Home / Opinion / Views /  Rajapaksa was trapped in a maze of his making
Listen to this article

Few foresaw civil unrest so severe that it would force Mahinda Rajapaksa out of power as Sri Lanka’s prime minister, but it was clear for months that its economy was trapped in a policy maze of his making with no visible escape. On Monday, he called it quits in favour of an interim all-party government amid an escalation of street violence. Clashes between loyalists and protestors left several dead—including a member of parliament—and hundreds injured, even as enraged mobs set marked houses on fire. Protests had followed acute scarcities of fuel, food, electricity, pills and other essentials that the country lacked hard cash to import. Inflation was at 21.5% in March and upwardly restive. As popular ire was directed at the ruling family, Sri Lankan politics may remain fraught so long as the former PM’s brother Gotabaya Rajapaksa stays on as president. At first glance, family rule would suggest itself as the source of Sri Lanka’s woes. Yet, genealogy cannot explain its crisis without an echo chamber to go with it, one that shuts off wielders of power from sensible advice and bars economic impulses from doing their job.

In a globalized world, it does not take John Donne’s poetry to appreciate that no economy is an island unto itself. Of Sri Lanka’s two big earners of dollars to fund its imports, tourism was already battered by covid. Tea exports, its mainstay, took a blow after Colombo forced farmers to give up their yield aspirations for organic farming. Last April, it banned imports of synthetic fertilizer—with obvious results. Not just tea, even rice production tumbled, leaving its 22 million citizens short of a dietary staple. With an external debt load of above $50 billion, half of it due by 2026, scarce dollars spent on food shipments left less for other stuff—like oil and repayments. Meanwhile, since the pandemic had spelt an open season for stimulus action, globally, this idea was taken as a licence for fiscal profligacy, backed by a captive central bank that cited “modern monetary theorists" to print money in inflationary volumes. Money supply rose by 42% over 2020 till August 2021. Retail prices zoomed, as one would expect, even as sovereign bonds crashed and interest rates leapt in a display of what can happen if a floozy theory takes shape as policy. Output gains proved illusory, snap capital controls (and trade bans) created panic and shortages worsened. Sri Lanka was scraping its barrel of foreign exchange even before this year’s oil shock caused further seizures. Despite liquidity helplines—including from India—it had less than $50 million left of usable reserves last week. Talks with Beijing for a Chinese rescue package have been wrapped in bilateral intrigue, while a bailout sought from the International Monetary Fund (IMF) hinges on Sri Lanka working out a revival plan that can enable it to earn enough dollars to sustainably service its external debt.

Any new Sri Lankan government would now have to go by the IMF’s book. The lessons of this episode, however, extend beyond economics. By most accounts, space for dissent over fateful calls had got cramped to a perilous extent. At the top, truth took time to brew and sink in. Rajapaksa’s record suggests that the hubris of authority had allied with the group-think of a clique to lay out a frame of policy that was too creaky to hold up, unless it had a hidden hatch for China’s support, with geopolitical strings and chains attached. In the end, that framework proved to be a trap. Its critics abound. Let’s hope they can help find a way out.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.
Recommended For You
Edit Profile
Get alerts on WhatsApp
Set Preferences My ReadsFeedbackRedeem a Gift CardLogout