India's chance to offer a salve

Sri Lanka's recent travails actually started in 2014-15 with an unlikely coalition of rival parties cobbled together by former President Maithripala Sirisena

For Sri Lanka, lurching from crisis to crisis, is a new phase of stability on the cards? Many of the problems the tiny island is facing are self-inflicted. But others, like the impact the pandemic or the Russia-Ukraine war has had on its economy, are not. However, this much is clear: Implosions have followed whenever there have been two centres of power in government, whether in politics or in economic policy-making. The last decade is no different.

Sri Lanka’s recent travails actually started in 2014-15 with an unlikely coalition of rival parties — the Left-leaning Sri Lanka Freedom Party (SLFP) and the free-market supporter United National Party (UNP) — cobbled together by former President Maithripala Sirisena and supported by Prime Minister Ranil Wickremesinghe. The first National Unity Government (NUG) defeated incumbent Mahinda Rajapaksa of the Sri Lanka People’s Party (SLPP). But it took just two years to unravel. The conflict and power struggle climaxed when Mr Sirisena, in a constitutional coup, dismissed Mr Wickremesinghe and appointed Mr Rajapaksa prime minister in 2018, with the Supreme Court stepping in to order Mr Wickremesinghe’s reinstatement in December 2018. By now, two rival centres of power in the government had become a fact of life. As the bureaucracy found itself forced to choose between one or the other, Sri Lanka’s enviable claim that there had been no terrorist attack since 2009 was rudely shattered by the Easter Sunday 21/4 (occurring on April 21, 2019) bombings. Even that didn’t end the fighting among the top two: Mr Sirisena asked his defence secretary not to invite the prime minister to National Security Council (NSC) meetings. The president and the prime minister ordered two parallel enquiries to investigate the bombings.

A variation on that theme is evident now, as Sri Lanka struggles with the double whammy of the pandemic impact on the economy and the effects of the Russia-Ukraine war. As foreign exchange reserves dwindled to their lowest ever levels with low remittances, almost no tourists (the two main sources of revenue for Sri Lanka), and unpaid debt, there seemed to be only two options: Wing it on a hope and a prayer with handouts from friendly nations, or go to the International Monetary Fund (IMF) for a loan to pay off the debts and stabilise the economy.

Central bank Governor Ajith Nivard Cabraal repeatedly refused to go down the IMF route, even when counselled to do so by the Cabinet. Finance Minister Basil Rajapaksa conceded, while presenting the annual Budget in 2021, that the island might have to approach the IMF. Mr Cabraal insisted that the foreign exchange problem was a temporary one and the country’s economy was intrinsically sound. Sri Lanka’s elite (reme¬mber the country is a democratic, socialist republic) explained what Mr Cabraal’s reservations were: Going to the IMF would mean a devaluation of the currency, increase in interest rates, privatising state-run commercial ventures, and the political fallout of being sucked deeper into the debt trap.

Basil Rajapaksa, younger brother of President Gotabaya Rajapaksa (and of Prime Minister Mahinda Rajapaksa), the man widely credited with putting in place the political strategies that brought the Rajapaksas back to power, contradicted the country’s central bank governor publicly. When China slammed the door in Sri Lanka’s face and the finance minister had to ask India for help, not once but several times, the president stepped in. It took the president personally to intervene and clarify that Mr Cabraal had not been asked to quit, after the country threw in its hand, devalued its currency, and decided to approach the International Monetary Fund (IMF) for financial help.

Maybe the horrors that have been visited on Sri Lanka’s hapless population could have been avoided if there had been less bickering and more focused thinking on economic strategy. Many in the opposition believe had the country gone to the IMF earlier, Sri Lankans might have been spared the 12-hour power cuts and food shortages. A proud country need not have emasculated itself the way it has been forced to do.

There is still no clarity on the size of the assistance the country will seek from the IMF. Mr Cabraal is very much part of the negotiations. He will try to strike a hard bargain, arguing that Colombo devalued the currency before approaching the IMF and has never defaulted on a loan, attesting to the nation’s commitment to financial health. But the fact remains that whether orderly or disorderly, Sri Lanka has reached out to the IMF when it is on the brink of default.

In the circumstances, as an Indian, there is a sneaking sense of pride in New Delhi’s recent moves. Sri Lanka did not seek help in keeping its hospitals running. India offered it anyway. There are hundreds of other such small interventions which have little or no financial cost that New Delhi can forward to overcome lingering residual suspicion in the Sri Lanka elite, which is asking its government — possibly with some justification — what is the quid pro quo? Why is India being so nice to us?

New Delhi has a chance to rid itself of its image as the bully in the subcontinent by helping a neighbour tackle problems that India, for once, has no role in creating. It should grab the opportunity with both hands.