Sri Lanka at the center of a growing debt and inflation crisis


Sri Lanka, now engulfed in ongoing demonstrations and protests, is at the center of a debt storm that is tearing apart a host of low-income countries. This brings social devastation to hundreds of millions of people as capitalist governments, banks, financial speculators and the International Monetary Fund (IMF) demand their pound of flesh.

Sri Lankans wait at a gas station after spending hours unsuccessfully buying kerosene in Colombo, Sri Lanka, Thursday, April 7, 2022. (AP Photo/Eranga Jayawardena)

This crisis has been accumulating for years but has reached a new peak in intensity due to the COVID-19 pandemic and now the explosion in commodity prices including food, gasoline, fuel and cooking oils, stemming from the proxy war between the United States and NATO. against Russia in Ukraine.

Yesterday the United Nations announced that its food price index for March hit a record high, rising 34% from a year ago. The index was 12.6 percentage points higher than in February. The UN described this as a “giant leap”.

The crisis is set to be further exacerbated by the willingness of central banks around the world, led by the US Federal Reserve, to raise interest rates sharply over the coming months in response to rising inflation. .

Sri Lanka’s foreign currency reserves are falling, with doubts over its ability to pay any of the estimated $8.6 billion in debt repayments due this year. On Thursday, Sri Lanka’s central bank said the country’s foreign exchange reserves fell to $1.93 billion in March, down 16% from February’s $2.3 billion.

The situation in Sri Lanka is the clearest expression of a global process that has developed over the past decade. In late January, a report by the UK-based Jubilee Debt Campaign estimated that developing country debt repayments had increased by 120% between 2010 and 2021. Average public external debt was estimated at 14.3% public revenue in 2021, compared to 6.8%. in 2010.

In January, the World Bank estimated that low-income countries would have to pay $35 billion to public and private sector lenders in 2022, an increase of $10.9 billion from the previous year and an increase by 45% since 2020.

Since these estimates were published, just two months ago, the financial situation of these countries has deteriorated considerably due to the new inflationary push by the war in Ukraine.

The debt crisis intensified with the end last December of the Debt Service Suspension Initiative (DSSI) introduced by the G20 group of nations in April 2020. The DSSI proved, according to the terms of FinancialTimesa “wet firecracker”.

It aimed to carry over $20 billion of debt, but the relief was only $12.7 billion, and countries had to resume payments this year and recognize suspended debts under the program.

The main beneficiaries of the DSSI were commercial banks, commodity traders and bondholders, who received $14.9 billion while suspending only $24 million, or just 0.2% of the Amount. Tim Jones, head of policy at Jubilee, said the DSSI had “effectively become a bailout for private lenders”.

Analysis by the Bretton Woods Project published earlier this month observed that “over-indebted countries like Zambia are forced to pay private creditors like BlackRock [the world’s biggest asset management company]to the detriment of the well-being of their own people.

As part of the US push against China, there has been a growing campaign to blame its loans for the growing debt crisis.

But Jubilee said of the debt repayments due this year, 47% are for private lenders, 27% for multilateral institutions, 12% for China and 14% for other governments. Chinese loans were either on terms consistent with those of the IMF and other multilateral lenders, or on better terms.

There is no solution to the debt crisis through what is called debt restructuring. All of these measures will be used as they have been in the past – to impose yet more austerity measures on the population, with much of the money not being used to fund productive investment or social spending, but to repay holders of past debts.

In Sri Lanka, the Socialist Equality Party has raised the need for debt repudiation and the expropriation of wealth from the banks and the ultra-rich as an immediate first step in tackling the crisis and turning towards the working class in other countries of a common struggle.

The conditions for the development of this orientation – a unified global struggle against the financial octopuses that are starving and strangling hundreds of millions of people – have been created by the eruption of strikes and protests around the world in recent weeks.

These developments have sent a shiver of fear through some sections of the American political establishment.

This week, members of the Senate Foreign Relations Committee sent a letter to President Biden warning that the “severe global food security crisis” stemming from the war in Ukraine threatened “to push millions into hunger. and destabilize regions of strategic importance to the United States”. .”

But help to alleviate the food crisis will not come from the United States. Politico reported that while U.S. officials were working to ease the shortages, they were running into problems. Wheat supplies, including in the United States, are below normal due to a drought and “governments with grain surpluses have been reluctant to release too much of their supply, including Canada” .

In other words, when it comes to the food crisis, poorer countries will get the same treatment they received when a global rollout of COVID vaccines was stalled by big power vaccine nationalism.

Sarah Charles, a senior USAID official, testified before a Congressional subcommittee that “the impacts of the current crisis on poverty, hunger, and malnutrition could be even greater than those seen during the global crisis. food prices of 2007-2009 and the civil crisis that followed. turmoil, as the latest crisis followed a period of strong economic growth, while the years since the start of the COVID-19 pandemic have been characterized by an increasingly severe global economic downturn.

In the Yemini town of Aden, she noted, the price of a piece of bread increased by 62% between February 25 and March 3. In Lebanon, domestic food inflation reached 483%.

In South Africa, protests had doubled to more than 1,000 a year since 2018, amid warnings that the country had “likely entered a phase of continued violent instability”.

In an interview with the BBC on Thursday, the director of the Eurasia Group think tank, Daniel Kerner, was asked about the possibility of a wave of social explosions in Latin America, like the one that happened in late 2019.

He replied, “Yes, in 2019 we saw a lot of dissatisfaction in many places, and it is true that the pandemic has put an end to the problem. But at the same time, it was only a pause and now the situation is much more explosive.

Summarizing the fears of ruling circles, a report by the German Friedrich Institute said: “As it was said at the time of the French Revolution, if the population has no bread, power is threatened with catastrophe”.

The crisis is not limited to the poorest countries. Workers in major economies, including Britain, the United States and Australia, are beginning to take action to secure pay rises in the face of runaway inflation, which the Governor of the Bank of England says , Andrew Bailey, will cause a “historic shock” on income.

Uniting this global movement and fighting to arm it with a socialist perspective will be at the center of this year’s May Day rally called by the World Socialist Website and the International Committee of the Fourth International.


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