By Mohamed Harees –
On 10 June 2022, the UN had warned that the extreme economic situation in Sri Lanka could develop into a “full-blown humanitarian emergency. Due to several policy disasters of Gota-led government, the nation has been sadly going through a slow motion implosion, Lebanon style with its economic fundamentals being off the charts in the wrong direction. As Sri Lanka, once one of South Asia’s most progressive countries is witnessing widespread food and fuel shortages, the ‘square peg in a round hole’ Gota who is singularly being blamed for this tragedy is still extremely reluctant to bite the bullet and do the right thing – resign and ‘go home’. A historic protest wave gained momentum as the dismal results of the government’s financial and economic mismanagement became increasingly visible, pushing Sri Lanka to seek international aid. However, unless those seeking to help the fallen nation realise that aid should be made conditional to essential political reforms, attempts to bail out will be a wasted exercise.
The crisis in Sri Lanka is one of the worst economic disasters in South Asia’s contemporary history. Although the interconnectedness in the global economy may not allow for an isolated view of the national economic emergency in Sri Lanka, following the pandemic and the Russia-Ukraine conflict which have exacerbated the Sri Lankan crisis, it needs no rocket science to conclude that a major part of the blame for this unprecedented economic catastrophe falls upon the unashamedly corrupt top levels of the government and gross mismanagement. Any amount of ad hoc measures whether taken at local or international levels will neither solve the crisis or mitigate the damage inflicted, unless this reality is taken into account. It is pathetic and humorous to note that the victimised people of Sri Lanka are expecting a windfall resolution while the perpetrators are allowed to still hold the reigns.
A discredited group (I will not call it a team) of politicians – PM RW and his jumble set of ministers led by the comical Gota, with their weekly announcements of doom and gloom and ad hoc measures are playing a waiting game to delay the eventual disgraceful exit of the Robber Barons – the Rajapaksas who have sold Sri Lanka for 25 pieces of silver. However, the economic experts have spoken out loud and clear. A top Sri Lankan Economist Nishan de Mel recently expressed pessimism about plastering solutions when the problem is deep and entrenched – systemic corruption in Sri Lanka having contributed greatly to the debt/economic crisis. He further questioned if the problem will get on the solution agenda of the talks between the IMF and Sri Lankan authorities for a staff-level agreement.
Another expert and UK diplomat Mark Malloch-Brown, the president of the Open Society Foundations also aptly pointed out that corrupt governance is the principal cause of the country’s economic crisis. He says that Sri Lanka has a history of diverting aid and that the International Monetary Fund (IMF) must acknowledge the reason the country is in this mess by putting this issue on the agenda during their visit. Otherwise, they risk bailing out corrupt politicians instead of people in need. True indeed!
As Nishan De Mel says IMF looked into the governance issues, in the case of Ukraine. Why not in this case! First Review of IMF Under Stand-By Arrangement for Ukraine states, “Maintaining the effective autonomy and governance of the National Bank of Ukraine—a key achievement of previous programs—is paramount. This will aid monetary policy in ensuring that currently high inflation does not become entrenched. Greater efforts are needed to further enhance the transmission of monetary policy, allow exchange rate flexibility, and accumulate reserves. Rebuilding the central bank’s supervisory capacity is also key. “Improving governance and the rule of law is a key policy priority. Progress on this front requires the full implementation of the enacted law to reform the High Council of Justice. The authorities also plan to strengthen corporate governance frameworks in state-owned enterprises and banks, boost asset recovery from failed banks, and press ahead with the privatization agenda.”. What is needed is not simply tinkering with macroeconomic fundamentals but transforming the entire structure of the economy, to gear it towards production as well as improve the quality of governance.
The Gota government totally messed up the economy, independent of the covid crisis. This economic pandemic is about the third pandemic Sri Lanka is facing, preceded by the Covid and Covid racism. Towards the end of 2019, and in early 2020 before the pandemic, the government enacted deep tax cuts in fulfilment of an election promise, presumably to help its election backers and stooges. This led to the loss of approximately one million taxpayers between 2020 and 2022— a massive challenge for an economy that was already suffering from widespread tax evasion. Prior to these tax cuts, Sri Lanka already had one of the lowest tax revenue-to-GDP ratios in the region; these cuts created further burden on the Treasury. For Sri Lanka, the consequences have been dire. In addition, the significant amount of monetary financing by the Central Bank worsened the inflation and exchange rate. Cabraals and Attigalas managed the economy with kid-gloves, even justifying printing limitless money to the annoyance of the economic experts.
In April 2021, a clueless Gota as stubborn as he usually was earlier as a military strongman, decided to completely ban the import of agrochemicals. His ill-advised and sudden switch to organic farming, despite expert advice, could be considered the final nail in the coffin for Sri Lanka’s economy. This idiotic sudden shift was like a time bomb waiting to explode and it did with all ferocity, putting the agri-nation into an irretrievable trap, leading to serious impacts on the country’s economy. This pathetic situation led to Sri Lanka importing not only rice, but also sugar and various other commodities, using the country’s FOREX reserves and thus worsening the foreign exchange situation in the economy. This also affected the tea industry adversely too.
Sri Lanka could find little option but to seek IMF support, which entails conditionalities related to budgetary cuts and trade openness, amongst others. IMF loans come with a set of conditions that are often restrictive for the debtor nations. Sri Lanka, despite its severe BOP crisis, did not immediately seek assistance from the IMF given its previous track record of faltering economic recovery. Eventually, however, sheer desperation drove Sri Lanka to IMF once again ,with Sri Lanka considering its options between IMF conditionalities and a deepening debt pool to China.
The emergence of a broad-based popular movement against autocratic rule is for many Sri Lankans a welcome change in a country traditionally divided along racial and religious lines. Organised in large part through social media, including under the banner of #GoHomeGota, Aragalaya protests have shifted from mere calling on Gota and his Rajapaksa family clan to exit politics and also demanding thorough investigations into their alleged large-scale corruption and political crimes, but also to institute a clean political culture as well. The parliament is today filled with those having incriminating track records. The newest entrant Dhammika Perera, tipped to be top minister is also a Casino-king with doubtful business integrity. This is like changing pillows to cure the headache as an idiom goes!
Thus, for the time being, Sri Lanka is stuck in a political standoff with Gota holed up in his own den, refusing to resign, even as his parliamentary majority is in question, while the opposition has failed to develop a coherent plan for removing him or for ruling the country if he leaves. Gota’s authoritarian, centralised and non-transparent decision-making is central to the crisis. RW is also widely seen as their saviour as well in the public eye. Surrounded by cronies and oblivious to criticism, his administration rejected repeated calls for a course correction as the crisis deepened. Sri Lanka has never faced this kind of economic and political meltdown. Sri Lankans across the island are increasingly desperate. Skyrocketing prices and a sharp drop in the Sri Lankan rupee’s value since mid-March—have made even basic commodities unaffordable for many families while the queues are becoming long. The risk of widespread food insecurity and malnutrition is growing. The economic pressures and rapid decline in living standards are traumatic for all.
As Sri Lanka seeks international aid including IMF, whether the IMF acts quickly will likely depend on how serious the Sri Lanka seems about reforms, and to own up the underlying causes for this catastrophe and the willingness to remove those cancers including the toxic Rajapaksa factor, as well as how eager the IMF is to avoid rattling the global markets that see Sri Lanka as a bellwether for a string of future potential defaults across the developing world.
As the intensity of the Aragalaya increases demanding Gota’s resignation, and as calls to hold him and his family accountable for alleged corruption and other crimes grow louder, the parallel attempts in the Parliament to develop plans to remove him or trim his powers, are also proving to be challenging. One possible road being is impeachment, opposition parties are still far from meeting the required threshold. There is much way to go, on the passing of the proposed 21st amendment to clip the Presidential powers. Political reforms to institute a clean political culture is a sine quo non for success of any economic recovery measures. There is no guarantee of success in negotiations with the IMF and international bondholders, if Sri Lanka cannot assure that any likely government will make and sustain the reforms and other measures they insist on as a condition to any relief package. In this direction, opposition parties should also forget all differences, and seek to work with serving officials on an urgent basis to craft a consensus set of economic policies that can win over the IMF.
Be it as it may, as both political analysts and economic experts fear, a lifeline from the IMF, while easing pressures on average Sri Lankans, could provide breathing space to Gotabaya as well, allowing him and his family to restore themselves. Alan Keenan from International Crisis Group echoes the above fears and says, ‘If Gota and his family clan cling on to power, they will be governing an angry, restless populace without the public support needed to impose the painful measures Sri Lanka must take to restructure its international debt. ..Regardless of the Rajapaksas’ fate.., the IMF should take steps to help ensure that any international bailout does not perpetuate the systemic weaknesses that have contributed to the current crises. To this end, the IMF should insist on reforms that can help rein in a bloated military, institutionalised corruption enabled by a lack of financial and political accountability, and systematic attacks on free media that make it harder to report on and challenge official malfeasance… If they do not, a string of unstable and short-lived governments is a distinct possibility, as few politicians will be eager to design or administer the new social and economic policies that creditors will require as part of any bailout package. Sri Lanka will warrant close international attention and support throughout the difficult years ahead”
It is imperative that the Sri Lankan electorate well known in the past for its slavish attitudes, and voting in corrupt governments in turns for just petty economic handouts, should also own up their connivance in bringing about this economic and political tragedy. An active public activism is an important factor in holding governments to account. Aragalaya has achieved many victories; but there is more to do. There is still the need for the Aragalaya to transform itself into a social movement. Sadly, the need for the Aragalaya has not properly been felt among the grassroots of society. The Opposition and the social activists should work together to educate the masses of the extent of the tragedy and the need to change the political culture and their perceptions of voter responsibility.
In an article in the Colombo Telegraph of March 21, Asoka N I Ekanayaka, a professor emeritus, put the blame for Sri Lanka’s sorry state squarely on the shoulders of the voters. They had, enthusiastically voted for their own destruction by electing the Gotabaya Rajapaksa government. “That millions would of their own volition invite a cataclysm that might spell ruination for themselves and their families for generations to come is amazing. It is tantamount to an act of collective national suicide bordering on madness rarely seen in the history of nations. Those who made the “fatal choice”, came from every stratum of society. They included the well-educated, the semi-literate, the rich, the poor, learned professionals, “pampered government officials wallowing in the perks and privileges of high office”, “unlearned monolingual masses”, and “sanctimonious Buddhist monks, pastors and priests who habitually pay lip service to truth and justice” and the millions of their simple-minded adherents.
The more any nation is able to involve all its citizens actively in nation building, the better progress it will make. To do this, it must have an inclusive attitude and implement inclusive policies and programmes, not divisive ones. Sri Lanka would continue to suffer until measures were taken “to reconnect the disconnected with the struggle for economic growth” as writer Ameer Ali says. It is imperative not only to throw out the corrupt ones and rescue beleaguered Sri Lanka, it is important to install future leaders- clean and who will rule with justice, equity, righteousness and peace to unite a divided nation, where everyone shares equally in the benefits; both international donors and the local electorate should realise this fact. Helping a Gota led regime is flogging a dead horse!