IMF Intrusions on Sri Lanka’s Economy

Asoka Bandarage, in Asia Times, 2 December 2022, where the title reads thus: “IMF forcing privatization, land and resource grab on Sri Lanka” …

On September 1, debt-trapped Sri Lanka reached a preliminary agreement with the International Monetary Fund for a 48-month extended fund facility of US$2.9 billion, which hardly covers the country’s outstanding debt, nor its immediate survival needs.

  Outgoing president Gotabaya Rajapaksa (right) greets Ranil Wickremesinghe during the latter’s oath-taking ceremony as the new leader in Colombo, Sri Lanka, in July 2022. Photo: Sri Lankan President’s Office

Nevertheless, IMF structural adjustment requires the country to meet its familiar debt-restructuring conditions: privatization of state-owned enterprises, cutbacks of social safety nets, and alignment of local economic policy with US and other Western interests.

There are already signs that these policies will be detrimental to the well-being of ordinary Sri Lankans and the sovereignty of the country and will inevitably lead to more wealth disparity and repeat debt crises.

The most important source for generating state revenue identified in the 2023 Sri Lankan budget is the privatization of state-owned enterprises (SOEs), a primary strategy of IMF structural adjustment and neoliberal economics. The 2023 Sri Lankan budget states:

“The government is currently maintaining 420 state-owned enterprises. Fifty-two of these generate over 86 billion rupees [US$236 million] in losses.… A unit has now been established at the Ministry of Finance with the specific task of restructuring SOEs.

“Initially, measures will be taken to restructure Sri Lankan Airlines, Sri Lanka Telecom, Colombo Hilton, Waters Edge, and Sri Lanka Insurance Corporation (SLIC) along with its subsidiaries, the proceeds of which will be used to strengthen foreign-exchange reserves of the country, and strengthening the rupee.”

The left-wing and nationalist Bandaranaike governments established many SOEs between the mid-1950s and the mid-1970s, many of them import substitution industries to replace foreign imports with domestic production.

Many SOEs were privatized after the introduction of the Open Economy in 1977, and privatization (or commercialization) has continued steadily since then, with successive governments selling SOEs outright or turning them into public-private partnerships (PPPs).

There are 55 strategic SOEs, 287 SOEs with commercial interests, and 185 SOEs with non-commercial interests in Sri Lanka. The 55 strategically important SOEs are estimated to employ around 1.9% of the country’s labor force. The total state-sector workforce is estimated to be about 1.4 million people, which accounts for more than one in six of the total workforce.

Many Sri Lankans prefer to work for the government sector given job security and retirement and other benefits. There are concerns that “privatization can result in lower salaries and benefits as well as retrenchment and high employee turnover,” and that privatizing SOEs that enjoy monopolies can result in “corporations making decisions based on profits rather than on public benefit.”

Unlike the private sector, many of the SOEs in Sri Lanka have powerful trade unions, with workers at different skill and professional levels, which have fought for workers’ rights and the country’s sovereignty for decades. Privatization is likely to lead to the elimination of many trade unions, strikes and other forms of labor resistance.

In October, Ceylon Petroleum Corporation workers held a protest strike against the proposed privatization of the CPC. Similarly, 1,200 union workers of the Government Press plant – also targeted for privatization and cutbacks in wages, work conditions and jobs – went on strike in last month.

The CPC, a vital enterprise in the island’s oil supply and energy security, has been targeted for privatization under the IMF restructuring program. Lanka India Oil Company (LIOC), China’s Sinopec, Petroleum Development Oman and Shell have expressed interest in this deal.

It is important to note that, in the name of privatization, the CPC is being handed over to state-owned enterprises of powerful foreign countries. The parent company of LIOC is the Indian Oil Corporation Ltd (IOC), which is owned by the Ministry of Petroleum and Natural Gas of India.

Similarly, Sinopec Group is the world’s largest oil-refining, gas and petrochemical conglomerate and is wholly owned by the Chinese state; and Petroleum Development Oman is owned by the government of Oman, Royal Dutch Shell, Total Energies and Partex.

Parasites and vultures of privatization

Sri Lanka must take lessons from privatization episodes in other parts of the world. According to a 2016 study, “The Privatizing Industry in Europe” by the Transnational Institute in Amsterdam, privatization in Europe has failed to produce the expected revenue as only “profitable firms are being sold and consistently at undervalued prices.”

The study notes that privatized firms are no more efficient than state-owned firms and that, under the rubric of privatization, many European energy companies in Portugal, Greece and Italy have been sold off to state-owned corporations based in China. The study also states that privatization in Europe has “encouraged a growth in corruption, with frequent cases of nepotism and conflicts of interest” in Greece, Italy, Spain, Portugal and the UK.

We must also be vigilant for conflicts of interest in such large deals involving public money and well-being. For example, the financial and legal advisory firms Clifford Chance and Lazard have been hired by the Sri Lankan government to assist with IMF debt restructuring.

The Transnational Institute Study cited above lists Clifford Chance as part of a small group of privatization advisory law firms, with annual revenues of more than €1 billion, “reaping huge profits from the new wave of crisis-prompted privatizations.”

Lazard is reputed to be both “the No 1 sovereign advisory firm” and “the world’s largest privatization advisory player.” Lazard’s operational global headquarters are in New York City, but the company is officially incorporated in Bermuda – always a warning sign when it comes to (lack of) financial ethics.

In previous government advisory contracts, Lazard has taken advantage of its prominent position by involving itself not only its advisory services branch, but also its asset-management branch.

According to the study, “Upon the initial public offering (IPO) of important state companies, Lazard has on a number of occasions undervalued the price of a company, which has allowed its asset-management branch to buy up the stock at low prices which have then been sold for considerable profit when stock prices soared.”

The practice of both advising on processes of privatization and then profiting from that advice raises ethical questions about Lazard. Questions are also raised about the entire global financial industry responsible for creating debt crises in the first place, and then finding devious ways to benefit from them, at the expense of debt-trapped countries.

Despite such serious concerns over privatization, there is now an enormous push by local and international actors that the solution to Sri Lanka’s debt and economic crises is to privatize the remaining SOEs, and no doubt a select few profit greatly in the process.

A key local player in this is a Sri Lankan non-governmental organization, the Advocata Institute in Colombo, which is associated with the Mont Pelerin Society and the Atlas Network and their neoliberal agenda. Advocata is spearheading a major campaign to convince the public that privatization of SOEs is the path to “reset Sri Lanka” for solvency and prosperity.

The “Great Sri Lanka Fire Sale” of state-owned enterprises and strategic assets is now on, with huge returns expected for colluding local and global financial and corporate elites and pauperization for ordinary people.

Land privatization

One key state-owned resource at risk is land, such that commoditizing state-owned land is a major aspect of privatization in Sri Lanka. Not only the land, but water – indispensable for survival of life on Earth – is threatened by privatization and commoditization in Sri Lanka and around the world.

This is not new; privatizing and commoditizing state land for export production has been going on in Sri Lanka since the British colonial era.

Although the more recent neo-imperial US Millennium Corporation Compact agenda, initiated under president George W Bush in 2002, has not been officially signed by Sri Lanka, contemporary Sri Lankan governments have been advancing its agenda of privatizing state land to prioritize export production over local food production, despite rising prices of imported food and the food crisis facing the country.

Two very important proposals in this regard have been slipped into the 2023 budget proposals without public discussion. First, Clause 12.1 on Lands for Agricultural Exports states:

 “A vast amount of land belonging to Janatha Estate Development Board [EDB), Sri Lanka State Plantation Corporation (SPC), and Land Reform Commission (LRC) remains without being cultivated or productively utilized for a long time….

“Accordingly, a program will be devised to allow investors to productively utilize them in a manner to increase both the production and exports. Hence it is expected that large parcels of unutilized/unproductively used lands will be leased out on long-term basis to grow exportable crops.…”

Second, Clause 13.1 of the 2023 budget on Disposal of Government Lands states:

“Activities related to the disposal of government lands are carried out by district secretaries/government agents through divisional secretaries/additional government agents … such duties were also allocated to Sri Lanka Mahaweli Authority and Land Reform Commission, which were established for special requirements at a later stage … there are occurrences of discrimination and malpractice as … activities related to disposal of lands….

“Therefore … a program will be prepared during the next year to enable preliminary activities in relation to disposal of all government lands including the disposal of lands under the above two institutes only by the divisional secretaries.”

Nationalist members of Parliament and the Federation of National Organizations have criticized the move to place state land under divisional secretaries as a ploy for land grabbing, and that the move to deliberately privatize state land may have “irrevocable consequences.”

While recognizing the need to reform the existing Land Reform Commission, they point out that solely empowering divisional secretaries would encourage partisan land distribution. The 2023 budget seems to put the MCC Compact into effect although activists challenging the compact have warned of a neocolonial agenda for a massive modern-day land grab, displacement and peasant pauperization.

There is great concern over the legitimacy of crucial land and other privatization decisions made by President Ranil Wickremesinghe, as neither he nor his United National Party (UNP) has a mandate to do so from the people. The land, the ports and the state enterprises do not belong to politicians but to the people and to future generations of Sri Lankans.

Clearly, there needs to be careful deliberation of alternatives before the IMF-dictated “Great Sri Lanka Fire Sale” is allowed to proceed.

ASOKA BANDARAGE:  PhD has taught at Brandeis, Mount Holyoke, Georgetown and other universities. She is currently distinguished (adjunct) professor at the California Institute of Integral Studies. She is the author of Sustainability and Well-Being: The Middle Path to Environment, Society and the Economy and many other books and publications. She serves on the advisory boards of the Interfaith Moral Action on Climate, Critical Asian Studies and the International Buddhist Association of America. 

Leave a comment

Filed under accountability, american imperialism, authoritarian regimes, centre-periphery relations, disparagement, economic processes, governance, historical interpretation, IMF as monster, island economy, life stories, politIcal discourse, power politics, self-reflexivity, sri lankan society, taking the piss, transport and communications, world events & processes

Leave a Reply