President Gotabaya Rajapaksa’s political survival has become a huge question mark as the country neared bankruptcy towards the end of the month. The month saw 10-hour power shutdowns almost every day, at petrol pumps endless queues waited for hours for petrol, surgical operations were halted due to lack of medical supplies, daily newspapers facing newsprint shortage went online mode and cancellation of public exams in schools for want of paper. Adding to the woes, hydropower generation dipped as water sources dried up and annual agriculture production farm fell by 40 percent due to ill-timed ban on import of chemical fertilizers and pesticides.

To handle the fiscal crisis, the Central bank floated Sri Lanka rupee during the first week of March. It resulted in the devaluation of the rupee by 36 percent, pushing up the prices of daily necessities. In a bid to save foreign exchange, authorities expanded the list of banned imports to include fruits, vegetables and milk powder.  The essential items ran out of stock in stores adding to the agony of the public.

These events have become symbolic of the failure of the national leadership to manage the worst ever economic crisis Sri Lanka faces since independence in 1948. They also demonstrated the national leadership’s inability to evolve a coherent strategy and get its act together to handle the national crisis. It was reflected in the administration’s failure to monitor and coordinate its response system when supplies were running out of stock.

A typical example of such failure is the case of import of urgently required diesel shipments. The Daily Mirror quoted sources within the Ceylon Petroleum Corporation to say that the diesel shipments received at the port could not be cleared as the treasury did not have funds to pay for the demurrage. According to the report, the vessel carrying the shipment refused to enter Sri Lankan waters unless payment was made upfront. “President Gotabaya Rajapaksa had given a guarantee that funds would be released for the shipment, but the captain has refused to accept this guarantee,” the report added. It said the government was expected to pay a sum of $52 million to clear the diesel shipment.

India is reported to have agreed to Sri Lanka’s request to increase the $500 million credit facility to $750 million for import of diesel from India. Accordingly, another two consignments of 40,000 tonnes of diesel each are expected to be delivered to Sri Lanka on April 5 and 14. But the moot question is, has the administration got its drill taped up to receive and dispatch the shipments to reach the consumer in time?

Public anger at the government’s apathy has snowballed into massive protests. There were huge public rallies organised by the opposition Samagi Jana Balawegaya (SJB) and the JVP led National People’s Party (NPP), where there were loud slogans raised against the Rajapaksas. In the coming days, we can expect it to erode Gotabaya’s loyalist Sinhala nationalists who had overwhelmingly voted him as President. Leaders of disgruntled coalition partners of the ruling Sri Lanka Podujana Party (SLPP) are also lining up to bring down finance minister Basil Rajapaksa. [Since gone; his successor also-Ed] Udaya Gammanpila, leader of the Piyithuru Hela Urumaya (PHU) party proposes to present a draft of the 22 Amendment to the Constitution next month in parliament. It is aimed at making it illegal for a dual citizenship holder like Basil Rajapaksa, who is an American citizen, to take up any work related to governing the country.

An all-party conference convened by President Rajapaksa on March 23 to seek other parties' support to overcome the present economic crisis was attended by almost all parties, barring the main opposition SJB and the NPP. Party leaders and representatives presented their proposals and statements at the conference. They promised their maximum commitment for the benefit of the country.

The beleaguered government has decided to eat the humble pie and overcome its reluctance to approach the International Monetary Fund (IMF) to overcome the financial crisis. Similarly, it has approached Bangladesh for an additional $250 million line of credit in addition to the $250 million LoC already sanctioned. India has already extended $2.5 billion plus assistance in various forms. It is also considering Sri Lanka’s request for an additional $ one billion LoC, which could materialize in April.

China is considering offering a $1.5 billion credit facility to Sri Lanka and a decision is expected soon. According to a top Chinese official, Sri Lanka was offered a loan of $500 million from the China Development Bank on March 19. But Sri Lanka will have to strategize its approach to managing its economy as it has to repay about $4 billion worth of debt this year, including an international sovereign bond of $1 billion maturing in July.

Unfortunately, on top of the continuing Covid-19 pandemic threat, the Ukraine war and the slapping of stringent sanctions against Russia have made Sri Lanka’s economic recovery more difficult. Russians and Ukrainians form around 15 percent of international tourist travellers to Sri Lanka. Sri Lanka’s direct flights to Moscow had to be cancelled in the face of the sanctions and the war has added to uncertainties over their arrival.

India, usually dubbed as “Big Brother” from the small but highly vocal anti-India lobby in the country, has stepped in to meet urgent needs of Sri Lanka. Minister for external affairs S. Jaishankar flew in from Maldives on a two-day visit to Sri Lanka. The Minister, an old Sri Lanka hand as a diplomat in Colombo during the crucial days of Indian Peace Keeping Force’s operations (1987-90), had a packed schedule on March 28. He called upon President Rajapaksa on March 28 and assured him of India’s continued support in Sri Lanka’s economic recovery process. The President thanked the Indian government for the economic assistance to the tune of $2.5 billion. They agreed to deepen economic and commercial linkages with special emphasis on Indian investments. Their discussions also covered defence and energy cooperation as well as Sri Lanka government’s talks with Tamil National Alliance (TNA), indicating India’s sustained interest in the Tamil devolution issue.  

The Indian minister joined PM Mahinda Rajapaksa at a special event in Temple Trees to virtually inaugurate the Jaffna Cultural Centre, built with Indian funds. He also met with his [then] counterpart Prof GL Peiris and FM Basil Rajapaksa to discuss foreign policy and economic issues. They witnessed the signing of six memorandums of understanding. The MoUs included implementation of Sri Lanka Unique Digital Identity (SL-UDI) programme with India’s grant assistance, providing Maritime Rescue Coordination Centre, implementation of hybrid power projects in three islands off Jaffna which was earlier given to a Chinese organisation, cooperation on development of fisheries harbours in Sri Lanka and the establishment of modern computer labs and smart boards with customized curriculum software in 200 schools in Galle district.

Sri Lanka ministry of defence has announced it had signed maritime security pacts with India on March 16. It underlined the pacts “will not result in hindrance or threat to national security”. It said the pacts included the receipt of a floating dock facility and Dornier reconnaissance aircraft free of charge from India.

The Indian EAM’s visit culminated with participation in the 18th ministerial meeting in hybrid mode of the Bay of Bengal Initiative for Multi-Sectoral Technical & Economic Cooperation (BIMSTEC) held on March 29, hosted by Sri Lanka, the current chairman. It was held ahead of the 5th summit meeting of BIMSTEC to be held later. The forum provided an opportunity for Sri Lanka to renew its linkages with other members – Bangladesh, Bhutan, India, Myanmar, Nepal and Thailand.

In conclusion, three things are clear: (1) President Rajapaksa will have to clean up his act if he is to survive; (2) India seems to be investing in Rajapaksas, particularly when Sri Lanka is losing the lure of China. (3) India-Sri Lanka strategic relations are poised to grow, considering the strategic reset in the Indian Ocean region in the wake of the war in Ukraine.

The coming months are going to be crucial for not only Rajapaksas but Sri Lanka as a whole as it faces an unprecedented economic crunch. It is hoped that it would retain India’s goodwill and support.

Courtesy Col. R Hariharan, VSM; written March 31 night on current chaotic situation in Sri Lanka, before the Emergency was proclaimed by the President.

South Asia Security Trends, April 2022| www.security-risk.com