Behind the Sri Lankan crisis – how political and economic mismanagement combined to plunge the nation into turmoil

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(THE TALK) Sri Lankan President Gotabaya Rajapaksa officially resigned on July 15, 2022, after previously fleeing the country amid widespread protests in the South Asian nation.

The man who replaced him, prime minister and current interim president Ranil Wickremesinghe, is also facing calls to step down amid political and economic turmoil.

Though the drama escalated within days – during which protesters occupied both the presidential palace and the prime minister’s residence – the crisis has been brewing for years, argues Neil DeVotta, a professor of politics and international affairs at Wake Forest University.

The Conversation US asked DeVotta, who grew up in Sri Lanka and specializes in South Asian politics, to explain what triggered the crisis and where the nation of 22 million is headed.


Can you explain the latest events to us?

What happened in Sri Lanka was really quite revolutionary. For the first time in the country’s history, you have had a president resign – and in a most humiliating way.

Gotabaya Rajapaksa had previously announced his intention to step down but did not do so immediately as he would then lose his immunity from prosecution as President. Instead, he fled the country, going first to the Maldives and then to Singapore. Some claim he now wants to go to Saudi Arabia – all of which is ironic given that Dubai, the Maldives and Saudi Arabia are Muslim states and during his tenure Rajapaksa was accused of promoting Islamophobia to bolster his power.

The trigger for all this was a protest movement. Demonstrators have since evacuated the offices of the President and Prime Minister, but the protest movement has had only partial success. They wanted Rajapaksa and his brothers gone. But many also wanted Prime Minister Wickremesinghe to be overthrown.

Instead, Wickremesinghe, who was not elected to Parliament and was only given a seat via a national list headed by the legislature, has now been sworn in as interim president. A man without a mandate – his party garnered only a small fraction of the 11.5 million valid votes cast in the 2020 elections – is now acting president and could end up taking office full-time once Sri Lanka’s parliament voted in secret in July Vote held 20th, 2022.

What triggered the crisis?

The spark really caught on in April 2021, when Rajapaksa announced a ban on fertilizers, herbicides and pesticides.

Successive Sri Lankan governments have long lived beyond their means, employing a debt restructuring strategy to keep the country afloat – in short, the country has been dependent on new borrowing alongside income from tourism and international remittances to pay off its debts.

But then came COVID-19, which severely impacted tourism and contributed to what economists call a “balance of payments crisis.” In other words, the country was unable to pay for essential imports or service its debt. This prompted the government to abruptly announce a ban on herbicides and fertilizers — something it hoped would save the country $400 million a year in imports. The President had previously indicated that the transition to organic farming would take place over 10 years. Instead, it was implemented abruptly, despite warnings about the impact it would have on farm yields.

This led to peasant protests. They were soon joined by sympathetic unions. The balance of payments crisis went well beyond agriculture. It got to a point where the government could not afford almost everything it hoped to import, leading to shortages of medicines and powdered milk. And that led to people from other sectors also protesting.

In addition, the government printed money to pay for goods. This inevitably led to inflation – which is over 50%.

The turning point came when people realized they could no longer pay for gas and fuel for cooking. A few weeks ago, the government announced it would only provide fuel for basic services, closed schools and ordered workers to stay home.

So a pure economic crisis?

Not quite. While the spark was a balance of payments crisis, I believe behind the mess lies an ingrained ethnonationalism that has allowed and encouraged corruption, nepotism and short-termism.

Sri Lanka has been in the grip of Sinhala Buddhist nationalism since at least the 1950s. Around 75% of the population are Sinhalese, around 15% Tamils ​​and 10% Muslims.

Sinhalese from Sri Lanka have long been preferred when it comes to access to universities and government offices. This was not only to the detriment of the country’s minorities, but also of its governance. It has led to a decline in the functioning of the state. Sri Lanka ends up with a system that disregards merit and is instead rooted in ethnocracy – the rule of a dominant group. And that has helped spread nepotism and corruption.

The fact that the Rajapaksa brothers helped brutally suppress and defeat a three-decade Tamil insurgency boosted their credibility among Sinhala Buddhist nationalists and cemented their grip on power.

This civil war, which ended in 2009, also contributed to the current crisis. Through the conflict, the Sri Lankan government ran government deficits to fund counter-insurgency operations.

After the war, the Rajapaksas tried to develop the country by building its infrastructure. What the country got instead was “blingfrastructure” — vanity projects, often funded by China, dogged by corruption and bribery. One such project is an airport where very few planes land or take off. I visited Mattala Rajapaksa International Airport in 2015 and the only other people there were a busload of students from a school on a field trip. Nothing has changed since then.

Other such lavish projects include a conference center and a cricket ground – dubbed the Mahinda Rajapaksa International Cricket Stadium – not far from Mattala Airport, which houses next to nothing. And then there’s the Lotus Tower, the tallest communications tower in South Asia, which was supposed to contain other facilities and was inaugurated in 2019 but is still out of service.

The construction of such projects has been dogged by allegations of corruption. Such projects have largely involved Chinese construction companies, often using Chinese workers – including Chinese prisoners in the case of Hambantota Port, now leased to China for 99 years because Sri Lanka could not pay its debts. The Sri Lankans themselves have benefited little from it.

On paper it looked like the country was developing and GDP was increasing. But the growth came from external funds rather than goods and services generated in Sri Lanka.

Last but not least, Chinese loans with short maturities and high interest rates contributed to accelerating Sri Lanka’s debt problem. As a result, the country currently owes China between $5 billion and $10 billion, and its total debt stands at $51 billion.

What happens next?

The most important thing Sri Lanka needs for the future is political stability. Without this, you will not get the help you need from the international community.

And Sri Lanka will not get out of its economic mess without the help of international actors such as the International Monetary Fund, the Asian Development Bank and the World Bank. It also needs the help of partners like India, Japan, China and the US

Interim President Wickremesinghe has said that the country will suffer from commodity shortages by the end of 2023.

Sri Lanka needs large-scale, long-term economic restructuring. And for that to happen, the government must restructure its bilateral debt – the IMF will not give Sri Lanka money just to pay off its debt to China or any other institution.

But China knows that scrapping a debt deal with Sri Lanka will mean other countries heavily indebted to China – like Pakistan and some African countries – will expect the same. And Beijing doesn’t want to set that precedent. On the other hand, China will most likely need to work with Sri Lanka and other bilateral donors, especially now that the Rajapaksas are no longer in power. It needs to cultivate goodwill to maintain its influence on the island and does not want to be seen aggravating Sri Lanka’s suffering.

The IMF is also likely to expect painful cost-containment measures if it is to bail out Sri Lanka. She will most likely insist that Sri Lanka let its currency flow freely rather than peg it to the dollar, as Sri Lankans abroad currently use unofficial channels – rather than the banking system – to transfer foreign currency. As such, it will likely have to devalue its currency beyond what it already has. The IMF is also likely to expect the government to cut the number of civil servants – which currently stands at around 1.5 million people.

This will be a very painful process and will take time. And it will likely exacerbate the country’s turmoil in the coming days.

This article was republished by The Conversation under a Creative Commons license. Read the original article here: https://theconversation.com/behind-the-crisis-in-sri-lanka-how-political-and-economic-mismanagement-combined-to-plunge-nation-into-turmoil-187137.

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