IMF announces preliminary rescue loan agreement with Sri Lanka
The International Monetary Fund (IMF) announced last Thursday that a preliminary staff-level agreement with the Sri Lankan government had been reached for a four-year deal to provide a $2.9 billion loan facility, subject to IMF approval, the executive is working.
Hailing the IMF deal as “the start of a new economic era”, President Ranil Wickremesinghe said: “The start will be difficult, but we know as we move forward that we can still make progress.”
The so-called “new economic era” with its “rocky start” is nothing but another round of savage austerity measures to make workers and the poor pay for the country’s unprecedented economic crisis.
The following tough and ambitious measures are among the key elements of the IMF program:
* “Increase tax revenue to support fiscal consolidation.” Major tax reforms have been proposed to this effect. While broadening the corporate income tax base, the IMF calls for making personal income tax “more progressive”. This means expanding the tax net to include workers and low-income people. A further increase in Value Added Tax (VAT) which will inevitably affect the poorest sections of society is also proposed.
The aim is to generate huge new revenues to ensure a budget surplus of 2.3% of gross domestic product (GDP) in 2025, compared to the current account deficit estimated at 9.8% for this year.
Such a reversal from deficit to surplus in two years can only be achieved through a massive increase in taxes, accompanied by deep incursions into public spending on essential services, including health and education, and a major reduction of the public sector through massive job destruction.
* “Introduce cost-recovery pricing for fuel and electricity to minimize fiscal risks arising from public enterprises.”
The IMF team “welcomed” the price increases already implemented by the government. These have included huge massive fuel price hikes in recent months, an increase in electricity charges by 75% and water rates by 127%. Prices are expected to increase further depending on the world market. The privatization of public enterprises is also part of the “reform” program.
* Mitigate the impact of the current crisis on the poor and vulnerable by increasing social spending and improving the coverage and targeting of social safety net programs.
This so-called mitigation must come at the expense of workers. Yesterday the government introduced a Social Security Bill to introduce a new 2.3% tax to fund a social safety net for vulnerable people. In other words, in the midst of a desperate social crisis affecting millions of people, a new tax has been imposed to provide a pittance for the poorest. “Targeting” means a further limitation of who will receive assistance.
* Restoring price stability through data-driven monetary policy action and fiscal consolidation. To implement these policies, the Central Bank must be autonomous.
In other words, the Central Bank must function as the IMF’s policeman by ruthlessly monitoring government policies, while adjusting interest rates and monetary policy according to the demands of international finance capital.
* A market-oriented exchange rate policy should be implemented.
This will further devalue the Sri Lankan Rupee which has already depreciated by 80% so far this year.
IMF officials’ remarks show it reached a staff-level deal as the Sri Lankan government began to rapidly implement austerity measures. The assault on workers’ living conditions has intensified since Wickremesinghe took over as president on July 14. He presented the interim budget for the rest of the year last week, deepening the social attacks.
The IMF’s senior mission chief for Sri Lanka, Peter Breuer, told media in Colombo on Thursday that “the preliminary agreement is a signal from the Sri Lankan authorities that they are committed to comprehensive reforms” and “ensure creditors that it will restore the ability to pay…”
As part of this commitment, tough new measures will be announced in the 2023 budget due in November.
On April 12, Sri Lanka repaid “temporarily in default” loans to international creditors amounting to $51 billion. It now has to repay $7 billion in debt service this year.
The IMF will only approve its first loan tranche if it is satisfied that the austerity measures are being implemented. IMF official Masahiro Nozak warned that “a review will precede each round of payments.”
Paris Club countries, mainly comprising the EU and India, welcomed the deal. China has also expressed its readiness to work with other countries to restructure Sri Lanka’s debt. Japanese Finance Minister Shunichi Suzuki on Friday called on countries that have lent money to Sri Lanka to discuss the country’s debt restructuring.
Creditors could postpone repayment dates or make a slight reduction in interest rates, but only to guarantee full repayment of the loans. To repay these sharks of international finance, the Colombo government will have to compress already suffering workers and poor.
In a statement on the IMF deal, Prime Minister Dinesh Gunawardena said: “For several decades, we have consumed far more than our savings. Suddenly, our debts have increased in massive proportions… In the future, we will have to make important sacrifices to find solutions to the factors that led to this debacle.
It is not the workers and the poor who are responsible for the country’s massive debts. It was the capitalist class and its successive regimes that obtained these loans to increase their profits and offset the impact of the worsening global capitalist crisis. Half of the loans were intended to continue the bloody anti-Tamil war that lasted nearly three decades and devastated the economy and entire regions of the island.
The Ceylon Chamber of Commerce, the country’s main big business lobby, issued a statement assuring its support for the IMF’s agenda. The corporate elite sees this as a way to alleviate the immediate crisis and open up new avenues to extract profits, including through the privatization of state-owned enterprises.
The vote on the interim budget last Friday laid bare the opposition parties and the sheer hypocrisy of their criticism of the government. The budget passed with 120 votes and only five votes against in the 225-seat parliament.
Thusara Indunil Amarasena, opposition spokesperson Samagi Jana Balavegaya (SJB), said: “As a party, we have decided not to support or oppose President Wickremesinghe’s budget and to abstain from voting in the square. He explained that it was because the SJB did not want to jeopardize talks with the IMF.
The Janatha Vimukthi Peramuna (JVP) voted against the budget, but none of its MPs spoke out against the IMF’s austerity measures. During the budget debate, JVP leader Anura Kumara Dissanayake simply called for “a new government” with “a new mandate”, i.e. a government better able to impose IMF demands. .
Tamil National Alliance spokesman MA Sumanthiran, far from disagreeing with the IMF programme, told the government: “The budget should be consistent with the economic reform program and the macroeconomic framework of the IMF” .
Expressing the fears of international financial circles over the explosive social situation in Sri Lanka, Fitch Rating warned: “Political instability will pose risks to the implementation of reforms…Additional social spending may not be sufficient to prevent the ‘public opposition, especially as the government’s public support seems weak…’
Since last April, Sri Lanka has been engulfed in protests and strikes involving millions of workers and poor. They demanded the resignation of former President Gotabhaya Rajapakse and his government and also demanded an end to rampant inflation, shortages of essentials and long hours of power cuts. Amid huge protests, Rajapakse fled the country.
This mass movement was however betrayed by the trade unions, supported by the pseudo-left Frontline Socialist Party, which did everything to limit its scope and chain it to the demand for a multi-party interim capitalist government. The result is the Wickremesinghe government imposing even heavier burdens on workers, all with the support of opposition parties.
The ruling class in Sri Lanka and the international representatives of finance capital are well aware of the anger that is once again brewing among the broad masses. Since coming to power, Wickremesinghe has stepped up police and military repression against anti-government protesters. Hundreds have been arrested. After brutal police attacks on protesting students, Wickremesinghe sent three student leaders to detention camps using the draconian Prevention of Terrorism Act.
The working class must prepare its own counter-offensive against this austerity campaign using its own class methods and rallying the rural poor. The Socialist Equality Party (SEP) calls on workers and rural masses to create their own workplace and neighborhood action committees, independent of capitalist parties and trade unions, to fight for their social and democratic.
The PES campaigns for a democratic and socialist Congress of workers and rural masses based on elected representatives of these action committees. Mobilizing workers and the rural poor in this struggle will pave the way for a political struggle for a workers’ and peasants’ government to implement socialist policies.