 Hello, you're watching NewsClick and People's Dispatch and today we are going to be talking about the economic crisis in Sri Lanka and other media reports have painted a very disturbing picture of course, lot of power cuts stretching for as long as 10 hours, there's a fuel crisis, long queues at petrol pumps, people struggling to buy food, crisis in the terms of medicines, but a lot of these are also symptoms and we wanted to talk today about the deeper structural crisis that has led to some of these issues. To talk more about this, we are joined by Ahilan Kadirgambar, a senior lecturer at the University of Jaffna, somebody who has been studying the political economy of Sri Lanka for a very long time. Thank you so much Ahilan for talking to us. Thank you for having me. Right, so Ahilan as I said, we've heard, we've read a lot about the symptoms actually in terms of the individual crisis and how they're affecting the people, like I said, very disturbing reports. But could you maybe first tell our viewers what is the say underlying structural element that has led to all this. There is talk of course of the fact that there is a foreign exchange crisis, but what really is leading to this? Yes, I mean, while it's reflected in the day to day problems that have emerged and some people including the government claim that this is a problem that emerged with the pandemic and the lockdowns and the disruption of the economy. Others are saying this is due to with the change of government two and a half years ago and the emergence of a president go to buy a Roger boxer. He immediately cut taxes. So our state revenues have fallen by almost a third. So they claim that is the cause of this crisis. Others trace it back to the Easter attacks in April 2019 when the tourism sector first got disrupted. But I see this as a much more long drawn out crisis in the making. I would go back to 1977, 1978, when Sri Lanka was the first country in South and Southeast Asia to liberalize its economy, Sri Lanka has been the first on many fronts, both positive and negative. We were the first country in Asia to have universal suffrage going back to 1931. And that has played out in our political economy as well. The other first country, as I mentioned to liberalize its economy, we've, you know, continue to have free education and free health care all the way up to university education. So there are very particular characteristics that have played out into the political economy of Sri Lanka. But this particular crisis, this crisis has been in the making, I would argue. For a number of decades, but it was disrupted in a major way by the civil war, the long civil war of 26 years. So while liberalization was initiated a few years into it, even as that sort of bubble that comes with initial opening up of the economy was getting disrupted, there was a kind of a state engineered program, which was the July 1987 July 1983 riots, which led to the civil war. And after that, while the liberalization trend continued, the agencies of successive governments was to address the civil war. So they couldn't go as aggressively with liberalization. It is after the end of the war, in 2009, when actually Sri Lanka went into another IMF agreement, Sri Lanka has gone to 16 IMF agreements in post-colonial history, a significant one was of post-structural adjustment in 2000, sorry, in 1977-78, when we liberalized the economy. In 2009 again, we went into an IMF agreement, and we got the kind of positive report card from the IMF to be able to go borrow extensively in the global capital markets. There was a huge amount of capital that came into Sri Lanka, because Sri Lanka was not only seen as a post-war economy, there was also a trend of after the global financial crisis of 2008, funds flowing into what were called the emerging markets. So Sri Lanka was seen as an emerging market and a post-conflict economy. So our stock market in those 18 months after the war quadrupled, so you can imagine the euphoria, it was one of the best performing stock markets, there was a lot of investment in real estate, Colombo changed over the next few years after the war. So a lot of investment in infrastructure and real estate, and we actually showed very high levels of growth on the order of over 8% growth in GDP in those first few years after the war. But this was a sort of a bubble that was created by speculative finance coming in. And when that started to peter out, there has been another conflict that has been created by the Rajapaksa government at that time. That's when it started to unleash attacks on the Muslim community. So it was no longer the Tamil minority, but now the Muslim minority has been created as the enemy. But there were also economic pressures that led to large amounts of trade union struggles and so on, which is what led to the fall of the Rajapaksa government in 2015. And that change was significant because at the end of the war, many actors felt that the Rajapaksas were here for decades. But as I mentioned Sri Lanka has a long history of democracy and that little regime change. Again, even with the new government in 2016, as the economy continued to collapse, despite the goodwill of various actors, India, the West and so on, they had to go for another IMF agreement. And through this IMF agreement in 2016, again, we went and borrowed in the capital markets, sovereign bonds, where 40% of our external debt is sovereign bonds. So this accumulated debt, a form of debt trap, I would say, is what has culminated in this crisis. Suppose the disruption that came with the Easter attacks, the tax cuts and the pandemic has sort of pushed us over the cliff, but this has been a long crisis in the making. And it's important to recognize that because getting out of this crisis is also going to be long and arduous. And I don't think either in Sri Lanka or international analysts are recognizing the depth of this crisis and what it would now take to get out of it, which would mean really completely shifting the direction of our economy. Absolutely. We'll come back to that, of course, but I also wanted to ask you about specifically the pandemic itself. We don't know that the pandemic had a very drastic impact on the economies of many countries across the world. But in Sri Lanka, how did it specifically contribute to the worsening of the crisis, both the pandemic itself and the policy framework the government chose in the event of the pandemic? Sri Lanka had become considerably dependent in terms of foreign earnings. There are three sectors, the kind of agriculture exports, mainly on tea, rubber and coconut. But the other two sectors, tourism, is what Sri Lanka was counting on. All this investment that I mentioned, the beautification of Colombo, was all about trying to get the returns through tourism. The pandemic put a full stop to that. And so it completely crippled the tourism sector. The other sector from which in fact, we actually get more foreign earnings in reality, migrant workers going and working in the Middle East and Southeast Asia, initially it was mainly women, now more tilted towards men, but and those foreign remittances were also disrupted. Now keep in mind, many of the rural households depend on the foreign remittances. The other sector that will continue to function are the government industry, textiles. There are a lot of rural women go and work there. They have greatly reduced the employment in that sector. So in terms of rural income streams, there was a major disruption due to the pandemic. In addition to it being a kind of a national macroeconomic problem of balance of payments and foreign reserves, it's really affected the population. Urban informal economy, as in much of the world, was also disrupted. So these disruptions meant that the government had to give out much larger relief. But that is where Sri Lanka, Sri Lanka had the lowest amount of relief even in South Asia with the pandemic. Part of it was the tax cuts that I mentioned just before the pandemic. Soon after the election of President Gautabhai Rajapaksa in November 2019, he carried out those tax cuts in December by March, the pandemic had hit us. So then we were already in a sort of austerity mode where we didn't even provide relief. Any relief that was given was mostly to businesses and the tourism sector. So in terms of actual relief to the people, it was lacking. So it's been a very hard time for the ordinary working people in Sri Lanka. Aayil, in this context, there's been a lot of discussion about the food crisis. And there are two questions I wanted to ask about this. One, how much did the ban on chemical fertilizers actually contribute to accentuating the crisis? And also, if that ban, for instance, had not been there, would this crisis have been averted or was it bound to happen nonetheless because of dependence on imports? Yeah, I would go back to, again, liberalization in 1977-78 because until then, in the 1970s, we were moving towards a policy of self-sufficiency, at least in food. But with liberalization, they also liberalized agricultural trade. And given our sort of small holding, small producers in the various agricultural sectors whether it's fisheries, dairy, livestock, agriculture, it's very hard for us to compete in the global market with agricultural produce. So when they liberalized trade and they reduced state investment in agriculture, there's been a long decline and a dependency on imports. We are an island nation, but the last few years until the pandemic, we were importing 200 million US dollars in seafood. We were exporting 250 million US dollars, but we were importing 200 million US dollars in seafood. Or if you take dairy, almost 60-65% of our milk food needs are imported in the form of milk powder, mainly from Fonterra and New Zealand and so on. So we really neglected our food system along with liberalization. So when the pandemic hit, people actually on their own turned to agriculture. People from the urban areas went back to the rural areas, so the fellow lands were being cultivated. And because at least through subsistence, they realized that they had to address the pandemic. Of course, the urban working people did not have that option. But in much of the rural areas and Sri Lanka, not rural as in the hinterlands as you might see in India, but rural in terms of not urban and maybe semi-urban, 80% of our population is there, so they thought of some form of agricultural production. And that is where last year when the government came out with a fertilizer ban, that crushed the hopes of the existing farming community and anybody who tried to work around this food crisis that was emerging. And there's a history to rice, I must say, in Sri Lanka. Rices are stable. In the 1950s, we were only 25% self-sufficient in rice. And people also talk about Sri Lanka's relationship with China. We had the rice deal with China, where we were importing rice. And during the Korean War, we were getting very good prices for our rubber. And in turn, we were importing rice. And when the Korean War ended in 1952, we were in a balance of payment prices, very similar to what we are in now. And the World Bank had just come on its first mission to Sri Lanka. The Central Bank had been led by an American, John Exeter, who created our Central Bank. Their advice was to cut the rice subsidy because we also had a food subsidy. And the price of rice tripled from 25 cents a measure to 70 cents a measure. And we had the largest protest known in Sri Lanka. The entire country was shut down. Our cabinet had to meet on a British warship. That sent a message for the next generations of the political elite that you don't touch rice to the extent that from no other country has achieved this, from being 25% self-sufficient in rice in 1953, in the course of almost 25 years, we went to 90% self-sufficient in rice. There was that kind of investment in agriculture and rice. And what President Gottabai Rajapaksa did last year is political suicide in the sense that he banned the fertilizer subsidy after the Green Revolution, after channeling all our farmers towards agriculture production with chemical fertilizers. And from being almost 100% self-sufficient in rice and our production costs are not something that we can export rice, suddenly the yields with the monsoon season has been probably dropped by 40%. So can you imagine from being 100% self-sufficient in rice in a time when we are going through a balance of payment crisis where we don't have the foreign exchange to import? A man-made disaster in agriculture where we reduce yields by 30% to 40%. So we would have anyway had a food crisis when it comes to milk foods, when it comes to pulses, when it even comes to seafood. But a staple in which, if you asked me two years ago, I would have said, our strength is that we are self-sufficient in rice. And that was also destroyed. So it's a very tragic kind of moment in Sri Lanka where even the best efforts and the strivings of the people have not only haven't they found support from the government, their government has in a way actively destroyed their prospects in terms of them trying to make the food needs. Absolutely. I have two more questions. But before that, to go on a slightly political note, what would you say prompted this decision? Because it sounds like you said there's a long history of why such a decision would be a disaster in so many ways. But to make such a, in the midst of a pandemic, to make such a transformative decision, what do you think, what kind of thinking was behind this? You know, from the time President Rajapaksa was elected, and even though the pandemic hit three, four months later, the regime had only one interesting mind, and that was political consolidation, consolidating more and more power. So they will only focus on the parliamentary elections that followed. And soon after that, they passed the 20th Amendment to the Constitution, where they heaped huge amounts of power, centralized powers in the president. Then they passed the Colombo-Port City bill with the two-thirds majority to be able to financialize. So this continued drive, I mean, that's how I define neoliberalism as a class project of finance capital. And Colombo-Port City is considered a financial city that was their goal. So it was all about consolidation, and it neglected, as I mentioned, giving even relief to the people during the pandemic. And it has been a very authoritarian, militarized two years after the president came to power. And you know, I find the Nobel Prize winner, Professor Amritya Sen's research to be relevant here. You know, his research on famines, and he says that famines are not caused by shortages. Famines are caused by the lack of democracy, right? Because if there was democratic consultation, if there was that democratic space, if the farmers would have not allowed this to happen, and it has happened much later, maybe there are certain parallels with what's happened in India also over the last two years with... I was thinking of demonetization when you were talking about this. And a number of these factors. So, and these things, like the pandemic, spread in our subcontinent. So, and I mean, Sri Lanka is the first. It's also a warning to other countries in South Asia that you don't go through this kind of tragic moment in the future. So I would say it's authoritarian power and bad advisers and without consultation of the people that led to this disastrous policy. Thank you so much, Ailan, for those answers. This concludes the first part of this interview. In the second part, we'll be looking at what comes with this IMF conditions that he was talking about. What is the future? Or what is the possibility of re-envisioning the Sri Lankan economy?