Politics of Sri Lanka’s IMF bailout: an initial assessment

Analysis
By Editor_1
A group of supporters of President Ranil Wickremesinghe celebrate in the outskirts of Colombo, Sri Lanka on Tuesday (March 21) while he addresses the nation, after the International Monetary Fund's executive board approved a $3 billion loan -Dinuka Liyanawatte/Reuters
By Dr. S. I. Keethaponcalan

Sri Lanka’s long-awaited International Monetary Fund (IMF) bailout finally came through. On March 20, 2023, the IMF approved three billion US dollars under its Extended Fund Facility (EFF). It is claimed that Sri Lanka could access up to seven billion US dollars.

An immediate disbursement of 300 million US dollars was made immediately after the approval. Sri Lanka has a long history of borrowing from the IMF. However, this time around, it was different because the current bailout is aimed at preventing a total collapse and a socio-economic catastrophe. Sri Lanka also did not have too many other options.

Baseless Doubts 

Nevertheless, there was doubt at one point in time whether the IMF would bail out Sri Lanka, with even government ministers casting doubts. Some predicted there would be no IMF assistance because of the Chinese resistance to necessary concessions. However, for some of us, it was clear that a rescue package would become a reality.

One, the international community, especially the regional bigwigs, could not allow Sri Lanka to collapse because a Sri Lankan disaster would have an unavoidable spill-over effect on other South Asian states. Therefore, someone needed to bail Sri Lanka out. The IMF was one of the promising candidates.

Two, failure to rescue Sri Lanka would have pushed the country more into the control of China. When the Sri Lankan crisis emerged, President Gotabaya Rajapaksa’s government, especially Central Bank Governor Nivad Cabral, who played a significant role in ruining the country’s economy, preferred to work with China than the IMF. He announced that “Sri Lanka does not need IMF relief.” Before the crisis, China consolidated its power and influence in Sri Lanka, which concerned India and the United States. The crisis imparted an opportunity to re-establish their influence in Sri Lanka. This was precisely why India and the USA contributed considerably to the final IMF decision.

Three, although China was initially hesitant to make concessions, it did not have the luxury to not cooperate with the IMF and Sri Lanka on this issue. Sri Lanka used to be in the sphere of influence of the West and India. In the early days, China struggled to establish a foothold in Sri Lanka despite the historic connection between the two countries. The end of the civil war in 2009 enabled Sri Lanka to sideline India and the US and forge close relations with China. Hence, post-civil war witnessed a rapidly growing Chinese presence and influence in Sri Lanka. Meanwhile, the notion that it was the Chinese hesitance to make concessions, for example, to restructure debt, compromised its image and position in Sri Lanka. China cannot easily lose Sri Lanka because it has already invested considerably in the Sri Lanka project. Eventually, Chinese banks made adequate concessions that sealed the IMF approval on March 20. As The Business Times reported on March 7, 2023, “Chine has given assurances that it will support Sri Lanka’s debt restructuring, potentially clearing the biggest hurdle for the South Asian nation to secure a US$2.9 billion bailout from the International Monetary Fund (IMF) in the coming weeks.”

The Positives 

The approval on March 20 generated mixed reactions in Sri Lanka. The government of Ranil Wickremesinghe was elated. On March 21, the president proudly announced, “we will no longer be declared a bankrupt nation, but a nation that can restructure its debts.” Government supporters celebrated the news with fireworks. On the other hand, sceptics mocked the government, saying this was not the first IMF loan to Sri Lanka. The implication was that the IMF deal should not be treated as an achievement or victory. Others pointed out that the deal would only benefit the government and wealthy groups. They believe that ordinary Sri Lankans would not benefit from the bailout package.

The argument that the IMF bailout would not benefit ordinary people is ill-informed and politically motivated. In other words, the bailout can benefit ordinary people immediately. Sri Lankans have been experiencing immense hardship daily from the skyrocketing cost of living. One source of the killer price of essential commodities was the depreciation of the Sri Lanka rupee again the dollar. The Sri Lanka rupee almost wholly collapsed following the economic crisis. As an import-dependent society, the impact of the dollar crisis and resulting high prices crippled the lives of ordinary Sri Lankans.

The bailout has the potential to strengthen Sri Lanka rupees against the dollar. The impact has already been felt. On March 20, a dollar was worth 345 rupees. On March 21, one day after the IMF decision, the dollar depreciated to 323 rupees. According to informed sources, the dollar could stabilize at 300 rupees. This would significantly improve the buying power of people. As a result, the burden of ordinary Sri Lankans could ease to a certain degree.

Another issue that greatly affected ordinary people was the import ban of many essential commodities that stemmed from the economic crisis. For example, lack of medicines had severe social repercussions. Predictably, the government has announced that the import ban will be gradually lifted. The import ban on drugs will be lifted in the first round, a commendable move.

Therefore, it is safe to argue that the IMF bailout would ease the pressure on average Sri Lankans. Politically, a notable fact is that President Wickremesinghe’s political plans depend on the immediate impact of the bailout dollars. For example, local government elections were scheduled for March 2023. However, the election has been postponed indefinitely due to a lack of funds from the government. Wickremesinghe maintains that the state does not have adequate resources for the local government elections, which could be partially true.

Elections 

Nevertheless, theoretically, it is possible that the Wickremesinghe government intentionally sabotaged the election. Given the social condition in March 2023, the election results could have been fatal for Wickremesinghe’s political plans. Due to the IMF deal, he has been seen by a section of the Sri Lankan polity as a champion and a saviour. He may be planning on capitalizing on the improvements gained through the bailout resources and opting for the presidential election first. Sri Lanka should conduct a fresh presidential election before the end of 2024.

Nevertheless, exploiting the positive impacts of the bailout package and winning an election will not be an uncomplicated scheme. The bailout package is a bitter medicine. As usual, the IMF package entails several conditionalities. Domestic economic reform is an integral part of the IMF conditions. In Sri Lanka, economic reforms mainly mean the privatization of state-owned enterprises. Recently, President Wickremesinghe casually declared that the state should not be in the business of doing business. The statement reflects his current thinking.

Therefore, the government will fully or partially privatize several state-owned businesses in the near future. Sri Lanka Insurance and SriLankan Airlines will be some significant sectors targeted for privatization. A section of Sri Lanka’s political elite and populace is anti-privatization. Education and health sectors could also be targeted, making the socialist groups nervous and agitated. In addition, the possible downsizing of the military will energize Sinhala-Buddhist nationalists against the government. While approving the package, the IMF maintained that Sri Lanka should stick to its tax reform program, meaning the recent tax hikes should continue. Moreover, the IMF demanded that the energy subsidy schemes be discontinued. All these actions will be highly unpopular.

Different groups have already been protesting many of the IMF-influenced decisions and actions. For example, high-paying public sector employees have been protesting the recent tax decisions and want them removed. These protests could intensify.

The Resistance 

Some political parties, especially socialist groups, including the Janatha Vimukthi Peramuna (JVP), are unhappy about the IMF deal. One, they are inherently against Western structures, including the Bretton Woods Institutions. Two, the possible improvement of social conditions due to the bailout package would hurt their political support base. For example, the JVP, which only has about four per cent national vote, believed it could win national elections after the economic crisis. The bailout package is not good news for them. Hence, the anti-Ranil Wickremesinghe political parties, including the JVP, the Sri Lanka Podujana Peramuna, and the Samagi Jana Balawegaya of Sajith Premadasa would use problematic aspects of the bailout package as a political weapon against Wickremesinghe in the presidential election. One has to wait and see how the masses would react. It is too early to predict the political outcome of the IMF bailout package for Sri Lanka.

-Dr. S. I. Keethaponcalan is a Professor of Conflict Resolution at Salisbury University, Maryland. Formerly, he was a Professor of Political Science at the University of Colombo, Sri Lanka

 

 

Editor_1
You might also like More from author

Comments are closed, but trackbacks and pingbacks are open.

otc high blood pressure treatment blood pressure guidelines medications blood pressure pills that is safe for the liver high blood pressure medication levothyroxine blood pressure medication that reduces blood pressure is there any difference in blood pressure pills high blood pressure child medication blood pressure medication recommendation nose blue blood pressure medication blood pressure is 150 68 should i take my medication blood pressure medication while nursing taking a bunch of high blood pressure pills aerobic exercise and blood pressure medication good blood pressure medication acupuncture treatment for low blood pressure best over the counter pills for high blood pressure blood pressure pill amlodipine besylate high blood pressure signs and treatment moderna vaccine blood pressure medication which blood pressure drugs do not cause tinnitus blood pressure medication fights cancer blood pressure medication skin rash side effects of high blood pressure medication impotence medication to avoid on blood pressure medications high blood pressure rx medication peripheral neuropathy caused by blood pressure medication high blood pressure in pregnancy treatment nice runny nose do to blood pressure medication how to get off of blood pressure pills hiv medication and high blood pressure niacin treatment for high blood pressure two drugs for blood pressure that caused cancer high blood pressure causing medications high blood pressure medication names canada blood pressure medication side effects alcohol i take 3 blood pressure medication blood pressure pills that help with anxiety what iv drug raises blood pressure list of doctors who formulated blood pressure medications how to remember blood pressure medications sleeping pills blood pressure how fast does blood pressure medication take effect sweet n low high blood pressure medication home treatment for blood pressure high blood pressure medication matrocet high blood pressure medication doses blood pressure drug bystolic iberstaron blood pressure medication blood pressure medications st alphabetical celexa and high blood pressure medication does blood pressure pills irritation skin can i take combivent with high blood pressure medication blood pressure medications beta blockers list what to do if blood pressure medication does not work drugs to lower your blood pressure red beet pills for blood pressure taurine and blood pressure medications how ling for garlic pills to lower blood pressure blood pressure medication list and side effects can i take aspirin with high blood pressure medication blood pressure medication teaching about hot tubs water pills high blood pressure over counter what is an arb medication for blood pressure resveratrol high blood pressure medication high blood pressure medication and weight loss gum disease and blood pressure medication benzenesulfonic acid in blood pressure medication taking two blood pressure pills by mistake allergy pills for high blood pressure blood pressure prescription drugs safety blood pressure medication in pregnancy trazodone and blood pressure medication which blood pressure medication is linked to skin cancer list of blood pressure medications with the least side effects could blood pressure medication make blood thicker disadvantages of high blood pressure medication blood pressure medications ludipril typical drugs for high blood pressure otc water pills for high blood pressure blood pressure medications that do not doncause bowel blockage high blood pressure after corrosion treatment how soon does high blood pressure medication work blood pressure medication teaching amertyrine high blood pressure medication increased blood pressure and heart rate after drug overdose over the counter drugs high blood pressure blood pressure medication 25 is blood pressure medication a nitrate most effective blood pressure pills blood pressure medical does red yeast rice interfere with high blood pressure medication can apple cider vinegar pills lower blood pressure does blood pressure medication give you headaches high blood pressure medication and driving should you take blood pressure pills with food inn blood pressure drugs can you eat bananas if taking blood pressure medication popular high blood pressure medication blood pressure medication los blood pressure medication second drug low blood pressure and hypertension medication do water pills lower blood pressure high blood pressure pill aqunadine high blood pressure cholesterol medication how does medication lower blood pressure acetaminophen blood pressure medication blood pressure medication 30 mg that works around the heart what does grapefruit do to blood pressure medication can red yeast rice be taken with blood pressure medication pharmaceutical treatment for high blood pressure are blood pressure pills statins blood pressure pills that start with r blood pressure medication and male impotence taking baby aspirin with other high blood pressure medications what is the medical name for a blood pressure cuff leg cramps and blood pressure medication blood pressure pill name starts with p natural high blood pressure treatments blood pressure medication names losartan higher blood pressure with radiation treatment medical marijauna high blood pressure how to avoid medication for high blood pressure what time is best to take blood pressure medication medication for palpitations and high blood pressure latest news on blood pressure treatment what if i take two blood pressure pills does xanax interfere with blood pressure medication amlipan blood pressure medication vitamin e and blood pressure medication tell me the side effects of high blood pressure medication herbs pills to lower blood pressure blood pressure medication urge to urinate what medication will safely replace lisop as blood pressure medicine active ingredient in high blood pressure medication blood pressure medications cause adrenal tumors is biktarvy ok to take with high blood pressure medication alembic blood pressure medication sandoz blood pressure medication exercise high blood pressure medication grapefruit pills blood pressure treatment for high blood pressure at home blood pressure medication for patients with osa cycle on off blood pressure medication blood pressure drugs that do not cause heat sensitivity blood pressure medications that do not cause coughing what blood pressure medications do not cause rosacea pfizer blood pressure medication side effects do garlic pills really help lower blood pressure should i take medication for anxiety induced blood pressure treatment for uncontrolled blood pressure decongestant medication high blood pressure can stiff days be used with high blood pressure medication how long does it take medication to lower blood pressure what if i miss a blood pressure pill tribenzor high blood pressure pills law lawsuit 2023 treatment of sudden drop in blood pressure zoloft and blood pressure medication orange high blood pressure pill cancer blood pressure pill why cant people with high blood pressure take keto pills how long for blood pressure to go down mini pill should i get second opinion before taking blood pressure medication blood pressure erectile dysfunction medication high blood pressure medication m lot ben medical device lowers blood pressure puppy ate blood pressure pill are there medications for low blood pressure dod blood pressure medication is losartan a blood pressure pill combination drugs for blood pressure marijuana and blood pressure medication interaction blood pressure medication interactions with grapefruit can you eat bananas while taking high blood pressure medication steps before going on high blood pressure medication blood pressure medication when to cut down foods to avoid on blood pressure medication blood pressure medications depression blood pressure medication non beta blocker tattoos and high blood pressure medication what is the medications used to lower blood pressure quickly high blood pressure medication leg swelling blood pressure medication men in your 40s blood pressure medication wieight loss blood pressure medication hy can blood pressure medication lower blood sugar does blood pressure medication make you pee natural treatment high blood pressure during pregnancy can you take l arginine with high blood pressure medication what class of blood pressure medication can can blood pressure pills reduce appetite faa approved medication for high blood pressure high blood pressure medication during pregnancy best blood pressure medication for type 2 diabetes blood pressure and pain medication pain medication that does not affect blood pressure best high blood pressure drugs on the market if you take incorrect medications to lower blood pressure low blood pressure treatments does your body have to adjust to blood pressure medication why water pill for high blood pressure drugs for treatment of very high blood pressure during pregnancy can i drink grapefruit juice with high blood pressure medication can blood pressure pills make you feel cold high blood pressure medication that helps with weight loss amlodipine blood pressure drug blood pressure medication for infants varicose veins blood pressure medication life extension high blood pressure medication does tylenol interfere with blood pressure medication can i take diamox with other high blood pressure medications prestige medical blood pressure cuff calibration drugs used for high blood pressure chamomile tea and high blood pressure medication narcotics stored alongside blood pressure medications in does nutrigrove blood pressure pills work extremely low blood pressure treatment blood pressure medication for iga nephropathy blood pressure medication low side effects can i increase my blood pressure medication what is the best blood pressure medication to take drugs that cause increased blood pressure does biotin interfere with high blood pressure medication cani od on high blood pressure pills blood pressure medication that also helps with jerking blood pressure medication categories first line treatment of high blood pressure medication for low blood pressure in usa armour thyroid drug interactions blood pressure meds hepatitis c treatment high blood pressure high blood pressure arb drugs low blood pressure treatment with essential oils high blood pressure medication list for pregnancy blood pressure medication and snake venom blood pressure medication low dose liquid blood pressure medications ivf drugs and high blood pressure left my blood pressure medication does it matter when you take blood pressure medication can you take blood pressure pills twice a day privilin blood pressure medication how big are blood pressure pills once you start blood pressure medication can you stop diuretic in blood pressure medication what medication reduce blood pressure new blood pressure treatment prescribed home medications for high blood pressure blood pressure medication side effects forums taking blood pressure pills dizzy when bend over a lot blood pressure medication and nyquil cinnamon pills and high blood pressure temporary high blood pressure treatment single agent blood pressure medication blood pressure medication made in china fda approved medications to reduce blood pressure immediate treatment for high blood pressure at home best time to take blood pressure pills muscle loss on high blood pressure medication blood pressure medication when needed treat high blood pressure without medication blood pressure medication side effects for men cbd pills for high blood pressure blood pressure regulation without medication blood pressure medication and pre workout high blood pressure alzheimer disease and antihypertensive treatment miss blood pressure medication blood pressure pills suicide peaceful emergency drugs for low blood pressure common blood pressure medications in canada systolic blood pressure define medical viril and high blood pressure pills can statin drugs help lower blood pressure do you have to wean off blood pressure medication new drugs for blood pressure when is high blood pressure medication necessary drugs for hi blood pressure cold medications and blood pressure taking 2 blood pressure pills mistake why doctors stopped prescribing blood pressure medication common high blood pressure medication canada what side effects does blood pressure medication have ulcer medication high blood pressure can high blood pressure medication elevate alkaline phosphatase blood pressure medication warning getting blood pressure medication jamaica alkaline water and blood pressure medication blood pressure going up and down with medication drugs reduce systolic blood pressure treatment for rapid high blood pressure low blood pressure alternative treatment do all high blood pressure medications cause weight gain medication for increasing blood pressure blood pressure medication for african american males vitamins for high blood pressure treatment aleve with blood pressure medication how to lower blood pressure without pills blood pressure triple pill who blood pressure guidelines for hygiene treatment what drug reduces blood pressure blood pressure medications enalapril met blood pressure medication