Behind the chaos: A perfect economic storm, brazen nepotism
Sutirtho Patranobis
BEIJING: A perfect storm of an economic collapse and anti-government anger made landfall on Sri Lanka and the ruling Rajapaksa family this month. But it did not appear from nowhere.
Angry Sri Lankans were protesting for several weeks over crippling shortages of food and fuel, and the increasing hours of power outages. They were venting against President Gotabaya Rajapaksa and his clan, who protesters say must resign and take blame for their economic hardship.
Rajapaksa and his ministers issued statements about depleting foreign exchange reserves, leaving them no money to import essentials, and forcing them to ask countries, including China, to restructure debts.
In April, people began to pour out onto the streets to protest. Peacefully, at first. Then they clashed with regime supporters; violence and empty tear gas shells cluttered the streets of capital Colombo, iron barricades and government symbols were torn down, homes and properties of politicians were torched.
In its immediate aftermath, the crisis has sent most among the ruling clan – including brother, sons and nephews – packing to political wilderness for now and the remaining stitched-up polity to look for answers.
Once celebrated and airbrushed, war heroes, former Prime Minister Mahinda Rajapaksa – who was twice President as well – and his younger brother
Gotabaya are now reviled by a large section of citizens. They are nowhere as popular among the majority Sinhalese community as they were after the bloody triumph over Tamil rebels in 2009.
The former is said to be cowering inside a naval base, with a local court banning him from leaving the country. The latter, Gotabaya Rajapaksa, has appointed Ranil Wickremesinghe, a five-time Prime Minister, to return to the post to mollify protesters.
The ransacking of a controversial museum dedicated to Rajapaksas’ father, former politician DA Rajapaksa, in Medamulana, some 200km south of Colombo, on May 9 was a minor part of the political protests and violence sweeping Sri Lanka, given the human toll that has marked it.
It was unveiled in 2014 by then President Mahinda Rajapaksa – who resigned as PM on May 9 – and patronised by the rest of the clan. It’s destruction, however, is a symbol of the crisis that’s hit the island nation of 22 million people with its manicured tea gardens, white, sandy beaches and a history of political violence.
Writing on the wall
Economic mismanagement, the Rajapaksas’ brazen nepotism, and their sense of impunity fuelled and supported by majoritarian nationalism were primary factors that played a role in the crisis. Economic hardships finally triggered protests and political instability.
It’s the dying economy that led to the crumbling of the Rajapaksa mansion, although experts said the earlier government had to take their share of the blame too.
The latest World Bank update on the state of the Sri Lankan economy summed it up. “Year-onyear inflation accelerated to 17.5 percent in February 2022, mostly due to high food inflation at 24.7 percent, amid rising global commodity prices, adjustments to fuel prices, and partial monetisation of the fiscal deficit,” it said. Moreover, an agrochemical imports ban between May and November in 2021 reduced farm output.
“The (resulting) increase in prices affected the ability of households to cover living expenses, leading to a deterioration of welfare and more food insecurity,” the report said in April, referring to the fall in crop yields following President Rajapaksa’s decision to ban all chemical fertilisers.
“People’s needs had not been met. Only the Rajapaksas are doing well. All top appointments are from their family. We want change. Even now, they (President Gotabaya) are only making adjustments,” Sachith Maduranga told HT from Colombo.
Maduranga, a former national record holding javelin thrower, has taken part in the protests for 30 days at the Galle Face, Colombo’s iconic boulevard with the century-old Galle Face Hotel.
“Currently, people’s power is the best power in Sri Lanka,” Madduranga said.
The current economic crisis has been caused by multiple factors, said Chulanee Attanayake, research fellow, Institute of South Asian Studies at the National University of Singapore, identifying three major ones — lack of fiscal sustainability, lack of a proper tax regime and depleting foreign exchange reserves.
Sri Lanka’s tax revenue to GDP ratio, for example, is one of the lowest in the world.
In 2020, the Covid-19 pandemic had punched the economy harder in a sector already gasping after the April 2019 Easter terror attacks: Tourism. The Lonely Planet had named Sri Lanka its top travel destination for 2019 only months before. And, in 2022, tourism was just about looking up again when protests hit the streets.
The tourism sector earned Sri Lanka $4.4 billion and contributed 5.6% to GDP in 2018, but this dropped to just 0.8% in 2020. Sri Lanka recorded over 1.9 million tourist arrivals in 2019, a 21% drop from the previous year owing to the aftermath of the April 2019 attacks on hotels and churches.
Attanayake added that the Covid-19 pandemic, besides impacting tourism, also hit another source of foreign exchange: remittances from Lankan migrant workers abroad, described by the country’s central bank as a “key pillar of Sri Lanka’s foreign currency earnings providing a substantial cushion against the widening trade deficit.”
Besides taking major hits on tourism and remittances, is Sri Lanka also a victim of the debt trap diplomacy, lured into taking unserviceable loans by China to service its own strategic goals in the Indian Ocean region?
A 2020 paper, titled Chinese Investment and the BRI (Belt and Road Initiative) in Sri Lanka, by the London-based Chatham House gives an idea about Chinese investment in Sri Lanka.
“Analysis for this paper suggests that the value of cumulative
Chinese infrastructure investment in Sri Lanka amounts to $12.1 billion between 2006 and July 2019 or equivalent to 14 % of Sri Lanka’s 2018 GDP. There was only a modest rise from $5.4 billion in the prebri period (2006-12), which accounted for roughly 15 projects, to $6.8 billion in the BRI period (2013-19) with 13 projects,” the paper found.
Experts have said that the debt trap argument is not entirely true. The Sri Lanka ambassador to China, Palitha Kohona, for one, had earlier told HT that his country was not caught in a China debt trap, and owes more money to multilateral banks and international sovereign bonds.
“It’s more of a western narrative or perception,” said NUS’S Attanayake. “I don’t mean that (Chinese) debt is not there, but Sri Lanka had a balance of payments problem before as well.”
Among the high-profile Chinadriven projects are the Colombo Port City development, road and expressway projects, water and sanitation projects, and further investments in existing projects such as the revised Hambantota Port deal in 2017, reports say.
“Studies show that although Sri Lanka has relatively high external debt, only 6% of its external debt is attributed to China,” the Chatham House report said.
“The Chinese loans are obviously just one factor in the larger story of Sri Lanka’s debt crisis. The real blame for the debt crisis should go to the International Monetary Fund (IMF), the World Bank, the Asian Development Bank (ADB) and Sri Lanka’s economic policymakers since the 1990s,” said Jayadeva Uyangoda, a professor of political science at University of Colombo.
The China connect
China is Sri Lanka’s largest bilateral lender, with an outstanding balance of $6.5 billion mostly lent over the past decade for large infrastructure projects, including highways, a port, an airport and a coal power plant. Some of the projects are long-term ones with returns expected years later.
For example, Sri Lanka’s Port City Colombo project is expected to add $13.8 billion to the economy once fully operational in 2041, a study by Pricewaterhousecoopers said late last year. Until then, it is expected to mostly benefit the construction sector.
Launched in 2014, during a visit by Chinese President Xi Jinping, the project has received $1.4 billion investment from the China Harbour Engineering Company.
What, however, added to the wrath of the protesters was that many of the white elephant projects – like the Mattala Rajapaksa International Port – built with Chinese money were in the southern Hambantota district, ancestral home of the Rajapaksas.
In the last decade-and-a-half, the family openly used its political clout and billions in Chinese loans in a failed effort to turn rural Hambantota into an economic hub.
If not to blame entirely, Sri Lanka’s economic crisis has been exacerbated by Chinese-funded projects, which have become examples of government extravagance with little accountability.
What didn’t help was that the Rajapaksas had seemingly become the comprador political class nurtured by China, an authoritarian regime, which didn’t ask questions but only asked for access deep inside the country. Of course, only to build ports, roads, highways and to occasionally dispatch submarines as part of its expanding naval reach.
“I suppose, the Chinese are more responsible for corrupting the local political elites and the business class, and also for encouraging corruption at the highest political level. They probably tried to cultivate a comprador political class here, and the Rajapaksa’s were their clients whose loyalty was generously rewarded. This is somewhat similar to what the Chinese did with Myanmar’s military rulers,” University of Colombo’s Uyangoda added.
Even before Gotabaya Rajapaksa had won the election in 2019, he had talked about “restoring” ties with China following the seemingly souring of Colombobeijing ties under the previous Maithripala Sirisena government.
“Now China is looking at us differently. When Gotabaya Rajapaksa becomes the president, he will set the record right and restore the relationship to where it was,” Rajapaksa’s then adviser Palitha Kohona (now Sri Lanka’s envoy to China) told reporters in Colombo, according to Reuters.
That relation has likely been restored since Gotabaya became President, but the more pressing need is to shelter Sri Lanka from the storm of economic and political unrest and its aftermath.