UNA Editorial Board*
Among the few solid rules of international politics is the principle that when voters are in the presidential pool, it’s time to change direction. After a remarkable popular uprising against a government accused of needless economic disaster, former President Gotabaya Rajapaksa fled the country and resigned on July 14.
This dramatic exit was a prelude to the disappointing appointment of a new president by parliament, which lent its support to Ranil Wikremesinghe, a longtime ally of the Rajapaksa.
Rajapaksa’s administration was not solely responsible for Sri Lanka’s economic woes, as Chulanee Attanayake argues. The political failures of successive governments, combined with the COVID-19 pandemic and the Ukrainian crisis, have put a strain on the economy. “But a series of misplaced and misguided policies by his government have exacerbated a crisis that had been brewing for years.”
The new government is now beginning negotiations on debt restructuring and other economic and humanitarian relief measures, likely at the cost of a rigorous program of spending cuts, privatization and various microeconomic reforms.
Sri Lankans and the world are about to learn what matters more to make such an agreement work: political authority or political legitimacy.
The former may well nullify the latter, concludes Neil de Votta in this week’s lead article. President Wickremesinghe is an accomplished political insider – a former prime minister, cabinet minister and parliamentarian with close ties to the Rajapaksa clan. He should be adept at mustering political support among the elite for the painful adjustment program ahead, and he has proposed a unity government with opposition parties that were defeated in the presidential vote.
But it is precisely these sources of authority that give Wickremesinghe a flagrant lack of legitimacy. As prime minister between 2015 and 2019, he is squarely implicated in his predecessor’s corruption and reckless economic policies, and he “protected the Rajapaksas from prosecution when he was prime minister between 2015 and 2019”. Naturally, the demonstrators believe that “the struggle to get rid of the Rajapaksa has only partially succeeded”.
Sri Lanka will know soon enough whether putting a member of its discredited political elite in charge of pulling the country out of crisis will work. Anyway, as Dushni Weerakoon observed here at EAFwhatever form a new government takes, the process of negotiating creditor relief is going to be nightmarishly complex, in part because “Sri Lanka bonds are held primarily by a base of private creditors in the states United States, while its major bilateral lenders include non-Paris Club members like China and India.
Given the Rajapaksas’ continued economic cooperation with China, there has understandably been keen interest in the Chinese stake in the Sri Lankan crisis and its resolution. Highlighting the Hambantota port fiasco, some said Sri Lanka was spearheading a Chinese strategy of “debt trap diplomacy” whereby state-backed lenders extend credit on predatory terms. as a back door to acquire strategic assets or political influence in the poorest countries. , weaker countries.
The “debt trap” narrative about Sri Lanka was at best an oversimplification or rather a simple misinterpretation of what was in fact a complex, though certainly unhealthy, symbiosis of interests between Chinese lenders who were too enthusiastic to finance projects regardless of their economic merit and a corrupt and debauched local government too eager to build them. If there ever was a time for Beijing to use debt as an instrument of influence, it is now. But government officials in Colombo are grumbling that China has been inflexible in talks over emergency credit and debt restructuring – Beijing doesn’t like a haircut – which could become a public relations problem at Colombo if the new government’s talks with other major creditors, including India, are more constructive.
The Sri Lankan case speaks to a wider irony in China’s global ambitions to be a lender of first resort for the developing world – that it could now put China in a position it does not want necessarily be: a lender of last resort to highly indebted BRI partner countries in Asia and Africa. Indeed, media reports revealed that “as [Chinese] lending shifts to focus more on preventing defaults, it begins to reflect the role usually filled by the IMF”, with the BIS producing “a mountain of non-performing loans”. debt”, China also risks being caught up in it.
With Sri Lanka’s debt restructuring and bailout taking some time to negotiate, the international community’s priority must be support that is well targeted to the immediate needs of Sri Lankans and comes with minimum conditions. Such short-term aid is an essential investment in the longer-term recovery: economic activity will not rebound and civil unrest will not be prevented if gas stations are empty and urban middle-class citizens are forced to skip meals.
The longer-term recovery will depend on the commitment of the Sri Lankan political elite to a program of sound macroeconomic management and responsive governance. If the country’s electoral democracy survives the painful economic readjustment to come, the elections scheduled for September 2024 are at least one mechanism to incentivize the incumbents to muscle up and perform.
*About the Author: The EAF Editorial Board is located at the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.
Source: This article was originally posted on the East Asia Forum