Features

SRI LANKA’S ECONOMIC QUAGMIRE AND HOW MARGRET THATCHER SMASHED THE KEYNESIAN CONSENSUS

Published

5 years ago

2021/07/25

By Sanjeewa Jayaweera

For quite some time, experts in economics and finance not associated with any political party have been raising the red flag about the severe economic challenges that our country was facing. Unfortunately, the politicians have consistently ignored these challenges. Many in the
private sector believed that commonsense would prevail and necessary course correction will occur, and the ship will sail smoothly.

I recently reminded a few of my former colleagues about how some of them rebuked me (in a friendly manner) five years ago when I asked the regional team of a large multinational bank, “Will Sri Lanka default on foreign debt like Greece?” My colleagues felt that I was unnecessarily pessimistic, although I thought I was a realist. Fortunately for me, one of the regional team members came to my defence and said that the scenario was not so outrageous as “Sri
Lanka was not out of the woods.” That was five years ago.

Since then, a debilitating pandemic, along with a decision to reduce government revenue by around Rs. 600 billion due to various tax cuts has severely depleted government coffers. Moreover, the loss of foreign exchange earnings due to the country being closed for tourism
has been a body blow. I, however, contend that our inability, or should I say struggle to meet the repayment of foreign debt, was always ever-present. The pandemic has just fast-forwarded it. The challenge for a country with an annual deficit of around USD 8 billion in merchandise trade having to repay USD 23 billion between 2021-2025 was always tricky. Moreover, our ability to raise additional foreign currency debt has been severely constrained as international rating agencies have continuously downgraded our ability to repay the debt.

Many have spoken and written articles recommending that the Government (GOSL) seek assistance from the International Monetary Fund (IMF). To many, other than rabid socialists, it is the most sensible of options, not that there are too many available. The GOSL, on the other hand, has articulated to neither the public, the private sector or the international creditors how they intend to avoid a possible sovereign default immediately as well as going up to 2025 whilst also ensuring that there is sufficient foreign exchange to facilitate imports.

Keynesian economics

One can only assume that those reposed with economic strategy and management under President Gotabaya Rajapaksa are disciples of Keynesian economic theory. Keynesian economic theory was developed by the British economist John Maynard Keynes during the
1930s. Keynes advocated increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the depression.

Keynes argued that during periods of economic woe, the government should undertake deficit spending to make up for the decline in investment and boost consumer spending to stabilize aggregate demand. He rejected the idea that the economy would return to a natural state of equilibrium if left to market forces. Instead, he proposed that the government spend more money and cut taxes to turn a budget deficit, which would increase consumer demand, viz overall economic activity, and reduce unemployment. Thus, he believed the government was better positioned than market forces when creating a robust economy.

The critics of deficit spending say that if left unchecked, it could threaten economic growth. Too much debt could cause a government to raise taxes and even default on its debt. What’s more, the sale of government bonds could crowd out corporate and other private issuers, which might distort prices and interest rates in capital markets. Many who oppose Keynesian theories will now use Sri Lanka to illustrate how continuous deficit spending and funding with mountains
of debt will ultimately lead to economic disaster.

Modern Monetary Theory

A new school of economic thought called Modern Monetary Theory (MMT) has taken up the fight on behalf of Keynesian deficit spending. It is gaining influence, particularly on the left of the political spectrum. Proponents of MMT argue that as long as inflation is contained, a country with its own currency doesn’t need to worry about accumulating too much debt through deficit spending because it can always print more money to pay for it. This is precisely what our
Central Bank has been doing, one presumes at the behest of the GOSL.

How Margeret Thatcher smashed the Keynesian consensus

To understand what Margeret Thacher (MT) achieved in upending the Keynesian theory, one needs to understand the decade and a half before that. The 1960s and 70s was a time of unrivalled sociopolitical activism. In the USA, which had established itself as the leading superpower both from an economic and a military perspective, there were protests against the war in Vietnam whilst the civil rights movement gained significant traction after the death of Martin Luther King. Elsewhere particularly in western Europe, pop music, recreational drugs, a liberal view towards sex and the gay community gained wide acceptance. As a result, the 1960s is fondly referred to by many as the “swinging sixties!’

In the political arena, across the world, many socialist governments were voted into power. For example, in both the UK and West Germany, socialist governments held power for most of the 1960s and 1970s. These governments underpinned their political philosophy with the concept of the social welfare state and that capitalism was not desirable. However, the aftermath of the 1973 war between Israel and several middle eastern countries caused significant economic upheaval in many countries. The oil price increased by 400 per cent, and supply was constrained due to an embargo impacting the USA and Western European countries.

In the UK, a full-scale energy crisis loomed due to a combination of a limited supply of oil and an overtime ban by the coal miners to support a significant pay increase. As a result, the government declared a state of emergency. To conserve energy, industries were told to work only three days a week, and all national television stations were switched off at 10.30 p.m. In addition, students had to do their homework in the evenings by candlelight. The following year the conservative government paid the ultimate price by being rejected by the voters.

Emboldened trade unions resorting to industrial action caused many headaches to the government and a great deal of inconvenience to the public. In addition, due to rising inflation which peaked at 26 per cent, the unions demanded higher wages, resulting in higher unemployment as many companies were unable to afford such increases. It was indeed a vicious circle.

The despondency amongst the British public due to the poor economy and the actions of the militant trade unions is aptly summed up by the comments made by the then minister James
Callaghan. He warned his fellow Cabinet members in 1974 of the possibility of “a breakdown of democracy”, telling them: “If I were a young man, I would emigrate.” Ironically. he subsequently succeeded Harold Wilson as the Labour prime minister after the latter’s surprise resignation in April 1976.

The Labour government faced continuing economic difficulties with rising inflation, a balance of payments deficit arising from significant oil price increases, and a series of industrial disputes. Events came to a head in 1976 when markets began to lose confidence in the sterling. In September 1976, the government approached the IMF for a loan of US$3.9 billion, the largest ever requested from the fund. The IMF demanded significant cuts in public expenditure as a condition for the loan, which the government accepted.

But life in the UK got worse a few years later when, in 1978, a wage dispute between Labour Prime Minister James Callaghan and the trade unions culminated in the Winter of discontent. Streets were lined with litter, some dead went unburied, and parents rushed to
feed their ill children in hospital as everyone from rubbish collectors to gravediggers and nurses went out on strike.

In May 1979, the public, fed up with the inability of the Labour government to curb the militant trade unions and bring down inflation, voted in the conservative party led by Margaret Thatcher (MT), with a parliamentary majority of 43 seats.

MT brought about many radical changes to British economic policy. The pillars on which she built her economic policies were:

* Reduce inflation through reduced money supply growth

*Reduce the budget deficit by initially increasing taxes and reducing public expenditure

*Privatize state-owned enterprises

*Deregulate the financial industry

*Bust the trade unions.

There is no doubt that she did achieve her objectives. She remained the PM for 12 years, and the conservative party was the ruling party for 17 long years. However, the initial years under MT were extremely tough for the British people. There was significant unemployment as her policy of increasing interest rates meant that many companies went into liquidation. I recall watching the one-minute segment on national TV every evening where the number of closed companies and how many were made redundant along with cumulative figures were announced.
In March 1981, as many as 364 eminent British economists published a letter condemning her plans to hike taxes even as her monetarist attack on inflation plunged the economy ever deeper into recession. However, MT stood firm. She famously said, “The lady’s not for turning ” in her speech to the Conservative Party Conference on 10 October 1980. It is considered a defining speech in Thatcher’s political development. As a result, she gained the nickname “Iron Lady”,
and it was widely believed that she had more “balls” than any of her male colleagues in the cabinet!

There is no doubt that her economic policies upended the Keynesian theory of governments spending money and lowering taxes to increase aggregate demand. Along with Ronald Regan, the President of the USA, she led a renaissance of conservative politics that relegated socialist parties for nearly two decades.

Space constraints prevent me from going into details of the main initiatives that underpinned her economic policies. However, I wish to share two of them as I believe these are imperatives for Sri Lanka in the current context.

Privatization of State-Owned

Enterprises

Under MT, the government aggressively sold off key industries that the British government had owned. Early in her term, she sold off British Aerospace and Cable & Wireless, followed later on by British Telecom, Britoil, British Gas, and Jaguar. In her third term, British Airways, British Petroleum (or BP), British Steel, Rolls Royce, and electric and water companies were privatized as well.

Many of those companies have gone on to be successful private firms. In addition, fans of the effort note that it freed up a great deal of money in the 1980s, preventing further spending cuts or tax increases and creating competitive telecommunications and fuel sectors.

Union busting

One of MT’s most heated political battles came in 1984 when the miner’s union struck work. Earlier in Thatcher’s term, in 1981, the miners almost struck, but the government immediately gave in and offered concessions. Thatcher spent the ensuing years plotting to make sure
that this never happened again by changing trade union laws, stockpiling coal to blunt the impact of a strike on consumers and even having MI5 agents infiltrate the miner’s unions.

So when the miners struck in 1984, she was ready. After nearly a year, the miners returned to work without any concessions from the government. As a result, the National Union of Miners, which just 10 years earlier had toppled the Conservative government of Edward Heath, was permanently weakened. Smashing the unions meant more when they dominated every facet of economic and political life.

Will Sri Lanka adopt Margret Thatcher’s prescription?

I lived in the UK from 1975 onwards and experienced first-hand most of what I described in the preceding paragraphs. In 1979 when MT was elected to power, I was 20-years old and very much a committed socialist. I was, in fact, the General Secretary of the Student Union
for two years. However, I took to heart the famous quote, “Not to be a socialist at twenty is proof of want of heart; to be one at thirty is proof that you have no head.”

In my opinion, there is no doubt that if we genuinely want to come out of the economic quagmire that we are in, we all will need to undergo significant hardships and sacrifices. Unfortunately, that is the price we will have to pay for the extravagant lifestyle the country has enjoyed for several decades.

The pain would have been far less had corrective decisions been taken several years ago. However, we have elected successive governments who have failed to take tough decisions as
appeasing the public, trade unions, and other vested parties have taken precedence.

An example that I wish to cite in support of my above comment is that we have hardly been subjected to any power cuts in the last two decades. Whenever there was insufficient hydropower or the coal power plant broke down, the government got the CEB to generate
expensive thermal power. This was done to prevent any inconvenience to the public but at a significant cost. The CEB did not even levy a special surcharge to recover part of the additional cost. I am pretty confident that electricity prices have not been increased for the last five years.

About a decade ago, I regularly travelled to India as the company I worked for established a subsidiary company in New Delhi. It was difficult for the accountant of that company and me to go through the financial records on the system as every few minutes; there was a power outage
or a power cut. There were long power cuts during the summer months in India and Pakistan, lasting more than six hours a day. However, in Sri Lanka, despite the perilous state of the economy, we enjoyed uninterrupted power.

About 80 per cent of government revenue is spent on paying public sector salaries. In 2015 the Yahapalana government granted salary increments of Rs. 10,000 per month to public servants. The present government gave 100,000 jobs to unemployed graduates, and the state also employed a further 35,000 who had not passed ordinary level exams. Just imagine the cost being borne by taxpayers to fund a bloated and highly inefficient public sector.

I wish to share a couple of examples with the readers so that they can understand my frustration with the public sector.

In 2002 or 2003, when as the Chief Financial Officer, I offered permanent employment at the largest conglomerate in the country to a trainee graduate working under the “Tharuna Aruna” scheme, he told me “, Sir, I prefer to work as a government teacher in Mahiyangana as there is no work pressure and also, I am guaranteed a pension!” Unfortunately, that was the limit of his ambitions which successive governments have inculcated in our people.

In 1984, I went to the Inland Revenue to represent the company I was working for an enquiry. When I approached the officer concerned, I realized that she had forgotten that an enquiry had been scheduled. I was asked to sit while she desperately rang the bell for the peon to bring the file. The guy was seated only 50 feet away but pretended not to hear! The lady was embarrassed and asked me whether I could go and find the file. I lost my temper and
told her that she’d better find the file herself. Finally, she said she would re-fix the hearing, but we had still not heard from her one year later when I went back to the UK.

That we need to restructure and privatize most state enterprises that are losing significant amounts of money as was done by MT in the UK is a given. To do that, the government needs to “bust” the trade unions. The public will need to undergo certain hardships as industrial action will disrupt our life. But, in my opinion, the sacrifice will be well worth it. At least we will leave a better place for our children.

The industrial action resorted to by health workers as well as the principals and teachers is absolutely deplorable. Furthermore, the cancellation of the East Container Terminal to be awarded to India and Japan and the reported grant of salary increments amounting to Rs. 9 billion for a year to CEB staff reflect how the GOSL is caving in to unreasonable demands made by trade unions.

Margaret Thatcher, from 1979 onwards, showcased to the British people and the world at large what can be achieved by strong, determined and courageous leadership. A quote of hers that our political leaders will do well to remember “If you set out to be liked, you would be prepared to compromise on anything at any time, and you would achieve nothing.”

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Features

The NPP Government is more than a JVP offspring:

Published

4 days ago

2026/04/12

Thilina Walpola

Rohana Wijeweera

It is also different from all past governments as it faces new and different challenges

No one knows whether the already broken ceasefire between the US and Iran, with Israel as a reluctant adjunct, will last the full 10 days, or what will come thereafter. The world’s economic woes are not over and the markets are yo-yoing in response to Trump’s twitches and Iran’s gate keeping at the Strait of Hormuz. The gloomy expert foretelling is that full economic normalcy will not return until the year is over even if the war were to end with the ceasefire. That means continuing challenges for Sri Lanka and more of the tough learning in the art of governing for the NPP.

The NPP government has been doing what most governments in Asia have been doing to cope with the current global crisis, which is also an Asian crisis insofar as oil supplies and other supply chains are concerned. What the government can and must do additionally is to be totally candid with the people and keep them informed of everything that it is doing – from monitoring import prices to the timely arranging of supplies, all the details of tender, the tracking of arrivals, and keeping the distribution flow through the market without bottlenecks. That way the government can eliminate upstream tender rackets and downstream hoarding swindles. People do not expect miracles from their government, only honest, sincere and serious effort in difficult circumstances. Backed up by clear communication and constant public engagement.

But nothing is going to stop the flow of criticisms against the NPP government. That is a fact of Sri Lankan politics. Even though the opposition forces are weak and have little traction and even less credibility, there has not been any drought in the criticisms levelled against the still fledgling government. These criticisms can be categorized as ideological, institutional and oppositional criticisms, with each category having its own constituency and/or commentators. The three categories invariably overlap and there are instances of criticisms that excite only the pundits but have no political resonance.

April 5 anniversary nostalgia

There is also a new line of criticism that might be inspired by the April 5 anniversary nostalgia for the 1971 JVP insurrection. This new line traces the NPP government to the distant roots of the JVP – its April 1965 founding “in a working-class home in Akmeemana, Galle” by a 22-year old Rohana Wijeweera and seven others; the short lived 1971 insurrection that was easily defeated; and the much longer and more devastating second (1987 to 1989) insurrection that led to the elimination of the JVP’s frontline leaders including Wijeweera, and brought about a change in the JVP’s political direction with commitment to parliamentary democracy. So far, so good, as history goes.

But where the nostalgic narrative starts to bend is in attempting a straight line connection from the 1965 Akmeemana origins of the JVP to the national electoral victories of the NPP in 2024. And the bend gets broken in trying to bridge the gap between the “founding anti-imperialist economics” of the JVP and the practical imperatives of the NPP government in “governing a debt-laden small open economy.” Yet this line of criticism differs from the other lines of criticism that I have alluded to, but more so for its moral purpose than for its analytical clarity. The search for clarity could begin with question – why is the NPP government more than a JVP offspring? The answer is not so simple, but it is also not too complicated.

For starters, the JVP was a political response to the national and global conditions of the 1960s and 1970s, piggybacking socialism on the bandwagon of ethno-nationalism in a bi-polar world that was ideologically split between status quo capitalism and the alternative of socialism. The NPP government, on the other hand, is not only a response to, but is also a product of the conditions of the 2010s and 2020s. The twain cannot be more different. Nothing is the same between then and now, locally and globally.

A pragmatic way to look at the differences between the origins of the JVP and the circumstances of the NPP government is to look at the very range of criticisms that are levelled against the NPP government. What I categorize as ideological criticisms include criticisms of the government’s pro-IMF and allegedly neo-liberal economic policies, as well as the government’s foreign policy stances – on Israel, on the current US-Israel war against Iran, the geopolitics of the Indian Ocean, and the apparent closeness to the Modi government in India. These criticisms emanate from the non-JVP left and Sinhala Buddhist nationalists.

Strands of nationalism

To digress briefly, there are several strands in the overall bundle of Sri Lankan nationalism. There is the liberal inclusive strand, the left-progressive strand, the exclusive Sinhala Buddhist Nationalist (SBN) strand, and the defensive strands of minority nationalisms. Given Sri Lanka’s historical political formations and alliances, much overlapping goes on between the different strands. The overlapping gets selective on an issue by issue basis, which in itself is not unwelcome insofar as it promotes plurality in place of exclusivity.

Historically as well, and certainly after 1956, the SBN strand has been the dominant strand of nationalism in Sri Lanka and has had the most influential say in every government until now. Past versions of the JVP frequently straddled the dominant SBN space. Currently, however, the dominant SBN strand is in one of its more dormant phases and the NPP government could be a reason for the current dormancy. This is an obvious difference between the old JVP and the new NPP.

A second set of criticisms, or institutional criticisms, emanate from political liberals and human rights activists and these are about the NPP government’s actions or non-actions in regard to constitutional changes, the future of the elected executive presidency, the status of provincial devolution and the timing of provincial council elections, progress on human rights issues, the resolution of unfinished postwar businesses including the amnesia over mass graves. These criticisms and the issues they represent are also in varying ways the primary concerns of the island’s Tamils, Muslims and the Malaiyaka (planntationn) Tamils. As with the overlapping between the left and the non-minority nationalists, there is also overlapping between the liberal activists and minority representatives.

A third category includes what might be called oppositional criticisms and they counterpose the JVP’s past against the NPP’s present, call into question the JVP’s commitment to multi-party democracy and raise alarms about a creeping constitutional dictatorship. This category also includes criticisms of the NPP government’s lack of governmental experience and competence; alleged instances of abuse of power, mismanagement and even corruption; alleged harassment of past politicians; and the failure to find the alleged mastermind behind the 2019 Easter bombings. At a policy and implementational level, there have been criticisms of the government’s educational reforms and electricity reforms, the responses to cyclone Ditwah, and the current global oil and economic crises. The purveyors of oppositional criticisms are drawn from the general political class which includes political parties, current and past parliamentarians, as well as media pundits.

Criticisms as expectations

What is common to all three categories of criticisms is that they collectively represent what were understood to be promises by the NPP before the elections, and have become expectations of the NPP government after the elections. It is the range and nature of these criticisms and the corresponding expectations that make the NPP government a lot more than a mere JVP offspring, and significantly differentiate it from every previous government.

The deliverables that are expected of the NPP government were never a part of the vocabulary of the original JVP platform and programs. The very mode of parliamentary politics was ideologically anathema to the JVP of Akmeemana. And there was no mention of or concern for minority rights, or constitutional reforms. On foreign policy, it was all India phobia without Anglo mania – a halfway variation of Sri Lanka’s mainstream foreign policy of Anglo mania and India phobia. For a party of the rural proletariat, the JVP was virulently opposed to the plantation proletariat. The JVP’s version of anti-imperialist economics would hardly have excited the Sri Lankan electorate at any time, and certainly not at the present time.

At the same time, the NPP government is also the only government that has genealogical antecedents to a political movement or organization like the JVP. That in itself makes the NPP government unique among Sri Lanka’s other governments. The formation of the NPP is the culmination of the evolution of the JVP that began after the second insurrection with the shedding of political violence, acceptance of political plurality and commitment to electoral democracy.

But the evolution was not entirely a process of internal transformation. It was also a response to a rapidly and radically changing circumstances both within Sri Lanka and beyond. This evolution has not been a rejection of the founding socialist purposes of the JVP in 1968, but their adaptation in the endless political search, under constantly changing conditions, for a non-violent, socialist and democratic framework that would facilitate the full development of the human potential of all Sri Lankans.

The burden of expectations is unmistakable, but what is also remarkable is their comprehensiveness and the NPP’s formal commitment to all of them at the same time. No previous government shouldered such an extensive burden or showed such a willing commitment to each and every one of the expectations. In the brewing global economic crisis, the criticisms, expectations and the priorities of the government will invariably be focussed on keeping the economy alive and alleviating the day-to-day difficulties of millions of Sri Lankan families. While what the NPP government can and must do may not differ much from what other Asian governments – from Pakistan to Vietnam – are doing, it could and should do better than what any and all past Sri Lankan governments did when facing economic challenges.

by Rajan Philips

Features

A Fragile Ceasefire: Pakistan’s Glory and Israel’s Sabotage

Published

4 days ago

2026/04/12

Thilina Walpola

Smokes over Beirut: Israel’s Ceasefire Attack on Hezbollah in Lebanon

After threatening to annihilate one of the planet’s oldest civilizations, TACO* Trump chickened out again by grasping the ceasefire lifeline that Pakistan had assiduously prepared. Trump needed the ceasefire badly to stem the mounting opposition to the war in America. Israeli Prime Minister Netanyahu wanted the war to continue because he needed it badly for his political survival. So, he contrived a fiction and convinced Trump that Lebanon is not included in the ceasefire. Trump as usual may not have noticed that Pakistan’s Prime Minister Shehbaz Shariff had clearly indicated Lebanon’s inclusion in his announcement of the ceasefire at 7:50 PM, Tuesday, on X. Ten minutes before Donald Trump’s fake deadline.

True to form on Wednesday, Israel unleashed the heaviest assault by far on Lebanon, reportedly killing over 300 people, the highest single-day death toll in the current war. Iran responded by re-closing the Strait of Hormuz and questioning the need for talks in Islamabad over the weekend. There were other incidents as well, with an oil refinery attacked in Iran, and Iranian drones and missiles slamming oil and gas infrastructure in UAE, Saudi Arabia, Bahrain and Qatar.

The US tried to insist that Lebanon is not part of the ceasefire, with the argumentative US Vice President JD Vance, who was in Budapest, Hungary, campaigning for Viktor Orban, calling the whole thing a matter of “bad faith negotiation” as well as “legitimate misunderstanding” on the part of Iran, and warning Iran that “it would be dumb to jeopardise its ceasefire with Washington over Israel’s attacks in Lebanon.”

But as the attack in Lebanon drew international condemnation – from Pope Leo to UN Secretary General António Guterres, and several world leaders, and amidst fears of Lebanon becoming another Gaza with 1,500 people including 130 children killed and more than a million people displaced, Washington got Israel to stop its “lawn mowing” in southern Lebanon.

Prime Minister Benjamin Netanyahu agreed to “open direct negotiations with Lebanon as soon as possible,”. Lebanese President Joeseph Aoun has also called for “a ceasefire between Israel and Lebanon, followed by direct negotiations between them.” Israel’s involvement in Lebanon remains a wild card that threatens the ceasefire and could scuttle the talks between the US and Iran scheduled for Saturday in Islamabad.

Losers and Winners

After the ceasefire, both the Trump Administration and Iran have claimed total victories while the Israeli government wants the war to continue. The truth is that after more than a month into nonstop bombing of Iran, America and Israel have won nothing. Only Iran has won something it did not have when Trump and Netanyahu started their war. Iran now has not only a say over but control of the Strait of Hormuz. The ceasefire acknowledges this. Both Trump and Netanyahu are under fire in their respective countries and have no allies in the world except one another.

The real diplomatic winner is Pakistan. Salman Rushdie’s palimpsest-country has emerged as a key player in global politics and an influential mediator in a volatile region. Pakistan’s Prime Minister Shehbaz Sharif and Chief of Defence Field Marshal Asim Munir have both been praised by President Trump and credited for achieving the current ceasefire. The Iranian regime has also been effusive in its praise of Pakistan’s efforts.

It is Pakistan that persisted with the effort after initial attempts at backdoor diplomacy by Egypt, Pakistan and Türkiye started floundering. Sharing a 900 km border and deep cultural history with Iran, and having a skirmish of its own on the eastern front with Afghanistan, Pakistan has all the reason to contain and potentially resolve the current conflict in Iran. Although a majority Sunni Muslim country, Pakistan is home to the second largest Shia Muslim population after Iran, and is the easterly terminus of the Shia Arc that stretches from Lebanon. The country also has a mutual defense pact with Saudi Arabia that includes Pakistan’s nuclear cover for the Kingdom. An open conflict between Iran and Saudi Arabia would have put Pakistan in a dangerously awkward position.

It is now known and Trump has acknowledged that China had a hand in helping Iran get to the diplomatic table. Pakistan used its connections well to get Chinese diplomatic reinforcement. Pakistani Foreign Minister Ishaq Dar flew to Beijing to brief his Chinese counterpart and secured China’s public support for the diplomatic efforts. The visit produced a Five-Point Plan that became a sequel to America’s 15-point proposal and the eventual ten-point offer by Iran.

There is no consensus between parties as to which points are where and who is agreeing to what. The chaos is par for the course the way Donald Trumps conducts global affairs. So, all kudos to Pakistan for quietly persisting with old school toing and froing and producing a semblance of an agreement on a tweet without a parchment.

It is also noteworthy that Israel has been excluded from all the diplomatic efforts so far. And it is remarkable, but should not be surprising, the way Trump has sidelined Isreal from the talks. Prime Minister Netanyahu has been enjoying overwhelming support of Israelis for starting the war of his life against Iran and getting the US to spearhead it. But now the country is getting confused and is exposed to Iranian missiles and drones far more than ever before. The Israeli opposition is finally coming alive realizing what little has Netanyahu’s wars have achieved and at what cost. Israel has alienated a majority of Americans and has no ally anywhere else.

It will be a busy Saturday in Islamabad, where the US and Iranian delegations are set to meet. Iran would seem to have insisted and secured the assurance that the US delegation will be led by Vice President Vance, while including Trump’s personal diplomats – Steve Witkoff and son-in-law Jared Kushner. Iran has not announced its team but it is expected to be led, for protocol parity, by Iran’s Speaker Mohammad Bagher Ghalibaf, and will likely include its suave Foreign Minister Abbas Araghchi. Vice President Vance’s attendance will be the most senior US engagement with Iran since Secretary of State John Kerry negotiated the 2015 nuclear deal under President Obama.

The physical arrangements for the talks are still not public although Islamabad has been turned into a security fortress given the stakes and risks involved. The talks are expected to be ‘indirect’, with the two delegations in separate rooms and Pakistani officials shuttling between them. The status of Iran’s enriched uranium and the reopening of the Strait of Hormuz will be the major points of contention. After Netanyahu’s overreach on Wednesday, Lebanon is also on the short list

The 2015 nuclear deal (the Joint Comprehensive Action Plan) took months of negotiations and involved multiple parties besides the US and Iran, including China, France, Germany, UK, Russia and the EU. That served the cause of regional and world peace well until Trump tore up the deal to spite Obama. It would be too much to expect anything similar after a weekend encounter in Islamabad. But if the talks could lead to at least a permanent ceasefire and the return to diplomacy that would be a huge achievement.

(*As of 2025–2026, Donald Trump is nicknamed “TACO Trump” by Wall Street traders and investors as an acronym for “”. This term highlights a perceived pattern of him making strong tariff threats that cause market panic, only to later retreat or weaken them, causing a rebound.)

by Rajan Philips

Features

CIA’s hidden weapon in Iran

Published

4 days ago

2026/04/12

Thilina Walpola

We are passing through the ten-day interregnum called a ceasefire over the War on Iran. The world may breathe briefly, but this pause is not reassurance—it is a deliberate interlude, a vacuum in which every actor positions for the next escalation. Iran is far from secure. Behind the veneer of calm, external powers and local forces are preparing, arming, and coordinating. The United States is unlikely to deploy conventional ground troops; the next moves will be executed through proxies whose behaviour will defy expectation. These insurgents are shaped, guided, and amplified by intelligence and technology, capable of moving silently, striking precisely, and vanishing before retaliation. The ceasefire is not peace—it is the prelude to disruption.

The Kurds, historically instruments of Tehran against Baghdad, are now vectors for the next insurgency inside Iran. This movement is neither organic nor local. It is externally orchestrated, with the CIA as the principal architect. History provides the blueprint: under Mohammad-Reza Shah Pahlavi, Kurdish uprisings were manipulated, never supported out of sympathy. They were instruments of leverage against Iraq, a way to weaken a rival while projecting influence beyond Iran’s borders. Colonel Isa Pejman, Iranian military intelligence officer who played a role in Kurdish affairs, recalled proposing support for a military insurgency in Iraq, only for the Shah to respond coldly: “[Mustafa] Barzani killed my Army soldiers… please forget it. The zeitgeist and regional context have been completely transformed.” The Kurds were pawns, but pawns with strategic weight. Pejman later noted: “When the Shah wrote on the back of the letter ‘Accepted’ to General Pakravan, I felt I was the true leader of the Kurdish movement.” The seeds planted then are now being activated under new, technologically empowered auspices.

Iran’s geographic vulnerabilities make this possible. The Shah understood the trap: a vast territory with porous borders, squeezed by Soviet pressure from the north and radical Arab states from the west. “We are in a really terrible situation since Moscow’s twin pincers coming down through Kabul and Baghdad surround us,” he warned Asadollah Alam. From Soviet support for the Mahabad Republic to Barzani’s dream of a unified Kurdistan, Tehran knew an autonomous Kurdish bloc could destabilize both Iraq and Iran. “Since the formation of the Soviet-backed Mahabad Republic, the Shah had been considerably worried about the Kurdish threat,” a US assessment concluded.

Today, the Kurds’ significance is operational, not symbolic. The CIA’s recent rescue of a downed F-15 airman using Ghost Murmur, a quantum magnetometry system, demonstrated the reach of technology in intelligence operations. The airman survived two days on Iranian soil before extraction. This was not a simple rescue; it was proof that highly mobile, technologically augmented operations can penetrate Iranian territory with surgical precision. The same logic applies to insurgency preparation: when individuals can be tracked through electromagnetic signatures, AI-enhanced surveillance, and drones, proxy forces can be armed, guided, and coordinated with unprecedented efficiency. The Kurds are no longer pawns—they are a living network capable of fracturing Iranian cohesion while providing deniability to foreign powers.

Iran’s engagement with Iraqi Kurds was always containment, not empowerment. The Shah’s goal was never Kurdish independence. “We do not approve an independent [Iraqi] Kurdistan,” he stated explicitly. Yet their utility as instruments of regional strategy was undeniable. The CIA’s revival of these networks continues a long-standing pattern: insurgent groups integrated into the wider calculus of international power. Israel, Iran, and the Kurds formed a triangular strategic relationship that terrified Baghdad. “For Baghdad, an Iranian-Israeli-Kurdish triangular alliance was an existential threat,” contemporary reports noted. This is the template for modern manipulation: a networked insurgency, externally supported, capable of destabilizing regimes from within while giving foreign powers plausible deniability.

Iran today faces fragility. Years of sanctions, repression, and targeted strikes have weakened educational and scientific hubs; Sharif University in Tehran, one of the country’s leading scientific centres, was bombed. Leaders, scholars, and innovators have been eliminated. Military readiness is compromised. Generations-long setbacks leave Iran exposed. Against this backdrop, a Kurdish insurgency armed with drones, AI-supported surveillance, and precision munitions could do more than disrupt—it could fracture the state internally. The current ten-day ceasefire is a mirage; the next wave of revolt is already being orchestrated.

CIA involvement is deliberate. Operations are coordinated with allied intelligence agencies, leveraging Kurdish grievances, mobility, and ethnolinguistic networks. The Kurds’ spread across Iran, Iraq, Turkey, and Syria provides operational depth—allowing insurgents to strike, vanish, and regroup with impunity. Barzani understood leverage decades ago: “We could be useful to the United States… Look at our strategic location on the flank of any possible Soviet advance into the Middle East.” Today, the calculation is inverted: Kurds are no longer instruments against Baghdad; they are potential disruptors inside Tehran itself.

Technology is central. Ghost Murmur’s ability to detect a single heartbeat remotely exemplifies how intelligence can underpin insurgent networks. Drones, satellite communications, AI predictive modeling, and battlefield sensors create an infrastructure that can transform a dispersed Kurdish insurgency into a high-precision operation. Iran can no longer rely on fortifications or loyalty alone; the external environment has been recalibrated by technology.

History provides the roadmap. The Shah’s betrayal of Barzani after the 1975 Algiers Agreement demonstrated that external actors can manipulate both Iranian ambitions and Kurdish loyalties. “The Shah sold out the Kurds,” Yitzhak Rabin told Kissinger. “We could not station our troops there and keep fighting forever,” the Shah explained to Alam. The Kurds are a pivot, not a cause. Networks once acting under Tehran’s influence are now being repurposed against it.

The insurgency exploits societal fissures. Kurdish discontent in Iran, suppressed for decades, provides fertile ground. Historical betrayal fuels modern narratives: “Barzani claimed that ‘Isa Pejman sold us out to the Shah and the Shah sold us out to the US.’” Intelligence agencies weaponize these grievances, pairing them with training, technological augmentation, and covert support.

Geopolitically, the stakes are immense. The Shah’s defensive-offensive doctrine projected Iranian influence outward to neutralize threats. Today, the logic is inverted: the same networks used to contain Iraq are being readied to contain Iran. A technologically augmented Kurdish insurgency, covertly backed, could achieve in months what decades of sanctions, diplomacy, or repression have failed to accomplish.

The operation will be asymmetric, high-tech, and dispersed. UAVs, quantum-enhanced surveillance, encrypted communications, and AI-directed logistics will dominate. Conventional Iranian forces are vulnerable to this type of warfare. As Pejman reflected decades ago, “Our Army was fighting there, rather than the Kurds who were harshly defeated… How could we keep such a place?” Today, the challenge is magnified by intelligence superiority on the insurgents’ side.

This is not a temporary flare-up. The CIA and its allies are constructing a generational network of influence. Experience from Iraq, Syria, and Lebanon proves these networks endure once operationalised. The Shah recognized this: “Iran’s non-state foreign policy under the Shah’s reign left a lasting legacy for the post-Revolution era.” Today, those instruments are being remade as vectors of foreign influence inside Iran.

The future is stark. Iran faces not simply external threats, but a carefully engineered insurgency exploiting historical grievances, technological superiority, and precise intelligence. The Kurds are central. History, technology, and geopolitical calculation converge to create a transformative threat. Tehran’s miscalculations, betrayals, and suppressed grievances now form the lattice for this insurgency. The Kurds are positioned not just as an ethnic minority, but as a vector of international strategy—Tehran may be powerless to stop it.

Iran’s containment strategies have been weaponized, fused with technology, and inverted against it. The ghosts of Barzani’s Peshmerga, the shadows of Algiers, and the Shah’s strategic vision now converge with Ghost Murmur, drones, and AI. Tehran faces a paradox: the instruments it once controlled are now calibrated to undermine its authority. The next Kurdish revolt will not only fight in the mountains but in the electromagnetic shadows where intelligence operates, consequences are lethal, and visibility is scarce.

by Nilantha Ilangamuwa