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      Members of a family held the positions of president and prime minister and dominated the parliament. It didn’t end well.

  The president went missing, his whereabouts unknown, as protesters stormed the whitewashed colonial-era mansion that served as his residence. Meanwhile, the prime minister’s private house was set on fire. With the news that both will leave their posts, the fireworks of celebration started.

Sri Lanka's economic crisis: how a libel's political mismanagement left a prosperous country paupers


 Sri Lanka’s economic crisis: how a libel’s political mismanagement left a prosperous country paupers

Such was the scene in Sri Lanka’s capital Colombo on Saturday, when months of protests over a crushing economic collapse reached a violent peak.

At the center of the protest was an unprecedented outburst of public anger, directed toward one family: the Rajapaksa, a clan that has dominated Sri Lankan public life for years and is central to the story of how this small and ever The vibrant South Asian island nation descended into a fiery economic firestorm.

The situation was already dire for Saturday’s events: in earlier weeks, schools were closed, offices were closed and students lined the streets, calling for the president to be removed. Frustrated motorists waited in long queues for miles at gas stations across the country as fuel stocks ran low. In many cases, they waited in vain: even if you could pay, the pumps were dry. And at local markets and grocery stores, you had to pay more: Food inflation exceeded 57 percent in May. Cost of non-food essentials? up more than 30 percent.

It was not a case of some war zone or a long-standing economic basket, but rather a matter is known to travelers as the “hidden jewel of Asia”, a small but strategically important country with a post-war “economic renaissance”. and honored by the World Bank. “Development Success Story.”

What happened on Saturday clearly showed how the story had changed, as Sri Lanka’s 22 million-strong population faced a shortage of food and fuel.

The country’s “renaissance” followed the end of a brutal, decades-long civil war, and was proclaimed as an example to other conflict-stricken nations. Today, groaning under a pile of $51 billion foreign debt that it can no longer service, Sri Lanka is in the deep red, locked in desperate talks for a bailout with the International Monetary Fund.

Ranil Wickremesinghe, who said this weekend that he would resign as prime minister as protesters stormed his home, summed up the situation in an address to lawmakers last month: “Our economy is in full swing. It’s kind of ruined.”

What happened to Asia’s “hidden jewel” and that “economic renaissance”? The answer includes the Rajapaksa family, a flood of bad decisions, and a wave of inflation sweeping much of the world.

With family

Waves of anger against Rajapaksa led to Wickremesinghe coming to power in May itself.

Mahinda Rajapaksa was the Vice-Chancellor, the Prime Minister, and before that the President; During his time as president, he appointed a brother as defense minister – that brother, Gotabaya, later became president, and as of Saturday night in Sri Lanka, he was still missing.

Over the years, other Rajapaksa brothers, cousins ​​, and mixed relatives have populated various parts of Sri Lanka’s political hierarchy – from the Ministry of Economic Development to the Department of Irrigation to senior positions in parliament and other public institutions. In fact, the extent to which the family tree matched the map of power in Sri Lanka was almost unprecedented in modern times.

“In the government system, you had a cruel and politically efficient family, which gave them immense powers, which they abused,” Alan Keenan, Sri Lanka’s longtime watcher at the International Crisis Group, told Grid.

Mahinda Rajapaksa became president in 2005 and was soon successful in quelling a long-running insurgency by separatists from the country’s Tamil minority community. The Tamil and majority Sinhalese armies were accused of war crimes during the conflict. After the horrors, Rajapaksa and his family established themselves in every sphere of government.

For a time, Sri Lanka prospered – at least on the surface; The annual increase increased to about 9 percent in 2012. But as the family consolidated power, criticism grew within and outside Sri Lanka that the Rajapaksa was creating the family’s fiefdom, and with that came corruption and mismanagement.

 Mahinda used his political clout to concentrate power in the office of the President, giving him direct control over key government institutions through constitutional amendments. With a hierarchy populated by allies and family members, he faced almost no real check on his power. Those who tried to stand up against him faced the wrath of the state: in a 2013 report, Amnesty International said that his regime “criminalized freedom of expression” in order to tighten its grip on the country. and compared dissent with treason”. “Disagreement,” the rights group said, “is a dangerous undertaking in Sri Lanka.”

At the same time, Rajapaksa and his brothers borrowed billions from international investors and big regional players to spur growth – the most garnering attention from China, which funded a slate of infrastructure projects. The brothers borrowed with minimal oversight in 2020, pursuing what analysts at the London-based Chatham House think tank called “a corrupt and unstable development program”.

Leaked US diplomatic cables from the early 2000s, when Rajapaksa began a race to build up his debt-fueled infrastructure, also raised concerns about the Rajapaksa administration’s objectives: “No strategic approach to developing the region and there is no coordination between the agencies responsible for this. various projects. There seems to be a lack of understanding even within the business community that a certain level of demand and investor interest is necessary for some of these projects to be successful. ,

China factor

In a strange turn, Sri Lanka was also hurt by its strategic importance. The country is located to the south of India, a major sea stop in the Indian Ocean. For the US and its regional allies, India chief among them, it is a small but important nation – the “base,” as the State Department said in its 2019 brief, “of the Indo-Pacific region.”

Certainly, China has recognized the importance of Sri Lanka and recently it has done something about it. When you land in Colombo, the capital, the Chinese influence is evident; On the coast, extending into the Indian Ocean is what is known as the Colombo Port City Project. It is being built – a la Dubai – on sand obtained from the sea; With less than $1.4 billion in Chinese funding, the port was officially launched in 2014 during the visit of Chinese President Xi Jinping. Mahinda Rajapaksa struck the deal – and welcomed Xi to the inauguration. Further south, under Rajapaksa’s watch, Chinese loans also funded another huge port and a new airport.

When Rajapaksa’s government allowed Chinese nuclear submarines to dock at the port of Colombo in late 2014, the investment was more than just infrastructure, a development that caused alarm in both New Delhi and Washington.

Meanwhile, Rajapaksa continued to borrow freely, and excessively – debt from China was just one big example – and bills have recently become due. It is a debt crisis that has almost everything to do with Sri Lanka’s economic collapse. The legacy of China’s participation is enormous; As of 2019, China accounted for about 10 percent of Sri Lanka’s total external debt. And when Sri Lanka failed to pay its debts on the huge port project in the south, the Sri Lankans were forced to hand over control of the port to China under a long-term lease agreement. For many, the episode made Sri Lanka a poster child of what has come to be known as China’s “debt-trap diplomacy”, in which Beijing uses its growing wealth to lend to vulnerable nations that eventually pay back the debt. are unable to do so – thus leaving them more dependent on Beijing. In the case of Sri Lanka, that dependence could have security consequences: The southern port is now in Chinese hands, with the US and India worrying that Beijing may eventually use the port as a military base.

Yet China was hardly alone. Today, in addition to Beijing, Sri Lanka owes a debt to India and Japan, as well as commercial financiers who have bought its bonds in recent years. And here also the bills are coming due.

House of cards

As Rajapaksa borrowed his way to build infrastructure and boost Sri Lanka’s GDP, what he didn’t do was focused on creating a sustainable economic base for all to pay for. Analysts say this is a major reason for the current nightmare.

“A lot of the higher growth rate was driven by debt. A lot of road construction and infrastructure projects were funded on debt… either because they were Chinese projects or sovereign bonds,” Keenan said. The result, he explained, was that “the whole economy has become distorted.”

 It did not help that the World Bank reclassified Sri Lanka as a “middle-income country” in the early 2000s, a distinction that led to higher interest rates; Previously, as a “low-income country”, it was eligible for discounted rates when borrowing from major international lenders.

For all Rajapaksa’s nepotism and poor management, Sri Lanka also inflicted two unrelated physical blows. The so-called Easter Sunday bombings in 2019, which killed 261 people, damaged the Sri Lankan tourism sector, which is the country’s fastest-growing source of foreign exchange income. In 2018, the year before the bombings, tourism earned the country $4.4 billion dollars and contributed 5.6 percent to its GDP, according to Reuters. Tourist arrivals fell by more than 20 percent in the year that followed. And then came Covid-19, which slammed the door for the tourism sector till the beginning of this year.

Ultimately, however, Kenan said Sri Lanka has suffered the most from poor decision-making at the highest levels of government. “In many ways, the economic problem in Sri Lanka is the result of a governance problem.”

Saravanamuttu of the Center for Policy Alternatives said: “A lot of [governance issues and mismanagement] were the result of centralization of power in the office of the presidency, as there is no real accountability or transparency in the way that office functions as of the day. In the end.”

 Poor farming

A story breaks in the heart of how that malfunction has damaged the country. And it includes an important pillar of the Sri Lankan economy: farming.

In April 2021, the government banned the import of synthetic or chemical fertilizers. President Gotabaya Rajapaksa said the policy was designed to promote organic farming. Problem? The country and the agricultural sector, which accounts for about 7 percent of economic output and employs 27 percent of the labor force, were unprepared for change.

The decision was taken despite experts’ arguments against it: Last summer, 30 of Sri Lanka’s leading scientists and agricultural experts wrote to the president, warning that the country would suffer a sudden switch from chemical fertilizers. “A gradual approach would be wise to avert short-term crises,” he advised.

They were right. Widespread opposition, following the introduction of the policy, forced the government to withdraw the ban at the end of the year – but the damage was done. The sector suffered for months.

Domestic rice production has declined by about 20 percent in the six months since the policy was implemented. Analysts at Standard & Poor’s noted that, even though the government banned fertilizer imports, it “neither increased the country’s organic fertilizer production capabilities nor imported organic fertilizers to meet the needs of farmers.”

“The rising food prices [in the wake of the fertilizer decision] led to social unrest across the country,” Etherrin Cousin, former executive director of the United Nations food agency World Food Program, told Grid. This fed – so to speak – “the political challenges the country is now facing,” she explained.

That local food-price crisis is now compounded by a global rise in the prices of basic staples. For Sri Lanka, the scale of the food crisis is such that the government has approved a four-day work week for public sector workers, encouraging them to spend the extra day’s produce in their backyards.

For all the complaints and accusations against the Rajapaksa family, the price hike finally broke their grip on power: amid growing popular anger, Mahinda was forced to resign as prime minister in May. Now Gotabaya is reportedly ready to follow in his footsteps.

With Prime Minister Wickremesinghe also leaving, what will happen next remains uncertain. But that would only make the need for an IMF bailout – talks for which, until the end of this week, the Sri Lankan side was being led by Wickremesinghe – more urgent.

Otherwise, as Wickremesinghe himself warned last month, the country is set to “fall to the bottom”.


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