of the external sector but that goes against the whole neoliberal neoclassical orthodoxy right to within Sri Lanka immediately we have to address the food crisis through a public distribution system we have the food commissioners department we have the petty marketing board which can purchase you know of food grains produced by our farmers we have a large infrastructure of multi-purpose cooperative societies and state semi-state outlets like the Satoza outlet and to be able to distribute food so again a huge role for the state now the IMF conditions okay they're going to insist on fiscal consolidation you know as I mentioned we've been implementing a number of the IMF recommendations including we have increased again indirect taxes from 8 percent to 14 percent right or sorry 8 percent to 12 percent right which is actually increasing the burden on working people but what we and even income taxes are going to be difficult because they're in a downward spiral in terms of economic output and returns so we have to consider a wealth tax redistribution and but none of the actors are willing to go that path because while we go with a begging bowl outside we are elite are not willing to take responsibility and the working people really need to take that challenge forward calling for redistribution that the only kind of strength we still have is free health care right we have universal health care in Sri Lanka even yesterday I was going to do some field research with a very kind of day wage earning farming community and the one strength that they have is if they are sick they can still go and get free health care right their children are going to school because we have a free education system but even there we have to provide you know revamp provide the midday meal to school children we have to provide these kinds of universal social welfare schemes whereas with the IMF they're only talking about targeted measures of cash transfers and we know you know today when you say targeted today the section of the farming community is in need the next season the fishing community is going to be need our entire you know informal sector is going to be in need so these targeted measures which is you know a diversion of social welfare that the neoliberal world is not the solution so you know how can we think as much as we can through redistribution these kinds of universal social welfare measures we are in this for the long haul right as I mentioned this year you know we could be seeing as much as a tenth of our GDP shrink right it's that serious and you can imagine the impact that can have and this is going to continue for a few years we have to think in terms of we can't think in terms of growth we have to think in terms of food security food sovereignty to sort of ensure the survival of the next generation absolutely thank you so much Aailan yet again for that very comprehensive evaluation of what's happening in Sri Lanka right now and an analysis of what needs to be done that's all we have time for today keep watching People's Dispatch