While Donald Trump told the UN earlier this week that globalism should be done away with and national interests safeguarded, a declining Sri Lankan economy, caused by a steady depreciation of the rupee, has pushed political leaders and analysts in Colombo to wonder whether protectionism is the answer to the deepening crisis in this island nation.
Even as the rupee’s value has depreciated against the dollar, causing the opposition to take a strident stand against liberal economic policies, former President Mahinda Rajapaksa has lambasted free trade measures, blaming them on the currency’s mauling. On the other hand, finance minister Mangala Samaraweera has appealed for the curtailing of imports and for purchase of local products as immediate remedial measures to stabilise the rupee.
Rajapaksa, who is robustly reiterating the ‘give-me-back-the-country-and-I-will-fix-the-economy’ mantra, questioned the role of the current government, while admiring the Trump’s administration’s policies. “The role of a government is to keep abreast of worldwide developments and to take steps to strengthen our economy instead of complaining that a foreign leader has strengthened his own economy and that our currency was collapsing on account of that,” he said. “This government in contrast believes in limitless liberalisation and free trade without a clear strategy to increase exports and reduce imports.”
“My government was very careful in taking foreign currency commercial loans because even a slight increase in the exchange rate results in the debt burden going up due to the exchange rate difference. For example, my government issued Sri Lanka Development Bonds only twice a year and that too for amounts that averaged less than $ 350 million per year,” Rajapaksa said, finding fault with the borrowing trend of the current administration.
Coinciding with his statement, Samaraweera, generally seen as a champion of economic liberalism, called upon Sri Lankans to buy more local products, limiting the import of luxury items and vehicles. Releasing a statement to the media, the finance minister claimed on September 26 that curtailing imports would help stabilise the economy.
“We cannot say for how long this will go on as it depends on the global economy. But we can now observe that the Sri Lankan rupee, just like the other currencies,is slowly stabilising, especially the Indian rupee, which depreciated by 11%, is now stabilising,” Samaraweera, who has faced scathing criticism for an earlier statement on the rupee’s value, said, adding that the global political and economic condition could adversely impact the value of the currency.
However, Samaraweera maintained that the highest depreciation rate of the rupee was recorded during the Rajapaksa era. “Let me remind him if he doesn’t remember, in 2012 President and Finance Minister Mahinda Rajapaksa could not prevent rupee depreciation by 14 percent despite releasing $4.1 billion in reserves from the Central Bank. The biggest rupee depreciation recorded in recent Sri Lankan history was during that time,” Samaraweera claimed.
Whatever the government’s claims and counter-claims, political observers say that the Sri Lankan rupee crisis is being used as a convenient political tool by Rajapaksa’s Joint Opposition which is seeking early general elections in the belief that it will enable the country to effectively handle the current economic crisis while the government is evading introspection and has been quick to blame external global factors.
“If a motion is tabled to dissolve Parliament before the end of its term, it will be supported without any conditions,” a JO member said, addressing a press conference in Colombo recently.
While the Mahinda group is blaming economic mismanagement by the government, pointing out that external factors such as the recent economic upswing in the US are being used to cover up failures, there has been little or no attempt by either side to find a solution.
With the current regime failing to address significantly several of the post-war reconciliation issues it promised to deliver, including fulfilling earlier pledges made to the UN that it will address human rights allegations against its military forces, the question that emerges is how the government will address issues of human rights linked to international trade.
Sri Lanka lost GSP+ concession in August 2010 due to allegations of human rights violations, resulting in a massive loss of export revenues till the reinstatement of preference privilege in May 2017. And yet, in the backdrop of moves by President Maithripala Sirisena to reinstate the death penalty and the threat of the UN coming down hard on Sri Lanka’s inability to institute an inquiry on war crimes, may impact the GSP+ concession. In these circumstances, Sri Lanka will find itself trapped in “circular effect” of its woes.
Sri Lankan political rivalries play out in ways that are detrimental to the country’s economy. While Samaraweear claims that the government has over $8 billion as reserves and which would go into repaying loans taken by the previous government, Mahinda Rajapaksa has not shied away from saying that he handled the economy well during his tenure, especially during the war with the LTTE. Rajapaksa has also claimed that the loans taken during his tenure were used for specific development purposes which boosted the economy. Whether the economy would revive and how the outcome, if any, might impact on politics will have to be seen in the coming weeks.