Sri Lanka’s Rajapaksa Leadership Won’t Step Down

Sri Lanka announced last week that it would default on $51 billion of foreign debt, marking the first time in 20 years that a South Asian country has faced such an economic crisis. Sri Lankans now lack fuel for their cars, face regular power cuts, and are preparing for a looming food shortage. Although recent challenges—chief among them the COVID-19 pandemic—have compounded Sri Lanka’s economic plight, the default has been decades in the making.

The announcement follows weeks of nationwide protests against the Rajapaksa family, which has dominated Sri Lankan politics since 2005; its members include both incumbent President Gotabaya Rajapaksa and Prime Minister Mahinda Rajapaksa. Despite the mass unrest and historically low popularity ratings, the Rajapaksas have so far refused to leave office. With enough legislators to resist impeachment and the tacit support of the military, the current leadership is unlikely to step down on anyone else’s terms.

Sri Lanka has long pursued economic growth through debt financing, a strategy that was largely successful from the 1970s through the early 2000s. Despite three other defaults that were quickly restructured, the country’s economy grew at a robust average rate of 4.9 percent between 1973 and 2001. At the time, Sri Lanka’s debt was more open to restructuring. Its official status as a low-income country allowed it to access to favorable loans from the International Monetary Fund (IMF) and the World Bank, and little of its debt was held by private investors or other countries.

But as Sri Lanka’s economy grew, sweetheart loans from the IMF dried up; the country ultimately graduated to middle-income status in 2019. Colombo had to convince funding agencies and private investors that it was worthy of investment. Many investors still saw the potential for high, risk-adjusted returns. In addition to its economic growth, Sri Lanka had finally entered an era of peace after a three-decade civil war that ended with a decisive government victory in 2009. Despite allegations of human rights violations by the military in the war’s waning days, most observers expected political stability to follow.

Some investors were also interested in the geostrategic returns that came from engaging with Sri Lanka’s leadership. Beginning in the early 2000s, China increased its investment with a number of ventures, including a deep-sea port and an international airport near Hambantota, the Rajapaksas’ hometown. Although the port does not move much cargo, it could serve as an important connection point for China’s Belt and Road Initiative. In 2017, Beijing offered to buy control of the port, helping Colombo to address some of its balance of payment issues. (Contrary to popular belief, China did not forgive its loans to Sri Lanka in return.) The airport, on the other hand, has simply lost money.

Meanwhile, the Rajapaksa leadership pushed policies that have weakened Sri Lanka’s already precarious economic standing. Upon returning to power in 2019, the Rajapaksas announced plans to transition the country to organic farming in 10 years. Gotabaya Rajapaksa advocated a ban on synthetic fertilizers and pesticides, catching farmers unprepared and leading to record agricultural production declines. Despite inheriting the looming debt crisis, the Rajapaksa government also cut taxes while increasing spending, including subsidies for farmers. The pandemic made matters worse, decimating the vast tourism industry and weakening remittance flows as many Sri Lankans returned home from overseas jobs.

Read More

In Sri Lanka, Organic Farming Went Catastrophically Wrong

A nationwide experiment is abandoned after producing only misery.

Analysis

|

Ted Nordhaus, Saloni Shah

Congress Wants to Hold Sri Lanka’s Feet to the Fire on Human Rights

The United Nations has given the international community the greenlight to punish Sri Lanka for torture. Congress has taken it.

Report

|

Anusha Rathi, Jack Detsch

How China Uses Shipping for Surveillance and Control

Beijing’s global maritime operations double as intelligence-gathering outposts.

Argument

|

Elaine Dezenski, David Rader

In response to the economic calamity, Sri Lanka’s diverse political and ethnic groups have united in opposition to the Rajapaksa government. Facing such daunting prospects, many political leaders would have stepped down by now. In fact, the rest of Sri Lanka’s cabinet resigned under public pressure on April 3, including several members of the Rajapaksa family. But Gotabaya and Mahinda Rajapaksa remain at the helm, seemingly with the support of the military and the police, which have kept protesters at bay.

The military is not likely to turn on the Rajapaksas for two reasons. First, Sri Lanka is not a garrison state. The army is powerful, but it respects civilian government—making Sri Lanka different from other countries in the region. Second, the Rajapaksas have deep connections with Sri Lanka’s military. When Mahinda Rajapaksa became president in 2005, he made Gotabaya Rajapaksa the secretary to the defense ministry. As the civil war wound down, the Rajapaksas overlooked alleged human rights violations and later stopped potential international investigations, earning significant loyalty from the military.

Still, the Rajapaksas are looking for ways out of the crisis of their own making. They have reengaged India, with New Delhi stepping forward to pledge an additional $2 billion in economic assistance. India’s willingness to bail out Sri Lanka stems in large part from its desire to make up for lost ground to China. Interestingly, Beijing now appears cautious about easing Colombo’s economic woes, perhaps because of its own struggles amid ongoing COVID-19 outbreaks and supply chain disruptions. Sri Lanka’s financial authorities may also be hesitant to increase the country’s dependence on China.

Regardless of whether China joins India in lending a hand to Sri Lanka, neither of the regional behemoths is likely to fully tackle the country’s economic crisis. Sri Lanka has little or no choice but to turn to the IMF for a structural adjustment loan, which would require significant financial austerity in the short term: an increase in tax revenues and cuts to fuel subsidies. The IMF will also likely push for limits on Sri Lanka’s ability to pursue future loans. Unlike in previous debt restructuring negotiations—in which the IMF held the lion’s share of Sri Lanka’s debt—other creditors will now be involved. This will not be a matter for the IMF and the government to decide on their own.

These already complicated IMF negotiations will be particularly difficult for the Rajapaksas, who have maintained an antagonistic relationship with the institution for much of their tenure. However, to signal their newfound willingness to negotiate, the Rajapaksas have chosen to exclude any other family members from their newly formed cabinet, and Gotabaya Rajapaksa recently admitted that not taking IMF funding earlier in the crisis was a mistake.

If Sri Lanka’s economic crisis is far from over, the same can be said for its political crisis. Whether or not the Rajapaksa clan—a fixture in the country’s politics for decades—can survive the social unrest that austerity is bound to bring remains an open question. What is certain is that thanks to the Rajapaksas’ fecklessness and the complicity of the military, Sri Lanka is headed into even more turbulent waters.