Committee for the Abolition of Illegitimate Debt

During the CADTM South Asia annual meeting, which was held in Katmandu (Nepal) on Tuesday 13 and Wednesday 14 February 2024, Amali Wedagedara, Nalini Ratnarajah and Balasingham Skanthakumar analyzed Sri Lanka’s political, economic and social situation. Almost two years after the popular uprising (Aragalaya) that resulted in the flight of former president Gotabaya Rajapaksa, the IMF IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org and microfinance institutions place the burden of their policieson Sri Lankan women and on minorities.

  Debt crisis, popular uprising, IMF… where does Sri Lanka stand?

The inflation and economic crises, which were already hitting the country’s working classes hard, have been considerably exacerbated by the IMF

Spring 2022: As a result of external shocks such as the Covid-19 pandemic and Russia’s aggression against Ukraine, Sri Lanka was in desperate need of foreign currency in order to import basic goods. It had to contend with shortages, particularly of oil, and defaulted on its foreign debt. The prices of basic necessities soared. What followed was an unprecedented popular uprising which, forced the President Rajapaksa, the representative of a family that had a pervasive presence in the spheres of power, to flee. He was replaced by his former Prime Minister, Ranil Wickremesinghe, who, in September 2022, began negotiating the 17^th agreement in the country’s history with the International Monetary Fund. He also introduced an extreme crackdown on all types of demonstration - it is now forbidden to demonstrate in a non-static manner in Sri Lanka or express criticisms on social networks.

In order to obtain emergency loans from the IMF - released gradually in installments of 330 million dollars to reach a total of 3 billion dollars - Sri Lankacomplied to the conditionalities of the Bretton Woods institution without batting an eyelid. On the agenda: cuts in education and health budgets, attacks on labour rights, lower subsidies on essential goods, higher VAT, etc. The economic crisis and inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. , which were already hitting the country’s working classes hardest, have been considerably exacerbated by the IMF. The cost of living has seriously increased over the last two years, and the population is left financially destitute. For example, the Sri Lankan population is faced with the highest electricity prices in the whole of South Asia. And they are still rising..

The public debt crisis and IMF conditionalities are spilling over into private and household debt: 54% of Sri Lankan households are indebted. They are also bearing the brunt of the restructuring of domestic debt. Indeed, the Sri Lankan pension funds Pension Fund
Pension Funds Pension funds: investment funds that manage capitalized retirement schemes, they are funded by the employees of one or several companies paying-into the scheme which, often, is also partially funded by the employers. The objective is to pay the pensions of the employees that take part in the scheme. They manage very big amounts of money that are usually invested on the stock markets or financial markets. that agreed to restructure part of the Sri Lankan debt they owned are repaying themselves by reducing the pensions of the population, particularly the poorest. As usual, capital is getting away scot-free, and it is the majority of the population, particularly the working classes, minorities and women, who are paying high prices for their basic needs.

 Women and minorities are the first victims of IMF policies 

IMF measures have a considerable impact on women’s nutrition and childbirth conditions

Nalini Ratnarajah showed how women and minorities are the first to be hit by the austerity measures imposed by the IMF.

The cuts in health budgets imposed by the international financial institution are affecting the social security system, and therefore the access of women and marginalized people - who cannot go to private hospitals - to public hospitals and medicines. In particular, these measures affect the conditions of maternity, as well as the quality of their nutrition, which is considerably affected.

Moreover sexist and sexual violence can only increase when the economic situation deteriorates and the State no longer plays its part. The situation at home becomes much more complicated and patriarchal violence tends to multiply.

It should also be noted that women are the first to repay the debt through their work on the tea plantations, the taxes they pay, and their remittances from the Gulf States. These three elements provide the government with foreign currency to repay the foreign debt.

Nalini Ratnarajah also recalled the growth of anti-Muslim hatred against Tamils. This is accentuated by the influence over Sri Lanka of Modi’s racist Indian rule.

 Microfinance in Sri Lanka: capital is gaining ground

A new law has simply banned traditional lending practices, allowing microfinance institutions to gain ever more ground

Just like the policies promoted by the International Monetary Fund, microfinance institutions are pushing millions of women into over-indebtedness. In 2018, interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation. charged by the microfinance sector reached as high as 220%, provoking major protests by women victims of abusive microfinance. They demanded that their debts be canceled, claiming that they had already repaid several times over given the insane interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. rates they had to pay.

Out of the 2.4 million people trapped by microfinance (2.3 million of whom are women), several thousands have already defaulted. Running up to the elections, the government almost encouraged these women to stop paying and compensated the losses of the microfinance institutions with public money. The government thus socialized the losses of these financial institutions, just as the European states did with the banks during the 2008-2010 financial crisis.

With the Covid-19 pandemic, the mobilization of women victims of abusive microfinance understandably declined. They tried to fall back on traditional practices of loans between women - ’tontines’ in French. This practice brings together a group of women who take it in turns to lend to each other for major projects. But the Sri Lankan government simply banned these forms of lending by passing a new law! This law made traditional practices illegal because it prohibited anyone from lending without being officially registered. This is a huge gift to capital and microfinance institutions, which are still gaining ground to the detriment of women, who they push into over-indebtedness, sometimes to the point of suicide.