There aren’t many pillars of government left in Sri Lanka, now weathering its worst economic crisis since independence in 1948. The entire cabinet has resigned en masse; the central bank governor went, too. The Colombo Stock Exchange suspended trading twice this week due to a sharp fall in the benchmark share price index. There are shortages of food, fuel, medicine and other essentials. Boats carrying refugees fleeing the growing humanitarian catastrophe have started arriving on India’s shores.
Protesters defied a curfew and state of emergency and took to the streets, chanting, “Go home Gota,” referring to President Gotabaya Rajapaksa, a member the powerful clan of strongmen who have led the island nation into this mess. The crowds forced police to abandon barricades outside the president’s residence in the capital, Colombo, and footage on local media shows one officer joining the protests. As much as anything, the fury outside the palace shows that anger over shortages — long queues at petrol stations, power cuts for up to 13 hours a day in scorching tropical heat — is now directed at the government, or what’s left of it.
The Rajapaksas have had more than two years to negotiate with creditors to avoid the economic crisis. The pandemic crippled the tourism industry — and that should have spurred Gotabaya, his powerful brothers, and other family members in key positions into action given how reliant the country is on foreign travelers and their currency. Instead, as the International Monetary Fund noted last month, tax cuts and Covid restrictions led to a rapid increase in public debt to 119% of gross domestic product in 2021. Now, the country has had to close some embassies abroad because of foreign exchange constraints.
The government prioritized servicing external debt rather than ensuring it could provide for its people. Their verdict is clear: The Rajapaksas must go. Gotabaya, who awarded himself sweeping executive powers in 2020, this week invited all parties to take up ministerial positions in a unity government to help resolve the crisis. Instead, he found himself with a minority in parliament as dozens of lawmakers left his coalition to sit as independent members. For now, the interim government consists of the president’s brother Mahinda Rajapaksa as prime minister and three other ministers sworn in after the cabinet resigned.
Sri Lanka urgently needs to negotiate with the IMF and bilateral creditors China and India to work out a way forward. A panel of economists and fiscal experts has been appointed by the president ahead of talks with the IMF slated for later this month. Rajapaksa repealed a five-day old emergency order, but that did not quell the protesters’ anger. They want the constitution amended to limit the president’s extraordinary powers. Opposition leader Sajith Premadasa has echoed their call to abolish the executive presidential system.
This marks a rapid fall for the Rajapaksas, who have been dominant figures in Sri Lanka’s politics for decades and most notably defeated the long-running Tamil separatist rebellion in 2009 in a military offensive marked by allegations of grave human rights abuses. After a four-year hiatus, they swept back to power in elections in 2019, promising to restore stability and security after the Easter Sunday bombings on churches and luxury hotels that were claimed by Islamic State. They inherited an economy where growth had slowed to a more than five-year low and a debt level hovering at 83% of GDP.
Now the rupee is the world’s worst-performing currency this year and inflation is running at nearly 19% — the fastest pace in Asia. The country is perilously close to defaulting on its debt. The new head of Sri Lanka’s monetary authority, P. Nandalal Weerasinghe, a career central banker and former deputy governor, took over Thursday. Weerasinghe worked at the IMF for several years and, as Bloomberg Economics reported, is likely to support its bailout package, unlike his predecessor who was reportedly resistant to the fiscal austerity requirements.
But there’s still plenty of instability. A new finance minister, Ali Sabry, resigned less than 24 hours after he was sworn in. He’d taken over from Basil Rajapaksa, who was widely seen as failing to tackle the country’s financial predicament. The brother of the president and the prime minister, he is the most prominent member of the family to have stepped down so far. The president has yet to publicly speak on the unfolding disaster and he’s resisting calls to resign. The crisis is a disaster for his family, but it goes wider.
“This is not just a struggle against the Rajapaksas; this is a pointed warning to the Sri Lanka political establishment,” Colombo-based constitutional lawyer Kishali Pinto-Jayawardena told me. “For the past one-and-a-half years, the political elite went on its own way, ignorant that the rest of the country was being pushed into an acute state of economic and social deprivation. At each and every point, notions of equality were discarded.”
This marks the first time the youth and the middle class have joined the working class on the streets to demand systemic changes — and that unity could result in real reforms, Pinto-Jayawardena said, noting that securing the independence of institutions such as the Human Rights Commission and the office of the Attorney General was vital to Sri Lanka’s future.
There is another threat to consider. The Rajapaksa brothers exploited the island’s ethno-religious fissures when they returned to power after the Easter bombings in 2019. Such divisions could just as easily cleave open again; the bitter civil war between the majority Sinhalese government and the separatist Liberation Tigers of Tamil Eelam ended only 13 years ago. But will they? So far, the nation’s main groups seem united against a common enemy.
Regardless, Sri Lanka is on a dangerous trajectory. Only a rapid easing of the economic situation and significant political reform will help — that’s when protesters will see a potential end to this crisis, and leave the streets in peace.- Bloomberg