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How Sri Lanka spiralled into unprecedented crisis

By Devjyot Ghoshal/ New Delhi

Wednesday، 11 May 2022 11:33 PM

Sri Lanka’s economic crisis has turned into deadly violence. Eight people died and over 200 were injured on Monday, the country’s powerful prime minister quit and his brother, the president, is seeking ways out of the chaos.
Anti-government protesters angry over power blackouts, shortages of basic goods and rising prices demand that President Gotabaya Rajapaksa steps down, but the retired military officer has invoked emergency powers in an attempt to maintain control.
The violence and political chaos gripping the island nation of 22mn comes 13 years after a brutal civil war ended in a bloody denouement in which tens of thousands of people were killed.
India, Sri Lanka’s northern neighbour, has extended loans to help the country pay for vital supplies.
China, which has invested heavily in infrastructure projects in recent years in what analysts say is an attempt to extend its influence across Asia, has intervened less publicly but said it supported efforts for the island nation to restructure its debt.
Sri Lanka’s vital negotiations with the International Monetary Fund over a rescue plan, as well as plans to restructure its sovereign debt, could be thrown into disarray.
Analysts say that economic mismanagement by successive governments weakened Sri Lanka’s public finances, leaving national expenditure in excess of its income and the production of tradable goods and services at inadequate levels.
The situation was exacerbated by deep tax cuts enacted by the Rajapaksa government soon after it took office in 2019. Months later, the Covid-19 pandemic struck.
That wiped out much of Sri Lanka’s revenue base, most notably from the lucrative tourism industry, while remittances from nationals working abroad dropped and were further sapped by an inflexible foreign exchange rate.
Rating agencies, concerned about government finances and its inability to repay large foreign debt, downgraded Sri Lanka’s credit ratings from 2020 onwards, eventually locking the country out of international financial markets.
To keep the economy afloat, the government leaned heavily on its foreign exchange reserves, eroding them by more than 70% in two years.
Despite the rapidly deteriorating economic environment, the Rajapaksa government initially held off talks with the IMF. For months, opposition leaders and some financial experts urged the government to act, but it held its ground, hoping for tourism to bounce back and remittances to recover.
Eventually, aware of the scale of the brewing crisis, the government did seek help from countries including India and China, regional superpowers who have traditionally jostled for influence over the strategically located island.
In all, New Delhi says it has provided support worth over $3.5bn this year.
Earlier in 2022, President Rajapaksa asked China to restructure repayments on around $3.5bn of debt owed to Beijing, which in late 2021 also provided Sri Lanka with a $1.5bn yuan-denominated swap.
Sri Lanka eventually opened talks with the IMF.
Despite outside support, fuel shortages have caused long queues at filling stations as well as frequent blackouts, and some crucial medicines have run low.
President Rajapaksa has sought support from all political parties in parliament to form a unity government, an offer that many, including the ruling alliance’s allies, have declined.
On Monday, Prime Minister Mahinda Rajapaksa, the president’s older brother, wrote in his resignation letter that he was quitting so that an interim, all-party government could be formed.
The president plans to meet opposition politicians with the expectation of forming a new government within days, according to a cabinet spokesman.
But thousands of protesters, some of whom have camped out on the streets for weeks to the chants of “Gota(baya) go home”, also want the president to step down.  — Reuters

Key figures in the Rajapaksa clan

President Gotabaya Rajapaksa, 72, took office in 2019, wielding executive power over Sri Lanka throughout the Covid pandemic that analysts say helped trigger the current economic crisis.
Unlike his brother Mahinda, who heads the clan and was prime minister until his resignation, Gotabaya came to power with little political experience.
Instead, he came from a military background, having been in charge of the army and police throughout Mahinda’s presidency from 2005-2015.
In 2009, he led a brutal government crackdown that crushed the separatist Tamil rebels after decades of civil war.
The bloody final weeks of the conflict ended with, according to UN estimates, the deaths of around 40,000 civilians, who were herded into so-called no-fire zones that were then bombed by the armed forces.
He denies accusations that he was behind death squads that abducted and “disappeared” dozens of opponents in feared white vans.
Dubbed “The Terminator” by his own family, he is feared by foes for his short temper.

Mahinda Rajapaksa, 76, is the head of the clan. He was president for a decade, and before that he was prime minister in 2004.
Mahinda is adored by the Sinhala-Buddhist majority for crushing the Tamil rebels in the military offensive that ended the civil war.
Rajapaksa has refused an international probe into atrocities allegedly committed during the war. A series of local enquiries have failed to yield either a proper war crimes investigation or prosecutions.
During his rule, Sri Lanka also moved closer to China, borrowing almost $7bn for infrastructure projects — many of which turned into white elephants mired in corruption.
These include an airport almost without planes, a cricket stadium unused to the sound of willow hitting leather and a hi-tech convention centre devoid of conferences.
The centrepiece — and biggest flop — was the Hambantota deep-sea port that had to be leased to China in 2017 for 99 years after Colombo failed to keep up with debt repayments for its construction.
Critics say Mahinda also did little to bridge the divide with Sri Lanka’s Tamils after the war. The community is barred from commemorating their war dead and remain largely marginalised.

Then there are other members of the family, including Basil Rajapaksa, 71, nicknamed
“Mr. Ten Percent” in a BBC interview in reference to commissions he allegedly took from government contracts.
Subsequent administrations failed to prove any charges that he syphoned off millions of dollars from state coffers. All cases against him were dropped when Gotabaya became president.
Basil was made finance minister when Gotabaya became president but was jettisoned in mid-April as the president tried to rescue his government.

Chamal and Namal
Also out of the door was Chamal, 79, another sibling who was in charge of irrigation. His son Sashindra was involved in a disastrous ban on chemical fertiliser imports.
Mahinda’s eldest son Namal, 36, who ran the sports ministry and had been touted as a future leader before the crisis, was also dropped.
With only Gotabaya left in power, Namal told AFP on Tuesday that the family was merely going through a “bad patch”.
Akhil Bery from the Asia Society Policy Institute said Mahinda’s resignation likely signals the end to his time in active politics.
“But the Rajapaksa brand still has support amongst the Sinhalese population,” Bery told AFP.
“Though much of the blame can be placed on the Rajapaksas now, their successors will inherit the mess, leaving space for the Rajapaksas to remain politically relevant.” — AFP  

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