IMF announces interim rescue agreement with Sri Lanka

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The International Monetary Fund (IMF) announced last Thursday that it had reached a tentative staff-level agreement with the Sri Lankan government for a four-year agreement to provide a US$2.9 billion credit facility, subject to IMF Executive Board approval Blackboard.

World Bank Senior Mission Chief Peter Breuer speaks with Masahiro Nozaki, Mission Chief for Sri Lanka at his side, during a media conference in Colombo, Sri Lanka, September 1, 2022. [AP Photo/(AP Photo/Eranga Jayawardena)]

President Ranil Wickremesinghe hailed the IMF deal as “the beginning of a new economic era,” stating, “The beginning will be difficult, but we know we can make further progress as we go along.”

The so-called “new economic era” with its “difficult beginning” is nothing more than a new round of brutal austerity measures to make workers and the poor pay for the country’s unprecedented economic crisis.

The following far-reaching, tough measures are among the key elements of the IMF program:

* “Increase tax revenues to support fiscal consolidation.” Major tax reforms have been proposed for this. While the corporate income tax base is being broadened, the IMF is calling for personal income taxes to be made “more progressive”. This means expanding the tax net to include workers and low-income earners. A further increase in Value Added Tax (VAT) is also proposed, which will inevitably hit the poorest sections of society.

The goal is to generate huge new revenues to ensure a budget surplus of 2.3 percent of gross domestic product (GDP) in 2025, based on the estimated current deficit of 9.8 percent for that year.

Such a reversal from deficit to surplus in two years can only be achieved through a massive tax increase, along with deep cuts in government spending on essential services, including health and education, and a wholesale downsizing of the public sector through wholesale job destruction.

* “Introduce cost-recovery fuel and electricity pricing to minimize the tax risks posed by State-Owned Enterprises (SOE).”

The IMF team “welcomed” the government price hikes that have already been implemented. These have included huge, massive hikes in fuel prices, a 75 percent increase in electricity prices and a 127 percent increase in water tariffs in recent months. Prices should continue to rise in line with the world market. The privatization of state-owned companies is also part of the “reform” agenda.

* Mitigating the impact of the current crisis on the poor and vulnerable by increasing social spending and improving the coverage and targeting of social safety net programs.

This so-called mitigation should be at the expense of the working population. Yesterday the government introduced a social security bill to introduce a new tax of 2.3 percent to fund a social safety net for the vulnerable. In other words, in the midst of a desperate social crisis affecting millions, a new tax was introduced to provide alms to the poorest. “Targeting” means further limiting those who receive support.

* Restoring price stability through data-driven monetary policy measures, fiscal consolidation. To implement this policy, the central bank should have autonomy.

In other words, the central bank is supposed to act as the IMF’s policeman, ruthlessly monitoring government policies while adjusting interest rates and monetary policy to the demands of international finance capital.

* A market-oriented exchange rate policy should be implemented.

This will further devalue the Sri Lankan rupee, which has already depreciated by 80 percent this year.

Statements by IMF officials show that a staff-level agreement came as the Sri Lankan government began to implement rapid austerity measures. The attack on the living conditions of working people has intensified since Wickremesinghe took over the presidency on July 14. He presented the preliminary budget for the rest of the year last week, deepening the social attacks.

IMF Senior Mission Manager for Sri Lanka, Peter Breuer, told the media in Colombo on Thursday that “the interim agreement is a signal from the Sri Lankan authorities that they are committed to comprehensive reforms” and “reassures creditors that it will.” will restore solvency…”

As part of that commitment, more tough measures will be announced in the 2023 budget, due to be presented in November.

Sri Lanka “temporarily defaulted” on $51 billion in loan repayments to international creditors on April 12. It now has to pay back $7 billion in debt service this year.

The IMF will only approve its first loan installment if it is satisfied that the austerity measures will be implemented. IMF official Masahiro Nozak warned that “each set of payments will be preceded by a review.”

The Paris Club countries, consisting mainly of the EU and India, welcomed the agreement. China also expressed its willingness to work with other countries to restructure Sri Lanka’s debt. Japanese Finance Minister Shunichi Suzuki on Friday called on countries that had lent money to Sri Lanka to discuss the country’s debt restructuring.

Creditors could postpone repayment dates or lower interest rates slightly, but only to ensure loans are repaid in full. In order to pay back these international financiers, the Colombo government must squeeze the already suffering workers and poor.

In a statement on the IMF agreement, Prime Minister Dinesh Gunawardena stated: “For several decades we have been consuming much more than our savings. As a result, our debt has increased massively… Going forward, we will have to make great sacrifices to find solutions to the factors that led to this debacle.”

It is not the workers and the poor who are to blame for the country’s massive debt. It is the capitalist class and its successive regimes that have obtained these credits to increase their profits and offset the effects of the deepening global capitalist crisis. Half of the loans went to continue the bloody war against the Tamils ​​that lasted nearly three decades and devastated the island’s economy and entire areas.

The Ceylon Chamber of Commerce, the country’s main big business lobby, issued a statement pledged its support for the IMF’s agenda. The corporate elite see them as a means of alleviating the immediate crisis and finding new ways of generating profits, including through the privatization of state-owned companies.

Last Friday’s interim budget vote exposed the opposition parties and the sheer hypocrisy of their criticism of the government. The budget passed with 120 votes in favor and only five votes against in the 225-seat parliament.

Thusara Indunil Amarasena, spokesman for the opposition Samagi Jana Balavegaya (SJB), stated: “As a party, we have decided neither to support nor oppose President Wickremesinghe’s budget and instead to abstain.” He explained that this was because the SJB did not want to jeopardize the talks with the IMF.

The Janatha Vimukthi Peramuna (JVP) voted against the budget, but none of their MPs opposed the IMF’s austerity measures. In the budget debate, JVP leader Anura Kumara Dissanayake simply called for “a new government” with “a new mandate” – in other words, a government that would be better placed to enforce the IMF’s demands.

Far from disagreeing with the IMF’s programme, Tamil National Alliance spokesman MA Sumanthiran told the government: “The budget must be consistent with the IMF’s economic reform program and macroeconomic framework.”

Expressing concerns in international financial circles about the explosive social situation in Sri Lanka, Fitch Rating warned: “Political instability will pose risks for the implementation of reforms… Additional social spending may not be enough to deter public opposition, especially in the face of public opinion.” Government support seems weak…”

Since last April, Sri Lanka has been embroiled in protests and strikes involving millions of workers and poor. They called for the resignation of former President Gotabhaya Rajapakse and his government, as well as an end to rampant inflation, shortages of basic necessities and hour-long power outages. Amid widespread protests, Rajapakse fled the country.

This mass movement, however, was betrayed by the unions, backed by the pseudo-left Frontline Socialist Party, which did everything it could to limit its outreach and chain it to demands for an all-party interim capitalist government. The result is the Wickremesinghe government, which, with the support of the opposition parties, is imposing even tougher conditions on working people.

The Sri Lankan ruling class and the international representatives of finance capital are aware of the anger brewing again among the broad masses. Since coming to power, Wickremesinghe has intensified police and military repression of anti-government protesters. Hundreds were arrested. After brutal police attacks on protesting students, Wickremesinghe sent three student leaders to detention camps under the draconian anti-terror law.

The working class must prepare its own counter-offensive against this austerity, using its own class methods and rallying the rural poor. The Socialist Equality Party (SEP) is calling on the workers and rural masses to set up their own workplace and neighborhood action committees, independent of capitalist parties and unions, to fight for their social and democratic rights.

The SEP advocates a democratic and socialist congress of the workers and rural masses, based on elected representatives from these action committees. The mobilization of workers and rural poor in this struggle will pave the way for a political struggle for a workers’ and peasants’ government to implement socialist policies.

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