Sri Lanka is in an Economic Freefall

by Mark Leon Goldberg, UN Dispatch podcast, April 28, 2022


Transcript lightly edited for clarity

How Has Sri Lanka’s Economic Crisis Affected Its Citizens?

J.S. Tissainayagam [00:02:59] Sri Lanka’s problem today stems basically from a failure of accountability when wrong decisions are made. This has led to both an economic crisis as well as a political crisis. At the same time, the economic crisis is not affecting everyone equally. So, I have a couple of examples. One example is […], who is a Tamil living in Kilinochchi in the northern part of Sri Lanka, and the mother of a boy who was forcibly disappeared by the Sri Lanka government. She’s a teacher. Like her Southern counterparts, she, and her family, too, are facing shortages of cooking gas, fuel, electricity, etc. However, she says, because the government limiting food and fuel in the past during Sri Lanka’s 26-year civil war, she can bear these provisions. Her main concern for the last 13 years has been searching for her son, who disappeared. She says Tamil families protesting every day for the last five years for their disappeared loved ones have not had accountability or justice, despite different political parties and leaders being in government. Then another example, […], who is also a teacher living in the outskirts of Colombo, that is Sri Lanka’s capital city. […] is a mother; she has three children under the age of ten. The 13-hour power cuts in late March were especially hard on her because none of her children would sleep due to the heat. She could not teach online because each part of Colombo had different power outages. Now that the 13-hour power cuts are been done away with, things are easier, but she still finds it difficult to go to work because there are fuel shortages and her husband, and she had to take turns in being in line to obtain a canister of cooking gas that would last them for about three weeks. Finally, there’s […], she’s the vice president of a conglomerate; she’s the mother of two and lives in the most affluent part of Colombo Cinnamon Gardens known as Colombo Summit. She’s worried about her business, the value of the Sri Lankan currency plunging. She wonders if she could even make a modest profit this year. She hopes the government agreeing to the IMF program, this deal, will stabilize the economy. Personally, she has not been affected as the others, because Colombo Summit does not have daily power cuts. Her children can study online, and she can work from home and her maid ensures that there is cooking gas to cook food. So, when we are speaking about the economic crisis, it hasn’t affected everyone equally or in the same way.


Mark L. Goldberg [00:05:48] But it still it has affected everyone, as you said, not equally. I mean, the plunging value of the Sri Lankan rupee is sort of stunning to behold. It is the worst performing currency in the world today, including like the Russian ruble. It’s really sort of shocking to see a currency be devalued so quickly.

J.S. Tissainayagam [00:06:13] So the main economic problem, the crisis besetting Sri Lanka, has been two issues. One has been budget deficits and the current account deficit. When the Sri Lankan civil war ended in May 2009, there was hope in a substantive peace dividend. However, that didn’t quite materialize except of course, in the expansion of tourism. Sri Lanka therefore had to resort to international borrowing. It started borrowing from international capital markets, but soon turned to government loans, especially from China. Sri Lanka had to also borrow from India and Western countries. All of this increased the budget deficit. Sri Lanka tried to service these debts with income earned from tourism, foreign remittances supplemented of course by exports of tea, etc. Although there was always a current account deficit because the import of iron, food, medicine, and retail products exceeded the income from exports. Then a couple of things happened in 2019 and 2020. First, Gotabaya Rajapaksa became president and went on to implement two ill-advised policies. The first was to slash taxes, including VAT, the value added tax, by almost half. So, there was a substantial drop in revenue from debt. Secondly, he implemented an abrupt switch from chemical fertilizer to organic fertilizer. This led to a huge falling yield affecting food security and a further fall of revenue.


Mark L. Goldberg [00:07:53] Can I stop you there? Because that seems like quirky. Why impose that restriction?

J.S. Tissainayagam [00:07:59] No one knows for sure, actually. But one of the reasons that is stated at that time was that chemical fertilizer was not good for good for the environment, it was not good for health and that it was affecting people’s health and well-being. And therefore, his government was hoping to shift from chemical fertilizer to organic fertilizer but the problem here was this: the shift was immediate and abrupt and the soil in Sri Lanka, which the farmers were used to cultivating using chemical fertilizer couldn’t make the abrupt change because the soil wasn’t used to it and it led to an immediate drop in yields both for paddy, which in Sri Lanka is the staple food for its food supply as well as things like tea and so on and so forth, which is so important for an exchange. So, the real reason for that, we do not know, except perhaps the reason of health and trying to keep foreign exchange from going up but it has had a disastrous consequence on the people and on the economy.


Mark L. Goldberg [00:09:28] So you had the tax cuts combined with this desire or imposition of switching the kind of fertilizers that are used in Sri Lanka, which led to a sharp reduction in the production of key exports like tea combined I suppose then a year later with the pandemic, right, that presumably had a huge impact on Sri Lanka’s tourism industry, among others, which you said was responsible for some of the revenue generated to pay off some of these foreign debts.

J.S. Tissainayagam [00:10:04] Correct, yeah. So, then the pandemic happened and almost overnight it affected Sri Lanka’s foreign earnings because foreign tourists stopped coming; garment exports contracted because there were few foreign orders; remittances by overseas workers dried up because workers had to return to Sri Lanka. Therefore, the real crisis arose because as international debt could not be paid off because of falling earning. While Sri Lanka wrestled with repaying foreign debt, it had to also import essentials like fuel, cooking gas, food, and pharmaceuticals. In desperation, Sri Lanka began dipping into its foreign exchange reserves. Problems of repaying debt particular to Sri Lanka, of course, was exacerbated by international crises faced by other nations, as well as the supply chain shortcomings and with the Russia-Ukraine War, rising international oil prices. With shortages and domestic demand rising, prices soared. So, the government started printing money which aggravated inflation. This devalued the domestic currency, the rupee, that is, making it more difficult for Sri Lanka to meet its debt obligations in US government with limited fuel, long lines for fuel, for vehicle gas, cooking gas. And the worst thing was 13-hour power cuts, which in turn started the protests of the people against what was going on here.


Mark L. Goldberg [00:11:46] Where I want to pick up this story, you know, as we speak, there have been days or more of protests throughout Sri Lanka, including at the residence of the president of Sri Lanka, Gotabaya Rajapaksa. Can you describe these protests in more detail?

J.S. Tissainayagam [00:12:06] Right. What was surprising about the present crisis is that Sri Lankans took to the streets in protest. What was sporadic say in early March became more widespread as time went on. The main reason for these protests, of course, was economic shortages of food, fuel, cooking gas, etc. and most importantly, electricity cutoff, which began to hit the middle class very badly. But inevitably the protests became politicized with the call for Gotabaya Rajapaksa to resign. […] But due to the Rajapaksa family controlling the government, in many ways, the rising anger against him became ‘Go home, Rajapaksa.’

Mark L. Goldberg [00:12:52] Hmm. So now just Gotabaya Rajapaksa but the whole Rajapaksa ruling clan is being turned upon by the Sinhalese majority population that they sought to cultivate for many, many years.

J.S. Tissainayagam [00:13:08] Yes, that is correct. It has been mostly the Sinhalese but there have been also Muslims and Tamils participating in this protest, although most of the Tamils have had different slogans, not only ‘Go home, Gota,’ they have had other slogans as well, which I can explain as we go along. So, despite the protests at the Galle Face Promenade, which is in downtown Colombo, and that has featured prominently in the news, I believe that by itself it is not powerful enough to make either President Gotabaya Rajapaksa or the Rajapaksa clan give up power. Those protests do not have a political program other than for the president and his relatives to leave government. The protests have become popular because it is largely fueled by the middle class, which think that it is part of a political revolution amplified through social media. The protesting on Galle Face promenade therefore is, to my mind, a group of people under an authoritarian regime making the best use of an opportunity to hurl abuse at the president, his family, and the government. However, there have been other groups agitating for change such as the Ceylon Teachers Union, The Railway Union that is calling for a strike, the opposition political party, the JVP and the main opposition party, the SJB that are all mobilized and are being taken much more seriously by the regime because they actually have a political program.


Mark L. Goldberg [00:14:41] What has been the response thus far of the Rajapaksa’s to this protest movement?

J.S. Tissainayagam [00:14:49] Its response is not to go away or for Gotabaya Rajapaksa to resign and go away unless, of course, he faces much more political opposition. Under the circumstances, the idea that President Gotabaya Rajapaksa is going to resign and go home is misled and wasted, because if he relinquishes power, he cannot live in Sri Lanka as his enemies will want to punish him and could use the Sri Lankan courts to mete out punishment. And it is well-known that he is terrified of the courts of law, let alone imprisonment. If Rajapaksa resigns and moves overseas to stay in the US, there will be his property and family. The Tamil diaspora and human rights defenders will file cases against him for genocide, war crimes and crimes against humanity and wait to resume proceedings, which is also something that terrifies him, unless of course he’s given immunity, which is never 100% guarantee. Therefore, resigning is the last thing on his mind. So now that Sri Lanka is engaged in a program with the International Monetary Fund to restructure the repayment of its debt, Gotabaya Rajapaksa realizes Sri Lanka in the next few months or years is going to face painful austerity. Therefore, to spread the responsibility of the pain with as many parties as possible, it might be the best solution. Therefore, he is happy to have a multi-party government. At the head of the government, he will want to project himself, a Sinhalese Buddhist as a strong leader. He would want to project himself as the man who ensures political stability in a world where there is inevitable unrest because of austerity. Meanwhile, he will also transmit the message that as a former soldier and defense secretary, that he has the confidence of the military to ensure there is no coup. So, he will want to project himself as a strong leader in whom the international community can retain confidence. Such a leader will be palatable to Washington, which likes stability and will also hope to use the IMF debt restructuring program and other economic ties to wean Colombo out of China’s economic grip. And also, the US would like to use Gotabaya’s military strength and resume negotiations on the Status of Forces Agreement which has been in limbo. So, my feeling is that he’s not resigning.


Mark L. Goldberg [00:17:41] So he’ll try to weather this this storm in the ways that you describe. So earlier in our conversation, you cited lack of accountability as one of the reasons that Sri Lanka’s economy is in the mess that it’s in today. Presumably this refers, at least in part, to the credible accusations of war crimes and crimes against humanity leveled against Gotabaya Rajapaksa stemming from the end of the Sri Lankan civil war in May 2009, in which, I’ve seen estimates of around 40,000 Tamils were basically murdered by the Sri Lankan military, then headed by Gotabaya, who is now the president of Sri Lanka. To what extent can you sort of draw a straight line between that event, the kind of ethno nationalism that the Rajapaksa’s invoked to sustain their rule and the economic crisis of today?

J.S. Tissainayagam [00:18:50] Right, so that is why I call the failure of accountability on economic issues systemic and not only something to do with the economics and what has transpired in the last couple of months. Because an important example of the systemic failure is that Sri Lanka’s political leaders, including Gotabaya Rajapaksa, as you were saying, and serving military top brass, were not held accountable for war crimes and crimes against humanity committed during the country’s civil war. The judicial system and the media, which are built in guardrails against criminal behavior by governments, failed to bring about that accountability and not being accountable for war crimes is to me aa serious a failure of the system as today’s economic crisis because not only does it reflect that the institutions of justice were unable to punish criminal behavior, but that the failure of Sri Lanka’s constitution to guarantee equality, nondiscrimination and human rights for all its citizens. Because that was a failure that brought about the Civil War in the first place. So, there is a direct line to the fact that Sri Lankan institutions have not been able to be accountable for criminal behavior by government, as well as other shortcomings such as bad policy decisions which brought about this economic crisis that Sri Lanka is now experiencing.


Mark L. Goldberg [00:20:32] Going forward in the next few days or weeks or even months. What will you be looking towards that will suggest to you how this crisis may unfold both politically and economically?

J.S. Tissainayagam [00:20:47] I feel that there are four possibilities. So, the four possibilities are 1. Gotabaya Rajapaksa resigns and goes home, which I said will not happen so I will not repeat that. The other possibility, the second possibility is that the SJB, which is the main opposition party, establishes a parliamentary government. But these policies being such will ignore Tamil and Muslim issues. The third possibility is that the Tamil political parties use this moment to push for restructuring the state and sharing power in the federal government. And of course, the fourth possibility is that Gotabaya Rajapaksa abandons all political negotiations and rules with the military support. I will try to go to a bit of detail about the second, third and fourth issue. So, the possibility of the SJB, trying to use the opportunity of political unrest to probably retain Gotabaya Rajapaksa as the nominal head of state as president, but bring about changes to make parliament the center of political power. They have made certain pronouncements or come up with a draft that reflects this, that they are interested in these changes. The SJB’s leadership will try to portray itself as being more pro neo liberal reform than the present government and therefore better able to manage the IMF program. However, Parliament becoming the locus of power under this arrangement will be at the expense of the Tamils and Muslims. Tamils and Muslims have been demanding that Sinhalese Buddhists who dominate the state share power. There is nothing in the program put forward by the SJP that says that it is willing to share any more power than the present Constitution shares with the Tamils and Muslims, so both the Tamils and Muslims are rejecting it. The SJB will try to appeal to the Sri Lankan people by saying that the state will continue to be dominated by a Sinhalese Buddhists with minimal power sharing with the Tamils and Muslims. The third possibility is that the Tamil parties will use this opportunity to consolidate […]. The Tamil parties should be vehement that removing the president or installing a Sinhalese Buddhist dominated parliament is not what they want. The Tamils and Muslims have been fighting for structural change and not replacing one Buddhist leader with another. But the structural change would mean ensuring two things. 1. That in any new setup, accountability includes accountability for past human rights violations, such as crimes against humanity committed during the war, which we spoke about a moment ago. And not only abuse of power and corruption as the present leader is being charged for under the economic crisis. The second is that the Tamil support in or outside parliament for the government should be predicated on serious negotiations for at least a federal system of government. Any suggestion that discussions should be postponed on this matter should be rejected or not entertained by the Tamil party. The question is whether the Tamil parties are willing to stand together to push for it, and if not, whether the numerous interest groups like those families of the disappeared, the Tamil diaspora, groups fighting for the release of political prisoners and for demilitarization and so on and so forth could force the Tamil parties to stand together and make the united demand. And of course, the final possibility is Gotabaya abandoning political negotiations altogether and ruling with the military and his family circle, which is a pity as it will bring about further pressure.


Mark L. Goldberg [00:25:21] So, you know, two of the scenarios you just described are seemingly opposing to each other. There’s one in which a more pluralistic and inclusive structural change comes about that admits or gives Tamils and Muslims more political power structurally. The other is a devolution of power to the parliament, which is controlled by a Sinhalese nationalist party. You know, of those two scenarios of structural change, do you find any one more likely?

J.S. Tissainayagam [00:26:02] Well, I personally find the second one, that is the SJB pushing for a parliamentary form of government, if they can force Gotabaya Rajapaksa to resign, a greater possibility. But it will all depend on how the Tamil parties react to that. I mean, if they stand firm and say, ‘okay, we are not going to accept this, any sort of change to a parliamentary form of government, because it will only continue Sinhalese Buddhist domination and we can only support you if you are willing to negotiate on the two issues of greater accountability and greater power sharing. That is basically to restructure the present unitary constitution into a federal constitution. And our support will depend solely on that.’ If they can push that, I think they will be able to make quite a bit of headway. So, while I feel the parliamentary government coming about is a greater possibility if Gotabaya Rajapaksa resigns, it doesn’t necessarily mean that the fate of the Tamil or Muslim Party should throw up everything and say, ‘okay, we have no other alternative but to support these guys.’ They definitely have the space, and I think they have the power to negotiate a better deal.

Mark L. Goldberg [00:27:38] And perhaps lastly, I mean, if these protests continue and if they grow in size, do you think that might lead to one of the scenarios that you described of either Rajapaksa doubling down with military repression or being forced to resign?

J.S. Tissainayagam [00:28:03] Well, I think if the protests not only at the Galle Face promenade, but other political groups such as the political parties and other interest groups like trade unions, would really come out and say that they will not accept any compromise and Gotabaya Rajapaksa has to go, there is a possibility of him resigning, but I don’t think he will go without a fight because he will feel that will be counterproductive because he will face the courts of law either within Sri Lanka or possibly in a foreign country. On the other hand, he might think, ‘okay, I have no other option but to use the military and become a dictator.’ And you might remember that sometime ago we had this conversation about how there’s a possibility that another crisis in Sri Lanka, like COVID 19, could bring about a recurrence of violence because Sri Lanka’s past in dealing with atrocities has not been very good, it has not gone to the root causes to resolve those issues. And if Rajapaksa feels that he has to govern with an iron hand and by using the military he could very well use issues like, there is a very important commemorative event coming up on the 18th of March where Tamils commemorate the dead, which traditionally Sri Lankan governments have tried to repress because they feel it’s an outpouring of grief, it has certain political significance and which defies the government and is a statement of dissent. So, the Sri Lanka government, under Gotabaya, could very well use that to, again, resume repression and basically say that the Liberation Tigers of Tamil Eelam and former rebels are regrouping and it has repressed such a possibility — manufacture that sort of contention and use that to stop repression and then spread the repression to other parts of Sri Lanka and use the military to control the country and become a full time full dictatorship.

Mark L. Goldberg [00:30:36] And you said the 18th of March, but I think you meant the 18th of May, right?

J.S. Tissainayagam [00:30:40] I’m sorry. Yes, 18th of May.

Mark L. Goldberg [00:30:43] Well, thank you so much. This is very helpful and timely.

J.S. Tissainayagam [00:30:48] Thank you very much. Thanks for having me. Very nice speaking with you.

Mark L. Goldberg [00:30:53] All right. Thank you all for listening. Thank you to J.S. Tissainayagam for speaking with me and I hope you appreciate this conversation. I know I did, and I suspect it will give you the context you need to understand the events in Sri Lanka as they unfold. I will see you next time, bye!

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