Behind the crisis in Sri Lanka – how political and economic mismanagement combined to plunge the nation into turmoil :: InvestMacro

By Neil DevotaAnd the Wake Forest University

Sri Lanka President Gotabaya Rajapaksa officially resigned On July 15, 2022, after earlier fleeing the country amid widespread protests in the South Asian country.

The man who was replaced by the Prime Minister and Now Interim President Ranil Wickremesinghehe is Likewise encounter calls to go amidst political and economic turmoil.

Although the drama escalated over the course of days – during which Presidential Palace and the The residence of the Prime Minister has been occupied By protesters – the crisis is years in the making, says Neil Devota, 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 the cause of the crisis and where the nation of 22 million people is going from here.

Can you talk to us through the latest happenings?

What happened in Sri Lanka was really revolutionary. For the first time in the country’s history, a president resigned in the most humiliating manner.

Gotabaya Rajapaksa had earlier announced his intention to step down but he did not do so immediately, because once he did he would lose His presidential immunity from the prosecution. Instead he fled the country, The first person to go to the Maldives Then to Singapore. Some claim that You may now be looking forward to arriving in Saudi Arabia – All this is somewhat ironic given that Dubai, the Maldives and Saudi Arabia are Muslim countries, and during his reign, Rajapaksa was accused of crimes Encouraging Islamophobia to strengthen its grip on power.

The impetus for all this was the protest movement. Demonstrators have since left the official residence of the president and prime minister, but the protest movement has been only partially successful. They want Rajapaksa and his brothers He went. but a lot He also wanted to overthrow Prime Minister Wickremesinghe.

Instead, Wickremesinghe, who had not been elected to Parliament and had secured a seat only through a national list leading the legislature, was sworn in as interim president. So a man without a mandate – his party got a Small part of 11.5 million Valid votes cast in 2020 elections – He’s now an acting boss and may end up with a full-time job once he’s Sri Lankan parliament holds secret ballot On July 20, 2022.

What is the spark of the crisis?

The spark really ignited in April 2021 when Rajapaksa announced the launch of Ban fertilizers, herbicides and pesticides.

Successive Sri Lankan governments for a long time who live beyond their means and employing a debt-replenishment strategy to keep the country afloat—in short, the state was relying on new loans, along with tourism revenue and international remittances, to pay off its debts.

But then came COVID-19, which is Tourism has been hit hard He contributed to what economists callbalance of payments crisis. In other words, the country was unable to pay the value of essential imports or service its debts. This prompted the government to suddenly announce a ban on herbicides and fertilizers – something they He hopes to save the country $400 million on imports annually. The president had indicated earlier that the transition to organic farming would take place over 10 years. Instead, it was executed abruptly despite the warnings about It will have an impact on agricultural crops.

This led to farmers protest. And soon sympathetic unions joined them. The balance of payments crisis has gone beyond agriculture. It got to the point where the government couldn’t pay for almost anything it was hoping to import, which led to this drug shortage and milk powder. This led to protests from people from other sectors.

Moreover, the government money printing to pay for the goods. This inevitably led to inflation – which running above 50%.

The tipping point came when people discovered they could no longer pay for cooking gas and fuel. A few weeks ago, the government announced that it would do so Providing fuel for basic services onlySchools are closed and workers are ordered to stay at home.

So this was a purely economic crisis?

not exactly. While the spark was a balance of payments crisis, I think supporting this mess is deep-rooted ethnicity that allowed and encouraged Corruption, nepotism and short-term nepotism.

Since at least the 1950s, Sri Lanka has been in the grip of Sinhala Buddhist nationalism. Sinhalese make up about 75% of the population, Tamils ​​make up about 15% and Muslims make up 10%.

Sri Lankan Sinhalese have It has long been a favorite when it comes to accessing universities and government positions. This has harmed not only the country’s minorities but also its governance. she has It led to a deterioration in how the state works. Sri Lanka ended up with a system that ignores meritocracy and is instead rooted in anocracy – the rule of one dominant group. And that’s his Help spread nepotism and corruption.

The fact that the Rajapaksa brothers helped brutally suppressed and defeated The three-decade Tamil insurgency cemented their credentials among Sinhalese Buddhist nationalists and consolidated their grip on power.

who – which Civil war, which ended in 2009, also contributed to the current crisis. During the conflict, the Sri Lankan government faced a national shortfall of counter-insurgency funding.

After the war, the Rajapaksas were looking forward to developing the country through building its infrastructure. What the country got instead was “fantastic infrastructure” – vanity projects, often financed by China. Corruption and graft are punishable. One of these projects is the airport that sees Very few planes land or take off. I visited Mattala Rajapaksa International Airport in 2015, the only other people there were loaded with students from a school on a field trip. Nothing has changed since then.

Other wasteful projects include a convention center and cricket pitch – dubbed Mahinda Rajapaksa International Cricket Stadium – Not far from Mattala airport which hosts almost none. Then there is the Lotus Tower, the tallest communications tower in South Asia, which was supposed to contain other facilities and was ceremoniously opened in 2019 but Still out of operation.

Such projects were built He is pursued by corruption suggestions. Such projects very much Chinese construction companies participateoften using Chinese workers – Including Chinese prisonersin case if Hambantota port, which was now leased to China for 99 years because Sri Lanka could not repay its debts. Sri Lankans themselves have benefited little.

On paper it looked like The country has been developing and the GDP is rising. But the growth was from outside money rather than from Sri Lanka-generated goods and services.

China’s short-term, high-interest loans played no small role in accelerating Sri Lanka’s debt problem. As a result, the country is currently indebted Between $5 billion and $10 billion for Chinathe total debt 51 billion dollars.

What will happen next?

The most important thing Sri Lanka needs to move forward is political stability. Without it, you will not get the required assistance from the international community.

Sri Lanka will not emerge from economic chaos without the help of international bodies, such as International Monetary FundThe Asian Development Bank And the World Bank. It also needs help from partners such as India, Japan, China and the United States

As it stands, Wickremesinghe, interim president, said his country would Experiencing a shortage of goods until the end of 2023.

Sri Lanka needs large-scale and long-term economic restructuring. For that to happen, the government would have to restructure its bilateral debt – the IMF would not simply give Sri Lanka the money so it could repay its debts to China or any other entity.

But China knows that Cut any debt deal with Sri Lanka It would mean that other countries with significant Chinese debt – such as Pakistan and some African countries – would expect the same. Beijing does not want to set that precedent. On the other hand, China is more likely to work with Sri Lanka and other bilateral donors, especially now that Rajapaksas is out of power. You need to develop goodwill to maintain influence on the island and you will not want to be seen as aggravating Sri Lanka’s problems.

The IMF is also likely to expect painful cost-cutting measures if it is to come to the aid of Sri Lanka. It is more likely to insist that Sri Lanka float its currency freely rather than peg it to the dollar, because now Sri Lankans abroad are Using unofficial channels – Not the banking system – to convert foreign currency. So it is likely to be Devaluing its currency beyond what it already has. The IMF is also likely to expect the government to reduce the number of state employees – ie They currently number about 1.5 million people.

This will be a very painful process and will take some time. This is likely to exacerbate unrest in the country in the coming days.Conversation

About the author:

Neil DevotaProfessor of Politics and International Affairs, Wake Forest University

This article has been republished from Conversation Under a Creative Commons License. Read the original article.

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