Debts and Energy Crisis: Observing Sri Lanka to Indonesia

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Sep 9, 2022

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We have seen socialist leaning publications combat this misinforming narrative by pulling out the numbers above and clearing China’s name from the so-called Debt Trap. But few actually have educated their readers and steer the conversation on Sri Lanka away from US against China; they missed the opportunity to discuss the matter of historical contexts of Sri Lanka, and they missed the opportunity on their writings to offer an analysis about inflations that will affect the whole world, especially the people of the global south.

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Siti Romanah - PEMBEBASAN Department of Foreign Affairs Coordinator

It had come to our attention that Sri Lanka was going through a form of uprising led by trade unions, student organizations and non-governmental organizations. Videos of protesters breaking through the presidential palace and the home of former president, Rajapaksa, captured the hearts of many ordinary people and sparked hope for organizers everywhere that an uprising was possible in Sri Lanka, therefore possible for them as well.

We knew from the people of Sri Lanka that the source of anger amongst the people stemmed from their frustrations about rising prices, scarcity and unpaid wages. Their food prices went up significantly, fuels including cooking gas were scarce, and medicine was also hard to find for the average Lankan. Lankan people knew the man in charge of their country had mismanaged their economy, undertook massive projects and left the country in massive debts the treasury could not pay.

Then comes the barrage of western media led narrative that the downfall of Rajapaksa was the consequence of “Chinese Debt Trap” despite China only owning 10% of Sri Lanka’s sovereign debt and forty three percent of their total sovereign debt belonged to Market Borrowings from firms such as Blackrock, JPMorgan Chase and Prudential (US), Ashmore Group and HSBC (Britain), Allianz (Germany), UBS (Switzerland). Thirteen percent of their sovereign debt from Japan-led Asian Development Bank, nine percent from US-led World Bank and an additional ten percent from Japan.

Historical Context of Sri Lanka

Sri Lanka, then called Ceylon’s independence in 1948 was the first thing we studied of her relevant historical context. The first country to acknowledge Ceylon’s sovereignty was the US. An independence that had its roots in socialist movements such as the Suriya-Mal movement and Lanka Sama Samasaja Party was oddly supported by the one country that dominated every move against socialism and sovereignty of colonized people.

In 1971, the marxist leninist insurrectionist group called Janatha Vikmukthi Peramuna (JVP) or translated as People’s Liberation Front, spent years fighting for a takeover of The Dominion of Ceylon’s government. JVP declared that the two most popular parties of their contemporary (UNP and SLFP) were not working for the betterment of the people and accuse them of letting US involvement influence their policies, therefore damning the ordinary people for a life of poverty. On April 1971, JVP led waves of armed attacks against Ceylon’s military and police forces where they almost overwhelmed Ceylon’s capacity to fight back against their attacks. Then, Ceylon’s government called for international aid for weapons and ammunition was responded quickly by the UK, and then Singapore, US and Pakistan. These foreign aids helped the Ceylon government against the first wave of battle against JVP. Ceylon’s recovery from this conflict cost an estimated 1,2 million USD. Not to mention the budget required to arm themselves against the waves of attacks from JVP armed conflicts from 1987 to 1989.

The Sri Lankan civil war against Liberation Tigers of Tamil Eelam (LTTE) that lasted from 1983 to 2009 also cost their treasury 200 billion USD, five times the GDP of Sri Lanka in 2009. A war that was born from the country’s ruling parties to accommodate the needs of their ethnic minority for decades. It is very clear that many of Sri Lanka’s mounting debts were because of their decades long wars and not to mention, their ongoing efforts post-civil war to find and destroy any rebellious elements through their anti-terrorism policies that was designed to erradicate any remnants of Tamil liberation movements. More devastating than their monetary losses, the civil war cost them a reported 100.000 lives including 40.000 civilians (United Nations Report); this was the result of not only their military responses to LTTE attacks, but also through progroms against Tamil people, the current government accused war crimes from LTTE side as well, they said the LTTE was preventing civilians from fleeing active war zone, while they were being exposed by leaked documents for bombing safe zones. There were credible suspicions that the death toll was far greater than reported. The loss of so many lives means the loss of opportunity to develop their economy and the many lives lost or the many people who fled the country had drained them of human resource potential.

In The Context of Indonesia

The post-independence history of the third world, especially for countries that had US interventions in armed conflicts or genocide have many similarities. For instance, Indonesia has had US intervention in the 1965-66 genocide of communists and their sympathizers. Suharto's New Order funded the police and military forces to expand their reach into civilian affairs, funded right wing militias, implemented subsidies for food and fuel without having a proper progressive tax for businesses. Not to mention, Suharto's family were made public officials, seated in the good seats in state owned companies, and in national infrastructure projects, bleeding the treasury dry for decades. After that, in securing Freeport-McMoran’s interest in Papuan gold, the Indonesian government spared no expense by sending troops and weapons to West Papua; denying West Papua of self determination through a rigged referendum, strategically placing military presence in cvillian lives, cracking down on independence activists and freedom fighters, even penalizing solidarity movements for West Papua by Indonesian civilians. West Papua is not the only region the Indonesian government denied of sovereignty, there are other independence movements that Indonesia has cracked down on in the past fifty years such as Aceh Merdeka movement, Republic of Maluku movement and the only one securing victory from a decade long war against Indonesian military is Timor Leste in 1999.

From what we know of Sri Lanka; war, surveillance and interventions are expensive. Especially for a young nation that hasn’t established a sustainable income and robust industry, the money for war can only come from debt. Debts accumulated by Indonesia stands at an incredible amount of 413.6 billion USD with an estimated 1 trillion USD GDP. The third major spending of these debts comes from national administration and defense spendings, with the US and Australia being the biggest contributors to the loans and ADB and World Bank through its subsidiaries IDA and IBRD being the biggest private lenders (Bank Indonesia External Debt Report, August 2022).

While Indonesia has a robust export of palm oil, the governments are taking measures against the coming inflation and energy crisis by signing unpopular legislations. The legislative body signed Omnibus Law that is designed to combat advances won by the labor movement, incentivise investors and offer tax breaks to major producers. On the more extreme measures, they have signed the law for Pengelolaan Sumber Daya Nasional Untuk Pertahanan Negara (PSDN) or translated Management of National Resources for National Defense law in 2019. In this newly signed law, the central government will have a legal standing to hold conscriptions on civilians, seize private properties that they deem ‘essential to national resources for defense’, and arbitrarily set the standards for national emergencies.

In our departmen’s analysis, the PSDN law is a tool for an extreme measure against future resource emergencies. We see this law as a backup plan for when resource scarcity is at an all-time high and the central government will do whatever it takes for the survival of their regime, and a budget friendly way to impose armed forces to survive extreme crises. The existing military forces are more than enough to guard the business interests in Indonesia, but of course, the government needed extra insurance that their business partners would hold them accountable for.

We have seen recently in the UK that in extreme scarcity of resources, in this case fuel, the military is being used to safeguard what little they have. The UK military escorted tanks of oil and gas stations to prevent fuel riots and hijacking. This can become normalized as the energy crisis continues to worsen beyond Europe.

In September 2022, Jokowi’s government declared then revoked, then declared again for an increase of national fuel price. The biggest distributor in the country is a majority state-owned company called Pertamina, therefore a fuel price set by the government through Pertamina cannot be avoided by the people through its limited competitors. This sparked calls for protests from the people. Ride-share drivers and minibus drivers urged students to organize protests as they are not unionized, and university students hold a specific class privilege to spend their time organizing and protesting. The religious conservative party, PKS staged a walk-out in the middle of the legislative meeting discussing the price-hike, a gesture of theatrical protest without being backed by actual legislative works of building opposition factions within the building; a method they do often to later claim in elections that they hold the interest of the people without actually betraying their friends in the legislative body.

Energy Crisis

The global economy is propped up by oil, other than coal and natural gas. Oil and coal are the easiest fuels to transport with the technologies we have now. Production of goods rely on energies created by finite resources, however ‘green’ the product may be, they will still need to be moved around by vehicles fueled by oil. The mobility of people is highly dependent on oil, the production of nitrogen fertilizers also requires oil. In a 2008 article in the peer-reviewed journal Energy Policy, it was predicted that coal, oil and gas would run out in 107, 35, and 37 years, respectively if consumption rate stays the way it is. That prediction means that after the year 2042, coal would be the only fossil fuel remaining until 2117. Datas on oil reserves are mainly unreliable, since oil companies are not legally bound to disclose how much oil they have in their disposal. This prediction accounted for the available technology to extract the remaining oil from profitable fields and pockets. Oil companies do not disclose on how much oil they have left in their fields and they do not disclose on the limitations of their extraction technologies, this may be done to further emphasize scarcity and drive up prices.

And on the matter of oil prices, which we have seen rising this year. In April 2020, crude oil prices dropped to a negative for the first time in history, this was due to the lack of crude oil storage available at the time. Oil consumption was lower due to lockdowns responding to COVID-19 pandemic. Non-essential businesses were shut down and tourism came to a hold. There was too much oil to store in available spaces, and oil fields cannot simply turn off a tap to stop oil production.

Oil producers then had to shut down several oil fields completely to save the profitability of their product. They had to create scarcity so the prices could recover. As a result, investments being put in oil nowadays aren't being put back into finding new oil reserves and developing technologies for extraction or pumping out untapped oil fields, rather being cashed out into profits. All while oil consumption slowly recovered to pre-pandemic levels, oil in the market was more scarce than ever. Prices are higher now than they were pre-pandemic, influencing prices of food and other essential goods.

We have seen increases in food prices due to oil prices as well. But some food sources such as corn are also ingredients to ethanol, an ingredient essential in producing diesel, liquefied petroleum gas. Cooking oil prices are way up with the energy crisis, as plant-based oils are also the ingredients to biodiesel. Besides food supply being partially allocated for fuel production, global reliance on imported foods has already proven its consequences for the ordinary people. Cost of food is on the rise around the world and showing no sign of stopping.

This manufactured crisis of energy hits especially hard for countries without oil reserves at their disposal. Sri Lanka’s biggest import is oil, and this year we saw the consequence of the collapse of her economy. The country couldn’t import enough fuels from rising global oil prices while having no oil production within her borders. LPG for cooking became unavailable for her people and many resorted to using wood and coal to cook, cooking fuels that have been abandoned before for their negative effects on human respiratory.

Not only Sri Lanka; the people of Indonesia, Malaysia, Laos, Thailand, and The Philippines have recently suffered from the cutbacks of fuel subsidies as oil prices are on the upward trend. Cost of food has also risen across Asia. In the case of Indonesia, wheat-based foods have become very expensive since there is no wheat production in the country and manufacturers have long been importing wheat from Russia and Ukraine. Indonesia’s food estate programmes are far from ready to deal with coming food shortages, since the so-called food estate programme mainly focuses on the production of crude palm oil that has a very high demand, not on modernizing local food productions, subsidies on fertilizers or diversifying food crops. The golden child of Indonesian exports, palm oil, being the most devastating for the rainforests in Kalimantan, Sumatra and West Papua as companies burn down forests to make way for the money crops. Palm oil production also comes with issues of slavery, child labor and unsafe working conditions. A mayor in Northern Sumatra was caught keeping palm oil workers in literal cages and reports show that these workers were beaten, deprived of food and forced to work in egregious conditions. The high profile of this mayor made the news caught national attention, while there are hundreds of thousands other palm oil workers who keep Indonesia’s economy growing working without union protections or even cut from communications altogether.

Bangladesh had also recently suffered from scarcity in fuel, food and medicine. The optics are very similar to Sri Lanka with protests targeting bourgeoisie politicians and nation-wide strikes shutting down the economy. The Prime Minister denied that her country is suffering from a debt crisis, rather it was an inflation-driven crisis, she said. If we look at the data from Bangladesh, the biggest import being petroleum, raw cotton and wheat; there is no way that the recent scarcity was purely caused by inflation and will be short-lived. The biggest exporter of wheat being Russia and Ukraine, now unable to resume business as usual from sanctions and war. The planet’s biggest oil cartel, OPEC Plus, cut down more of their total oil production to ‘stabilize price’. The crises will not be short, and the common people will fall victim for many years to come.

The common narratives we have seen from private news organizations on the energy crisis always refers to the Russia-Ukraine conflict as the main cause. Meanwhile, abandoning facts that oil companies such as British Petroleum, Exxon and Shell are in consolidation to create scarcity in order to create profits and recuperate from their losses on the negative oil price, also OPEC Plus agreed to only a small increase in oil production. All to maintain supply scarcity, they have created a worldwide crisis. We have seen suggestions for governments to offer monetary incentives in hopes it will persuade companies to produce more oil, to ease the impact of the energy crisis. It is very clear that oil companies and their consolidations created this crisis and will offer themselves as the only remedy.

Renewable energy became imperative, not for the sake of the environment, but for the sake of the market’s survival. It has become clear to non-oil capitalists that their exploitation may end in the foreseeable future along with the affordability of oil or at this moment, they know they are at the mercy of oil companies. Even the technologies available to produce renewable energy today are still dependent on oil and other finite resources such as precious metals. Proving the transition from oil to renewable to be complicated and costly, which is why China’s move back to coal is reasonable for now.

Conclusion

With huge debts and worsening energy crisis, asian nations have less safety net to protect the working people within their borders from suffering the worst consequences of economic mistakes and schemes they never asked for. Asia in particular varies in economic power, but most Asian nations are already facing rising fuel and food prices. We see Sri Lanka as a worst case scenario picture of how young third world nations will look like in the recent manufactured energy crisis and we will watchfully study the Lankan people’s movements to change the trajectory of their nation. But we will need to discuss international conditions in a more in-depth way to understand the effects of crises worldwide to have a clearer picture of global inflation.

We urge for these local demands to be popularized by organizations:

The most concrete is the drastic cuts in military spending to subsidize the basic necessities of the people.

Implement progressive taxes on wealthy bureaucratic elites and large corporations.

Pay government bureaucrats with salaries equal to the common workers.

These demands will need to be advanced further according to each specific conditions of countries and capacities of each organization.

Besides demands, we conclude that foreign debts that date back to times of colonizer regimes shall be null and void for all sovereign nations. The colonized people have no obligations to further the extraction of their wealth by their colonizers who now call themselves partners in trade and sovereign debt lenders, but this cannot be achieved without a proper revolution to replace the current illegitimate government in our nation placed by imperialists and imperialist agents.

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