Advance Reading: Our Leader in Digital Edition dated July 15, 2022
Venkat Raman
Auckland, July 9, 2022
Sri Lanka has been heading towards trouble for some time now. Corruption perceived at the highest levels of politics, a dysfunctional government, mismanagement of public finances, nepotism and inefficiency have all been factors that have been the bane of the Island Nation.
About two months ago, Ranil Wickremesinghe was sworn in (yet again) as Prime Minister, when the country was in a desperate situation.
The return of Wickremesinghe
The irony of ironies is that 6.9 million people voted for Gotabaya Rajapakse to save the country from Ranil Wickremesinghe, and now the latter has been handed back the reins by the very same Rajapakse to save the nation, certainly a karmic turn of events of cosmic proportions.
Wickremesinghe’s primary concern was to reverse a parade of inert events.
But the situation was hopeless, with the country suffering its worst financial crisis in decades.
Millions of Sri Lankans were struggling to buy food, medicine and fuel.
A week ago, Mr Wickremesinghe declared that Sri Lanka had become bankrupt.
Negotiations with IMF
He told his fellow Parliamentarians that negotiations with the International Monetary Fund (IMF) to revive the country’s collapsed economy we difficult.
The implication was clear: that the nation of 22 million had entered the talks with IMF as a bankrupt country, rather than as a developing country.
“We are now participating in the negotiations as a bankrupt country. Therefore, we have to face a more complicated situation than in previous negotiations. Due to the state of bankruptcy, we have to submit a plan on our debt sustainability to the IMF separately. Only when they are satisfied with that plan can we reach an agreement at the staff level. This is not a straightforward process,” he said.
Sovereign default
The Economist said that the economic fallout from Russia’s invasion of Ukraine now includes a sovereign default, referring to the plight of Sri Lanka.
“On April 12, 2022, Sri Lanka said that it would suspend payments on the US$ 35 billion its government owes foreign creditors. Surging food and energy prices, the result of wartime disruption to commodity markets, have dealt a heavy blow to an economy that was already mismanaged, and brought even erstwhile government supporters onto the streets in protest. Sri Lanka may not be the only country to run aground in the hazardous conditions prevailing in the global economy,” the publication said.
Rising inflation and higher interest rates are painful everywhere, the Economist observed, but the stakes are particularly high in poor and middle-income countries. Food prices, which are up by nearly 20% this year, make up a greater share of consumer spending. Inflation is more likely to spiral out of control. And policymakers must also worry about capital flight and falling exchange rates when the Federal Reserve raises interest rates, as it will over the next year.
Light yonder there
Mr Wickremesinghe hopes that a report on debt restructuring and sustainability would be submitted to the IMF by August. Once there is an agreement, a comprehensive loan assistance programme would be prepared for four years.
As Sri Lanka runs out of fuel, doctors and bankers protest the impossible situation.
Opposition parties chanted cries of “Gota go Home,” a reference to President Gotabaya Rajapaksa who was in attendance. He was seen leaving the building amid exclamations.
For months, large numbers of Sri Lankans have been calling for Rajapaksa to resign over accusations of economic mismanagement.
Mr Wickremesinghe said that by the end of this year, inflation will rise to 60%.
“This will be a difficult and bitter journey. But we can get relief at the end of this journey. Progress can be made,” he said.
We know Mr Wickremesinghe well. He will not betray his country.
