Features
Beyond debts and defaults
by Uditha Devapriya
Initially advocated by the neoliberal right, the argument to default on the country’s debts is now being promoted by sections of the Left. The government has indicated that it will not listen to either camp – it transferred funds for the repayment of a USD 500 million bond, the first of two that need to be settled this year, earlier in the week – but that has not muted calls to abandon its policy of doing well by our creditors.
The neoliberal right’s arguments are predictable enough. Whereas earlier they demanded that the government go for debt restructuring to make it easier to repay bondholders and regain lost credit ratings, now they advocate the same so as to shift focus to other priorities, such as importing essential goods. To be sure, the neoliberal right is not alone in saying this: Colombo’s economic think-tanks, in general, recommend that the government exercise that option. They frequently draw a line between defaulting and going bankrupt, contending that the former is preferable and urging the government to think so as well.
Like the liberal and neoliberal right, Sri Lanka’s Left has not been uniform in its response to these issues. The Old Left, the LSSP and the Communist Party included, vehemently oppose any restructuring, a stance the Frontline Socialist Party also adheres to. On the other hand, the JVP or the NPP has failed to come up with a coherent response: while Bimal Ratnayake and Sunil Handunhetti have opposed going to the IMF, Harini Amarasuriya has argued that we need to abide by international rating agencies. It is a testament to the JVP-NPP’s want of vision that it may be one of the few parties identifying themselves with the Left which have openly, and publicly, described these agencies as independent. In this it is as confused as its attitude to China, a point I have noted before in this paper.
Not surprisingly, then, the Left’s argument to default is largely ideological. In an intriguing piece, Professor Sumanasiri Liyanage suggests that we don’t repay and that we “cut down the bigger portion of imports of consumer goods that is close to one billion dollars“, thereby saving USD five billion. Professor Liyanage warns against opting for neoliberal debt reforms, namely rescheduling, restructuring, and moratorium, noting that they are “not the answer.” Though he doesn’t specify his preferred approach, he argues that it will entail a “necessary and unavoidable” paradigm shift that will lead to a “permanent solution.”
Professor Liyanage calls all this a matter of “simple arithmetic.” As always, the truth is far more complex. Given the state of the global financial system, a default would invariably be followed by calls for restructuring. Should we opt for restructuring, economists recommend reaching a compromise between the country’s citizens and its creditors. Yet the experience of most countries that have undergone such reforms should tell us that this will entail more hardships for the people than for the debt holders.
That is why, regardless of the exploitative nature of the global financial system, we need to realise that the repercussions of a default will be felt most by the lower classes. We need to understand that they will be the first to come out to the streets. With a diminishing space for their aspirations, the middle-class will most likely follow them.
This is already happening here: the fertiliser crisis, import restrictions, and rising costs of living have heightened popular opposition to the government, and they have brought these groups together. Fuel, food, and gas shortages, not to mention the prospect of power cuts and the possibility of further downgrades by credit rating agencies, are burdening an already overburdened population. Any default-and-restructuring policy can only contribute to a further rise in protests and demonstrations.
The fundamental problem here is how mainstream economists are addressing these concerns. As Professor Liyanage, quoting Jerome Roos’s Why Not Default?, observes, neoliberal ideologues keep making two assumptions about international sovereign debt: one, that a government is a “representative” and free agent which negotiates on behalf of its people, and two, that a country constitutes a single entity.
Such assumptions gloss over the fact that societies are made up of various classes, that these classes mingle and clash with one another, and that in the event of austerity it is those who have the least resources who end up losing the most. Neoliberal economists leave out these points from their discussions, perhaps because that they believe that economics can be insulated from politics; that would explain why the more doctrinaire among them advise revisiting and re-implementing the policies of the J. R. Jayewardene regime.
What, then, would a viable Left strategy entail? Firstly, we need to acknowledge that debt restructuring would be painful, especially for those who have already been hit hard by the pandemic. Not all of us are in the same boat: a recent Oxfam report notes that two years of the pandemic have resulted in a doubling of wealth among the world’s top 10 billionaires, yet another sign of how obscenely unequal the system is. To ignore these realities and call for a default would, in the long run, be to give into a “reform programme” that brings more suffering and widens inequalities. This should be avoided at all costs.
Secondly, the State needs to prioritise relief to the masses. The Oxfam report debunks the myth that governments can’t offer such relief by printing money. The US Federal Reserve, for instance, has been printing trillions of dollars since the pandemic began, to revive the economy, and countries elsewhere have followed suit. This has had a significant impact on the poorer masses, though the record in some countries has been mixed.
To be sure, Sri Lanka’s upward-aspiring middle class may think that only Sri Lanka engages in distributing financial relief by printing money, and bemoan it even as they indirectly benefit from it. But the potential of money printing to help the masses tide over – an objective Basil Rajapaksa’s relief package seems to be zeroing in on – should not be lost sight of. Modern Monetary Theory is by no means a long term solution, less so a sustainable one, but insofar as it facilitates relief, it should not be dispensed with.
Thirdly, the government should negotiate credit lines from as many countries as it can go to. As I noted in an earlier piece, the pandemic, and the depletions of the country’s foreign reserves, has become the primary determinant of our foreign policy. From snubbing India and Japan, for instance, we are now trying to obtain credit from them. While China has kept a low profile lately, it may extend further credit as well, renegotiating what’s already due to her. We need to take advantage of these openings.
Printing money and fine-tuning foreign policy, though, are temporary solutions. They should be phased out in the long run, in favour of more radical reforms. This is the fourth step we should be taking, though it is one that is yet to be discussed and debated.
Take a very simple but radical proposition: printing money to build up local industries and promote exports. Critics of Modern Monetary Theory contend that more money leads to more inflation. They are not wrong: prices of essential goods have been escalating wildly over the last few months. Yet the real issue isn’t whether money should be printed at all, but for whom and for what it should be printed: a question neither advocates nor critics of money printing seem to be asking.
The fact of the matter is that money needs to be directed to productive investments, and the only way to do that is to prop up local industries and spur industrialisation. This is a policy few economists, from the Left or the Right, have prescribed, but it is one that one of the more brilliant among them, Howard Nicholas, has.
Howard Nicholas’s advice is simple enough. Countries that industrialised faster than others have managed to reduce trade deficits and achieve export-led growth. Vietnam is a case in point here. Though mainstream economists contend that it was its decision to liberalise trade which facilitated faster growth, it was actually its industrial policy, combined with the phased out opening up of its sectors, which did so in the long run.
Dr Nicholas’s argument is a rejoinder to advocates of free markets and of mere import substitution, which may be why he has come in for criticism from both sides. But as Dushni Weerakoon of the IPS has noted, industrialisation can and indeed should form a crucial part of the solution, provided it’s buttressed with an enlightened tariff regime.
The bottom line to all this is that defaulting is not the answer to our problems. Defaulting may be the preferred way out for market fundamentalists and even certain leftists, but it’s definitely not the way out for the country. Opting for such a strategy would mean imposing greater austerity on the masses, which this government, mindful of its electoral prospects, will want to avoid at all costs. Dushni Weerakoon’s point, in that sense, is spot on: the debt restructuring option suits countries with a reputation for defaults, like Ecuador, but not so countries like Sri Lanka. Any “permanent solution”, then, would necessarily have to focus on the longer term. Industrialisation may well point us in that direction.
The writer can be reached at udakdev1@gmail.com
Sri Lanka needs to take full stock of its current economic situation and use to the maximum the potential in its GSP+ facility for export sector growth. In the process, it should ensure that it cooperates fully with the European Union. The urgency of undertaking these responsibilities is underscored by the issues growing out of the recent US decision to sweepingly hike tariffs on its imports, though differentially.
These were principal ‘takes’ for participants in the Pathfinder Foundation’s Ambassadors’ Roundtable forum held on April 8th at the Colombo Club of the Taj Samudra. The main presenter at the event was Ms. Carmen Moreno Raymundo, Ambassador of the European Union to Sri Lanka and the Maldives. The forum was chaired by Ambassador Bernard Goonetilleke, Chairman, Pathfinder Foundation. The event brought together a cross-section of the local public, including the media.
Ms. Moreno drew attention to the fact Sri Lanka is at present severely under utilizing its GSP+ facility, which is the main means for Sri Lanka to enter the very vast EU market of 450 million people. In fact the EU has been Sri Lanka’s biggest trading partner. In 2023, for instance, total trade between the partners stood at Euros 3.84 billion. There is no greater market but the EU region for Sri Lanka.
‘However, only Sri Lanka’s apparel sector has seen considerable growth over the years. It is the only export sector in Sri Lanka which could be said to be fully developed. However, wider ranging export growth is possible provided Sri Lanka exploits to the fullest the opportunities presented by GSP+.’
Moreno added, among other things: ‘Sri Lanka is one among only eight countries that have been granted the EU’s GSP+ facility. The wide-ranging export possibilities opened by the facility are waiting to be utilized. In the process, the country needs to participate in world trade in a dynamic way. It cannot opt for a closed economy. As long as economic vibrancy remains unachieved, Sri Lanka cannot enter into world trading arrangements from a strong position. Among other things, Sri Lanka must access the tools that will enable it to spot and make full use of export opportunities.
‘Sri Lanka must facilitate the private sector in a major way and make it possible for foreign investors to enter the local economy with no hassle and compete for local business opportunities unfettered. At present, Lanka lacks the relevant legal framework to make all this happen satisfactorily.
‘Sri Lanka cannot opt for what could be seen as opaque arrangements with bilateral economic partners. Transparency must be made to prevail in its dealings with investors and other relevant quarters. It’s the public good that must be ensured. The EU would like to see the local economy further opening up for foreign investment.
‘However, it is important that Sri Lanka cooperates with the EU in the latter’s efforts to bring about beneficial outcomes for Sri Lankans. Cooperation could be ensured by Sri Lanka fully abiding by the EU conditions that are attendant on the granting of GSP+. There are, for example, a number of commitments and international conventions that Sri Lanka signed up to and had promised to implement on its receipt of GSP+ which have hitherto not been complied with. Some of these relate to human rights and labour regulations.
‘Successive governments have pledged to implement these conventions but thus far nothing has happened by way of compliance. GSP+ must be seen as an opportunity and not a threat and by complying with EU conditions the best fruits could be reaped from GSP+. It is relevant to remember that GSP+ was granted to Sri Lanka in 2005. It was suspended five years later and restored in 2017.
‘The importance of compliance with EU conditions is greatly enhanced at present in view of the fact that Sri Lanka is currently being monitored by the EU with regard to compliance ahead of extending GSP+ next year. A report on Sri Lanka is due next year wherein the country’s performance with regard to cooperating with the EU would be assessed. The continuation of the facility depends on the degree of cooperation.
‘A few statistics would bear out the importance of Sri Lanka’s partnership with the EU. For example, under the facility Sri Lanka benefits from duty free access in over 66% of EU tariff lines. The highest number of tourist arrivals in Sri Lanka in 2023 was from the EU’s 27 member states. Likewise, the EU’s 27 member states rank second in the origin of inflows of foreign exchange to Sri Lanka; with Italy, France and Germany figuring as the main countries of origin. Eighty five percent of Sri Lanka’s exports to the EU market benefits from GSP+. Thus, the stakes for the country are high.’
Meanwhile, President, In-house Counsel & Legal Advisor, The European Chamber of Commerce of Sri Lanka, John Wilson said: ‘GSP+ should be seen as not only an opportunity but also as a necessity by Sri Lanka in the current international economic climate. ‘Implementation of local laws is what is needed. Considering the pressures growing out of the US imposed new tariff regime, a good dialogue with the EU is needed.
‘Sri Lanka’s level of business readiness must be upped. Among the imperatives are: An electronic procurement process, Customs reforms, a ‘National Single Window’, stepped-up access to land by investors, for example, a clear policy framework on PPPs and reform of the work permits system.’
It ought to be plain to see from the foregoing that Sri Lanka cannot afford to lose the GSP+ facility if it is stepped-up economic growth that is aimed at. It would be in Sri Lanka’s best interests to remain linked with the EU, considering the aggravated material hardships that could come in the wake of the imposition of the US’ new tariff regime. Sri Lanka would need to remain in a dialogue process with the EU, voice its reservations on matters growing out of GSP+, if any, iron out differences and ensure that its national interest is secured.
Chit-Chat
Chiara Tissera
Mrs. Queen of the World Sri Lanka 2024, Chiara Tissera, leaves for the finals, in the USA, next month
I had a very interesting chat with her and this is how it all went:
1. How would you describe yourself?
I am a sensitive and passionate individual who deeply cares about the things that matter most to me. I approach life with a heart full of enthusiasm and a desire to make meaningful connections.
2. If you could change one thing about yourself, what would it be?
Actually, I wouldn’t change a thing about myself because the person I am today, both inside and out, is the result of everything I’ve experienced. Every part of me has shaped who I am, so I embrace both my strengths and imperfections as they make me uniquely me.
3. If you could change one thing about your family, what would it be?
If there’s one thing I could change about my family, it would be having my father back with us. Losing him six years ago left a void that can never be filled, but his memory continues to guide and inspire us every day.
4. School?
I went to St. Jude’s College, Kurana, and I’m really proud to say that the lessons I gained during my time there have shaped who I am today. My school and teachers instilled in me values of hard work, perseverance and the importance of community, and I carry those lessons with me every day. I was a senior prefect and was selected the Deputy Head Prefect of our college during my tenure.
5. Happiest moment?
The happiest moment of my life so far has been winning the Mrs. Sri Lanka 2024 for Queen of the World. It was a dream come true and a truly unforgettable experience, one that fills me with pride and gratitude every time I reflect on it.
6. What is your idea of perfect happiness?
Happiness is a deeply personal and multifaceted feeling that often comes from a sense of contentment, fulfillment and well-being. For me, perfect happiness is in moments of joy, peace and accomplishments … and also being surrounded by my loved ones.
7. Are you religious?
Yes, I’m a very religious person. And I’m a firm believer in God. My faith guides me through life, providing strength, dedication and a sense of peace in every situation. I live by the quote, ‘Do your best, and God will do the rest.’
8. Are you superstitious?
I’m not superstitious. I believe in making my own decisions and relying on logic and faith rather than following superstitions.
9. Your ideal guy?
My ideal guy is my husband. He is compassionate, understanding and is always there to support me, no matter what. He’s my rock and my best friend – truly everything I could ever want in a partner.
10. Which living person do you most admire?
The living person I admire the most is definitely my mummy. Her strength, love and unwavering support has shaped me into who I am today. She is my role model and she inspires me every day with her wisdom and kindness.
11. Your most treasured possession?
My most treasured possession is my family. They are the heart of my life, providing me with love, support and strength. Their presence is my greatest blessing.
12. If you were marooned on a desert island, who would you like as your companion?
I would like to have my spouse as my companion. Together, we could make the best of the situation, supporting each other, sharing moments of laughter and finding creative ways to survive and thrive.
13. Your most embarrassing moment?
There’s quite a few, for sure, but nothing is really coming to mind right now.
14. Done anything daring?
Yes, stepping out of my comfort zone and taking part in a pageant. I had no experience and was nervous about putting myself out there, but I decided to challenge myself and go for it. It pushed me to grow in so many ways—learning to embrace confidence, handle pressure, and appreciate my own uniqueness. The experience not only boosted my self-esteem but also taught me the value of taking risks and embracing new opportunities, even when they feel intimidating.”
15. Your ideal vacation?
It would be to Paris. The city has such a magical vibe and, of course, exploring the magical Eiffel Tower is in my bucket list. Especially the city being a mix of history culture and modern life in a way that feels timeless, I find it to be the ideal vacation spot for me.
16. What kind of music are you into?
I love romantic songs. I’m drawn to its emotional depth and the way they express love, longing a connection. Whether it’s a slow ballad, a classic love song or a more modern romantic tune these songs speak to my heart.
17. Favourite radio station?
I don’t have a specific radio station that I like, but I tend to enjoy a variety of stations, depending on my mood. Sometimes I’ll tune into one for a mix of popular hits, other times I might go for something more relaxing, or a station with a certain vibe. So I just like to keep it flexible and switch it up.
18. Favourite TV station?
I hardly find the time to sit down and watch TV. But, whenever I do find a little spare time, I tend to do some spontaneous binge – watching, catching whatever interesting show is on at that moment.
19 What would you like to be born as in your next life?
Mmmm, I’ve actually not thought about it, but I’d love to be born as someone who gets to explore the world freely – perhaps a bird soaring across continents.
20. Any major plans for the future?
Let’s say preparing and participating in the international pageant happening in the USA this May. It’s an exciting opportunity to represent myself and my country on a global stage. Alongside this, I am dedicated to continuing my social service work as a title holder, striving to make a meaningful difference in the lives of others through my platform.
The formation of wrinkles and fine lines is part of our ageing process. However, if these wrinkles negatively impact appearance, making one look older than they actually are, then trying out some homemade remedies, I’ve listed for you, this week, may help in giving your skin a fresher look.
* Banana:
Bananas are considered to be our skin’s best friend. They contain natural oils and vitamins that work very perfectly to boost our skin health. Skincare experts recommend applying the banana paste to the skin.
Take a ripe banana and mash a quarter of it until it becomes a smooth paste. Apply a thin layer of the banana paste on your skin and allow it to sit for 15 to 20 minutes before washing it off with warm water.
* Olive Oil:
Olive oil works as a great skin protector and many types of research suggest that even consuming olive oil may protect the skin from developing more wrinkles. Olive oil contains compounds that can increase the skin’s collagen levels. Yes, olive oil can be used as a dressing on your salads, or other food, if you want to consume it, otherwise, you can apply a thin layer of olive oil on your face, neck and hands and let it stay overnight.
* Ginger:
Ginger serves to be a brilliant anti-wrinkle remedy because of the high content of antioxidants in it. Ginger helps in breaking down elastin, which is one of the main reasons for wrinkles. You can have ginger tea or grate ginger and have it with honey, on a regular basis.
* Aloe Vera:
The malic acid present in Aloe Vera helps in improving your skin’s elasticity, which helps in reducing your wrinkles. Apply the gel once you extract it from the plant, and leave it on for 15-20 minutes. You can wash it off with warm water.
* Lemons:
Lemons contain citric acid, which is a strong exfoliant that can help you get rid of your dead skin cells and wrinkles. Also, as an astringent and a cleansing agent, it helps to fade your wrinkles and fine lines. You can gently rub a lemon slice in your wrinkled skin and leave it on for 10-15 minutes. Rinse afterwards and repeat this process two to three times a day.
* Coconut Oil:
Coconut oil contains essential fatty acid that moisturises the skin and helps to retain its elasticity. You can directly apply the coconut oil, and leave it overnight, after gently massaging it, for the best results.
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