From economic crisis to political crisis: Sri Lanka in turmoil


For two months now, Sri Lanka - it should be noted that it is customary to write "Sri Lanka" and not "Sri Lanka", because it is an independent island, in the same way as the 'one writes “Madagascar” or “Cyprus” without definite articles – is confronted with its worst economic crisis since independence in 1948, and the responses of the state indicate that it is unable to protect its citizens, quite the contrary.

THEinauguration of new Prime Minister Ranil Wickremesinghe, Thursday, May 12, will not change anything. He is already having great difficulty convincing members of the opposition and majority parties to form a government of national unity; above all, the Sri Lankan population (just over 20 million people) wants above all the resignation of Gotabaya Rajapaksa, president of the country since November 2019.

A state on the brink of bankruptcy

While economic mismanagement is not new to Sri Lanka – successive governments having failed to manage inflation, debt and spending – the decisions made by the Rajapaksa clan (see below) have led to the island on the edge of the abyss. For the first time since 1948, the country has ceased, April 12, 2022, to repay its external debt.

This crisis has multiple origins. It is first linked to a campaign promise by Gotabaya Rajapaksa who, in the run-up to the November 2019 elections, proposed drastic tax cuts (via the pure and simple abolition of seven taxes) and the lowering of the VAT rate from 15 to 8%. These populist measures were adopted after his victory, even though the country benefited from a 4-year IMF loan.

Sri Lanka paralyzed by a national strike, the president declares a state of emergency (France 24, May 6, 2022).

Fears of a wider collapse have emerged with the pandemic, whose various containment measures have suddenly undermined income from tourism (a key currency generator for the country, of which it weighs 13% of GDP) and remittances. fund of Sri Lankans employed in Gulf countries who have seen their salaries plummet and of those who were unable to leave the island to take up jobs abroad and thus support their families.

Credit rating agencies have lowered the rating for Sri Lanka. To stay afloat, the government printed money, increasing supply by 42% between December 2019 and August 2021, fueling what would become Asia's fastest inflation.

One of the most disastrous policies under the presidency of Gotabaya Rajapaksa was the ban, which came into force on April 26, 2021, on all chemical fertilizers, pesticides, herbicides and fungicides. Politicians presented the abrupt ban as the fulfillment of an election promise to embrace organic farming. In reality, faced with a balance of payments crisis and severe shortage of foreign currency, many saw the move as an attempt to save dollars by limiting imports. In an economy where the agricultural sector remains important (employing between a quarter and a third of the national workforce according to estimates), despite its low contribution to GNP (less than 8%), these measures have led to a drop in crop yields, closure of plantations (resulting in a drying up of tea export earnings), job losses and food shortages.

An entire sector and several sectors have been destabilized, leading to the collapse of farmers' livelihoods. In just six months, the national production of rice has fallen by 20% and that of tea by 40%. Soaring inflation has at times made access to available food stocks unaffordable, raising concerns about the possibility of famines due to food shortages.

This infernal mechanism is, of course, fueled by external shocks such as the Covid-19 pandemic and the russian-ukrainian war : the latter contributes to the inflation of certain foodstuffs, has put an end to the arrival of tourists from these two countries at war and makes it difficult for the State to buy oil from Russia so as not to upset the western partners. Nevertheless, internal political errors are numerous and preponderant.

The island's debt is abysmal, representing almost $ 51 billion. During Mahinda's presidency (2005-2015), the State contracted numerous bilateral loans from China to finance infrastructure construction projects as costly as they are useless: conference centre, airport and port in the south of the island at Hambantota – real white elephants! In 2017, Sri Lanka's inability to repay its debts forced it to sell for 99 years the new port to China. Despite this precedent, the Rajapaksa have taken out other loans from Beijing to finance Colombo's urban renewal projects to make it a city with global reach, but also to pay the interest due to Chinese banks. China now owns 10% of the country's debt.

The country having virtually no foreign currency reserves (less than $50 million as of May 4, 2022), the importation of essential medicines, foodstuffs, cooking gas and fuel has become extremely difficult. In addition to enduring these shortages, the population suffers power cuts that can last up to eight hours a day.

Not insignificantly, it is the Sinhalese Buddhists, the majority on the island and who had carried by their vote Gotabaya to the presidency of the Republic, seduced by his promises to restore security (to a population traumatized by the Easter attacks 2019) and prosperity, which were the first to denounce the brutal deterioration of living conditions. This situation has prompted hundreds of thousands of citizens of all generations and all social backgrounds (beyond the historically constructed divisions between Sinhalese, Tamils ​​and Muslims) to take to the streets to protest and demand the resignation of the president. The slogan “Gota Go home” has become, since April, the main demand during peaceful demonstrations.

Faced with this popular uprising, the president's party broke away from the ruling team. All the ministers and the government have resigned, leaving the Rajapaksa brothers alone in post to face their responsibilities and especially in the face of the demonstrators determined to force them to resign in order to put an end to the family clan which has ruled the island almost unchallenged since 2005. The unions have supported the demonstrators by organizing general strikes which were very strongly followed by the Sri Lankans.

Faced with the questioning of their authority, the Rajapaksa tried, on Monday, May 9, to mobilize some of their supporters in Colombo and urged them to to attack the demonstrators and to dislodge them. In response, the demonstrators very brutally repelled the attackers and stormed the prime minister's residence.

Island-wide, many properties of the Rajapaksa clan and its allies were set on fire or destroyed. Faced with general anger, Mahinda preferred submit his resignation and was exfiltrated by the army.

Sheltered in a military base in the northeast of the country, he, like 16 of his relatives, is prohibited from leaving the country. Gotabaya, who now remains alone in power, gave order to shoot on sight on "lawbreakers". Despite these directives, many demonstrators continue to meet publicly and to demand with ever more determination the resignation of Gotabaya. Moreover, this spiral of debt and violence is once again causing displacement. Those who can leave the capital while others try to find refuge in India.

The carelessness of a political dynasty

Only a few months ago, such a questioning of the regime would have been unthinkable. For twelve of the past twenty years, members of the Rajapaksa family have controlled the highest levels of government in Sri Lanka.

Gotabaya, 72, a former defense secretary, led a deadly latest push to end the war against tamil separatists, which caused up to 100 deaths, before the Sri Lankan Army final military victory in 2009. His brother, Mahinda, 76, the political brain of the family, was twice president and twice prime minister. Two other siblings, Chamal, 79, and Basil, 71, have carved out a place for themselves in managing ports, agriculture and money. Dozens of family members held high positions until March 2022.

After being elected president in 2019, Gotabaya Rajapaksa moved quickly to restore the family's populist authoritarianism, spiced up with calls for nationalism from Sinhalese Buddhists. Recent constitutional changes (after the 2020 parliamentary elections) have increased the power of the President (through the adoption of the 20e amendment, now denounced by demonstrators and the opposition) and have reinforced discrimination against the Tamil and Muslim minorities.

Nevertheless, with this economic crisis, it seems that the majority population, Sinhalese Buddhists, those who voted for Gotabaya, have also come to understand that this regime has really plundered the country. The economic crisis has therefore turned into a very serious political crisis. The entire Rajapaksa clan and the regime have been completely delegitimized. The demonstrators demand that the Rajapaksa answer in court to the charges of corruption, embezzlement of public money, political assassinations (journalists, human rights activists, minority rights activists) and for the war crimes perpetrated during the final phase of the war against the Tamil separatists. Under these conditions, it seems unlikely that the president, who wields immense powers, will resign, if only because remaining in office allows him to continue to benefit from the immunity conferred on him by the Constitution. His strategy is to try to prolong the situation for as long as he can.

After the forced resignation of his brother, Gotabaya played his last card by appointing Ranil Wickremesinghe as Prime Minister. He is a very experienced politician who has already held the post of Prime Minister five times. A political opponent of the Rajapaksa clan, he has nonetheless worked closely with Gotabaya over the past two months to overhaul the finance and central bank ministry for sweeping fiscal and monetary reforms.

Despite its good image internationally, the population and the political class do not approve of this choice. Wickremesinghe is perceived by the demonstrators as a typical representative of the Sri Lankan political class whom the population considers incapable of governing and whom they no longer want. For the demonstrators, there is no question of demobilizing as long as the last Rajapaksa is still in power. Sajith Premadasa, leader of the main opposition party, refuses to take part in a government until the president resigns first. Lonely, Wickremesinghe, who is his party's only deputy in Parliament, is having great difficulty finding volunteers to form his government, and his image is now indelibly tarnished among the demonstrators because of his collaboration with Gotabaya.

The end of a model island?

At independence, the island appeared as an economic model to follow within the South Asia and Southeast Asia zone. Until the 1970s, Sri Lanka was considered a model of global development. Even though the per capita income was very low, the human development indicators were very high, mainly thanks to progressive education and health policies.

What is currently playing out in Sri Lanka seems to echo the long economic recession of the 1970s which resulted in economic liberalization reforms implemented by the government of JR Jayewardene, through structural adjustment policies with the support of the World Bank and the IMF. For four decades, the island has intensified the establishment of neoliberal policies, which have resulted in increased dependency, the capture of power in the hands of a small elite, the financialization of the economy and land and, above all, growing inequalities.

La poor economic management of the country by the Rajapaksa forced Gotabaya to agree to appeal to the World Bank and, above all, to enter into negotiations with the IMF to benefit from an emergency loan. But the popular uprising and the questioning of the executive power delegitimize the Sri Lankan delegation and its ability to impose a radical restructuring of the island's economy in exchange for any emergency loan.

Moreover, while some Sri Lankans see the IMF as the only institution capable of saving their country from bankruptcy and improving its financial situation, others are very worried about this prospect. Indeed, IMF aid will certainly be accompanied by conditionalities that will likely be imposed on the island, such as austerity policies, new cuts in social protection and the privatization of certain public companies.

What solutions?

What alternatives can then emerge? It seems that the island must absolutely concentrate on its agriculture, to avoid shortages and famine. It would be about rebuilding a food system and really trying to reduce inequalities. In addition, it would no doubt be necessary that the increase in taxes, which is essential for the coffers of the State, should above all be supported, out of solidarity, by the wealthiest layers of the country in order to relieve the poorest and smooth the gaps. The very lively mobilization of demonstrators and trade unions shows that Sri Lankans will not allow politicians to sacrifice their social gains (education, health, electricity accessible at very low cost) to promote an economic recovery plan only favorable to an elite and the political class.

Finally, the Sri Lankan crisis is emblematic of what is happening elsewhere. Many countries around the world are experiencing the same infernal spiral which combines inflation, soaring food and energy prices, indebtedness and the risk of payment default, with terrible consequences for populations. As for Sri Lanka, the question of whether the only solution to save the economy of these weakened countries can only pass through the intervention of the IMF, synonymous with very harsh restructuring for the populations, will be asked.

Anthony Goreau-Ponceaud, Geographer, teacher-researcher, UMR 5115 LAM, French Institute of Pondicherry, University of Bordeaux et Delon Madavan, Researcher in Geography, University of Quebec in Montreal (UQAM)

This article is republished from The Conversation under Creative Commons license. Read theoriginal article.

Image credit: / pzAxe

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