Where Next? Political Consequences of SL’s Economic Breakdown

Ahilan Kadirgamar and Devika Gunawardena | 01 January 2023
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The momentous year of 2022 for Sri Lanka can be divided into two major phases. In the first phase, people grew frustrated with the failure of their government led by President Gotabaya

 Rajapaksa, to solve the country’s economic crisis. The Rajapaksa Government’s unwillingness to prioritize imports meant that people began suffering severe shortages of essential goods, including fuel. Rajapaksa was eventually ejected in a stunning popular uprising on July 9th.

The second phase of the crisis and the political response that emerged, was the subsequent attempt by the government of Ranil Wickremesinghe to dismantle the people’s movement, by arresting key student leaders under the draconian Prevention of Terrorism Act (PTA). President Wickremesinghe has managed to dampen the protest movement while co-opting elements within the opposition.

Nevertheless, the economic crisis in Sri Lanka is far from over. The electricity blackouts and queues for petrol were the most visible signs of the breakdown earlier this year. Although these goods technically can now be purchased, their prices have skyrocketed. In September alone, inflation rose by roughly 70%, while food inflation, which affects poorer people even more, jumped by over 90% year over year. 

The result is that many Sri Lankans are experiencing food insecurity, including more than a quarter of the population according to estimates by the United Nations’ Food and Agriculture Organization (FAO). For now, the massive protests that occurred earlier this year have yet to repeat. Meanwhile, the working people and increasingly impoverished sections of the middle class continue to grapple with the question of finding a sustainable political and economic solution.

 The Establishment’s Austerity Measures and People’s Suffering

 The Rajapaksa Government failed to prioritize imports, choosing instead to continue the free trade agenda, which contributed to the manufactured scarcity of foreign exchange. Worse, the Rajapaksa Government even undermined domestic food production through a catastrophic ban on chemical fertilizers in 2021, though this measure was eventually rescinded after farmers mounted protests. Sri Lanka’s economy was further wrecked by the premature decision to default on April 12th. Already, the establishment has become nervous about criticism over this decision. 

The vision of the economy that a predominant section of the elites is trying to push not only involves implementing the IMF’s recommendations, including raising energy prices. It also represents a far deeper structural transformation of the economy that could intensify the ongoing social devastation. Already in its recently announced Budget for 2023, the Wickremesinghe-Rajapaksa Government has pushed back against the discourse of subsidies to ease working people’s pain, especially through the possibility of a food subsidy. Instead, Wickremesinghe has proposed the establishment of new economic zones that will supposedly attract private investment. 

The government’s implicit strategy for revived accumulation is predicated on further wage repression during an economic crisis in Sri Lanka that finds its nearest parallel with the Great Depression of the 1930s. The country’s entire development path since the late 1970s, when economic liberalization was first initiated, has been overturned. Sri Lanka is now seeking to downgrade its status to a lower income country to access concessional financing, in addition to coordinating humanitarian aid through multilateral institutions.

Rough timeline

Given the lack of a social base and the ongoing economic devastation that is wreaking havoc on people’s lives, it is unclear how the Wickremesinghe-Rajapaksa Government will navigate the dangerous gauntlet between the immediate suffering people are experiencing and long-term visions for reviving accumulation. The government has presented a rough timeline that predicts Sri Lanka will have achieved a primary budget surplus by 2025. Even these projections, however, are seen as extraordinarily optimistic. Meanwhile, in the absence of economic relief for the people, it is unclear what type of popular legitimacy, if any, the current government will be able to sustain.

The tremendous efforts of the people’s movement challenging the decades-long Rajapaksa political project of authoritarian populism, led to the ousting of President Gotabaya Rajapaksa. However, it has yet to result in the necessary institutional transformation, especially the abolition of the widely hated Executive Presidency. People’s frustrations with the current Government are far from abating. The question of how this opposition is articulated will depend on an extremely uncertain conjunction of political forces, including the possibility that nationalist and xenophobic demagogues will be able to capitalize on people’s frustration. 

Meanwhile, without economic relief within a clear, long-term plan to overcome the causes that led to Sri Lanka’s crisis—including its severe dependency on financial markets— the Wickremesinghe-Rajapaksa Government will find it considerably difficult to govern. Instead, Sri Lanka could even lapse into an anarchic state, with the ongoing dangers of crime and social breakdown overwhelming the tenuous structures of solidarity that were built by the protest movements.

The country does not have to look deep into its past to observe the possible consequences. This includes the uneven effects of economic liberalization that combined with Sinhala nationalism to produce a devastating insurrection by a rebellious youth movement, the JanathaVimukthiPeramuna (JVP), in the South during the late 1980s. 

People-Centred Reforms to Democratise the Economy Need to be Introduced

 To avert disaster, there must be a reckoning with the real causes of the foreign exchange crisis, specifically Sri Lanka’s overwhelming dependence on imports since its economic liberalization began in the late 1970s. While the process of liberalization was initially hailed in terms of the “opening” of the economy, the reality is that external investment was restricted to narrow industries, such as garments, in which workers’ wages could be repressed. In addition, there was growing speculation in urban real estate, which was flooded by commercial borrowings in the international capital markets in the aftermath of Sri Lanka’s civil war, which ended in 2009. 

While the Government led by Mahinda Rajapaksa may have been corrupt and spent incredible sums on vanity projects, the reality is that, at its core, the neoliberal economy contained inescapable contradictions. The current crisis is the inevitable consequence of decades of liberalization policies that accelerated in Sri Lanka’s post-war years because of deepening financialization. It is the deeper failure to imagine an economic alternative to austerity, which now enables Ranil Wickremesinghe to exercise the full powers of state repression to suppress both dissenting and popular responses to the economic crisis in general. This situation is untenable. The question of how it will finally be resolved, however, remains up in the air.

For those committed to an egalitarian resolution of the crisis, the question must be asked, now more than ever, on what it would mean to transform Sri Lanka’s economy to reduce imports and increase local production, even while the country grapples with the longer-term question of debt? The people’s movement that erupted onto the scene this year offers deeper resources for the critical imagination, which could catalyze an urgent reckoning over the broader relationship between state and society and how to democratize it.

The image of protestors jumping into the swimming pool in the President’s house sparked global interest in Sri Lanka’s people’s movement and its ability to reclaim public space. It will be a far more challenging exercise to transform the foundations of an economy that has clearly gone off the rails. Only by taking on these problems directly, via people-centered approaches for reforming and democratizing the economy, will there be any hope that the movement does not simply end in the failure, typical of too many other past examples of stalled, if not failed, revolts. 

To avert a food crisis that could even become a famine, alternative economic measures could include, for example, an extension of a food subsidy, such as the rice subsidy that prevailed before it was dismantled in the post-1970s reform period. There needs to be more support for the country’s agricultural production along with a public distribution system, which could draw from and rebuild the historically vibrant cooperative system.

Meanwhile, the political outlook over the next two years remains unpredictable. While Wickremesinghe has ambitions of completing the term of the presidency that comes to an end in late 2024, he is bound to face many challenges. In February 2023, he will be allowed by the constitution to dissolve the parliament, paving the way for elections. This will support the parliament to regain its legitimacy. But given his dependence on a Rajapaksa-backed majority in parliament for his survival, he is unlikely to opt for dissolution. In turn, this could lead to unrest among sections of the political class and the wider citizenry. Indeed, as the rural populace suffocates because of disruptions to their livelihoods, there may be further mounting waves of protests, perhaps this time from the rural and urban periphery.

The political moment opened by this year’s remarkable protests has yet to conclude, even while many continue to experience pain and deprivation under the lack of economic relief. Despite the persistence of a bleak economic horizon, what type of popular response it will trigger remains an open-ended question; one to which the current Wickremesinghe-Rajapaksa Government lacks an answer. 

This is an edited version of the Asia Democracy Research Network (ADRN) Issue Briefing published on 15th December 2022.

Ahilan Kadirgamar is a Steering Committee member of the Sri Lanka Democracy. 

Devika Gunawardena, Author. 

This article was originally published on Daily Mirror.
Views in this article are author’s own and do not necessarily reflect CGS policy.