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Sri Lanka’s new govt., Indo-Pacific debt trap, and struggle for the 21st Century – Part 2

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By Shiran Illanperuma

(First part of this article appeared in

The Island yesterday (13 Jan.)

Sri Lanka in the International Sovereign Bond Debt-Trap

Sri Lanka was the original poster child for the myth of the Chinese debt-trap, which has now been thoroughly debunked by both local and foreign experts. The truth is that the cause for Sri Lanka’s indebtedness can be traced back to the colonial structure of its plantation economy, which has only been augmented through additional dependencies on tourism, remittances, and low-value added manufacturing. Despite attempts by nationalist and left-leaning governments, Sri Lanka has failed to achieve food and energy self-sufficiency, or to set in motion a self-expanding process of industrialisation.

The end of Sri Lanka’s Civil war in 2009 coincided with the Global Financial Crisis (GFC) and the Great Recession. Sri Lanka was relatively insulated from economic downturn as the end of the war brought about a honeymoon period as tourism and property speculation boomed. The Obama administration’s bailing out of the banks through Quantitative Easing unleashed a wave of speculative investments to the Global South, including countries like Sri Lanka. Meanwhile, China’s going out in the wake of the GFC allowed the Sri Lankan government to engage in further fiscal expansion through an ambitious program of infrastructure development, focusing on roads, ports, energy, and not just a few white elephants. However, these shortcomings in the mobilisation of Chinese development finance are more attributable to Colombo’s lack of vision and coherent industrial policy, than any malice on the part of China. As Chinese envoys have often emphasised, all projects were undertaken at the request of the Sri Lankan government, and shortcomings have usually been due to the lack of domestic capacity to manage projects efficiently.

As a lower-middle income country, Sri Lanka found itself increasingly locked out of concessionary finance from multilateral organisations, and so began turning towards private lenders. The country launched its first International Sovereign Bond (ISB) in 2007. However, it is the rightward shift in policy following the change of government in 2015 that completely transformed Sri Lanka’s debt profile, as the government binged on over USD 10 billion worth of ISBs. Therefore, on the eve of Sri Lanka’s default in 2022, only 13.67% of external debt was owed to China. By contrast, 42.43% of external debt was to private bondholders, like Blackrock and Ashmore. To make matters worse, this private debt was of much higher interest rates than bilateral debt from China, accounting for over 70% of interest payments in 2021.

When the COVID-19 pandemic hit, the vulnerabilities of Sri Lanka’s economic structure became painfully apparent. The lack of foreign exchange inflows due to the collapse of tourism and remittances, combined with inflation caused by global supply chain crunches and commodity price booms, brought the economy to its knees. Following the ouster of President Gotabaya Rajapaksa in 2022, the governor of the Central Bank of Sri Lanka announced a ‘pre-emptive default’ on external debt. In the months that followed, the interim President Ranil Wickremesinghe used the chaos to enforce a dizzying array of shock therapy style reforms, unthinkable under conditions of normality. These included:

* Austerity. Withdrawals of fuel subsidies and cost reflective pricing of energy. This contributed to plunging thousands into poverty and off the electricity grid.

* Domestic debt restructuring. A restructuring of domestic debt that singled out the pension funds of the working class while allowing domestic capitalists, bankers, and bondholders to walk away scot-free.

* Central Bank independence. Legislating Central Bank independence, which would prevent the Central Bank of Sri Lanka from purchasing government debt. Concretely, this means that the government is significantly restrained from countercyclical spending in the event of an external shock. Additionally, it could weaken the government’s ability to control interest rates. The act severs monetary sovereignty as it forces the country to rely exclusively on private lenders for financing.

* External debt restructuring. An external debt restructuring agreement negotiated with the mediation of the IMF has been described by local critics as a sell-out. The agreement includes swapping existing bonds for newer bonds, some of them being novel financial instruments.

* Macro-linked bonds – These are bonds, whose interest rates will be linked to Sri Lanka’s economic performance. As GDP growth rates increase, so too do the interest payments. In effect, Sri Lanka must pay its creditors more for growing faster.

* Governance-linked bonds – These bonds tie the interest rate to the government’s implementation of anti-corruption legislation. There is a reasonable concern that this amounts to a kind of blackmail on a sovereign government to adjust its administrative structure according to the whims of international finance capital.

The Rise of the NPP

The NPP coalition includes 21 civil society organisations including trade unions. However, the prime mover within the party is undoubtedly the JVP. The JVP was established by Rohana Wijeweera in 1965, largely through the youth wing of the Ceylon Communist Party (Maoist), which in turn was the result of a 1964 split in the undivided Communist Party of Ceylon that mirrored the tragic Sino-Soviet split.

The JVP was targeted, and its ranks were decimated twice. First, following an attempted youth insurrection in 1971, and again during another insurrection from 1987-1989. The latter resulted in the assassination of Wijeweera along with the entirety of the party’s politburo, except for Somawansa Amarasinghe. Building the party from scratch, Amarasinghe went on to lead the party on the path of reform and was instrumental in taking JVP into electoral politics. During Amarasinghe’s leadership, the JVP dabbled in electoral coalitions, first supporting the SLFP’s Chandrika Bandaranaike Kumaratunga in 1994, then SLFP’s Mahinda Rajapaksa in 2005, and finally joining the UNP in supporting former Army Commander Sarath Fonseka’s bid for Presidency in 2010.

It was in 2014 that the next big shift came, as AKD was made the new leader of the JVP. He has attempted to chart a more independent and centrist path for the party, rejecting coalitions with established political parties and personalities. Following the JVP’s 7th National Congress, the party released a document which proposed a national policy framework for a ‘modernised and industrialised Sri Lanka’. In 2019, the National People’s Power was launched, with the JVP at its core. The broader coalition of NPP helped open JVP’s doors to the middle-class that traditionally was wary of the Party’s radical history. This included professionals, academics, artists, public intellectuals, and even traders and business owners.

The NPP’s success lies in this ability to overcome the JVP’s previous sectarianism and incorporate a broader coalitions of class forces, while at the same time remaining independent of established political parties. For the most part, NPP’s recent electoral campaign avoided a frontal assault that identified the enemy as capitalism, imperialism, or even neoliberalism. Rather, the NPP chose to focus on the vaguer category of corruption, which struck a chord among large portions of the middle-class who felt that the immediate cause of their plight was bad governance. The NPP was able to locate elements of the petty bourgeois that did not have direct access to state power through the established patronage networks of the main parties. This combined with a generational shift in politics helped the JVP construct the NPP as its own ‘civil society’ front. The hunger of this young petty bourgeois to reproduce itself as a class constitutes the strength and weakness of the NPP.

On the election campaign trail, the NPP faced much scrutiny from both the rightist and leftist elements which honed on its lack of an articulate economic plan or strategy. While the NPP platform is explicit about its intention to retain and strengthen public ownership of energy, finance, healthcare and education, questions regarding policy specifics were often dodged with the promise that life would improve with the eradication of corruption. That said, the NPP’s main economic promise was to establish a ‘production-based economy’ that prioritises farmers, fishers and Small and Medium Enterprises (SMEs). Furthermore, the NPP pledged to renegotiate the debt restructuring agreement with the IMF and bondholders in order to ease the tax burden on the people, to establish a development bank, and initiate an expansive science and technology policy to modernise the economy. Concretising these disparate promises into a viable developmental program continues to be the main challenged for the NPP.

One of the most remarkable features of the NPP’s political campaign was its mobilisation of women. This was conducted not in any paternalistic manner but by women party cadres themselves. Rural party meetings often featured women speaking to women, about the specific ways in which economic hardships affected women. This, combined with the party’s sympathies towards people’s economic plights and their sharp vitriol against the perceived corruption of establishment politicians, helped drive an emotive bottom-up campaign. Women in these meetings took the message home, influencing their children, who would go on to popularise the party’s platform on social media platforms, including Tik Tok. In Sri Lanka, where labour force participation for women (FLFPR) is extremely low, 29.6%, they are particularly sensitive to price swings in essential commodities. Meanwhile, the women who work do so predominantly in the public sector, or in export-oriented sectors such as plantations and export processing. This makes political conscious women extremely sensitive to economic shocks, and a powerful political resource once organised.

Struggle for the 21st Century

Sri Lanka’s dilemma is a striking example of the close link between neoliberal debt bondage and subordination to the interests of US-led militarism. In other words, the struggle for sovereignty and development requires a political, economic and even military strategy. In the past, various administrations in Sri Lanka have attempted compromise, thinking that concessions in one area would enable advances in others. The reality is that there is little possibility for negotiation with an increasingly irrational imperialism bent on maintaining US preponderance of power.

The fact is that the NPP governs under conditions favourable to the right. This is to say that the NPP inherits a state that is deeply in debt to Western finance capital, with a military that has been gradually encroached by the US through use of carrot and stick. Moreover, the networks of knowledge production and distribution in Sri Lanka remain downstream of monopoly capital. The JVP itself has only been able to climb into power by moderating rather than dialling up its past socialist and anti-imperialist rhetoric, meaning it does not necessarily have a popular mandate to carry out a revolutionary break from the status quo. Yet even the moderate mandate of the NPP, to improve social welfare and establish a production-based economy, cannot but bring them into confrontation with an imperialism which seeks to stymie the development of the productive forces.

To borrow from the US State Department’s own choice of words, Sri Lanka today stands at the ‘epicentre’ of the struggle for the 21st century. It is a struggle between peaceful development and militarised underdevelopment. Between productive investment for the benefit of the working majority, or debt bondage for the benefit of a ruling minority. While the country appears hemmed in on all sides, entangled in US imperialism both militarily and financially, it would be too simplistic and nihilistic to suggest that there are no alternatives. This struggle for sovereignty and development is today being waged across the darker nations, from the Bolivarian countries in Latin America, to the Sahel region in Africa, and by the Palestinians in West Asia. The struggle of the Sri Lankan people too, will play its role in defining the trajectory of this century.

(This essay was produced by Tricontinental: Institute for Social Research as part of its monthly series Tricontinental Interventions: Conjunctural Analysis from Asia.)



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Opinion

Shortage of medicines: Senaka Bibile Policy is the solution

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Prof. Bibile

The Senaka Bibile Medicinal Drug Policy is the answer to the present severe shortage of medicines in the government hospitals. As a result, most patients have to purchase their medicines from private pharmacies. The price of these medicines has soared to such an extent that the poor are unable to afford them. This is particularly the case for those with chronic conditions such as diabetes where they need to take medicines daily. This leads to a flaring up of these severe illnesses resulting in premature death. Sri Lanka is going back towards the situation that existed before the 1970s, when Senaka introduced his policy. Then the Drug Companies controlled the global and local markets and the Health Department had to abide by their terms. The majority of the patients suffered as a result.

 How did Senaka change that situation through his Policy? He found that various the Drug Companies were purchasing from the few producers of the Generic drugs at a low price and making a huge profit by giving them a brand name and capturing the market. Let me give you an example. The widely used generic product Paracetamol is sold under various Brand names by the different Drug Companies at a huge profit. Senaka set up the State Pharmaceutical Corporation (SPC) with the support of the Finance Minister, Dr N.M Perera, and Minister T. B. Subasinghe. The SPC used the List of Essential Drugs, about 233 (at that time) which had been prepared by Senaka, out of about 1,000 or more available in the market. They obtained the Government health sector requirement from the Medical Supplies Department (MSD). In addition, Senaka made an estimate of the requirement of the Private Health Sector and this was added to the State Sector requirement. Then the SPC called world-wide tenders for the total requirement of essential generic drugs, like paracetamol, for the coming year for Sri Lanka as a whole. Because this was a large amount Senaka was able to get at a very low -price good quality generic medicines for all the people in Sri Lanka. The State Health Sector requirement was given to the MSD. For the Private Sector Senaka set up the Osu Sala at Lipton Circus, Colombo. To reach the people in the rest of the country he chose reliable private pharmacies to whom the Osu Sala out sourced the SPC medicines as its agent. This acted as a pressure on the other private pharmacies to bring down the price of Drug Company products like Panadol, Panadeine etc.

Senaka was keen on developing countries like Sri Lanka not having to depend on imports from abroad and mooted the idea of manufacturing the medicines. For this he set up a State Pharmaceuticals Manufacturing Corporation (SPMC). This was able to produce about 43 drugs due to the efforts of Dr. Gladys Jayawardena, who as DDGLS in the Health Ministry stepped in to carry his work forward. Senaka was also very keen as Professor of Pharmacology to ensure that medical students would practice good medicine when they passed out as doctors. So, he set up a Formulary Committee that produced an excellent Hospitals Formulary as a proper guide in clinical pharmacology. Senaka was an excellent teacher and he never brought any notes into the class room but he was ensuring that the students got his message, by repetition or expanding his message. Senaka shifted to Peradeniya University when it was establishing the Medical Faculty and became the first Professor of Pharmacology. He was an educationist and introduced many new teaching methods.

 Senaka was born in remote Bibile. His father was a Rate Mahattaya. He obtained a scholarship to enable him to study at Trinity College, Kandy. Once he became a doctor the first thing, he did was to repay his scholarship so that a poor student could get the chance that he obtained. It was at Trinity that he got interested in social service and upliftment of the poor. He was attracted to the Lanka Sama Samaja Party (LSSP) and its struggle against British Imperialist rule. He joined the LSSP while at University and made an excellent study of Marxism/Leninism. As a medical student I formed a Socialist Society and used to take a group of interested students to his house in Rajagiriya on bicycles. He gave us some good talks on socialism and encouraged us to be critical before accepting his ideas. In the LSSP he took to active politics and became the Treasurer of the Youth Congress. When racial attacks against the LSSP were at its worst during the anti-Tamil Language riots he volunteered to contest a bye-election for the Kuppiawatte Ward in the Colombo Municipal Council. When we went canvassing for him, we were abused as supporters of Tamil also being made an official language with Sinhala. But he did not give in and stood up for the correct policy of the LSSP, knowing that he would lose. My admiration for Senaka soared. But the acceptance by WHO of his Medicinal Drug Policy and sending him to various poor countries to start the process gave him greatest satisfaction. I remember the time when he was to make what turned out to be his final visit abroad to the Caribbean countries and South America. My wife Kamini and I went to his house for dinner with him and his wife Leela. He gave his jovial laugh and said, “Tissa sees how the drug company lobby is trying to frighten me to give up my mission. I have got several calls warning me not to go tomorrow as there is a plot to kill me.” I told him that he should remember that they will not be happy to lose their profits and he should be careful. He left the next day on his mission. It was in Guiana that they killed him by giving him a chemical at a dinner which led to a very rapid heartbeat. With his previous history of ischemic heart disease this could have a fatal outcome. There was some delay in getting him to hospital, and even there he was kept on the trolley for a long time without being seen by a doctor, despite all Leela’s appeals. Kamini and I went to Katunayake to receive Leela with Senaka’s ashes. One of the saddest days in my life. Senaka was only 54 years old when he was killed. He had a lot more energy in him to serve the people and fight for a socialist future for mankind. On this 13th of February we thank him for what he did for the poor people of the world. It will never be forgotten.

 Tissa Vitarana

General Secretary of the LSSP

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Opinion

Revolutionising Sri Lanka’s rice industry through Value Chain Management

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By Lalin I De Silva

This article intends to explore how Value Chain Management (VCM) can optimise cost structures in Sri Lanka’s paddy farming sector; to present innovative rice-based products that can create new markets and improve public health; to analyse global best practices in rice VCM and how Sri Lanka can adapt them and to propose policy measures for utilizing underutilised government warehouses to support rice-based industries.

Rice farming in Sri Lanka has remained stagnant in its methodology for decades. With rising input costs, inefficient farming techniques, and a lack of diversification in rice-based products, farmers struggle to remain profitable while consumers lack access to healthier rice alternatives. The tea industry faces a similar crisis. The government’s role has primarily been reactive, providing subsidies rather than fostering a sustainable model that ensures profitability and nutritional benefits for both growers and consumers.

The adoption of Value Chain Management (VCM) has transformed rice industries in many countries, offering insights into how Sri Lanka can restructure its rice sector. By modernizing supply chains, integrating technology, and promoting value-added rice products, Sri Lanka can transition from a subsidy-dependent rice economy to a self-sustaining and profitable industry.

10 Ways to Reduce Paddy Farming Costs Using Value Chain Management:

Precision Agriculture

: Implement satellite and drone-based monitoring to optimise irrigation and fertilizer use, reducing input costs.

Direct Farmer-Market Linkages

: Establish digital marketplaces for farmers to sell directly to wholesalers, bypassing middlemen.

Mechanisation & Shared Services

: Introduce cooperative-based ownership of harvesting and planting machinery to reduce individual capital costs.

Integrated Pest Management (IPM): Reduce chemical dependency by using biological pest control methods.

Efficient Water Management:

Dr. W. G. Somarathne
Value Chain Consultant
at www.vivonta.lk

Adopt System of Rice Intensification (SRI) methods to cut water usage by 30-50%.

Use of Organic Fertilizers & Biochar:

Reduce reliance on expensive chemical fertilizers by producing compost and biochar.

Cluster Farming:

Group small-scale farmers into cooperatives for bulk buying of inputs and collective bargaining power.

Post-Harvest Loss Reduction:

Invest in proper storage facilities to minimise wastage and maintain grain quality.

Blockchain for Supply Chain Transparency

: Implement blockchain technology to track rice production and prevent price manipulation.

Hybrid Rice Varieties:

Introduce hybrid rice with higher yields and better disease resistance to increase productivity per acre.

10 Innovative Rice-Based Products for Healthier Consumption:

Rice Flour: Alternative to wheat flour, reducing gluten-related health issues.

Rice Noodles: A popular and easily digestible staple in many Asian diets.

Rice Bran Oil: A heart-friendly cooking oil with high antioxidant properties.

Rice-Based Baby Food: Nutritious and easily digestible food for infants.

Rice Milk: A lactose-free, plant-based milk alternative.

Rice Crackers: A low-calorie, high-fibre snack.

Fermented Rice Beverages: Gut-friendly probiotic drinks.

Rice Protein Powder: A plant-based protein supplement for fitness enthusiasts.

Rice Paper Wraps: Used for making healthier wraps and spring rolls.

Puffed Rice Cereals: A fiber-rich breakfast option.

How 10 Countries Have Successfully Used VCM in Rice Farming:

China: Digital platforms connect farmers directly to consumers, eliminating middlemen and ensuring fair pricing.

India: Government-supported Minimum Support Price (MSP) policy guarantees stable income for farmers while promoting organic farming.

Vietnam: Focus on hybrid rice varieties and export-driven policies making it a global rice hub.

Thailand: Investment in premium rice branding (e.g., Jasmine rice) to fetch higher international market prices.

Japan: Uses contract farming models where food companies directly work with farmers to ensure quality and fair compensation.

Philippines: Rice research institutions work closely with farmers to enhance yield through high-tech solutions.

Bangladesh: Encourages farmer-led cooperatives and shared equipment ownership models.

Indonesia: Government-backed storage and logistics networks reduce post-harvest losses.

USA: Heavy investment in genetically modified (GM) rice varieties and precision farming.

Brazil: Integration of rice farming with aquaculture to maximise land use and increase profitability.

Utilising Government Warehouses for New Rice-Based Industries:

The government owns several underutilized warehouses that can be repurposed for rice processing industries.

Installing modern rice milling and packaging facilities will allow farmers to sell polished rice directly.

Warehouses can serve as hubs for producing rice-based products such as rice flour, noodles, and cereals.

Cold storage facilities can preserve rice bran for oil extraction instead of it going to waste.

Collaborative partnerships with private investors can transform these warehouses into rice innovation centers.

How Both Farmers and Consumers Can Benefit from VCM:

Farmers:

Higher income through value-added rice products rather than selling raw paddy.

Reduced dependence on chemical inputs and expensive machinery.

Improved market access through digital platforms.

Consumers:

Access to healthier, diverse rice-based products.

Stable rice prices due to improved supply chain efficiency.

Nutrient-rich rice alternatives that promote better gut health.

Sri Lanka’s rice industry is at a crossroads. By shifting from a conventional production model to an advanced Value Chain Management approach, both farmers and consumers stand to gain. The government must take proactive steps to modernize farming practices, support rice-based industries, and encourage product diversification. Learning from global best practices, Sri Lanka can transform its rice and the Plantation sectors into profitable and sustainable industries, ensuring food security and economic growth.

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Opinion

The passing of Sarjana Karunakaran

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‘Chirp ye squirrels and mourn ye birds, for a spirit ye loved hath bidden good bye’

Passing is something that we all have to reckon with, come early or late. We feel sadder when a person full of smiles and life is taken from us by chance. The beginning of 1990 was a time, with the drum beats of the second round of war, that heralded three births in my family, besides Sarjana they were all three girls, with Thayamani and Thabitha. Times were such that the first time I saw Sarjana and came to know her was during a visit to Jaffna in July 1996. The first impression we had of her can be described as a bubbly presence, full of sunshine and laughter.

When we came to know her intimately was in 2010, as a neighbour, our house, a benefaction of my maternal uncle Gnanar, Sarjana’s grandfather. It is in him that I trace the spirit that moved Sarjana. He was on holiday with us when I was a boy in the same house he later occupied. On a tour of the back garden, he told us of the day he found a baby squirrel fallen down out of its nest and how he climbed the tree and restored the squirrel where it belonged. Sarjana’s window faced us, a symbol of joy and cheer.

In this short presentation, I will draw attention to her chiefly as a scholar. Even in a war-torn society such as ours, ability and scholarship still abound and find their mark. I was more fortunate in my boyhood before the war; the point I make is that scholarship faces several handicaps in a vacuum. Einstein built on his great predecessors, particularly Isaac Newton. When I did my doctorate in Oxford, I was personally fortunate to find inspiration from the work of Ted Slaman from Harvard, who gave me ideas in Mathematical Logic that I followed up.

Likewise, Sarjana who was tipped to do her doctorate in agricultural-biotechnology, related to pest management, during the time the world was under the spell of Covid, which took many promising lives. As was her good nature, she by correspondence helped her cousin Elilini, doing her research at Cambridge, besides others who appealed to her. Elilini has acknowledged Sarjana’s contribution to her doctoral research, which on Sarjana’s sound advice and counsel went fruitfully into allied areas.

Sarjana has left us without revealing the magnificent potential of her life, but gave other youngsters inspiration in fun and scholarship.

Rajan Hoole

Response from Elilini Hoole

Without Chinna (Sarjana) I would not have been able to do my data collection! We also wrote and presented a paper together for a Development Studies Conference in London last year, based on the data we collected. Everyone here (supervisor, colleagues, etc.) commented on how she was able to conduct so many interviews in one month, patiently waiting for a gap in the stringent COVID travel restrictions to interview 50 women. She also managed to do so with such diligence and empathy for the women that, despite the restrictions, she was able to give us rich, detailed insights into a hugely neglected area of understanding. I was really hoping she would come and do a PhD here in Cambridge. She would have loved the programme here, which encourages free curiosity about the world around us.

But she’d no doubt now at her happiest surrounded by God and God’s glorious creatures in heaven. I am looking forward to seeing her again!

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