Photo courtesy of Taiwan News
While returning from Vavuniya to Colombo, I stopped to purchase fruit from a roadside vendor near Anuradhapura and got into a conversation with her about the country’s most pressing issue – the economic crisis. She told me that she had voted for this government because she thought it could save the country. She won’t vote for them again, she said. The conversation made me reflect on the extreme frustration felt by ordinary people as a result of the current crisis; dissatisfaction is visible even among those who voted for the current regime.
The recent chaos has done irreversible damage to the image of the ruling political party, which won the election two years ago on the strength of its nationalist-populist stance. The question is how the ruling party got to this point, causing dissatisfaction among its reliable voter base. Is the economic downturn solely their fault?
Return of the Rajapaksas
The re-emergence of Gotabhaya and Mahinda Rajapaksa occurred at a critical juncture in the country. The use of a majoritarian and ethnocratic approach to power was once again convenient, resulting in what was a predictable victory for them in 2019. For many, this victory was a consolation that the strong leadership and partnership demonstrated by the brothers would resolve the most pressing issues at the time – ensuring national security and efficient economic management.
The Rajapaksas came to power during a period of economic stagnation following the Easter Sunday attacks and with a staggering $34.4 billion in foreign debt passed down to them, which included debts inherited from Mahinda Rajapaksa’s regime. To make the situation worse, beginning in 2020, with the onset of Covid-19, and as a result of lockdowns and a slowdown in economic activity, the country’s financial situation continued to deteriorate. In August 2021, Sri Lanka declared a state of national financial emergency following the depreciation of the rupee. As a result, food prices reached an all-time high, prompting the Central Bank to raise interest rates in order to strengthen and stabilise the economy. Near the end of 2021 citizens began to experience their worst nightmares: no gas, no milk powder, no fuel, no fertiliser, food rationing and no electricity. Many people are quick to blame the crisis on the government’s gross mismanagement of the situation. However, this should be approached with caution.
Concessional or commercial loans?
In today’s world, operating an economy on borrowed money has become the norm. According to the IMF Global Debt Database, global debt reached $226 trillion in 2021. This normality in no manner justifies Sri Lanka’s current economic crisis. This is because the deciding factor is not necessarily the act of taking loans but rather the source of the loan.
Most developing countries prefer concessional or soft loans because they offer better terms than commercial loans, such as lower interest rates and/or a grace period during which the recipient country is not required to make debt payments for several years. However, obtaining such loans is not a walk in the park. The prospective beneficiary must make a convincing case for funding, which includes effective and rigorous project success indicators, as well as a reliable credit track record that allows the creditor to keep the recipient country in check. While meeting all of the requirements for a soft loan is challenging, given Sri Lanka’s economic constraints, finding a match between the creditor and the country’s economic reality is even more difficult. Furthermore, a continuous check is a nightmare for governments because the borrowed funds must and only be used for the agreed-upon project, and can only be invested in an income-generating proposal. In countries where corruption is pervasive, a commercial loan with no such checks is appealing. One cannot help but wonder if this is the reason for Sri Lanka’s relaxed attitude toward commercial loans with high interest rates, which increased significantly after the 2005 regime.
Among many such examples were the multiple rounds of loans obtained from China Exim Bank to build the Hambantota Port. This was particularly troubling because such a large scale construction was entirely financed by commercial rate borrowings, with no guarantee that the port would generate enough revenue to repay the debt. Many government infrastructure projects built after 2005 were concentrated in the south, which is the Rajapaksa family’s electoral stronghold. This raises concerns about the prioritisation and economic viability of such investment projects.
The economic difficulties, however, extend far beyond the Hambantota Port project and Chinese debt. It is made up of several layers of structural flaws in economic policies; this mismanagement precedes 2005.
Fluctuating economic policies
Following independence it was thought that the economy possessed critical ingredients for rapid economic development that other Asian countries lacked. This is possibly why, during an interview in 1948, Prime Minister, D.S. Senanayake, stated that Sri Lanka “wanted neither grants nor loans from the United States or any other country.” However, after the adoption of a state-led inward looking policy in the 1950s, this optimism faded. During Mrs. Sirimavo Bandaranaike’s regime, the annual average of per capita Gross National Product fell from 2.8 percent in 1960 to 0.7 percent between 1970 and 1977. To bounce back from this, the Jayewardene regime initiated a broad economic liberalization process in 1977, which included trade policy reforms and the opening of the economy to foreign development investments. This policy shift was short lived and severely impacted in the 1980s by the July riots in 1983 and the subsequent ethnic conflict, and Sri Lanka was unable to reap the benefits of its open economic policy due to its inability to attract foreign investment. For a significant period of time, economic reforms have been inconsistent, piecemeal and lacking a long term perspective.
Adding fuel to the fire
While the frustration felt today as a result of the crisis may be novel to some, particularly the youth, long bread lines, government mismanagement of farmland, fertiliser shortages and rising foreign debt are all too familiar in Sri Lanka’s political and economic history. In the 1970s, Mrs. Bandaranaike’s government faced criticism for its widely publicised slogan promoting self-sufficiency produce or perish and was accused of being oblivious to the common man’s struggles. The government’s import restrictions, price controls and food rationing, as well as use of emergency powers to repress protests that erupted in opposition to the policies, all contributed to widespread dissatisfaction among citizens. The New York Times reported on the country’s deteriorating situation in 1974, saying, “Sri Lanka is now operating on a week‐to week basis. We check how much comes in and how much goes out. We don’t think beyond the week. We can’t. ”
Much of people’s outrage stems from the way those in power have responded to their concerns with ignorant or contradictory public statements. Earlier this month, during a cabinet meeting, the Finance Minister promised to resolve the ongoing power crisis by March 5. While he was making this statement in Parliament, the Ceylon Electricity Board refuted it, stating that the crisis would not be resolved until the end of March. During a public meeting when MP Chamal Rajapaksa asked the audience, “Wouldn’t a kilo of rice suffice for two people for a week?” Last weekend, the Prime Minister stated that there was no real fuel shortage in the country but that an artificial demand had been created as a result of faulty communication and a lack of “political consciousness” among the general public. Such statements from the top leaders are certain to disappoint citizens and create the impression that those in power are oblivious to the gravity of the situation.
It appears as though the executive acts hastily or unilaterally in these situations. On March 3, the President abruptly removed the Minister of Industries and the Minister of Power from their positions. In August last year, at the height of the Covid-19 virus outbreak, the President replaced the Health Minister using powers granted to him under Articles 45(2), which allows him to change any appointment or assignment of persons to ministries at any time and 47(2)(a), which allows the President to remove a minister by writing as per the 20th amendment to the Constitution.
Are voters politically conscious?
The obvious reaction for many people is to regret their political choices and loss of hope. Many question whether we can continue to trust the Rajapaksa partnership to lead us out of this quagmire.
What we overlook is that much of what can be done to avoid such a situation also falls on the shoulders of the voters. Whichever party comes to power, they gain the ability to exert influence and make favourable or unfavourable decisions as a result of the power we entrust upon them. The history of elections has demonstrated that voters’ short term memory, when combined with politicians’ baiting tactics, is certain to work in order to garner sufficient votes when needed. Whether it was Mrs. Bandaranaike’s promise of rice from the moon, J.R. Jayewardene’s promise of a just society, or Chandrika Kumaratunga’s promise of bread at Rs. 3.50 a loaf, the promises made to the constituency in the run up to elections are always enticing.
The question is whether the current outpouring of rage, disappointment and frustration is strong enough to cause citizens to reconsider their political judgements. Most importantly, will we be able to recall these struggles by the time the next election comes around or will the ideological tools of majoritarianism, such as giving preference to Buddhism, protecting archaeological sites, and ensuring national security that go hand in hand with Rajapaksa’s clientelism, make us forget?
