The ongoing financial crisis in Sri Lanka has also triggered a sharp drop in the value of the country’s currency.
By Neville de Silva
LONDON, Jul 6 2022 – When Ceylon- now Sri Lanka- gained independence from Britain in 1948 after almost 450 years of colonial rule under three western powers, it was one Asia’s most stable and prosperous democracies.
Today, after years of misrule, rampant corruption by the ruling class and a politicised administration, the country is bankrupt, its economy on the verge of collapse, and society in disarray while a discredited president still clings to power and manipulating the political system, determined to serve the rest of his term.
While the original 18th century Beggar’s Opera was a satire on the injustice in London society of the day and Prime Minister Robert Walpole’s corrupt government, Sri Lanka has not turned to opera but to begging and possibly borrowing if any international lending institution is willing to lend to a country that has recently defaulted on debt repayment for the first time in its post-independence history.
That speaks volumes for the fiscal and monetary policies of President Gotabaya Rajapaksa’s government, and its unthinking and ill- considered actions in the last two and a half years, that has “collapsed” the country’s economy— as the prime minister told parliament the other day.
Under the 10-year rule of elder brother Mahinda Rajapaksa (2005-2015), the government borrowed heavily from China for massive infrastructure projects. That included a huge international airport at Mattala in nearby Rajapaksa territory in the deep south. Some of them continue to be white elephants.
A joke at the time and resonating now and then was that even herds of roaming wild elephants in the area spurn the airport because of the colour bar!
Since Gotabaya Rajapaksa came to power in November 2019 and a year later brother Mahinda led their Sri Lanka People’s Party (SLPP) to a parliamentary victory, the Rajapaksas, now at the helm of power, strengthened their already close relationship with Beijing at the expense of ties with the West and international lending institutions and alienating UN bodies such as the UN Human Rights Council.
But in the last few months it has been a begging-bowl ‘opera’ as Sri Lanka scoured the world for loans after its foreign reserves started dipping drastically and leading international rating agencies took to downgrading the country’s sovereign rating.
Eventually the Rajapaksa government reneged on its debt repayments, humiliating Sri Lanka which had never defaulted in its 74-year history.
Trapped by a plunging economy Sri Lanka turned to Bangladesh to save it from emerging bankruptcy. Nothing could be more ironic. In its early years Bangladesh was perceived as a recipient of financial support, not a lender.
At that time Sri Lanka’s economy seemed stable enough despite its near 30 years of war against Tamil Tiger separatists.
In early, June Bangladesh agreed in principle to another currency swap of US$ 200 million. This is in addition to last year’s currency swap of $200 million whose repayment date of three months was extended to one year at Sri Lanka’s request last August.
Today, the country’s 22 million people are almost without petrol, cooking gas, kerosene, food, medicines, powdered milk, and other essentials as the government has no foreign currency to import them.
A common scenario in many parts of Sri Lanka are queues of people-men, women and even children- spending many hours and even days to buy the essentials that are scarce and a food shortage is predicted in the coming months.
As I sat down to write this, news reports said the 12th man died seated in his vehicle at a queue for fuel. A few days later the Sunday Times Political Editor upped the death toll to 16.
Meanwhile physical clashes are becoming common at filling station where thugs have muscled in. The other day a soldier was caught on video assaulting a policeman.
Such is the tension building up in society that the Sunday Times Political Editor reported of concerns among local intelligence services about national security.
While the long-drawn out covid pandemic did cripple the tourism industry, a major foreign currency earner, much of the blame rests on President Gotabaya Rajapaksa’s short-sighted policies as well as those of some of his ministers and close advisers whose arrogance and ignorance brushed aside warnings sounded a year or two ahead by reputed economists, former Central Bank professionals, academics and trade chambers.
Rajapaksa having denied any culpability for these errors of judgement ultimately conceded his responsibility but only when mass protests erupted in Colombo and elsewhere in the country with even the peasantry-a vital support base of the Rajapaksas- took to the streets castigating him and his government for creating shortages of essential fertilizers for agriculture.
After almost two months, thousands of anti-government protestors who set up camp on the seaside promenade opposite the presidential secretariat in the heart of Colombo, are still there raising their clarion call which has now spread across the country- “Gota Go Home”-demanding that the president return to whence he came.
While Sri Lanka struggles to survive and the Rajapaksas gradually reappear into public view, there has been a perceptible change in the government’s world view. Though Chinese leaders have often declared that Beijing is Colombo’s “all weather friend” it has been slow to come to Sri Lanka’s aid at a time of real crisis.
An appeal to China by the Rajapaksa government to restructure its loans as one of its biggest lenders had not produced the expected reaction from Beijing. Nor had there been a positive response at the time for another credit line of US$ 1.5 billion when Colombo’s foreign reserves were fast drying out.
Even President Xi Jinping’s birthday greeting to President Rajapaksa last month made no mention of any concrete assistance except references to the long-standing Sri Lanka-China relations.
Observers claimed that China was coaxing-if not actually pressuring- Sri Lanka to distance itself from India, its competitor for political positioning and an expanding stake in the strategically- located island.
While the immediate target was India, Beijing was also pointing its finger at Sri Lanka’s growing ties with the US and international institutions such as the IMF.
The fact that since January India has provided assistance to Sri Lanka with currency swaps, credit lines, loan deferments and humanitarian assistance to meet the mounting crisis and supported Colombo’s call for IMF aid, appeared unwelcome news to China which has been trying to persuade Sri Lanka to enter into a trade agreement with it.
In late June, a high-powered Indian delegation led by Foreign Secretary Vinay Kwatra made a quick few- hour visit to Colombo to meet President Rajapaksa and Prime Minister Ranil Wickremesinghe and discuss further strengthening of Indo-Lanka ties and bilateral investment partnerships including infrastructure and renewal energy.
New Delhi pointed out that this unprecedented recent economic, financial and humanitarian assistance including medicines and food valued at over US$ 3.5 b was guided by Prime Minister Narendra Modi’s “Neighbourhood First” policy.
Had it not been for the Indian central government and the Tamil Nadu state government responding fast with generous assistance Sri Lanka would have been struggling to find scarce food, fuel and medicines.
Meanwhile a nine-member team of senior IMF officials spent 10 days in Sri Lanka in late June to assess whether it could come up with a reform package to restore macroeconomic stability and debt sustainability.
Since Colombo approached the IMF for a bailout programme early this year the international lending institution has been monitoring the country’s economic and political situation, neither of which presented much confidence.
It is not only sustainable economic reforms that the IMF is after. It seeks substantial efforts to improve governance and a stable corruption-free government that the IMF and other lending institutions such as the World Bank and Asian Development Bank and donor nations could have confidence in.
The current government of bits and pieces could hardly provide evidence that it is fighting corruption when one of its stalwarts who was convicted the other day on extortion and sentenced to two years rigorous imprisonment but suspended for five years was reappointed to the cabinet by President Rajapaksa and made chief government whip in addition.
It is the need for clean government that causes concerns with President Rajapaksa reneging on promises he made to introduce constitutional amendments that will substantially prune the plethora of powers he grabbed on coming to power.
This is hardly likely as the world will see when the new 21st constitutional amendment is gazetted in a few days.
Neville de Silva is a veteran Sri Lankan journalist who held senior roles in Hong Kong at The Standard and worked in London for Gemini News Service. He has been a correspondent for the foreign media including the New York Times and Le Monde. More recently he was Sri Lanka’s Deputy High Commissioner in London
Source: Asian Affairs, London
IPS UN Bureau
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