Ahead of the November 2019 elections, Sri Lankan presidential hopeful Gotabaya Rajapaksa proposed sweeping tax cuts so reckless the incumbent government thought it must be a campaign stunt.
The finance minister at the time, Mangala Samaraweera, called a briefing to criticize the “dangerous” promise to cut the value added tax from 15% to 8% and remove other levies. For him, it was simple math: Sri Lanka raised relatively less revenue than almost any other country, and its high debt load forced it to seek cash from the International Monetary Fund.
“If these proposals are implemented like this, not only will the entire country be ruined,” the minister warned, “but the entire country will become another Venezuela or another Greece.”
His prediction took some 30 months to come true, in what has become a warning to populist leaders navigating a world of war, disease and high inflation.
After Rajapaksa won the 2019 election, reviving one of Asia’s most powerful dynasties, he immediately approved the tax cut at his first cabinet meeting. He then swiftly restored the presidential powers he held during the 10-year rule of his strongman brother, Mahinda Rajapaksa, a period in which the family ended a nearly three-decade civil war before he was ousted in 2015 by a concerned citizenry. by increased oppression and indebtedness. to China.
Instead of learning to rule more humbly, Rajapaksa hastened to restore the family’s brand of populist authoritarianism mixed with appeals to nationalism among Sinhalese Buddhists, who make up 75% of the population.
But that strategy quickly backfired. In recent weeks, Sri Lanka has run out of cash to pay for essential goods such as food and fuel, leading to long lines for gasoline and 13-hour daily power outages. Angry citizens burned loaves of bread and looted the Ministry of Health to find medicine. Protesters have camped outside the president’s office in central Colombo for weeks demanding his resignation.
The Rajapaksa family is now in full damage control mode, racing to secure basic goods for the citizenry while seeking emergency funding from the IMF, World Bank, China and other lenders. It has defaulted on foreign debt, defaulting for the first time since gaining independence from the British in 1948. The country’s stock market, which soared after the tax cuts, is the worst-performing in the world this year, even below Russia.
Furthermore, the Rajapaksas have also been forced to withdraw from the two main policies they implemented after the 2019 elections. Finance Minister Ali Sabry said that the value added tax must be increased for Sri Lanka to bolster its finances, and the Rajapaksas have offered to reverse presidential powers as opponents seek to impeach Gotabaya as president and remove Mahinda as prime minister.
“The Rajapaksas are withdrawing, but that doesn’t mean they are going to give up,” said Jehan Perera, a newspaper columnist and executive director of the Sri Lanka National Peace Council, an independent advocacy group. “The Rajapaksas fear that if they leave, they will be very vulnerable both inside and outside the country. They face human rights violations, war crimes charges and corruption charges.”
For 12 of the last 20 years, members of the Rajapaksa family have controlled the highest levels of the Sri Lankan government. Under his watch, opposition critics and the media have called Sri Lanka a “soft dictatorship” and described the Rajapaksas as characters like those evoked by Mario Puzo, who wrote the script for “The Godfather”.
Gotabaya, 72, a former defense chief, led a deadly final effort to end the war against Tamil separatists, which killed an estimated 100,000 people before a ceasefire in 2009. His brother, Mahinda, 76, the political brains of the family, he has served as president and twice as prime minister. Two other brothers, Chamal, 79, and Basil, 71, carved out a niche for themselves in managing ports, agriculture and money. Dozens of relatives hold high positions.
Milinda Rajapaksha, a government spokeswoman, declined to comment for this article.
Namal Rajapaksa, the president’s nephew, who recently stepped down as sports minister, said that while the government had inherited a poor economy from the previous administration, it had also made some key policy mistakes and failed to turn around quickly when the pandemic hit. The tax cuts, he said, should have been tightened after a year because the government was losing revenue and not reaping the expected investment from local businesses.
“There were certain decisions that we disagreed on as a political party when it came to implementation,” Namal Rajapaksa said by phone, adding that the administration should have been more transparent and taken the time to educate the public about the challenges. “I don’t blame the public for blaming the Rajapaksa led government because they are in power. The government is in power, so the government is responsible.”
“The current situation is purely based on the breakdown of the supply chain and governance,” he added. “The president has to make decisions, firmly, and govern the country. And also get the institutions back on track.”
Even before the Rajapaksas seized power, the country was in financial trouble. During the family’s first term in office, the government secured large loans from China to invest in projects such as a deepwater port in their home district of Hambantota on the island’s south coast, as part of an effort to convert the nation in a South Asian country. Singapore version. But many projects stalled and foreign debt more than doubled between 2010 and 2020.
On top of that, the country was still reeling from the 2019 Easter Sunday terror attacks, when Islamic State-linked suicide bombers killed more than 250 people in attacks on churches and luxury hotels. Widespread fear led voters to support the candidate with experience in crushing insurgencies: Gotabaya Rajapaksa.
“There was an assumption that the way out of the post-Easter Sunday slump was tax cuts and low interest rates,” said Anushka Wijesinha, an economist and former adviser to the government’s Ministry of International Trade and Development. “It was a mistake.”
Fears of a broader collapse first surfaced with the pandemic, which suddenly slashed income from tourism and remittances. Credit rating companies downgraded Sri Lanka. To stay afloat, the government printed money, increasing supply by 42% between December 2019 and August 2021, helping to fuel what would become the fastest inflation in Asia.
Last April, Sri Lanka suffered another blow: the government abruptly banned imports of chemical fertilizers. In public, officials framed the move as fulfilling a campaign promise to embrace organic farming and fight the “fertilizer mafia.” In reality, many saw the decision as an attempt to save dollars, according to Wijesinha and other economists. Namal Rajapaksa said the timing of the fertilizer decision was a point of disagreement within the ruling party.
The ban failed. Sri Lanka’s entire agricultural chain, about a third of the workforce and 8% of gross domestic product, faced disruption. The rice harvest failed, forcing the government to import rice and start an expensive food aid program to support devastated farmers. Tea export earnings, a key source of income, also dried up. In November, when protests broke out, the government partially reversed the ban.
“Many experts have come forward and said this is a disastrous policy that will affect food security,” said Dhananath Fernando, chief operating officer of Advocata, an economic policy research group in Colombo. “But unfortunately, the government was dead set on their decision.”
In recent weeks, Sri Lanka has run out of cash to pay for essential goods such as food and fuel, leading to long lines for gasoline and 13-hour daily power outages. Photographer: Jonathan Wijayaratne/Bloomberg
The policy mistakes led to shortages of food, electricity, and medicine for the poor, soon prompting angry protesters to take to the streets chanting “Go home, Gota!” and “Gota is crazy!” The Rajapaksas lost their two-thirds majority in parliament when coalition members defected and are now trying to resist opposition efforts to remove them from power.
While the current financial problems make it difficult to hold an election at this time, opinion polls suggest the Rajapaksas would lose out in a landslide. The first “Mood of the Nation” poll conducted in January by Verite Research showed the government’s approval rating hovering at just 10%.
The Rajapaksa government is “testing our level of patience and perseverance,” said Malik Nazahim, 24, who has attended several demonstrations. “That is what pushes us forward. We want a change and we want it now.”