Most people in Sri Lanka think the current crisis is caused by money printing. What people fail to realize is weather we print the LKR or not, in order to import fuel, gas, medicine, food and other essentials, LKR is not needed. However, foreign currency (US dollars) is only needed to continue our essential supply. Our economic structure has been built according to the neoliberal mantra. Hence, we are a dependent economy on foreign supply. We have no food security, no energy security and we are deeply indebted to foreigners. Consequently, the scope of our monitory sovereignty is very little. Currently, our foreign reserves are in the negative value. Due to this, our debt rollover options are no longer available for the country. Further, in relation to the future ability to pay, the international financial community no longer has confidence in Sri Lanka. The status of our economy is similar to ones which has been sanctioned, such as Russia or Iran. No foreign reserves to work with, a short supply of fuel, gas, energy, medicine, food and other various essentials. This, in turns, leads to a lack of exports due to the shortage of raw materials. Most exporters based locally, mainly for cheap labour, are shifting their factories to other countries. We are a poster child for the failed neoliberal mantra. Our common belief is we should go to the IMF, which is the father of the neoliberalism. The left in our country has no clue about the funding plan for the economy. Even as per the Marx theory, our economy is at the M-C-M stage but our lefties are still stuck at C-M-C, pre-historical hypothetical stage. IMF will come with all sorts of austerity measures such as increasing VAT and interest rates, cutting down public spending and increasing fuel, gas and electricity prices. These austerity measures are going to be imposed on people who have been suffering economically since the 2019 Easter attacks. These measures will further cripple the economy, creating more and more public unrest. Further, we must understand the reason behind establishing the IMF by USA. That is to get economies opened up to a dollar trading block. Mission of the IMF is to continue carving up weak economies such as ours and extracting our entire wealth to economic power houses such as USA, UK and Europe. As per their conditions, we will have to privatize our public assets or sell our public assets to foreigners. We must remember we can sell our airports, harbors, telecom and insurance cooperation, only once. Further, opening up the economy will only lead to further outflow of dollars in the form of revenue repatriation. Selling public assets in not a sustainable economic strategy since it places our national economic planning on foreign hands. Foreigners or the private parties will further destroy the economy, since their only motive is profit taking. My solution to the problem is to create a trading block to bypass the US dollars with countries who have similar constrains, yet can rely on each other. In this instance, let us take Russia as a debt and equity partner. We can invite them to invest in Rubles in order to upgrade our refineries and restart manufacturing products related to petroleum such as fertilizer, plastic etc. The main difference is the investment will be done using Rubles instead of US dollars. That will open up the Russian market for us to export tea, coco fiber, rice, etc., to earn Rubles in order to make repayments. In this scenario, we are closing down the single biggest monthly UD dollar expenditure. We will achieve energy security and revitalize the economy. Products such as fertilizer can recreate our food security without adding to the foreign debt burden. Agriculture exports will increase, creating an economic surplus. Similarly, we should invite Libya, India, and China just to name a few. We could either offer the Ruble or gold as the trading currency. Even currently, both India and China trade with Russia using the currency of each other. Our main aim is to achieve energy security and food security. By doing so, we will be closing down a major US dollar outflow from the country. Simultaneously, we must increase government spending using our monitory sovereignty in order to enhance our local production capacity. In return, this will increase the value of our LKR. It is almost impossible to pay the staggering amount of the foreign debt pile (USD) by attempting to pay it. This will only wreck the remaining parts of the ailing economy. In my humble opinion, we should default our entire capital market borrowings, which is about 47% of the entire external debt (USD) in Sri Lanka and ask for debt forgiveness without ruining our society. Simply, the debts (USD) which cannot be paid, will not be paid. We need to honor the bilateral loan agreements and institutional loans. Bilateral loan agreements should be negotiated to be paid back in their own currencies or agreeable resources other than US dollars. That is why I am suggesting a new trading block with countries that have similar interests to bypass the USD as the reserve currency. Countries such as Russia, Iran, India, China and Libya, to name a few, are very much compatible for the suggested trading block. Once the external debt is defaulted, west might retaliate imposing economic sanctions. If this happens, there is no additional pain that they can cause other than what we go through now as a society. They might stop buying assemble type production and raw material exports. Either way, this high energy consuming, assemble type productions are not net dollar earners. As I mentioned earlier, they are only here for cheap labor and as we speak they are in the process of relocating to other countries. Not buying raw materials is a blessing in disguise, since we can convert them to finish products gaining superior values rather than exporting them for dirt cheap prices. This will certainly reduce the import outflow and increase export inflow. Do not forget we can always increase government spending and shift unemployed people to emerging sectors in the economy. Opening up new production sectors to achieve energy and food security will in turn automatically reduce the US dollar outflow, revaluing the LKR. Having defaulted half of our external debt, with a plan to achieve full status of monitory sovereignty, we can build an economic surplus uplifting the living condition of our society elevating us to a regional power.
By
Gayantha Dehiwatte, Author www.reclaimsrilanka.org