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FINANCIAL CHRONICLE™ » CORPORATE CHRONICLE™ » How Four Powerful Brothers Broke an Island Nation

How Four Powerful Brothers Broke an Island Nation

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CITIZEN

CITIZEN
Manager - Equity Analytics
Manager - Equity Analytics

THE WASINGTON POST 
Democracy Dies in Darkness


By Ruth Pollard | Bloomberg


March 18, 2022 at 4:49 a.m. EDT

In just over two years, Sri Lanka’s first family has presided over a series of crises mostly of its own making.

The island nation of 22 million people is facing its worst economic upheaval in a decade. From an ill-fated fertilizer ban that led to a dramatic fall in yields of crops like rice and tea, to its failure to deal with a foreign-currency crisis that’s now a humanitarian emergency, the government of President Gotabaya Rajapaksa is fast running out of solutions. Relying until now on help from its two major backers — India and China — and stubbornly refusing wider international aid, the country is on the verge of default. 




Protests roiled Colombo on Tuesday, with upwards of 10,000 opposition supporters gathering outside the president’s office to call for his resignation. Shortages of electricity, fuel, food and medicine are widespread and causing real pain for everyone from daily wage earners to operators trying to jumpstart the key tourism industry after two years of Covid interruptions and the 2019 Easter Sunday bombings that targeted churches and luxury hotels, killing nearly 270 people. Inflation has soared to 15% — the worst in Asia.








It’s hard to overstate the influence of the Rajapaksa clan in all this. Gotabaya, who won office in the November 2019 presidential elections, appointed his brother, Mahinda, as prime minister. If this pairing sounds familiar, it’s because it is. Mahinda first came to power in 2004, initially as prime minister and then as president. At the time, Gotabaya was defense minister and was notorious for his role in the 2009 operation to end the civil war with Tamil rebels. Thousands died or disappeared amid allegations of torture, rape, extra-judicial killings and the abduction and assassination of Tamil separatists, journalists and opposition figures. Gotabaya denies all these allegations.The Rajapaksas were out of power briefly from 2015, when Ranil Wickremesinghe led the country, until he was removed from his post in 2018, sparking a constitutional crisis. Their party won a landslide victory in the August 2020 general election, and quickly restored sweeping executive powers to the presidency that had been previously curbed. Another brother, Basil, was appointed finance minister in July 2021. He was already a controversial figure due to his American-Sri Lankan nationality — his entry into Parliament was only made possible when the government removed a constitutional provision barring dual citizens.

Their eldest brother, Chamal, is a Cabinet minister, while his son is a non-Cabinet minister. One of the prime minister’s sons is also in the Cabinet, another is his chief of staff, and a nephew is a member of Parliament. According to some estimates, about 75% of the budget is under the control of Rajapaksa ministers in government. It is dynastic politics at its purest.



But all the Rajapaksas in power haven’t been able to do what needed to be done to help Sri Lanka out of this mess.








Basil was in India on Wednesday, attempting to secure a $1 billion credit line to stave off the crisis, exacerbated by spikes in oil prices driven by Russia’s invasion of Ukraine. The war is also badly affecting the travel sector: About 30% of visitors so far this year were from Russia, Ukraine, Poland and Belarus, while Russia is also one of the biggest buyers of Sri Lankan tea, its main goods export.

Things are bad enough that the brothers’ resistance to seeking support from the International Monetary Fund is softening, Bloomberg News reported earlier this week. Sri Lankan officials began talks with the IMF on Monday and may present policy proposals by early next month. 

Authorities have recently allowed the rupee to weaken and borrowing costs to rise, in line with expectations of IMF conditions. But experts have criticized the sequencing of these moves. Debt restructuring was the first priority, said economist and executive director of the Colombo-based Veritas Research, Nishan de Mel, told me. Increasing interest rates and depreciating the rupee should have come next.








The situation has snowballed because it was mismanaged for some time, de Mel said. What Sri Lankans are facing now is unprecedented, he said, and beyond anything experienced during the decades of civil war. Sri Lanka has about $2 billion of foreign-currency reserves against total debt repayment of as much as $7 billion for 2022, including a $1 billion dollar bond maturing in July. It has three months, maybe less, before a default, de Mel said.

There is now a growing demand for the government to clearly articulate some concrete solutions, says Dushni Weerakoon, executive director of the Institute of Policy Studies of Sri Lanka. “There is no painless way out of this,” Weerakoon noted. “The economic conditions will tighten before they get better.”

Itzme


Senior Equity Analytic
Senior Equity Analytic

"According to some estimates, about 75% of the budget is under the control of Rajapaksa ministers in government."
එතකොට අර්බුදය නිර්මානය කරල තියෙන්නෙ ඉතුරු 25% භාරව හිටපු උන්.. අපේ රටේ ගොන්නුන්න්ට මේව කියල හරි යන්නෙ නෑ.

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