Sri Lanka is in the throes of an unprecedented economic crisis. Faced with a shortage of foreign exchange and defaulting on its foreign debt repayment, the country is unable to pay for its food, fuel, medicine, and other basic necessities. Notwithstanding the austerities that would be entailed, a bailout by the International Monetary Fund (IMF) has been accepted as the only way out of the dire economic situation.
Opposition political parties and citizens across the country blame the Rajapaksa government’s widespread corruption and mismanagement for the crisis, and demand that the president and the parliament resign.
The prime minister, Mahinda Rajapaksa, did so on May 9. However, the protesters at Galle Face Green and elsewhere have not been able to put forward an alternative leadership or a viable road map for the future. The country remains mired in confusion, chaos and a highly volatile political impasse.
To understand the complexity of the current crisis, and to prevent us from falling back into the same paralysing debt cycle, it is necessary to move beyond domestic politics and the relentless news cycles of corporate media, and explore some of the commonly overlooked yet basic global economic and geopolitical dimensions.
The transfer of financial and resource wealth from poor countries in the global South to the rich countries in the North is not a new phenomenon. It has been an enduring feature over centuries of both classical and neocolonialism.
At the beginning of 1989, developing nations owed foreign creditors USD 1.3 trillion—that is, “just over half their combined gross national products and two thirds more than their export earnings.”
Recently, the effects of the war in Ukraine and the Covid-19 crisis have worsened the high debt burdens of developing countries. These countries were already struggling to pay accumulated debts stemming from the expansion of capital flows from the high-income countries to lower income countries after the 2008 global financial crisis. Financial liberalisation was fostered by powerful global interests, including the IMF, when interest rates dropped in the richer countries.