Debt and a Eulogy for Neoliberalism

Dollar shortage led to short supply of LP gas and milk powder 

The signs of economic collapse are everywhere. Bakeries don’t have bread, and if they do, the prices are too high. Canteens are no longer serving tea. Milk powder and cooking gas are on and off the shelves. Fuel prices are reducing people’s travel.

Clearly four decades of neoliberal policies have brought the economy of a country blessed with so many natural resources to the brink of starvation. So, I want to start the New Year, certainly not a “Happy New Year”, with a eulogy to neoliberalism. A eulogy, a writing of praise, because even though neoliberalism is dead, the political elite of successive governments, the local economic establishment and the international counsellors, want to hear praise for what they did over the last four decades. So, let’s give them a song of praise, in the hope that at least then we can change course.

Microfinance yesterday’s story

Half a dozen years ago, we started hearing the protests of mostly rural women, and that too from the war-affected Northern and Eastern Provinces, who wanted to see microfinance banned or burnt, but buried either way. They would not consider a eulogy for microfinance, they wanted to curse it; the trauma of being chased by collectors, pawning or selling what little they had to repay loans, and sometimes even pushed to attempt suicide, they wanted to see microfinance banished to hell.

Predatory microfinance companies extracted annualised interest of 40% to 240% and trapped women in debt, forcing them to take one loan to pay for another. But our elite dilly dallied, and first said it was a case of exuberant consumption by rural folk, and then as evidence emerged of abuse by collectors they dismissed it as a case of a few bad apples. They avoided an interest rate cap for years, echoing the IMF’s sentiments that it meant interfering in the market; an honourable refusal to interfere in the market while keeping interest rates above 200%. They blamed the victims and said the solution was financial literacy. Even today, the international donors and its comprador elite, are unwilling to let go of the microfinance model, they are still speaking of rural women entrepreneurs, who through a microfinance loan and self-employment plan are going to gain the world. 
The microfinance crisis continues in the country, and it has not received much sympathy from Sri Lanka’s economic establishment. Only the North has seen some change; that is due to the previous government’s efforts of setting an interest rate cap of 35% for finance companies registered under the Central Bank, a partial debt write off magnified by its anti-microfinance advocacy, and an alternative system of credit drawing on a historically strong movement of co-operatives in the North. More than all that, the Northern rural women themselves eschewed microfinance as a flawed model and a curse they did not want to touch. 

National debt today’s story

The debt chickens are coming home to roost. I don’t mean those chickens provided for self-employment schemes to rural women; those chickens died soon after. I mean the curses of finance capital flying to every corner of the island pecking ordinary folk with various debt schemes. They have now come back to roost in the hallways of the Finance Ministry and the Central Bank.

As foreign reserves keep plummeting from US$ 8 billion two years ago down to US$ 1 billion last month, high officials are running from pillar to post seeking a currency swap or a foreign loan, even as they are unable to contain the bloated annual import bill of US$ 18 billion where annual exports remain around US$ 11 billion. Like the self-employment schemes for rural women, the country was prescribed tourism as the solution to bridge the trade deficit, which if not dead after all that borrowed investment has been paralysed for years with the pandemic. More worryingly swings the sovereign debt payments every so many months as fears of default hangs over the country.
Meanwhile if financial counselling was the arrogant measure proposed for our indebted women, an IMF agreement is the insipid solution proposed for our indebted country. Indeed, the financial establishment which was to design financial counselling for rural women, are now to be counselled by the IMF on austerity, privatisation and shredding our social welfare system.

Desperate measures

The Rajapaksa regime wasted two years even after the deepening crisis was amply clear. It did not change the economic policy trajectory and acted as if the market with time will fix the problems. Food security, medical imports and intermediate goods for production should have been the priority. However, for the neoliberal establishment slashing imports and interfering in the market are taboo like a religion. The Opposition consisting of SJB and its UNP remnants are no different, and their magic bullet remains an IMF agreement. The JVP and its partners in NPP are not too distant, they have been wedded to the neoliberal cousin of corruption discourse, and only speak of getting rid of the corrupt. That is why I propose a eulogy to pacify their egos; because to accept four decades of flawed open economic policies with their commissions and omissions requires a conversion they cannot accept.
As the crisis prolongs we are going to see more of deals like the Trincomalee Oil Tanks being leased to India. Just as rural indebted women were preyed on by predatory finance, the country will be preyed on by great powers seeking strategic assets for their geopolitical ambitions. The neoliberals will go as far wanting a default and an even deeper crisis, so that they can have their way of slashing the state and reengineering the economy under IMF prescription.

The citizenry needs to be vigilant. The priority should be food on the table and the bare essentials of life including medicines and fuel. If there is no bread due to wheat import shortages, the elite will eat imported cakes, and if there are no medicines, they will fly to hospitals in Singapore. Indeed, during the festive season, the super markets were stacked with imported chocolates. The asses running the economy are clueless and the donkeys proposing neoliberal solutions are morons.

These are formidable times, regime change will not make a difference unless there is the political will to make decisive changes. During the last decade, Greece went through multiple regime changes and nevertheless went through the hell of austerity to be part of the European market. The market has failed, and the first step now should be for the state to take over the external sector and prioritise imports necessary for the people.