Crisis - Another view

The ‘Crisis’ – Another View

Sunil Bastian

This short contribution analyses the crisis that Sri Lankan society is facing today to be result of contradictions arising from two processes in the specific Sri Lankan context: efforts to sustain the post-war state; and continuing with the new period of capitalist transition that started in 1977 which emphasised markets, private sector and greater degree of openness to global capitalism.

Consolidating territory and post-war security

When the Tamils demanded a separate state in 1977, the armed struggle of Tamil militants challenged the territorial integrity of the centralised Sinhala nationalist state. For many years the Sri Lankan state was a fractured state. The Sri Lankan state could not carry out regular functions like a census, which is a key technique of controlling the territory and population within the strategic space that a state wants to control. The state could not carry out the 1991 census. The 2001 census did not cover Jaffna, Killinochchi and Mullativu Districts and only partial coverage of Vavuniya, Mannar, Batticaloa and Trincomalee Districts. The military strategy to regain control of the territory of the state began in 1979, with the enactment of the Prevention of Terrorism Act (PTA) and sending troops to the North. It succeeded 30 years later, in 2009. 

Several factors helped the success of the military strategy. The military capability of the Sri Lankan armed forces had improved. Another reason was how international factors favoured the Sri Lankan state. The most important international factor was the behaviour of the regional power, India. Unlike in June 1987 – when India intervened and stopped the Vadamarachchi military operations against Tamil militancy, which led to the Indo-Lanka Accord – this time India had no interest in preventing military operations against the LTTE. Although India was concerned about civilian casualties and possible refugee flows to Tamil Nadu, LTTE politics had alienated the support from the Indian state. 

For key international actors such as the US and EU, the LTTE was a terrorist organisation. Although there were concerns about civilian casualties, available evidence indicates that many international actors were not averse to seeing the end of the LTTE. An important development on the international dimension during military operations against the LTTE was China coming to assist the Sri Lankan state. This revived an old relationship between China and the Sri Lankan state. 

As in the case of many state-formation conflicts, the consolidation of the territory of the Sinhala nationalist state through military means resulted in heavy civilian casualties. Sri Lanka became yet another case where the so-called international community could not prevent civilian casualties when the territory of the state was consolidated through military means. Close to 300,000 people were trapped in the ever-shrinking area under LTTE control. What really happened during the last stages of the war is a question that awaits the skills of a new generation of researchers. The discussion is dominated at present by numbers. What we need is a social history of the last stages of war, with detailed case studies in areas where the armed battles between the LTTE and Sri Lankan armed forces took place.

Several steps to ensure the security of the post-war state followed the consolidation of territory of the centralised Sinhala nationalist state. First, relinking the war-affected areas with the centre through infrastructure projects. There was foreign aid support to implement this. Second, the post-war state continued to maintain the strength of the armed forces. A by-product of three decades of armed conflict was a larger security sector. This continues in the post-war period. Third, compared to the period before the Tamils demanded a separate state, there is a relatively larger presence of the armed forces of the centralised Sinhala nationalist state in the Northern Province, the heartland of Tamil nationalism. Fourth, the security of the post-war state continues to be strengthened by a discourse of terrorism, and maintaining a legal framework that enhances the coercive power of the state. In this context the notion of reconciliation, which has become popular in certain quarters, is a means of stabilising society. If there are no parallel state reforms to meet the grievances of minorities, reconciliation becomes a part of the post-war security strategy. Some of the exercises of so-called local-level peacebuilding have the same political objective. 

The Resource base, or economic security of the post-war state

A new political leadership emerged within the Sinhala majority, because of the leadership it gave to consolidating the territory of the Sinhala nationalist state. This resulted in a break in the consensus on economic policies that had emerged among the political elite in the post 1977 period.

From the beginning of the post-colonial period there were two ideological trends within the Sri Lankan political elite on how to proceed with capitalist transition. One favoured openness to global capitalism, export orientation, dependence on markets and the private sector. The other favoured a greater role for the state, and less openness to global capitalism. Various ideological currents like economic nationalism and various forms of mercantilism supported what can be called state capitalist policies. 

After 1977 the ideological current that emphasised markets, private sector and openness to global capitalism became dominant. When the People’s Alliance, consisting of more centre-Left parties came to power in 1994, and adopted neoliberal policies, a consensus was established among the political elite on economic policies.  But in the post-war period, the new political leadership, which emerged because of the leadership given to ending the war, shifted economic policies more in the direction of state capitalism. There was less belief in free markets, trade liberalisation, and handing over state assets to the private sector. 

The post-war period also saw a change in sources of external finance to the Sri Lankan state. The post-1977 Sri Lankan state, due to its liberal economic policies, received a significantly higher level of foreign aid from developed capitalist countries of the West, Japan and multilaterals. This included loans at concessional rates. The primary condition was continuing with neoliberal economic policies. This support helped to sustain the resource base, or economic security, of the state, while it waged an armed conflict that demanded more and more resources. Foreign aid support that helps military efforts need not come from direct support to the armed forces. If foreign aid helps the state to manage normal development activities, its own resources can be used for the war effort. This happened in Sri Lanka. Foreign aid support also helped to manage relations with the Sinhala majority while implementing liberal economic reforms. 

The Sri Lankan state became ineligible for concessional assistance in the post-war period because of its middle-income status. A major result of this was that the post-war Sri Lankan state depending to a greater degree on global financial markets for its external finances. This rose sharply in the post-war period. Certainly, the fact that the state had been stabilised made it easier to raise funds in global financial markets. In 2018 financial markets accounted for 59.4 per cent of the outstanding foreign debt. The other important development in this area was that regional powers, China and India, with the growth of their capitalism, becoming sources of external finance. These developments have their own political implications for the post-war Sri Lankan state.

This was the larger context within which the political elite controlling the centralised Sinhala nationalist state faced challenges to sustaining the post-war state while continuing with the process of capitalist transition. The structure of the Sri Lankan state has undergone significant changes during the post 1977 period. As already mentioned, the result of more than three decades of armed conflict was the growth of the armed forces. The post-war state has to carry the cost of this security sector. In addition, there has been a proliferation of state institutions. The structure of the post-war state has institutions at presidential, parliament, provincial, district, sub-district and local authority levels. Almost all these levels include elected members and a bureaucracy. 

The introduction of institutions at provincial and sub-district levels was linked to conflicts. Provincial councils were an attempt to manage state-society relations with the Tamil minority. Pradeshiya Sabhas at sub-district level were established in 1992. This was a part of a decentralisation strategy after violence in Sinhala majority areas in the 1989/90 period. Decentralisation has always been a strategy that the centre deployed to regain control of the periphery when there were violent challenges to the state from the Sinhala majority. This happened after the 1971 insurgency and again after the 1989/90 violence. In addition, the institutions of the central state have undergone numerous divisions. The need to maintain the stability of coalition regimes and large cabinets has played a role in this. The strategy of the political elite has been to divide state institutions and distribute them among coalition partners. On top of this the state budget has to carry the burden of sustaining loss-making state-owned enterprises. Data from what the Central Bank identifies as functional classification of government expenditure shows that, in 2018, the post-war Sri Lankan state spent 49.9 per cent of public expenditure to cover the maintenance of the bureaucracy, security sector and interest payments on loans.  

It is in this larger context that a series of events led to the Sri Lankan state defaulting on loan repayments, and it faced a severe foreign exchange crisis. On Easter Sunday in 2019 suicide bombers, espousing an extreme form of political Islam attacked churches. This shattered the image of post-war stability. This was followed by the spread of Covid-19. Both these had an impact on sources of earning foreign exchange. The final step that undermined the confidence of financial markets in the ability of the post-war Sri Lankan state to service outstanding foreign debt were the significant tax reductions in 2019. This was promised by the regime which favoured state capitalism that came to power through the 2019 presidential elections. 

Progressive politics

The economic crisis precipitated by the post-state’s inability to fulfil the demands of global finance capital gave rise to a protest movement. Popularly identified as the ‘Aragalaya’, it succeeded in removing Gotabalaya Rajapkse from the presidency. He had earlier been hailed as a Sinhala hero, because of his role in defeating the LTTE militarily. This once again shows that politics in Sinhala majority areas cannot be explained by ethnicity alone. The socio-economic contradictions of capitalist transition play an important role. 

The ruling political elite’s response to this political crisis is the familiar post 1977 formula. First, deal-making within the political elite, which ensured Ranil Wickremasinghe becoming the president. In the post-1977 period, controlling the presidency has been the most important objective of the political elite who want to control the state. Second, state repression against the protest movement, Aragalaya. For the state is now backed by more-developed security forces and continuation of the Prevention of Terrorism Act. This is to be replaced by a new anti-terrorism act. The important thing is not the specifics of these acts. But that the very notion of terrorism and laws backing have become a hallmark of consolidating states. Third, implementing further reforms to promote capitalist transition, backed by international actors led by the IMF. This formula of state repression, reforms to promote capitalism, and support from international actors is a familiar formula during the neoliberal period of capitalist transition.

There are various responses to this crisis based on diverse political agendas. For many mainstream economists, the political agenda is to restore capitalist growth at any cost. Some others aim to sustain the state as it is. Both these camps are ready to do anything to achieve their political ends even supporting state repression, which has recently added more victims to the long list of people who have suffered from state repression in the post-colonial period. 

In contrast to this, I like to end this short contribution by highlighting few critical issues that progressive politics needs to focus on in the current context. The post-war Sri Lankan state’s inability to fulfil the demands of global finance capital has devastated the lives of millions of Sri Lankans. This has happened in a society showing the socio-economic impact of three decades of armed conflict, and more than four decades of liberal capitalism. 

According to the Household Income and Expenditure Survey of 2019, 11.9 per cent of households in Sri Lanka lived below the official poverty line. There is a great degree of variation in this indicator between districts, showing the impact of the war. While Colombo District had 1.8 per cent of households below the poverty line, in Mullativu District of the Northern Province it goes up to 39.5 per cent of households. An outcome of more than four decades of liberalisation is the emergence of a highly unequal society. Data for 2019 showed that the richest 20 per cent of the population acquired 51.4 per cent of national income and the poorest 20 per cent had only 4.6 per cent. In order to understand economic inequality and its social and political implications, we need to think beyond these numbers. Focusing on inequality within a capitalist economy is central to the political agenda of social justice. This demands a study of the institutions and balance of political power and ideologies that legitimise inequality in the specific historical context of Sri Lanka. It is these that keep reproducing inequality in society.

The other issue that is important for progressive politics is building a state that has legitimacy in a multi-ethnic society. Although the territory of the centralised Sinhala nationalist state has been consolidated through military means, the key political issues that gave rise to Tamil demands have not been resolved. The social costs of the last stages of the war have added a new demand from the Tamil community. In addition, during the post-war period other minorities, especially the Muslim community, have been at the receiving end of the politics of Sinhala Buddhist extremism.  Finally, any discussion of minority rights in the post-war state also has to focus on the problems faced by the Indian Tamil or Malayaga Makkal community. 

What we need is a political vision that combines social justice and pluralism. We need to make use of existing political institutions to pursue this agenda but be aware of their serious limitations. Finally, we need to carry out these struggles both within Sri Lanka and internationally.