Photo courtesy of Lankapuvath
The recent suggestion by United National Party (UNP) General Secretary Range Bandara to hold a referendum to postpone elections by two years caused an outcry and was quickly denied by senior UNP members.
Was he was merely expressing a personal view or was he was testing the waters on a serious idea? Either way, this tactic is unacceptable; while the Sri Lankan electorate may not understand the nuances of democracy, the concept of free and fair elections is deeply valued. Despite the country’s other weaknesses, elections remain relatively fair and past attempts to tamper with the process have backfired. The public reaction against the constitutional coup of October 2018 probably contributed to its ultimate failure. Mrs Bandaranaike’s extension of Parliament in the 1970s may also have worked against her. If this was a serious idea, Mr Wickremesinghe would be well advised to drop it.
A possibility is that the story was a deliberate distraction from other contentious issues such as the controversy surrounding the Economic Transformation Bill. We can only speculate but the proposal to postpone elections is an implicit admission by the president of his low chances of success. The question then arises: did he not anticipate this outcome when he assumed office during the country’s economic crisis?
When Gotabaya Rajapaksa resigned amid the chaos of the economic crisis, any competent politician should have realised that the necessary reforms to address the crisis would doom their political career. This should have been clear to the many hopefuls who sought to assume the presidency, ultimately including President Wickremesinghe. However, he seems to have accepted the poisoned chalice without fully comprehending the consequences.
The only conceivable way for President Wickremesinghe to have avoided this fate would have been to build a broader consensus around the reform programme, which he has failed to do. While this is difficult in Sri Lanka’s fractious political arena, little attempt seems to have been made, nor were difficult reforms properly explained to the public.
President Wickremesinghe’s case has not been strengthened by his failure to distance himself from the tainted old regime. Although he was initially dependent on their support in parliament, he should have used his leverage in the early days to banish them from the political arena. Their re-emergence, together with illiberal measures like the Anti-Terrorism Act or the Online Safety Bill, have needlessly alienated sections of the population. Even those who support the economic reforms find it difficult to justify their support for the government because of this. Scandals such as the outsourcing of visas to VFS have further damaged the government’s reputation, suggesting that lessons from previous scandals, such as the bond scam have not been learned.
Even in the unlikely event that elections are postponed, it may not pave the way for President Wickremesinghe’s eventual re-election unless there is a sudden and unexpected economic boom over the next two years, which is out of the question. A fast recovery would depend on difficult structural reforms, none of which have been attempted. His best hope for re-election now lies in distancing himself from tainted politicians, forming a broad coalition and hoping that voters will forgive him for his blunders.
While this is the dilemma facing the president, the voters face an equally difficult choice. The aragalaya protests drew wide public support. Many who were involved are still emotionally invested in what it stood for and are bitterly disappointed by what transpired. Their anger is focused on the government, which they seem intent on punishing by ejecting it at the election. The anger is justified, and their reaction is perfectly reasonable. The crucial question is: is it in their best interest to do so?
Citizens who wish for a change are making an important, if unstated assumption: that the current economic situation can get no worse. If this is the case then there is little to lose, but this is a fatal mistake: repeated crises have plagued Latin America. Unless the causes are addressed the same fate awaits Sri Lanka. There is no space to revisit the reasons for the poverty that angers the public but to avoid another crisis, the government needs to maintain fiscal prudence – balance its budget and the Central Bank must not debase the currency.
Any new contender for the throne must understand these two fundamentals and also understand that the chalice they inherit is still poisoned. There is no quick and easy path back to prosperity; it will take many years and can only come through the virtues of thrift, prudence and diligence. Above all, these must be practised by the government, which has run continuous deficits in its budget since the 1950s and used debt and currency debasement to fill the gap.
If Sri Lanka is to avoid repeated crises, policymakers must not make another mistake; they must have a clear knowledge of the issues and a correct understanding of the problem.
Among the contenders, the understanding appears weakest in the NPP. The foreign exchange crisis is a monetary problem, it is not a problem of trade flows, the lack of domestic production or the “open economy”-we experienced these crises even at the height of the closed economy.
Moreover, the problem originates not in the private sector but in the government, which lives beyond its means running continuous deficits and has now defaulted on its debts. The current government has resorted to taxes to try and balance its budget but there is a limit to what can be extracted from a stagnant economy and a population who have already paid a heavy price in inflation. Thus the need to reduce government expenditure and its involvement in economy. The NPP promises to do exactly the opposite.
They also do not seem to grasp the radical changes in the economy since 2005. The driving force behind the NPP is the JVP which played a pivotal role in the election of Mahinda Rajapaksa in 2005. The two were united by their opposition to the open economy and the peace process.
Mahinda Rajapaksa delivered on both counts, implementing a state-led, debt-financed, import-substituting economic model under a highly authoritarian political structure. In terms of employment, the state sector almost doubled in size to 1.5 million, privatisations were stopped and several such as Sri Lanka Insurance Corporation and Sri Lankan Airlines were reversed. Many new SOEs were set up; examples include the Lankaputhra Bank, Lanka Coal and LakSathosa, all of which were later found to be mired in corruption. Several privately owned businesses were nationalised in 2011.
Protectionism to local industries increased steadily. By 2015 the effective rate of protection (ERP) for the top 10 most protected sectors reach between 170% and 524% and estimates suggest that production for the domestic market was over 70% more profitable compared to production for exporting.
The level of openness of the economy as measured by the ratio of international trade to GDP fell by almost half from, 89% to 47% between 2000 and 2023. Exports fell from around 39% of GDP in 2000 to 21.5% by 2022. The minimum investment threshold for FDI was raised from around $50,000 in the 1990s to $250,000 (with limited benefits under the BOI) and $3m. The purchase of land by foreigners was barred and the construction of industrial zones was stopped (the last was built in 2000 but some have got underway in the last couple of years).
The result is that level of FDI languishes a little above 1% of GDP despite the ending of the war. There has been a steady exit of firms from Sri Lanka, between 2010-16, 721 closed up and BOI data show that over half the firms now registered under the BOI are actually local firms.
The NPP does not offer anything new in terms of policy, what they promise has been implemented over the last twenty years. The public statements by the NPP bear a remarkable similarity to the Rata Perata policies of 2005 and Viyathmaga. They are all aspirational statements with no diagnosis of the problems they seek to solve and no acknowledgment of the limitations in resources available to the government either in terms of finances or administrative capacity. Decades ago, Ceylon’s elections were said to be characterised as an auction of non-existent resources. The situation today is no different.
Voters must ask how politicians intend to deliver on their ambitious promises. Serious economic proposals must include detailed plans and specifics about implementation, timelines and funding – if the budget is in deficit and debt is already too high how are new spending plans to be financed? It must deal with the practical problems including the capacity of the administrative system. Promises of better governance must supported by proposals that address the institutional causes of the problem.
While candidates may have their own philosophy on how best the crisis should be managed, any candidate who wishes to be taken seriously must be familiar with the facts at hand; sound policy must be rooted in grim realities, not utopian ideals.
Voters face a terrible choice between the incumbent and untested new contenders. It is tempting to punish the incumbent but they need to think very carefully about the replacement. The Yahapalanaya government’s failures lead emotional voters to elect a new leader in 2019, a non-politician who would be different. He led them into the abyss. Now they seek something different yet again but they must set aside their emotions and assess the credibility of candidates promises very carefully. To repeat the mistake of 2019 would be disastrous.