How Lanka got her groove back
Despite the sweltering heat, there is tremendous energy all around the Galle Face Green, the famous sea front park, close to the presidential secretariat in Colombo. Young people are swarming around the fancy ice cream trucks, tourists are gushing out of the packed five-star establishments, while shoppers are thronging the entire area. This positive energy is a far cry from the economic chaos that engulfed Sri Lanka only two years ago. Faced with a serious yet manageable set of economic challenges, the Lankan government mishandled the economic crisis by making poor, politically motivated choices, one after the other, forcing the island nation to declare bankruptcy.
Predictably, the economic crisis rapidly transformed into a political crisis. This same sea front park became the epicentre of anti-government protests. Soon, the president resigned and sought safety abroad, while, in one of the most-watched images around the world, the Sri Lankan people took over the President’s House in Colombo. People may not remember, but this unfortunate chaos was very closely followed in Pakistan, especially as one mainstream political party, perhaps to regain lost leverage, repeatedly claimed that Pakistan was headed in Sri Lanka’s direction.
All that chaos now seems distant history as the sound of the gently crashing waves heralds serenity. According to the IMF, inflation has come down from 70 per cent to 5.9pc, while the economy has started expanding after one and half year of contraction. This economic turnaround might tempt some to conclude that stabilisation was always on the cards. Just like water in a vigorously shaken bottle calms down when left to rest on a table, all chaotic systems eventually find endogenous order, right? Wrong.
Sri Lanka’s remarkable economic recovery would not have come about without the tremendous leadership displayed by President Wickremesinghe. Sri Lanka’s remarkable economic recovery would not have come about without the tremendous leadership displayed by President Ranil Wickremesinghe. Wickremesinghe, the nation’s veteran statesman, stepped up to the plate when no other political leader was willing to take the reins since the much-needed and IMF-supported economic reforms, more taxes, market-determined exchange rate and privatisation of state-owned enterprises (SOEs), were guaranteed to cost dearly in terms of political capital. But, what was it about Wickremesinghe’s leadership style that enabled him to stabilise and then turn around an economy that had hit rock bottom? When this question was posed to experts at the Institute of Policy Studies of Sri Lanka, they pointed to Wickremesinghe’s leadership and political experience as one of the main reasons behind economic stabilisation as it led to a calming of the nerves of various international lenders.
Also, despite little representation in parliament, Wickremesinghe was far more effective on the global stage. This arena became crucial for bringing the IMF to the rescue. Indeed, the IMF found a credible partner in the shape of Wickremesinghe, someone with economic policy experience who would not turn their back on the economic reforms required to put the South Asian nation on the path of sustainable economic recovery and growth. Wickremesinghe’s leadership, experience, tact and credibility enabled him to rightly front-load the most painful part of the economic adjustment, namely a market-determined exchange rate that led to the Sri Lankan rupee losing half its value against the US dollar. For waiting for an optimal time for tough economic decisions