Opinion
Sri Lanka has a new ‘leftist’ leader. Can AKD get the economy right?
Summary
- It should shrug off labels and focus on revival. An IMF bailout and India’s help have stabilized its economy, but the big challenge for Anura Kumara Dissanayake (AKD) is its debt burden. Colombo will have to strike a bargain with China over the Belt and Road Initiative that left it in a tight spot.
For all the hate speech and banality on social media, there is occasionally a haiku-like moment of wisdom and wit. A post about frantic attempts by international media to categorize Anura Kumara Dissanayake, Sri Lanka’s new president, noted with amusement that these ran the gamut from “Marxist leaning" (CNN/Al Jazeera) and “Neo Marxist outsider" (Financial Times, softened in subsequent headlines to “Leftist") to “Marxist Leninist" (The International Magazine).
AKD, as he is widely known, dismisses all such labels, but they are a characterization of his party’s past and will colour market assessments of him as he wrestles with restructuring Sri Lanka’s economy in the aftermath of a sovereign bankruptcy declared two years ago.
The country’s bonds slipped in trading as such click-bait headlines took their toll. In this year of elections worldwide, no new president could have inherited quite so many economic problems.
Also read: IMF engaging with Sri Lanka’s new govt led by President Dissanayake on loan agreement for economic recovery
AKD’s task is akin to navigating the Indian Ocean in a leaky canoe, made choppier by two giant aircraft carriers (India and China) jostling alongside.
More optimistically, this could be Sri Lanka’s 1991-like defining moment, but without a finance minister as capable as Manmohan Singh, who turned crisis into opportunity.
By contrast, the Rajapaksa family, which ruled the country for most of the past 20 years, reduced a middle-income country—well ahead of India on human development and median income—to one in which a quarter of its people live in poverty today.
Middle-class anxiety is observable in those queuing for emigration paperwork in Colombo and in tearful farewells at the airport. Seeking more foreign direct investment to boost manufacturing exports and tourism is complicated by this brain drain.
In today’s world of slower prospects for global trade and sticky supply chains, retailers overseas will also continue to prefer Bangladesh and Cambodia for manufacturing even after a currency devaluation as sharp as Sri Lanka’s.
The good news is that the International Monetary Fund (IMF) programme and India’s financial aid of $3.8 billion in credit lines and deferred loans have helped stabilize the economy.
Notably, Sri Lanka almost crossed 2023’s total of 1.5 million tourists in the first nine months of this year, but this is a fraction of the 12 million that, say, Malaysia attracted in 2023.
While the recent election was full of campaign rhetoric about renegotiating the IMF deal, wiser counsel will likely prevail as the government settles in.
Also read: ‘Sri Lanka will not be used…’: What is newly-elected President Dissanayake’s stance on India?
As Indrajit Coomaraswamy and Ganeshan Wignaraja observe in a paper for ODI, a London-based think-tank, elements of the programme “are what Sri Lanka should be doing anyway… ensuring an independent central bank, fiscal consolidation and better government."
Despite the country’s progress in the past year, there is a widespread view that the government is not adequately prioritizing and targeting social expenditure, which AKD promises to do.
The new administration will arguably face its real challenge in 2028, when Sri Lanka must start repaying capital on a staggering $50 billion in foreign debt.
This was partly a result of the Rajapaksas taking huge loans from China and then enlisting its state-owned enterprises to build an airport and a seaport in southern Sri Lanka.
As a Bloomberg Businessweek article noted, “The expected price of the airport in 2006 was $60 million to $70 million, according to a US Department of State study.... By the time it opened in 2013, it cost $244 million, three-quarters from a Chinese loan."
The port, which cost more than $1 billion, would on standard accounting principles be insolvent, but is now owned by China on a 99-year lease.
Negotiating with Beijing, which prefers to extend a loan’s duration and pretend repayment is feasible, rather than radically restructure debt, will be among the hardest aspects of AKD’s job.
Among the congratulatory messages he got was one from President Xi Jinping, who said he looked forward to extending Beijing’s Belt and Road Initiative (BRI).
Given the damage China’s BRI has done to Sri Lanka and other developing countries’ ability to manage their balance of payments, this infrastructure ‘aid’ scheme should be renamed ‘Bankruptcy Restructuring Imminent.’
AKD’s other challenge is political, where he is better placed to deliver. By seeking to make his party’s name in parliament on constitutional issues such as opposing the president’s dismissal of then PM Ranil Wickremesinghe in 2018, AKD has convinced many that his Janatha Vimukthi Peramuna’s (JVP) record of Leninist-styled targeted killings in the 70s and 80s is a thing of the past.
As The Hindu’s Meera Srinivasan observes, “The JVP’s second uprising against the state saw brutal killings, including of political opponents, ordinary government employees and dissident leftists, (but) the state’s response was many times more lethal."
Also read: Sri Lanka elections result 2024 Highlights: Anura Kumara Dissanayake takes oath as President in Colombo
AKD, the son of a government office helper, saw his family home torched a year after a cousin was killed, both by government forces. Even though that government was headed by Ranasinghe Premadasa, father of AKD’s political opponent Sajith Premadasa, this was not raked up in the campaign.
It is therefore possible to be hopeful of a turnaround in Sri Lanka, where, as Michael Ondaatje wrote, “Dawn comes up like thunder." But as AKD navigates Colombo’s 17th IMF programme on an island where sunrises are uplifting, clouds also loom.
