Debt Restructuring, Austerity & The IMF: A Panacea Or An Exacerbation? – Part VI

By Lionel Bopage –

Conclusive remarks

The IMF programme needs to be used to negotiate debt restructuring with commercial and multilateral creditors. It would create space to spend on priorities such as food and fuel. However, the country needs to urgently reinstate its fiscal responsibility, with a prescribed annual cap on fiscal deficits. A medium-term debt management plan updated for a certain period should be formulated and implemented with that cap limiting the expansion of non-concessional loans.

Necessity of Inclusivity

Stakeholders need to stop over-politicising economic issues, as populism has deeply clouded effective decision-making. What we need is the development of an inclusive, consensus-based and egalitarian approach towards a national development framework. The country needs to aggressively diversify its open economy, especially those that are mostly dependent on primary commodities, primitive value-added products, exports of human resources and tourism. Currently, the open economy is dependent on the export earners that are subject to significant volatility due to price fluctuations and regional instabilities.

A green and sustainable approach

Sri Lanka has a great potential for greener and sustainable economic development by utilizing its renewable energy sources and value-added industrial clusters such as for minerals processing. However, IMF debt restructuring, while not improving the country’s economic conditions, will only prolong its indebtedness. Instead, policies need to be formulated and implemented so as to ensure the population’s basic needs are met by guaranteeing the safety of food, energy and water. Significant cuts to unnecessary handouts and wastage in government and public service delivery will be necessary. This can include cutting down the size of the government including both the executive and legislature.

Performance evaluation

Performance targets need to be established in key result areas such as public finance, education, energy, health, and transport. Aggressive restructuring of state-owned enterprises can be carried out without selling them to the private sector. For example, hiring competent managers and firing inefficient ones, providing subsidies to those most in need of assistance, and trimming government expenditure by cutting down on excess political appointments. Education, health and energy need to remain as state flagship initiatives but be made efficient and result focused.

Alternatives and national dialogue

To come out of the current poly crisis, there are certain possibilities that could be adopted as alternatives; for example, progressive taxation, open governmental transactions, independent debt audits and prioritising social protection. However, all of these should be underpinned by a national public dialogue. This is about national social movements genuinely leading the national public dialogue in a transparent manner, where the behaviour and agenda of vested interest groups, both domestic and external, are curtailed. This involves sitting down together with civil society organisations, trade unions, government members, feminist collectives, human rights groups, NGOs, and community development organisations.

Vital role of government

The government’s guiding role in the economic and social development of a country is vital. As such, promoting a small government in developing countries where public services are essential and in extreme demand is misplaced. Instead of a bloated public service, there should be a service which is a productive, effective and people oriented. In the long term, we need to establish a skilled public service, where public servants bound by service charters will treat the general public fairly, with respect and courtesy, while catering towards satisfying people’s socio-economic needs. As demanded in many developing countries, Sri Lanka needs to implement a rights-based approach towards economic and social development.

Assured failure

The panaceas of neo-liberal economists do not eliminate periodic crises but generate worst ones over time. In the short term those panaceas reduce budgetary income received via tax receipts. However, businesses will demand governments reduce taxes on profits and investment, while the public will demand more services and provisions. Thus, such unplanned, competitive and antagonistic production relations will allow the state coordinated long-term regulative and growth strategies to fail.

Rights busting

Neoliberalism has succeeded in union busting and restricting workers from participating in political and institutional decision making. Throughout the world, union memberships have fallen and continue to fall. Another factor in this equation is the power within trade unions being moved away from grassroot workers to a growing bureaucracy. This bureaucracy receives increased privileges under a conservative form of leadership with its display of political timidity as their main characteristic. Trade unions do not represent politics of protest anymore.

Paralytic left

Though the Left works in the belief that capitalism has been always weak, decadent, and is in its final death throe, capitalism has survived under many guises. Yet, if able to unite under a single banner, workers may have more power than ever before. We are aware that capitalism is moving from one crisis to another, but it has not broken down yet and has not lost its political control. Moreover, the working class and the Left have not seen much of a surge. Rather neoliberalism has strengthened, pretending to be the best solution to the crisis generated by itself.

Diversity and exclusion

Instead of working together, activists in Sri Lanka try to undermine each other. Unfortunately, this is also a global experience. If everyone worked together instead of undermining each other, the situation could have been made better. Thus, people do not have any other choice to come out of this poly-crisis, but to confront this catastrophe holistically. Instead of dwelling solely on current issues, activists may need to focus on where it makes an impact, honestly acknowledging the challenges society is faced with and working towards long-term solutions for addressing the root causes of inequality and injustice.

A shared burden

Therefore, it is imperative for us to unite and bring to power a government with the political will and commitment that will share the burden of debt restructuring with those who can bear that burden without destroying the lives of people who are already at a disadvantage due to existing systemic issues. It is the affluent and the elite that are the most astute at using loopholes in the existing system to evade taxes. They then launder their ill-gotten gains in offshore tax havens. They need to be compelled to pay their fair share of tax. They also need to be held accountable for the lax in many cases of criminal and corrupt activity they have partaken in for many a decade. Everyone must keep in mind that the revenue and expenditure of a government are the commonwealth of all the people, not of a select few. Fiscal and monetary policy must be adapted accordingly.

This article is not arguing for building a socialist economy or a self-sufficient economy. However, it rejects the prevalent neoliberal model of capitalist production that is accompanied by corruption, mismanagement, waste, and lack of transparency and accountability and the sacrifice of national interests and sovereignty to satisfy international financial interests.

Sri Lanka needs to pursue an economic development strategy that is efficient, sustainable and equitable. The priority must be to produce in the country, the maximum amount of its essential commodities, i.e., goods and services necessary for the well-being of its inhabitants that can be sustainably and efficiently produced, while also utilising global markets to optimise the use of its resources to enhance overall national welfare.

Sri Lanka should avoid unsustainable imports and associated international indebtedness that result in ‘boom and bust‘ cycles while undertaking appropriate investments and implementing appropriate policies to harness and enhance the natural and human resources needed for the country’s sustainable long-term development.

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