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Is Sri Lanka Capitalizing on Economic Disaster?


Photo courtesy of The Leader

“For the powerful, crimes are those that others commit.” Noam Chomsky, Imperial Ambitions: Conversations on the Post-9/11 World

Two years after the aragalaya, which ousted President Gotabaya Rajapaksa in 2022, Sri Lankans are still bearing the brunt of an economic crisis. When President Rajapaksa came to power in November 2019, the country’s foreign reserves stood at nearly $8 billion. By the end of the following year, that number had fallen to less than $4 billion and by December 2021, it was down to less than $2 billion. Coming out of a series of lockdowns that paralyzed the economy, the country entered 2022 with very little foreign reserves that were not sufficient to finance essentials such as fuel, gas and electricity. The economy unraveled with blackouts extending for more than 10 hours, skyrocketing rates of inflation, shortages of fuel and medicine and import restrictions; people were driven to widespread protest leading to the ousting of the president.

Since then authorities have launched controversial economic policies for the purpose of economic stability that paved the way to neo-liberal governance, which resembles the characteristics of Naomi Klein’s disaster capitalism in her book The Shock Doctrine; The Rise of Disaster Capitalism. The book exposes how the history of the contemporary free market was written in shocks and how global capital enforces its neoliberal ideas on states that are still recovering from the shock of war or natural disasters. This doctrine explores how a collective trauma arising from catastrophic events are both extremely profitable to corporations and allows capitalists to use trauma to push through disaster capitalism. These significant reforms often mark the initiation of controversial and questionable policies, paving the way for the establishment of neoliberal measures in the country.

When President Wickremesinghe took office, he aimed to address the economic crisis by adopting the IMF’s recommended strategies. Following successful initial technical discussions between the Sri Lankan delegation and IMF officials in Washington, the IMF pledged its support to help the country overcome its economic challenges. In March 2023, the IMF Executive Board approved a $3 billion assistance package under a new Extended Fund Facility arrangement. The initial tranche of $330 million was promptly disbursed, with an additional $3.75 billion anticipated from the World Bank, the Asian Development Bank and other lenders.

As many other countries in similar situation before, Sri Lanka is also surrendering its right to create domestic policies in the best interest of its people. For instance, to meet the conditions set by the IMF for the bailout, the Wickremesinghe administration has implemented significant reforms including unpopular measures such as major tax hikes and debt restructuring.

Klein states that in such a state of shock, like the prisoner in the interrogation chamber, we become childlike, more inclined to follow leaders who claim to protect us. Similarly, with the current status of the country, most extreme interventions can be pushed through, because people who would otherwise oppose such policies are busy either surviving or holding their community together.

One notable example is the privatization of state owned businesses with the first being Ceylon Petroleum. The cabinet has approved the issuance of licenses to Sinopec, United Petroleum Australia and RM Parks of the US in collaboration with Shell, allowing them to enter the fuel retail market and address previous crises. In this agreement, Sinopec acquired 150 service stations that were formerly owned by Ceylon Petroleum.

Simultaneously, the government has extended the deadline to submit proposals from investors interested in acquiring Sri Lankan Airlines to February 2024, marking the second extension since the privatization process commenced. These developments underscore the government’s commitment to implementing neoliberal policies and fostering partnerships with international entities to address economic challenges.

Another highly controversial decision involved a significant increase in taxation including extending the value added tax to payee. The cabinet approved a raise in the value added tax rate to 18%, effective from January 1, 2024. Additionally, the tax was imposed on specific goods and services that were not previously subject to the value added tax. This move aimed to bolster state income through taxation even as the citizens grappled with basic needs. The imposition of taxes during a time of economic crisis highlights the workings of disaster capitalism where individuals are compelled to pay despite the hardships they face in meeting their essential requirements.

The current governance also shares the characteristics of the doctrine of state of exception. In the discussion of state of exception, juridical order is actually suspended due to an emergency or a serious crisis threatening the state. In such a situation the executive power can overpower other organs and violate the basic laws and norms. In democratic states, a state of exception is declared when the state is under threat of external and/or internal forces or in the event of natural disasters, financial or economic crisis or civil unrest harming the integrity. In Sri Lanka we have lived most of our lives in states of exception to a point exception has become the norm not only for rulers but also the people; checkpoints, barricades, arbitrary arrests and the military getting involved in civilian affairs are not exceptional circumstances.

The government is using the economic crisis to justify a state of exception for the purpose of remaining in power. In fact, the president has postponed the local government election because “building a strong economy is the top priority, not politics.” The local government elections were last held in 2018 and supposed to be held in 2022. However in 2022 the tenure of the councils was extended until 2023 without a reason and then postponed until 2024. To make the matter worse, we can see members of the parliament publicly advocate postposing the upcoming presidential election 2024 due to the economic crisis.

Whatever the reason for such delay, if it is the lack of funds or the fear of losing the election due to loss of confidence, it is a direct threat against democracy. The right to free and fair elections is a fundamental right; this campaign shows how the government is misusing the state of exception for its propaganda.

Observing how the democracy has been affected by the actions of the government and international actors, one can question if the current neoliberal approach will actually enable recovery from the current crisis or if we will remain not only in a state of socio-economic crisis but also with a portfolio of multibillion dollar debts. It is evident that the state of exception has been an excuse by every regime to control the public and that the state of exception has remained even after the state of emergency has ceased to exist.


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