Recovering global ascendancy
Sri Lanka’s debt crisis and political collapse could easily be repeated in other so-called third world countries. Mike Macnair argues that this is a knock-on effect of the Ukraine war and America’s determination to smash any tendency towards a multipolar world
A group of Financial Times reporters wrote on July 15: “In a more optimistic era, the overthrow by Sri Lankans of a feckless government they blamed for their country’s economic collapse might have been called a Velvet Revolution.” They continued:
Sri Lanka now needs a new government to rebuild its economy, starting with agreeing an IMF facility, a credible government plan to rein in rampant inflation, and balancing a government budget that ran in deficit of more than 10% of gross domestic product in 2020 and 2021.1
Apart from stories about the family of ex-president Mahinda Rajapaksa as a dynasty, and so on, we would naturally assume that this was a ‘colour revolution’ to replace a government of a roughly leftist complexion with a rightist one which would implement US and International Monetary Fund diktats.
And indeed there is a good deal of evidence in support of this view. In the first place, when we look at Wikipedia’s list of the parties of the governing coalition overthrown by this event, they are a collection of parties of the very fragmented Sri Lanka centre-left. One of the larger components of this coalition, the Sri Lanka Freedom Party, deserted the coalition for a new bloc with the centre-right United National Party, the traditional party of landlords and business in Sri Lanka, shortly before the crisis broke out.2
Secondly, the United National Party has been practically involved in the mass movement. Al-Jazeera reports:
While journalist Ranhiru Subhawickrama, also a protestor, is critical of the conduct of certain groups in the protest movement, he, like most Sri Lankans, is happy about its achievements.
“Those in power tried many different ways to disrupt the protest movement and create divisions. We knew from the beginning, for example, that there was a strong presence of the United National Party [UNP] within the protest movement,” Subhawikrama told Al Jazeera, referring to acting president Wickremesinghe’s party.
But when Wickremesinghe was appointed as the prime minister following Mahinda’s resignation, UNP supporters who funded the protests withdrew, he added.3
The primary practical result of the protests to date has been the appointment of Wickremesinghe, the leader of the UNP, as acting president. The UNP suffered a crushing defeat in 2020 elections, with Wickremesinghe the only UNP MP elected (losing his constituency, he appointed himself to receive the UNP’s one party-list seat).4 The appointment as acting president of Wickremesinghe - he was also prime minister from 2015-19, so not exactly without responsibility for the economy - illustrates an assumption that the 2.15% of votes cast for the UNP in 2020 represent something more than they might seem to. Perhaps they were an important 2.15%, as opposed to the unimportant 97.85% ...
The protestors’ demands also display the characteristic emptiness of ‘colour revolutions’:
- Gotabaya Rajapaksa should immediately resign as president.
- Wickremesinghe and his government should also quit immediately.
- An interim government should be established for a maximum period of one year.
- A new constitution that endorses people’s sovereignty be established through a referendum, hopefully within a year.
- The president’s executive powers should be reduced and democratic institutions strengthened until the new constitution is drafted.
- The fundamental objective of the interim government should be to implement the above proposals.5
What is “people’s sovereignty”? - the reality is that it is a tag without concrete, identifiable content, behind which almost any concrete agenda can hide. “The president’s executive powers should be reduced” - in what ways? “and democratic institutions strengthened” - again, in what concrete ways? - “until the new constitution is drafted”. Why not call openly for a break with presidentialism?
The trigger of the political crisis was the unavailability of imported goods due to the collapse of the Sri Lankan currency, but essentially of fuel supplies, with knock-on consequences for everything else. What lies immediately behind this is the Ukraine war, and essentially the impact of western sanctions on oil and gas supplies - and, secondarily, of both these and the war itself on Russian and Ukrainian grain imports; both radically forcing up grain prices. ‘Anti-inflation’ measures, together with global economic uncertainty, force up the dollar, resulting in countries with weaker currencies experiencing foreign exchange crises.
Sri Lanka was the ‘weakest link’ in this situation because its income arose largely from tourism and remittances from migrant workers - both heavily disrupted by Covid - and it had borrowed heavily, notably from China, for infrastructure development. But this view of the debt risk is held more widely. IMF managing director Kristalina Giorgieva said to the G20 on July 16: “More than 30% of emerging and developing countries are at or near debt distress. For low-income countries, that number is 60%.”6 We should, therefore, expect more defaults, and more events like those in Sri Lanka.
All of these are predictable consequences of the voluntary decision of the US administration to support Ukraine’s desire to get back the Donbas and Crimea, and hence to reject a negotiated solution, leading to the present war in Ukraine, in which the US and its allies have poured arms into Ukraine. Biden must have been briefed as to the very substantial global economic risks - and hence risks of political instability - involved in this course of action. Why should they then go ahead with the policy?
The answer is, I think, because this war offers an opportunity for the United States to recover its global ascendancy and smash any trend towards ‘multipolarity’. Victory over Russia will allow the US to force through a ‘new Yeltsin’ and the dismantlement of the Russian arms and aerospace industries as well as the end of the Russian Black Sea fleet, with the US and its vassals controlling the Caucasus; and, in turn, moving towards the effective encirclement of China, which is the US’s real potential imperialist rival and the underlying target of the projected conquest of Russia.
In that context, ‘emerging market’ debt defaults can potentially also serve US interests, by wrecking China’s Belt and Road Initiative foreign lending and investment arrangements. And the commentary on Sri Lanka and the wider debt risk points precisely to this issue. Thus an earlier FT article (July 13) remarks that “China is the world’s biggest bilateral lender. For the 74 countries classed as low-income by the World Bank, it is bigger than all other bilateral lenders combined”. Nikhil Sanghani, writing on the website of the ‘Official Monetary and Financial Institutions Forum’ think-tank, says:
With China a major creditor, it may complicate matters for Sri Lanka’s government to reach a necessary new IMF deal. The Fund would presumably want some assurance that any financing will go towards the real economy rather than paying Chinese creditors. Moreover, it will be difficult to strike a deal with private creditors, who face the brunt of a necessary write-down of Sri Lanka’s debts if China refuses to budge.7
The USA retains control of the global financial system through the reserve status of the dollar, and effective control of the IMF. It continues to manipulate these powers to hold the rest of the world, as far as possible, in subordination. The war in Ukraine will trigger debt defaults among countries to which China has lent money - and the US control of the IMF can then skew the ‘deals’ which have to be made to get back access to world money, against the Chinese and in favour of the US and its vassal allies.
The role of international money in global hierarchy is visible to Hindutva-nationalist writer Seshadri Chari, who argues in an Indian online newspaper:
New Delhi should follow up on the earlier efforts of fast-tracking infrastructure projects … irrespective of the current chaotic situation. The RBI has recently liberalised rupee trade mechanism to facilitate ease of foreign exchange outflow. This facility can be extended to Sri Lanka under a special mechanism worked out between the two central banks. Colombo, which is experiencing a high current account deficit, can save import-related foreign exchange outflows by trading in Indian rupees.8
Another FT article comments on increased concerns about geopolitics in central banks’ reserve-currency holdings more generally.9
So India could gain power over Sri Lanka by replacing China as infrastructure provider and extending a ‘rupee zone’ to include Sri Lanka.
This is less implausible than it might seem. On the one hand, the war in Ukraine and the sanctions regime are inflicting acute crisis on ‘third world’ countries (as well as a ‘cost of living crisis’ in the imperialist centres). On the other, however, in spite of any number of enthusiastic write-ups in the ‘western’ media, they have not caused a meltdown of the Russian economy. Indeed, it can be said that, in spite of savage hardships inflicted on Iran under sanctions, and on Iraq in the ‘sanctions period’, 1991-2003, sanctions have not produced regime change - it took an invasion to produce that in Iraq.
Sri Lanka can be thrown into the abyss by US control of global finance: if it had not played footsie with the Chinese, the IMF would be helping it out now. But if India succeeded in creating a “rupee zone” extending beyond its own borders, this would be less vulnerable to US manipulations.
James Harvey in last week’s edition of this paper pointed to the calamitous history of the Sri Lankan left: particularly the destruction of the mass Trotskyist party, the Lanka Sama Samaja Party, by being drawn into government coalition with the Sri Lanka Freedom Party (SLFP) back in the 1960s.10 One can equally point to the other side of this calamitous history: the inability of Sri Lankan revolutionaries to unite in an effective party. These are, in reality, two sides of the same coin: the aspiration to participate in ‘big-time’ coalitions produces control-freak operations which drive splits, and sectarianism against ‘unimportant’ groups.
Equally, however, Sri Lanka represents, as Greece did, the ability of global and regional financial capital to inflict savage punishment on small states which experiment with mild forms of leftism, which play footsie with the USA’s potential rivals, or which fail to grovel sufficiently before America.
This ability is inherent in world money. It is therefore inherent in the social form in which we coordinate our productive activities through the money mechanism (capitalism). There is no capitalism without crises, and there is no capitalism without imperialism, a global hierarchy of states, and the coercive subordination of some peoples to others’ states. There is no ‘democratic’ capitalism and no ‘post-colonial’ capitalism.
The strategic alternative, therefore, not only requires radical democracy (as comrade Harvey argued last week). It also requires movement towards planning in natura (‘in kind’): what actual material resources do we collectively need, how can we source them and organise their production? Here, just for example, the radical triumph of the internal combustion engine turns out not only to be a massive producer of greenhouse gases, but also an umbilicus tying every country which is dependent on road transport to the suppliers of oil and therefore to the controllers of the dollar.
A strategic alternative also requires movement towards the working class laying collective hands on the means of production on the scale on which they actually exist. A unified India-Pakistan-Bangladesh-Sri Lanka would have far more chance of standing off the consequences of US manipulations than any of its component parts. The left in Sri Lanka went a long way down the road of Sinhalese nationalism, which drew it in behind the Rajapaksa clan, as well as behind the old Bandaranaike SLFP; but this set of assumptions sets up Sri Lanka for victimisation by the USA’s financial manipulations.
The principle applies globally. Common working class action on a European scale could make a fundamental difference, whereas Brexit strengthens the freedom of action of capital to move from country to country and thereby force capitulation. (This is not to endorse liberal variants of left ‘remainism’ like that of the Alliance for Workers’ Liberty, and so on, which cling to people’s frontism with the liberal wing of capital and thus equally smother independent working class political action.) Common working class action on a Latin American scale could offer a radical alternative which neither ‘social liberalism’ like the Brazilian Workers’ Party, nor left populism in one country, can achieve. And so on.
At the moment it is more likely that the left will cling to its various strategic illusions, remain a set of competing grouplets clinging to the tail-end of ‘nationalist’ or of ‘liberal’ capital, and as a result be disappointed yet again in the latest outcome of mass protests bringing down a government. Unity on terms that it must include some section of the right secures actual disunity and ineffectiveness. In an acute crisis, like those in Greece a few years ago or in Sri Lanka today, we could do so much better.
M Sandhu, J Wheatley and J Reed, ‘What Sri Lanka reveals about the risks in emerging markets’ Financial Times July 15.↩︎
www.omfif.org/2022/07/sri-lanka-crisis-shows-why-reserves-matter. “OMFIF is an independent think tank for central banking, economic policy and public investment, providing a neutral platform for public and private-sector engagement worldwide”, so its name is perhaps misleading.↩︎
Isabelle Mateos y Lago, ‘The dollar sits atop a global monetary order shaken by sanctions’: www.ft.com/content/e2a69a2b-8eb1-4164-97ab-7a532cf743a2.↩︎
‘Not yet another coalition’, July 14: weeklyworker.co.uk/worker/1403/not-yet-another-coalition.↩︎