As Sri Lanka’s crisis continues to spiral out of control, the country gets a new Prime Minister: what are the lessons from India’s neighbourhood?
After weeks of turmoil on the streets of Colombo, citizens’ protests, fatal police shooting of a protester, violent assault on peaceful protesters by Rajapaksa supporters, and incensed mobs burning down property in retaliation, Prime Minister Mahinda Rajapaksa stepped down this week, paving the way for opposition leader and former Prime Minister Ranil Wickremsinghe to be appointed in his place.
The task before Mr. Wickremsinghe to restore Sri Lanka’s finances which are in the worst situation since the island’s independence is immense.
1. Foreign exchange reserves are around $50 million this month, far lower than what it needs to repay loans, and about 1/4th of what is needed to buy much needed food, fuel and medicines.
2. Tourist arrivals were down by half last month, another important source of dollars, and something that accounts for about 5% of the GDP. Many more have cancelled plans to visit Sri Lanka due to the instability and violence
3. Crucial exports like tea have dropped nearly 10% in the past year, due to a drastic drop in agricultural production following a controversial decision to ban fertilizer imports overnight, power cuts impacting processing
4. While GDP estimates are likely to be far lower, the situation is too uncertain to make any real estimates at present
5. An IMF team is now in discussions with officials in Colombo about a possible bailout package, but that could take several months, and will come with stringent conditions on reforms, which the new government will have to implement. The SL government also has to negotiate with donors like India and China for bridging finance of about $3-4 Billion dollars it need.
6. With debt repayments of $7-8 billion due this year, Sri Lanka’s growth for the next few years has been locked up. The worry about debt traps and in particular stringent terms in Chinese loans that led to Sri Lanka giving up control of Hambantota port, is a recurring issue
Apart from the economic crisis PM Wickremsinghe must deal with political constraints.
- Protestors in Colombo have been demanding that President Gotabaya also resigns, and are unlikely to call off their protests yet
- The PM has the backing of the Rajapaksa led SLPP, but his own party the UNP is a shell, and he is its only member of parliament. Mr. Wickremsinghe has been PM 5 times before, but never completed a full term in office.
- PM Wickremsinghe must work closely for now with President Gotabaya, after years of political bitterness, which could pose problems to the radical shifts in policy that are required
- The leader of the opposition is Sajith Premadasa, who has a bigger presence in parliament, and after refusing to join the Unity government plan offered by the Rajapaksas has now written an open letter to President Gotabaya, demanding his right to be the next PM.
What is India’s position on developments in Sri Lanka ?
1. India has kept up a steady stream of support estimated at about $3.5 billion just this year- including credit lines for food fuel and medicines, loan waivers and currency swap arrangements
2. Until last week, New Delhi had expressed support to the Government and people of Sri Lanka
3. With protests and anger against the Rajapaksa government spilling over, India issued a statement this week saying it would be guided by the best interests of the Sri Lankan people, and ommitted any reference to the leadership
4. As the violence spiralled out of control and PM Mahinda and his family were flown to a naval base for safety, the Indian high commission in Colombo issued two statements distancing itself from the Rajapaksas: one statement denied any suggestion that India had given shelter to fleeing Sri lankan leaders, and another denying rumours that India would intervene or send troops to stabilise the situation in the island.
5. After the swearing in of PM Wickremsinghe, the Indian high commission said it looks foward to working with the new Government.
6. Apart from concern for Sri Lanka, India also has to worry about any uptick in refugee flows that could follow more violence and economic strife, as well as the possible impact of shortages on Tamil majority areas in the North and East of Sri Lanka- as these have a spillover effect, and Tamil Nadu leaders have been calling for India to take a more involved position in Sri Lanka
- Sri Lanka has seen a very dramatic change of power, but is not the only democracy in the neighbourhood that has seen non-electoral changes in the past year:
- In Nepal PM Deuba was appointed PM by the Supreme Court after months of protests against PM KP Oli last July when he summarily dismissed parliament
- In Pakistan PM Shehbaz Sharif took over as PM of the combined opposition after PM Imran Khan lost a no confidence vote
- In Afghanistan, the Taliban dismissed the elected government of PM Ashraf Ghani to take control of Kabul- but its regime is not recognised by any other country.
- And more than a year ago, in Myanmar, the elected government of the Aung San Suu Kyi led NLD was overthrown in a military coup which has put the entire political leadership behind bars
The Modi government’s reaction to each of the changes has been varied : From supporting the new governments in Nepal and Sri Lanka, to continuing engagement with the Myanmar junta, to opposing the Taliban regime, to virtually ignoring the changes in Pakistan.
What are some of the lessons for India and its Neighbourhood First policy?
1. Engaging with the neighbourhood involves engaging beyond the leadership of the country, which can change in a moment. It is also important to deal with the entire political spectrum of the neighbourhood- the opposition parties as well.
2. While domestic mismanagement of economies is an issue- all South Asian economies are vulnerable to the triple whammy of the Covid pandemic, global economic slowdown, and inflation that is spiking due to Russia’s invasion of Ukraine and sanctions imposed. India must monitor economic impacts in its neighbourhood more closely.
3. Political instability and economic crises will also make India’s neighbours more vulnerable to global powers like US and China seeking to exert influence, and India must guard against a further slide in its sphere of influence in the regional
4. Hypernationalism, majoritarianism protectionist economic policies are all marks of the populist leaders who lost power in the neighbourhood- it is important to see that no matter how large the election mandate was, good governance, not popularity is the better guarantor of political stability
Eventually this is India’s neighbourhood, and what happens here will impact India, its foreign and domestic policy much more than events in Europe or East Asia. India has the added challenge of being much larger than each of its neighbours, and must balance its concern over developments in the region without appearing to interfere.
I would start by recommending The Hindu, and my colleague Meera Srinivasan’s in depth reportage from the ground, and a special ground zero she did on the Economic Crisis there.
There are two biographies of Ranil Wickremesinghe: by Dinesh Weerakoddy, and a translated one by Sampath Bandara- I haven’t read either, but I suspect the one that is yet to be written, about his current tenure will be the most interesting.
Also, a book called Sri Lanka in the Modern Age: A History by Nira Wickramasinghe looks at Sri Lankan politics and its evolution
Also, since we dealt with Sri Lanka at length in WV Ep 57- I had given you a number of reading recommendations on Lankan politics and economy. So this time I will look at some of the latest books on economy and geopolitics that might better prepare you for these developments in the region:
1. Thomas Piketty is world reknowned economist- and he has a new book out called A Brief History of Equality, to add to Capital in the 21st century, and Time for Socialism: Dispatches from a world on Fire.
2. Next is by an author I frequently recommend: Robert Kaplan has his latest book out: Adriatic: A concert of civilisations at the end of the Modern age, which adds to The Revenge of Geography and Monsoon: The Indian ocean and future of American power
3. Sold Out!: How Broken Supply Chains, Surging Inflation and Political Instability Will Sink the Global Economy James Rickards- it will only be out in November this year
4. Three Days at Camp David: How a Secret Meeting in 1971 Transformed the Global Economy by Jeffery Garten
5. And two books- simply written on complex issues: The Power of Geography: Ten Maps That Reveal the Future of Our World- Tim Marshall has also written Prisoners of Geography: Ten Maps That Tell You Everything You Need To Know About Global Politics
6. Finally there’s Us vs. Them: The Failure of Globalism by Ian Bremmer