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The island nation of Sri Lanka, situated just off the southern tip of India, is currently experiencing the worst economic crisis it has ever seen in its 74 years of independence. It is not a question of jobs, low wages, or stagnant industry. It is now a struggle for basic necessities such as food and fuel. A country that has been marred with an unfortunate history of violence finds itself once again in a situation that is quickly approaching boiling point. The protests are no longer peaceful and people are dying.

To give you the gist of it, the Sri Lankan economy is suffocating in debt. This is a country that relies on imports for 60% of its needs as it produces very little. Tourism is vital to the economy. The last decade and more has seen the government borrow heavily to finance ambitious infrastructure projects that were meant to transform the country into the ‘next Singapore’. Debt was accumulated at a worrying pace not only with regard to loan repayments but also with regard to its balance of trade. With imports far surpassing exports and being of vital importance, the country was quickly running out of the foreign reserves needed to be able to afford the expenses. The Coronavirus pandemic didn’t help either. Tourism, like in every other country, took a massive hit and the sector yet to recover. 

The value of the Sri Lankan Rupee has plunged in relation to the dollar and inflation is soaring. 12-hour long power cuts are routine as the country no longer has energy reserves left. Enormous queues at petrol stations for fuel have prompted the government to deploy the military. The situation is so bad that school examinations have been cancelled due to lack of paper. Food prices are increasing day by day as well. Understandably, the people are directing their anger toward the government. How did it get to be so bad?

Historical Context

Gotabaya Rajapaksa is the current president of Sri Lanka. He hails from the Rajapaksa political dynasty which has been involved in Sri Lankan politics since the 1930s. His brother, Mahinda, was president between 2005 and 2015 and is currently Prime Minister. His other brother, Basil, is the current Minister of Finance. The eldest brother, Chamal, was the speaker of the house between 2010 and 2015. At a certain point, it is estimated that the brothers controlled 70% of the country’s national finances which naturally led to concerns of corruption. While nothing has been proven yet, the Rajapaksa family has nonetheless played a crucial role in the shaping of modern Sri Lanka. 

During Mahinda’s presidency, Gotabaya was appointed as the Permanent Secretary of the Ministry of Defense. He oversaw his brother’s military campaign against the LTTE, a militant group that made up one of the two main participants of the Sri Lankan Civil War, with the other being the government.

This war began in 1983 and the primary aim of the LTTE was to establish a separate Tamil state in the north and eastern parts of the country. The Tamil Sri Lankans had been discriminated against in the past and this discrimination eventually led to a military struggle. A ceasefire was agreed upon in 2001 but when Mahinda was elected in 2005, he reignited the war and sought to destroy the LTTE once and for all. The country’s majority Sinhalese population, who formed his political base, did not oppose it. The Rajapaksa family has routinely displayed the same nationalistic tendencies that led to the civil war in the first place. By deciding to resume the conflict with the LTTE, Mahinda knew that he could cement the Rajapaksa name in Sri Lankan politics for the foreseeable future and bring public opinion to their side. As it turned out, the LTTE was defeated in 2009 and while the victory was celebrated, the military’s human rights abuses and war crimes became increasingly apparent. 

Gotabaya Rajapaksa (R) with Mahinda Rajapaksa

Mahinda began appointing family members all across his government to key positions. The years following the war saw an uptick in growth, but this can be credited to a mere resumption of economic activity rather than any policy achievement. The estimated cost of the war to the Sri Lankan economy is conservatively believed to be in the region of $200 billion over a 25 year period. The final campaign saw Mahinda dramatically ramp up military spending. As the country was embroiled in conflict, the economy took a back seat. Foreign Direct Investment into the country all but ceased. Infrastructure was severely damaged across the country and the problem of the brain drain became unavoidable.

The family tends to run on the idea of economic development. As mentioned before, Mahinda borrowed heavily to rebuild Sri Lanka’s economy which lead to an unsustainable amount of debt given the country’s already high import bill.

In 2015, however, Mahinda suffered a shock defeat in the presidential elections narrowly losing out to fellow party leader Maithripala Sirisena. The defeat reflected the growing concerns that the citizens had about their government. Sirisena rode the anti-incumbency wave and accused the Rajapaksa family of rampant corruption and nepotism. He insisted that his eventual predecessor was running the country into the ground and vowed to alter the political structure of the country so that no one person could have such an influence over the country’s political fate in the future. Sirisena did manage to implement a few changes to the country’s economic policies which briefly controlled some of the problems from getting out of control. 

Unfortunately, he could not do anything about the corruption which had virtually taken over his entire government. 

Present Day Situation

During Mahinda’s presidency, his government took out loans from the Chinese government to develop the southern strategic port of Hambantota. The Chinese, who are known for their debt-trapping, knew that Sri Lankan politics was plagued by corruption and that the country would not be able to pay back the loans. In 2018, Sirisena’s PM Ranil Wickremesinghe signed a deal with the Chinese that saw his government hand over the port China in a 99-year lease agreement. This led to widespread protests and Sirisena was forced to fire his PM. He eventually appointed Mahinda Rajapaksa as the PM and thus began the return of the Rajapaksa family to the running of the government. The 2020 elections saw Mahinda’s brother Gotabaya submit his candidacy and he went on to win comfortably. 

Gotabaya immediately made some glaring mistakes. First, he banned fertilizers across the country in order to transform the agricultural industry into a purely organic one. Farmers did not receive any training to assist in the transformation and food production fell sharply as a result. Next, he announced massive tax cuts just before the pandemic hit. This has gone on to badly impact the government’s revenue and is part of the reason why the country is in the mess that it finds itself in. Debt kept mounting and the country’s reserves were soon vanishing. The government currently does not allow Sri Lankans to purchase dollars to allow them to hedge against the unavoidable depreciation and it has raised interest rates to around 7%. It is seeking help from the IMF and other foreign governments for financial aid. India has extended a $500 million credit line for fuel purchases and a $1 billion credit line for essentials such as food and medicine. The Sri Lankans are currently seeking an additional $1 billion from India as the situation worsens. 

While we can point to various graphs and numbers that highlight the Sri Lankan economy’s debt-to-GDP ratio, forex reserves, inflation rate, and so on, the root of the problem lies in the rampant corruption found across the country’s politics. The Rajapaksas are at the heart of this issue. Mahinda’s opportunistic campaign against the LTTE set the economy back by few years and his shortsighted borrowing, especially from countries like China who were waiting to take advantage of his and his government’s weaknesses set the Sri Lankan economy on a disastrous course. The final nails in the coffin came from his brother’s scarcely understandable tax cuts and ban on fertilizers. The only option left for Sri Lanka is to enter into a prolonged period of austerity. This will undoubtedly lead to a painful recession that will in all likelihood last for years. The country has to suffer the consequences of its leader’s poor choices.

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