Sri Lanka: Crisis of Capitalism
Calls for its Eradication

May 31, 2022 0 By Yatharth

M Aseem

The second countrywide hartal (general strike)on 6th May by the trade unions after the first one on 28th April precipitated the 2nd stage of the political crisis which was building up for months because of the immense hardships faced by the Sri Lankan people owing to long capitalist exploitation, neoliberal economic policies, economic mismanagement and repression by its ethnic majoritarian militarised state, This crisis has now engulfed not only the working class and peasantry but also the middle classes. The first critical stage of the crisis had come on 31st March when large number of protesters not only amassed at President Gotabaya Rajapaksa’s residence in Colombo, but many also entered it by jumping over the walls. On 7th May, the day after the hartal, thegovernment declared a national emergency. On 9th May the Prime Minister Mahinda Rajapaksa sent his stormtroopers to attack the protesters on Galle Sea Face in Colombo. This people’s fury roused by the violence on protesters turned into a spontaneous rebellion in most parts of the country, in which the ruling elite including the Rajapaksa family and their party Ministers/MPs were targeted and their houses and properties burned. One MP was killed after shooting at protesters. PM Mahinda had to resign the same day though President Gotabaya is still holding out. Seeing the crisis turn into a sort of spontaneous insurrection US, India, Japan and others intervened and four times ex-PM Ranil Wickremesinghe whose party had been completely routed in last elections was installed PM again with the promises to solve the crisis including scarcity of both food and energy forcing people into massive queues and rousing furious anger. He is attempting, on the one hand, to stabilise the situation and pacify people with the help of these countries and IMF, on the other, to convert the calamity into opportunity for the ruling class, by using the crisis to mobilise in favour of still wider neoliberal policies like privatisation, higher indirect taxes and increased prices.

More than one thousand trade unions and greater than a million workers from all parts of industry, both blue and white collar, even unorganised workers and those who have been denied right to form trade unions in Special Processing Zones joined these hartals. What is more important, the hartals in Sri Lanka are broader than a general strike, more like an Indian bandh, with people from poor urban and rural communities – peasants, petty shopkeepers, etc – joining the workers to bring the whole life to stand still. These successful working-class hartals have not only reminded people of the Great Hartal by left parties in 1953 but also brought the working-class to the forefront of the wider protest movement though the media has mostly been focussing on the largely middle-class protests of ‘GoGotaGama’ at Galle Sea Face.

It is all the more significant in view of the fact that Sri Lankan working class movement had become quite weak and scattered after the last hartal in 1980 which was brutally crushed using armed forces by the authoritarian JR Jayewardene who had introduced the presidential form of government in place of parliamentary form with the backing of Sinhala majoritarian nationalists and was ruthlessly implementing neoliberal economic policies. After that some unions were broken and control of many was wrested by the bourgeois political parties. Since then, 28th April countrywide hartal is the first one called by the Sri Lankan workers.

For nearly three months now Sri Lanka is passing through a severe economic-political crisis causing immense suffering in the life of the people. Their anger is being expressed in daily protests attended by large numbers. The agitation reached a critical stage when the protesters breached the walls of the President’s residence on 31st March demanding his as well his brother Prime Minister’s resignation. Rajapaksa imposed emergency in response which further infuriated the people suffering in serpentine whole day long queues without food, medicines, electricity, petrol, diesel, kerosene, LPG and many other essential goods. Initially the anger of the people was centred on authoritarian Rajapaksa family and many of their erstwhile supporters in government including ministers tried to distance themselves from Rajapaksas in an attempt to form an alternative government with the help of opposition parties, but Rajapaksa brothers were adamant not to resign. But these opposition parties do not have any fundamental difference in their politics from the current dispensation and gradually the whole of the parliamentary parties became the focus of people’s anger and the slogan ‘No to all 225’ (referring to all 225 members of parliament) was being raised.          

But this massive and strong protest is not something completely out of a sudden. Many smaller movements were expressing people’ anguish since last year – peasants were protesting ban on fertilisers, public sector teachers and plantation workers were agitating for better pay, Tamils in the North wanted justice and civil rights, even the urban middle class began to come on to the streets owing to increasing hardships of day-to-day life. Small sit ins, processions, candle marches, etc were reflecting the increasing distress and anger. Ultimately, this March, the last shreds of the usual ideological-moral legitimacy of an elected bourgeois democratic government in the people’s mind was completely eroded, bringing even its own erstwhile diehard supporters into the protest. Let us remember this is a government elected with 52% of the vote just 2 years back in 2019.

31st March – Direct Action by Masses

It is in this background that the spontaneous direct action of the masses at presidential residence on 31st March was of great significance. In a single push it has shaken the whole edifice of 40 years long authoritarian rule, based on the support of Sinhala nationalist jingoism, which seemed impregnable till just a few days back. As a result, the authoritarian rulers have been forced to sound retreat and offer some concessions while many for long silent and passive sections of the masses have emerged into intense political activity, and actions, demonstrations and debates are taking place in every nook and corner of the country. Large sections of the masses are expressing their disapproval of the whole political system in the form of the slogan ‘No to all 225’ and are demanding fundamental changes, though the shape of these changes is not yet crystallised. But this much is clear that large sections of the people want change and are, therefore, full of both hopes as well as apprehensions. This transition is bringing various classes conscious, alive and awake for the fulfilment of their class interests. We can say that formally the old structure stands but all the classes are contending for what is to replace it, though some are fully conscious of it and organised while others are still in confusion.

Another remarkable aspect of the protest movement is its powerful assault on the ideological hegemony of the nationalist-communal Sinhala majoritarianism. The ruling elite attempted to give it a communal colour after the 31st of March events by claiming an organised terrorist conspiracy and tried to mobilise majority against minorities in the name of national security. However, this heinous design was foiled by the alert people. While the minorities are still apprehensive and the Tamil national elites are actively asking people to remain away from the protest, many common Tamils and Muslims from the north and east are joining it, and observers have reported conscious effort on the side of the protesters to make them comfortable – slogans and banners being raised in Tamil and space being made for Muslins to pray especially during the just passed Ramazan month. 

How the Crisis Came About

The decades long neoliberal economic policies of Sri Lankan capitalist rulers have bankrupted it under the burden of huge domestic and foreign debt. Total debt is 119% of and hence greater than the whole of Sri Lanka Gross Domestic Product (GDP), more than half of which, 68%, is foreign. Foreign Exchange reserves required for imports have fully depleted as the combination of its economic policies and covid have resulted in loss of Forex earnings from export, tourism as well as the inward remittances from Sri Lankan workers abroad. Therefore, it can neither import the needed goods nor repay principal and interest on its external debt and in absence of requested bailout from IMF it defaulted on its foreign debt on April 12 asking the debtors to convert the interest into principal or to accept payment in Sri Lankan rupees. Meanwhile India, China and some others have extended emergency credit of few billions to it but that is insufficient.

Another contributory factor to the intensity of the crisis is the ‘spectacle’ politics of megalomaniac strong man leaders being produced by extreme right in this period of ‘endless’ economic crisis of capitalism who float all types of hair brained and disastrous schemes as panacea to economic ills of capitalism. Like Demonetisation by Narendra Modi in the name of excising all ill-gotten money, Rajapaksa brought in Fertiliser less organic farming to reduce imports and save foreign exchange. This was implemented in April 2021 when import, sale and use of all synthetic fertilisers was proscribed from immediate effect against all sane advice but to the applause and admiration by Western environmental NGOs and even Narendra Modi himself. However, this forced organic farming resulted in severe damage to agricultural productivity with both rice, staple diet of Sri Lankan people and tea, the main export crop, production declining steeply. Hence, instead of saving foreign exchange it ended up further debilitating the foreign exchange reserves as rice had to be imported and tea exports nosedived. Moreover, the peasantry forming two thirds of the Sri Lankan population found itself in a calamitous situation. 

Third factor was the new-fangled idea of Modern Monetary Theory (MMT) being presented as the salvation of capitalism after complete failure of Keynesianism. MMTers say that a sovereign nation can come out of effective demand crisis by increasing its public expenditure to any level since budgetary deficit is not a limiting factor and can always be met by money expansion (good old money printing!) and this does not lead to inflation! According to Live Mint report, “The central bank governor at the time, Weligamage Don Lakshman, informed the public during the pandemic that nobody need worry about debt sustainability. All Sri Lanka needed to do was “increase the proportion of domestic debt.” Then the problem would be solved, since “domestic currency debt … in a country with sovereign powers of money printing, as the modern monetary theorists would argue, is not a huge problem.” Sri Lanka is the world’s first country to reference ‘modern monetary theory’ (MMT) officially as justification for money printing. Lakshman began running the central bank’s printing presses day and night; his successor, Ajith Nivard Cabraal, who also denied the link between printing money and inflation or currency depreciation, kept up that policy. Between December 2019 and August 2021, its money supply increased by 42%. Reality did not take long to set in. By the end of 2021, inflation hit record highs. And, naturally, the clever plan to “increase the proportion of domestic debt” turned out to be impossible, as fewer people wanted to buy treasury bills.”

All this has resulted in immense misery and suffering in people’s life by creating scarcity of necessary goods as well making them steeply expensive. Import of 367 essential items including milk, meat, oranges, domestic appliances, etc has been restricted. Sri Lankan Rupee had depreciated almost by 50% by 26th March (from 200 per USD to 292 per USD). Cooking gas prices have gone up 3 times in 5 months. Kerosene, like petrol and diesel is not available even at twice the earlier price. People tried wood and hot plates as substitutes, but their prices have doubled. Moreover, electricity supply is not available 12-14 hours a day. Official inflation rate reached 19% but unofficial studies have put it up to 55%. Prices of most food items have become 2 to 5 times what they were. Fuel requires people to queue up whole day, when available. This is disastrous for working class especially daily wage workers who apart from high prices have to give up wages to stand in queue where people have even died because of hunger, weakness and heat. Hence many are forced to cut on food and go hungry. Lack of paper has forced postponement of school examinations and stopped newspapers print editions. Situation is so dire that quantity of rice in school mid-day meals has been reduced from 75 to 60 grams a day.

Crisis of Capitalism and Neoliberalism

If we go a little deeper into the causes of Sri Lankan economic crisis, its origin can be seen in the uneven capitalist development driven by the needs of imperialist capital under British colonial rule. For the imperialists these colonies were source of cheap raw material for their own industries and captive markets for their industrial goods. Hence, instead of a broad-based industrialisation possible under an independent capitalism, its economic development was highly unbalanced to meet the needs of colonial capital. In addition to its traditional agriculture, only tea, coffee, rubber plantations and textile manufacturing saw any development.

After becoming free of colonial rule in 1948, Sri Lankan capitalist rulers attempted industrial development to become self-dependent like many other newly independent capitalist countries. But having developed under colonial rule in the era of imperialism when world capitalist system had already become historically moribund and reactionary, and had been mired in deep crises since 1970s, it was sick since birth lacking the capability and energy required for all round capitalist development. Hence even after seven decades, it remains dependent on imports for much of its needs and tourism and export of labour, besides tea, have become important foreign exchange earners to meet import needs. Such countries, in case of any economic and financial crises are among the first to buckle under and that has also been the fate of Sri Lanka which has a long history of going to IMF for a lengthy series of bailouts.

Already beset with problems of imbalances of uneven capitalist development under colonial rule, Sri Lanka was also among the first countries to implement IMF advised ‘structural adjustment’ policies driven by neoliberal outlook. In fact, Sri Lankan ruling class in 1990s proudly claimed to be among the ‘freest and most open economies of the world’. However, this structural adjustment entailed suppression of the working-class rights and trade unions to increase productivity of labour along with lower wages to encourage so called export oriented economic growth, including the so-called Special Processing Zones, which essentially are areas where all labour laws and other domestic civil and commercial regulations are suspended for the sake of capital to operate freely and maximise its profits. Secondly, building up of large infrastructure projects which become unproductive because they are not part of any real planning to fulfil social needs but to create captive demand for domestic and foreign capital by government decisions. The expenditure on these is financed by curtailing already limited budget for social welfare schemes like education, health, housing, public transportation, etc and by increasing burden of indirect taxes, fees, charges, cesses, etc on the common people. Ultimately these result in unmanageable burden of debt repayment on the government which sooner or later has to blow up in a crisis. Sri Lanka has also seen several such ‘white elephant’ projects, Hambantota being the most well known as it was financed by China and had to be leased to it when debt could not be serviced. But it is not China alone which is responsible for such projects. India, US, Japan, IMF all had a share. Even now, in the midst of the current crisis, in lieu of its credit lines, India is putting pressure for an undersea grid project to link Sri Lankan electricity Grid to Indian Grid.

However, such nakedly pro-capitalist and repressive economic policies always need to be accompanied by one or more shades of divisive, majoritarian, communal, authoritarian, or fascist politics. The same happened in Sri Lanka where it has led to snatching of civic rights of Tamil minority, terrorism, a long and bloody civil war, two armed insurrections, military suppression of working-class movement, military intervention by India twice and an ethnic authoritarian militarised state based on Sinhala national jingoism in last five decades. Of course, we make just a passing mention as this is not the place to go into details of all that.

In the post-Civil War period Sri Lankan Capitalist class continued with its neoliberal economic policies of debt based economic development with concessions and incentives for capitalists. Economic growth speeded up for the time being. Government also claimed 1.6 million to be alleviated from abject poverty. Middle class also saw expansion. In 2019, World Bank included Sri Lanka in its list of the Upper Middle-Income countries. However, it also saw government tax revenues decline from 20% to 13% of the GDP whereas the foreign debt multiplied six times in 6 years from 2006 to 2012.  This ‘upper middle income’ was actually based on the immense concentration of income and wealth in a small class of capitalists. Result was economic crisis arriving within a year of its inclusion in the category of ‘Upper middle income’ countries.

The neoliberal economic policies are designed to transfer public as well private wealth and income from working class and other intermediate classes like small owners to a small number of capitalists and leads to accelerated centralisation of capital and wealth in the countries where these are implemented. This had invariably led to disastrous social results in many countries all over the world and is fuelling all types of social protests and unrest in all continents from South America to Africa, Europe, Asia and Oceania. Sri Lanka is but one among the latest of those.

Some Political Aspects and Possibilities

It is very much possible that in the short-term credit lines from India, China, Japan, etc and new loans from IMF along with restructuring of old ones might stabilise the situation in Sri Lanka for now. It is also possible that the people’s protest might weaken for the present. But we know that these loans will come with more of the same ‘medicine’ that has caused this crisis – more privatisation, more curtailment of social expenditure, more debt and inflation, more suppression of workers and democratic rights, etc. This will create further crisis, generate more misery and suffering, fuel further grievances and bubble of stability will continue to burst again and again.

Ruling class is always more class conscious and takes early and quick initiatives to safeguard its class interests by attempting to ‘resolve’ all such political-economic crises within the bounds of capitalist system. In Sri Lanka also, as described above, opposition parties and a section of ruling party too, are trying to come to power by putting all responsibility of this crisis of capitalism and its neoliberal economic policies only on Rajapaksa family. They too follow the same policies that were being implemented by Rajapaksa family. They do not appear to be getting much public support at the moment but ruling bourgeois class parties, thinktanks, intellectual and their media has started wide campaign in favour of the idea that wasteful government expenditure and insufficient reforms are the cause of this crisis. Among representative actors, the Advocata Institute, for example, has come out with successive statements blaming the crisis on the Rajapaksa regime’s attempts to impose price controls and import restrictions, along with continued support for a bloated public sector and inefficient State-Owned Enterprises (SOEs). …Public sector employment and SOEs are at the core of the neoliberal ideological assault on the Rajapaksa regime’s alleged failure to implement necessary reforms… Advocata has argued that “The present macroeconomic instability lies in the failure of the state to implement deep structural reforms to the economy for nearly twenty years.” This section of ruling class wants to convert the calamity of this crisis into an opportunity to push for still deeper neoliberal economic policies, that is, more privatisation, less expenditure on public services, more concessions and incentives for domestic and foreign capital, etc. Initial protests and their media coverage also focussed chiefly on these middle or petty bourgeois classes which because of their class location and interests are usually under ideological hegemony of the bourgeoisie. Therefore, the risk in such protests always remains that ruling class will utilise them to push for more and deeper reforms with the help of these classes, for example we always see in India that such petty bourgeois intellectual opponents of Modi like Raghuram Rajan, Arvind Subramanyam, etc while criticising Modi for his economic policies blame him for not doing sufficient ‘reforms’ and demand that these ‘reforms’ be speeded up.  The same role is played by multilateral imperialist institutions like IMF.

If the ruling class is successful in implementing its programme, much more suffering is in store for the proletariat and other working people, peasantry, petty shopkeepers, lower middle class, pensioners, etc. However, Rajapaksa and Wickremesinghe also know that at present it will not be easy to implement all this peacefully. Hence, they are looking for a suitable opportunity, though they have retreated for now in the face of popular fury. Still, armed forces are also on alert in 25 districts to take care of the ‘law and order’ in case of need.

Presence of a strong working-class force which can lead this mass anger against the capitalist system is not yet visible though the working class made a strong intervention through the successful hartals of 28th April and 6th May and precipitated the political crisis that made the PM Mahinda go. However, its demands are still limited to resignation of the Rajapaksas and economic relief for working people. The leaflet issued by more than 100 trade unions which participated in the hartal said, “We have to build pressure to bring a government which responds to people’s desires to replace the failed government.” But on whom the working class wants to build pressure on? The bourgeois parties which just want to ascend to power and continue with same neoliberal economic policies? But the existing capitalism is not the capitalism of the times when it had the space for expansion and could afford to give at least limited relief to the people by implementing some social democratic policies. Any section of the bourgeoisie coming to power in capitalism now will perforce continue with same anti-people and pro-capitalist policies. Hence, to talk of building pressure to fulfil people’s desires and ambitions within the present capitalist system itself instead of moving towards working class state or socialism tantamount to ideologically-politically disarming the working class. Of course, there certainly are some revolutionary groupings in the Sri Lankan working-class movement. However, it is only to be seen in future whether they will be able to give a working-class revolutionary direction to this upsurge in the evolving revolutionary situation.