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This is what caused Sri Lanka’s worst economic crisis

Madhura Rasaratnam writes: Policies driven by Sinhala Buddhist nationalism, which have been the bedrock of the Rajapaksas' governance vision, are no longer financially or politically viable

Written by Madura Rasaratnam |
Updated: May 10, 2022 5:35:25 am
There is a long-standing mistrust of India amongst Sinhala Buddhist nationalists who see it as the source of historic Tamil invasions. (C R Sasikumar)

Sri Lanka’s ruling Rajapaksa family is facing mounting public anger, calls for resignations and political defections amidst the island’s worst economic crisis in its post-independence history. The family’s fall from grace has been rapid and precipitous. In November 2019, Gotabaya Rajapaksa convincingly won the presidential election with just over 52 per cent of the vote. A few months later, an alliance led by his brother Mahinda (President of Sri Lanka between 2005 and 2015) won the parliamentary elections, securing almost 60 per cent of the vote.

The proximate reasons for these dramatic reversals are clear. The Rajapaksas have badly handled Sri Lanka’s twin crises of unsustainable commercial debt and an acute balance of payments shortfall. The latter was brought on by the Easter Sunday bombings and the Covid-19 pandemic, which together hammered foreign exchange earnings. These exogenous shocks would have tested the most competent of administrations, but the Rajapaksas made a series of unforced errors that have made a difficult situation unbearable.

First, there was the decision to ban fertiliser imports and switch overnight to organic farming. The decision was reversed after sustained farmer protests but not before damage had already been done to crop yields. Then, precious foreign exchange was wasted in propping up the rupee while imposing controls on key imports that led to shortages and price rise. For several months, as the crisis deepened with rolling power-cuts and shortages of essentials, the government refused to seek IMF assistance. It has now relented on the IMF, but Sri Lanka’s economic distress has been prolonged and deepened by this indecision.

While the immediate causes of popular anger are explicable, the crisis also reveals a more enduring contradiction at the foundation of Sri Lanka’s politics. The Rajapaksas’ electoral success stems from their uncompromising commitment to defending Sinhala Buddhist nationalism against domestic and international pressures. What this crisis shows is that Sinhala nationalist-inspired policies are no longer financially or politically viable.

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Protestors shouts slogans against Sri Lanka President Gotabaya Rajapaksa near the Presidential Secretariat, amid the country’s economic crisis in Colombo, Sri Lanka, April 9, 2022. (Reuters)

The Rajapaksas first rode to power in September 2005 on the wave of Sinhala nationalist antipathy against the then-ongoing Norwegian-mediated peace process with the LTTE. Mahinda Rajapaksa channelled popular rage at the indignity of having to negotiate with the Tamils and of the dire threats the talks posed to national (read Sinhala Buddhist) security. Upon his election as president, Mahinda expanded the military and launched a full-frontal military offensive that ended with the LTTE’s total defeat and destruction in May 2009.

While the LTTE’s defeat was celebrated in the Sinhala south, the loss of Tamil civilian lives was immense. The UN estimates that 75,000 Tamil civilians were killed in the final months and that the Sri Lankan military was culpable for war crimes and crimes against humanity. After the war, instead of seeking a political settlement with the Tamils, Mahinda Rajapaksa unrolled a de-facto militarised siege of the Tamil-speaking areas and population.

The hardline approach to the Tamils and their demands was also linked to a new, more assertive foreign policy. The government turned away the long-established pattern of alignments with Western states and India. The West was blamed for forcing Sri Lanka into negotiating with the LTTE in the first place, and then, for playing into the hated West-based Tamil diaspora’s agenda by pursuing accountability. The antipathy to the West grew as the US and allies pushed for accountability at the UN Human Rights Council.

There is a long-standing mistrust of India amongst Sinhala Buddhist nationalists who see it as the source of historic Tamil invasions. The Rajapaksas translated this sentiment into policy, pushing back against Indian attempts to forge closer economic ties and a constitutional settlement of the Tamil question. In place of these ties, the Rajapaksas ostentatiously set out to forge new alliances, principally with China, but also others who were seen as more respectful of national sovereignty.

Their new economic policies were also more in keeping with Sinhala nationalist sympathies. The government distanced itself from the overtly pro-market, liberalisation policies of previous administrations and went, instead, for infrastructure investment and a welfare-driven approach, funded in large part by bilateral and commercial market debt. The shift to commercial debt was in part due to Sri Lanka’s graduation to middle-income status, which limited access to concessional multilateral aid. It was also promoted by the Rajapaksas’ nationalism-inspired rejection of the conditionalities attached to multilateral aid, especially in post-conflict settings.

The tilt away from the market-led approach was not novel. Sri Lanka’s post-independence history has been marked by shifts from state-led to market-led and back. The novelty the Rajapaksas brought was the reliance on international commercial debt to fund public expenditure, including the vastly-expanded military. The commercial markets at the time were also willing to lend, buoyed by high levels of liquidity and low interest rates.

The Rajapaksas also bet on a new geo-political optimism. They believed that with China’s rise, Sri Lanka’s location on east-west trade lanes would become a prized asset. They were confident that in the global competition for power triggered by China’s rise, international actors would be compelled to seek Sri Lanka’s favour for fear of “losing” it to the other side. With this geo-political calculus in mind, they assuredly rebuffed Western and Indian demands.

The current crisis has tested the assumptions of the Rajapaksas’ programme to its limits and found it cruelly wanting. None of the great powers who were supposed to be competing for Sri Lanka’s favour have stepped up to offer a bailout, although the sums are quite small by global standards. The bid for total sovereign autonomy has crash-landed and yet the alternatives are also politically difficult. Going to the IMF will require concessions on human rights and good governance to secure preferential access to European markets. At the same time, Indian bilateral assistance has conditionalities on clearing controversial investments.

Painful as it is, the only possible silver lining is that the crisis can serve as a reality check for the Sinhala nationalist leadership and electorate. The model of economic and political governance they have pursued is unsustainable, and the alternatives must be faced. The most pressing of these is the demilitarisation and normalisation of relations with the Tamils and Muslims. Sinhala political attention can perhaps then be turned to the other pressing failures of governance that have brought Sri Lanka to this state.

The irony of Sri Lanka’s push for total sovereign autonomy is that it has given international actors more leverage than they had before. International actors who really want to help Sri Lanka should use this leverage to push for tangible and non-reversible changes in the treatment of Tamils and Muslims whatever leadership emerges in Colombo. The Rajapaksas may be the principal protagonists of this crisis but the underlying script they have followed is a Sinhala Buddhist one and until Sri Lanka finds a new script it cannot find peace or stability.

This column first appeared in the print edition on April 9, 2022 under the title ‘How Colombo lost the plot’. The writer is associate professor Comparative Politics at City, University of London

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