Colombo, 12 April 2022 (TDI): Sri Lanka is facing an alarming economic crisis because of the depletion of foreign reserves due to the neo-liberal policies of corporate globalization.
High levels of inflation fueled by the sharp deterioration of the Sri Lankan currency and the expensive mounting cost of living have deprived the people of basic needs.
Recent reports show that “Sri Lanka has defaulted on its multi-billion-dollar external debt terming the move a ‘last resort’ while waiting on a bailout package from the International Monetary Fund (IMF).”
Understanding the Economic Crisis
45% population was under the benefit of the income supplement program by the government, and the balance of payment remains a problem. At the same time, the trade deficit and increased reliance on foreign aid led to substantial foreign debts.
Many experts believe that Rajapaksas are responsible for the economic tragedy and degeneration, including the years of the chronic budget deficit and poor tax cut management.
Immediately after winning elections in 2019, Gotabaya Rajapaksa summoned the Cabinet and advised them of a campaign for tax cuts, which surprised many but was explained by him as a measure to uplift the country’s ailing economy.
Currently, Sri Lanka is struggling to survive with its decreasing foreign reserves. The budget for 2021 was highly inconsistent with the international creditors and investors.
The protestors are asking the government to provide them with food, water, electricity, and essential commodities. In 2019 Rajapaksa passed several drastic tax cuts to ease the distress placed on the Sri Lankan economy by the Easter bombing of April 2019.
A curfew was imposed in the country for 36 long hours under the provision of the public security ordinance following a protest outside the Rajapaksa residence over the government’s ill handling of the economic situation.
The foreign exchange deficit led to an acute shortage of food, fuel, power, and gas. Although Sri Lanka has sought help from friendly countries, a hopeless situation hovers even after lifting the curfew.
The members of Parliament resigned from the Cabinet to avoid the rage and anger of the public. Still, the Prime Minister and President have not resigned, defending their governance, explaining that the foreign exchange crisis was not because of them.
Instead, the financial breakdown was primarily pandemic driven. The tourism industry is hopelessly downtrodden, which contributed 13% of the country’s GDP and played an essential role in gathering revenue and remittances.
The public of Sri Lanka is demanding the President’s resignation. Furthermore, the Sri Lankan medical association showed their concerns that all the hospitals in the country no longer had access to necessary routine surgeries.
The doctors claim that because of being dangerously low on anesthetics, it is difficult to choose whom to serve and who not. The medical group stated that the situation could worsen if the supplies were not given in time.
Mass Protests
People thronged the streets of Colombo, protesting in front of the President’s office to quit the Presidency. However, the Rajapaksa government has asked for an international bailout to help the country.
A critical lack of foreign currency reserves has left the country struggling to pay its 51 billion foreign debt. Economists say that the Sri Lankan crisis has been exacerbated by the government’s mismanagement of years of accumulated borrowings and the ill-advised tax cuts.
2019 Asian Development Bank working papers explain the twin deficit signal that if a country’s national expenditure exceeds its national income and if production of tradeable goals and service is inadequate, an economic crisis could flare.
Political Situation
On Saturday, Gotabaya Rajapaksa invited the eleven party coalition allies to handle the unfortunate economic crisis of the country and 42 independent partners for discussions on the aggravating financial crisis.
A mob of over 10,000 demonstrators gathered at the Galle Face Green Urban Park. The protesters marched towards the Secretariat, protesting against President Rajapaksa.
Protestors urged the removal of the President, who is unable to resolve the misery of the population and is letting the islanders suffer from lengthy power cuts and shortage of gas, food, waters, medicine, medical help, and other basic needs.
The protesters sat at the entrance of the President’s office, demanding his resignation. Demonstrators weathered heavy rain with raincoats and umbrellas, chanting anti-government slogans.
They demand to replace the present government with younger leaders who can deliver. Mahinda Rajapaksa is the Prime Minister of the country. He previously enjoyed the office of the Presidency from 2005 to 2015.
When Gotabaya Rajapaksa became the President, he appointed his brother Mahindra as the Prime Minister for the second term. Mahinda is popular among the Sinhalese Buddhists for crushing separatist Tamil rebels in 2009.
He did so with the help of a brutal offensive that ended a decade-long civil war. During his regime, he strengthened ties with China borrowing 7 billion for the infrastructure projects, which turned into white elephants entangled in corruption.
Economic Landscape of Sri Lanka
Sri Lanka has a tropical habitat with many natural resources. A constant rainfall keeps it fertile for growing crops. It is also rich in mineral resources.
It has minerals like titanium ore, graphite, gemstones, unexploited iron ore, petroleum, consumables, machinery, motor vehicles, and manufactured goods.
Foreign trade is an essential pillar of the Sri Lankan economy as one of the largest exporters of black tea and producer of natural rubber. Sri Lankan markets are the United States, United Kingdom, Germany, Japan, Russia, China, India, and the Middle East.
Development strategies that shaped the Sri Lankan economy over the last five decades may be distinguished into two eras. The first era is from 1948 to 1976.
During that time, development policies were focused on equity and import industrialization and an extensive social welfare program.
Although high welfare expenditures restrained the nation’s capital growth and ability to invest, slowing economic growth and causing increased unemployment and low wages.
Industries operated well below the capacity for the shortage of imported goods, worsening the trade balance crisis. The second era of Sri Lankan economic development post-1977 marked a shift towards a free-market economy.
The government chose to control the free-market economy with the private sector as the engine of growth. IMF and the World Bank’s involvement in watching over their liberalizing policies enhanced the foreign aid and investment by bringing it to record growth.
However, during the following five years, a marked deceleration of growth was caused by the disruptive effects of ethnic conflicts in the region.
Sri Lanka: A Geographical & Historical Overview
A geographical environment of wide ranges and an immense variety of diversity make Sri Lanka one of the most fascinating scenic countries. Diverse ethnic cultures make it enjoy its lineage of cultural heritage. It occupies a varied cultural heritage.
Sri Lanka historically emerged in the 3rd century on Pali Chronicles like Mahavansa and Dipavamsa. The Chronicles describe its history since the arrival of Sinhalese Prince Vijaya from the Northern Indian Kingdom in the 6th century.
Buddhism was introduced in the third century by the son of Emperor Asoka and the Island was divided into numerous kingdoms. Sri Lanka was ruled by 181 monarchs from the Anuradhapura to Kandyan periods.
Kandyan War
By the 16th century, few coastal areas were also controlled by the British, Portuguese, and Dutch. The Portuguese lost control of their possessions due to Dutch intervention.
During the Kandyan war, Sri Lanka was under British rule from 1815 to 1818. Kandyan war was the period of warfare between the British colonial force and the Kingdom of Kandyan from 1796 to 1818.
More specifically, it can be explained as an expeditionary campaign of the British in the Kandyan that marked an end to the 400 years old the Kingdom of Kandy and its political freedom.
Role of the British
Because of the political and geographical isolation of Kandyan, the British had to work hard for its appraisal by constructing roads on the hilly terrain and further helping the area by building the railroads.
Under the ownership of the British companies in 1971, tea was introduced in central Sri Lanka in the presence of massive Tamils, making Sri Lanka one of the largest exporters of tea, globally.
Tamil People
Tamil people originate from the southeast part of India. During the 19th and 20th centuries, the Tamil were transported to Sri Lanka to work in the fields of coffee and tea and on rubber plantations owned by the British.
Historically speaking, Tamil people were educated and enlightened, enshrined by Buddhism and Jainism since the 6th century BC.
The Tamil have a great history of sea travel, trade, and commerce with ancient Greek and Romans, highlighted by linguistic and archeological evidence.
Until the advent of British rule in India, Tamil were culturally integrated with India though they were a separate political entity.
According to Freedom House, in the 2016 report on Sri Lanka, Tamil reported systematic discrimination in government employment, university education, and access to justice.
Ethnic Tensions
Consequently, the ethnic tension led to violence. According to the 2017 report by the United Nations, most were deprived of all socioeconomic and health indicators like housing, education, literacy, sanitation, and safe drinking water.
These discrimination factors provoked the Sinhalese Buddhists and the Tamil to initiate guerrilla war against the Central government to create a separate state in the northern and northeast regions.
Liberation Tigers of Tamil Eelam
The Tamil rebels initiated an organization of, the Liberation Tigers of Tamil Eelam (LTTE). LTTE was organized and established in 1970 by Velupillai Prabhakaran to build a separate and independent state of its own.
LTTE, in vengeance, became the first, most sophisticated, and organized group of insurgents led by Prabhakaran. The militant insurgent group was engaged in a series of illegal activities.
After the withdrawal of Indian peacekeeping forces, they crossed all the possible limits of terrorism and killed former Prime Minister of India, Rajiv Gandhi, in a suicide bombing.
On 21 May, they exploded a land mine in Jaffna and assassinated Ranasinghe Premadasa, the President of Sri Lanka, in 1993.
They also perpetrated a suicide attack on the Central Bank in 1996 and finally bombed the Columbo International Airport in July 2001, destroying half of the commercial airlines.
Finally, the military played a final offensive and killed the leader, Prabhakaran, to end his era. Tamil War, fueled by the sharp deterioration of Sri Lanka currency with the mounting cost of civil war, raised the cost of living to an unmanageable level.
