IMF bailout will shape not only economic but political affairs also

Triumph for President, but bumpy road ahead in programmes to be implemented, mainly battle against corruption Will Ranil be candidate for presidential poll next year, as SLPP split over Namal’s candidature? Local council elections not likely to be held this year; but campaign continues at village level

Clinching the International Monetary Fund’s initial three billion US dollar bailout to pull Sri Lanka out of one of the country’s worst economic crises was a triumph for President Ranil Wickremesinghe.

There were both domestic and external challenges he had to face until the IMF’s Executive Board approval last Monday. Bilateral creditors had to be managed. Domestically a string of strikes and protests threatened political stability. The Janatha Vimukthi Peramuna (JVP)-led National People’s Power (NPP), touted as a potential winner if the local council elections were held, in an early campaign targeted Wickremesinghe.

The party not only cast doubts on the likelihood of the IMF approving the bailout package but also said this was an occasion to prove that President Wickremesinghe had little support of the international community. In both instances, the NPP was proved wrong. But the non-conduct of the local council elections saved the NPP’s credibility somewhat. Sections of the people did not believe the front was serious. They believed that like in the days of yahapalanaya (the good governance government days), there was still some nexus.

Most glaring was the main opposition in the country, the Samagi Jana Balavegaya (SJB). Dr Harsha de Silva, who styles himself as the economic wizard among them, congratulated President Wickremesinghe for his feat. Only the days before, he was at the Sinhalese Sports Club where the 144th Royal College–S. Thomas’ cricket big match was underway. He used the charm offensive. When Namal Rajapaksa MP walked in, he hugged and kissed him. “Politics apart,” he exhorted, “this is a big match, and we are all there for it.” He had his photographs in both print and television outlets with his zealous public relations drive. The other SJBer who also vies for the top economist slot, Eran Wickremeratne, however, held a different view. He told a news conference last Tuesday, “Some are of the opinion that all problems we have will vanish into thin air just because we have been okayed for the IMF loan. That is a fallacy. The IMF loan is akin to asking us to get our necks into the noose first so that they would feed us thereafter.”

Like on all major issues, the fact that the SJB had a cocktail of views is one thing. However, what makes the issue worse is the studied silence of its leader. He was otherwise preoccupied. At a public rally in Kolonnawa, Sajith Premadasa was waxing eloquent about missing out on the vocation that he loved most, becoming an airline pilot. One need hardly say that other than politics, piloting an aircraft is a much more specialized task where the lives of passengers lie in skilled hands. The question that begs answer is why Premadasa did not think it fit to address a news conference and explain the SJB’s position. Nor did the SJB think it suitable to issue a statement.

That brings us to the ruling Sri Lanka Podujana Peramuna (SLPP) where President Wickremesinghe has won quite a few hearts and minds as their leader. For most parliamentarians there, the biggest asset since Wickremesinghe assumed Presidency on July 20, last year, was the bolstering of their personal security. They were able to move around freely. Only days earlier the homes of some 70 parliamentarians had been badly damaged and fear of further attacks by protestors confined them to hideouts. The economic environment was then gloomy and uncertain. Former President Gotabaya Rajapaksa fled the country in fear and later resigned amidst accusations of gross mishandling of the economy. Fuel was in acute short supply leading to queues that were several kilometres long. Cooking gas was not available forcing consumers to queue outside outlets with empty cylinders. Electricity cuts were the order of the day. Under President Wickremesinghe’s leadership they became things of the past.

The IMF bailout has further bolstered the government parliamentarians. It raised hopes of successful electoral prospects. However, it must be borne in mind that that many more challenges are ahead for President Wickremesinghe, and he cannot walk back from them. He is determined to forge ahead. He told Parliament on Tuesday that he had previously requested the support of the opposition in rebuilding the economy but did not receive it. He had made similar requests during the opening of Parliament and Budget debates, but to no avail. Despite his efforts, opposition parties refused to extend their support citing various reasons. The President acknowledged that the current situation was difficult but assured that the sacrifices made now would lead to benefits soon. He later told a news conference on Thursday that he would wish to have parliamentary approval for the measures he would adopt though such a step is not required -- a hint that more tough measures are to come.

An interesting point on the IMF decision was revealed by Palki Sharma of India’s WION television. She said in a Twitter message: $15.6 billion IMF loan for Ukraine. The IMF has never loaned money to a country at war. Until last week, Ukraine was not eligible. Then a rule was tweaked. Took one year to clear $ 3 billion for Sri Lanka but Ukraine has Western allies and white citizens & the US can clearly override all rule books.

Like in every coalition, there have been factions or sharper differences in the SLPP government led by President

Wickremesinghe. The first ripples began to appear from the 75th Independence Day ceremonies. The SLPP top leaders including former President Mahinda Rajapaksa, son MP Namal Rajapaksa, brother Chamal Rajapaksa and other prominent members kept away. In Parliament,

MPs from other political parties that backed the government splintered. Through all this, the President was resilient and did not react. Then came SLPP founder Basil Rajapaksa’s appeal to him to include a set of his party’s nominees, said to be around five, to the Cabinet of Ministers. It was known that some of them were tainted with corruption. He did not yield. Just days earlier, Anuradhapura District SLPP parliamentarian S.M. Chandrasena declared that a reshuffle would be underway soon. The reason – funny enough he (Chandrasena) had reportedly been overlooked. So it was being done to accommodate him. The remarks turned out to be nothing less than a joke. A highly placed source said there would be no such reshuffle.

The SLPP is once again flexing its muscles. The party wants to conduct a May Day rally with the largest turnout this year. This was discussed at an SLPP parliamentary group meeting held at the Wijerama Road residence of their leader, Mahinda Rajapaksa. Now, detailed preparations are underway. As reported earlier, the only nonparliamentarian to take part in that event was Basil Rajapaksa. He is spearheading the move.

A long-term focus of such a wellattended rally is to prepare the SLPP for the next presidential and parliamentary elections. As reported earlier, President Wickremesinghe has indicated that he proposed to hold the presidential election next year followed by the parliamentary polls. Though it is speculation, such a prospect raises the question of who the SLPP presidential candidate would be. Existing laws prevent SLPP leader Mahinda Rajapaksa from contesting. Those closely associated with the family are pushing for the candidature of Namal Rajapaksa but others in the party say he is still not ready and inexperienced. They believe that he will not have the countrywide backing and will require more experience. Would that pave the way for Wickremesinghe to take on formidable opposition candidates like Sajith Premadasa (SJB) and Anura Kumara Dissanayake (NPP)? Thus, clinching the IMF deal has thrust the UNP leader on a higher pedestal though his own party is in shambles in most parts of the country.

Other than the political ramifications, there is also another very significant aspect to the IMF endorsement of part of the Extended Fund Facility (EFF). The IMF in its statement released on Monday, March 20, acknowledging its Executive Board approval, amongst various other important points, highlighted as part of what is expected from Sri Lanka “the ongoing efforts to tackle corruption should continue, including revamping anti-corruption legislation. A more comprehensive anti-corruption reform agenda should be guided by the ongoing IMF governance diagnostic mission that assesses Sri Lanka’s anti-corruption and governance framework. The authorities should step up growth-enhancing structural reforms with technical assistance support from development partners.”

In September 2022, in her comprehensive report to the United Nations Human Rights Council the then High Commissioner wrote that she encouraged the international community to support Sri Lanka in its recovery, but also in addressing the underlying causes of the crisis, including impunity for human rights violations and economic crimes.

The two statements by two international institutions with different remits and dynamics, yet making similar points that one of the main causes of the current economic situation of Sri Lanka is rampant corruption and the almost impossibility to recover from this unless Sri Lanka addresses this root cause.

Last year, protestors came to the streets and one of their main demands was to investigate and charge the politicians who stole state money that brought Sri Lanka to its knees. However, to date, nothing tangible has been done to even begin to investigate these claims of the past and some present leaders having stolen billions of dollars from the State.

Against this backdrop, in the Executive Summary of a report dated March 6, 2023 jointly approved by Anne-Marie Gulde - Deputy Director, Asia and Pacific Department and Bikas Joshi - Division Chief, Lending Policy Division, Strategy Policy and Review Department of the IMF, they highlighted the following as IMF Program Risks; Risks to programme implementation are exceptionally high, given the complex debt restructuring process, unfavourable external environment, elevated risks of persistently high inflation, and challenging political and social situation. Given Sri Lanka’s weak track record of reform implementation, the program runs significant risks of slippages regarding fiscal consolidation, revenue mobilization, and reserves build up. A deeper crisis induced by a further economic fallout, the weakened banking sector, exchange rate pressure, and loss of market confidence could also complicate program implementation. In this regard, contingency plans are crucial and policies should remain agile to adjust to the evolving circumstances.

Independently, “there’s potential for disruptions after the initial board approval as authorities may find it challenging to stay on track with the IMF program amid a weakening economy” said, Seah Wang Ting, country risk analyst at Fitch Solutions, according to Bloomberg. These comments and observations indicate that Sri Lanka is still expected to be on a bumpy road ahead at least for the foreseeable future.

President Wickremesinghe has declared that new anti-corruption laws approved by the Cabinet of Ministers would be the toughest in South Asia. He has said they would be introduced in Parliament soon. A government source said that the new laws together with a new counterterrorism bill would come before Parliament later next month. Introduction of new laws is one thing. However, if the existing institutional machinery remains, no purpose will be served. This is particularly with the existing Criminal Investigation Department (CID) and the Commission to Probe Bribery or Corruption – both of which have been ineffective.

Local council polls unlikely this year

It is becoming increasingly clear that the local council elections will

not take place this year. Procedurally, the Election Commission will convene next week to decide on the new dates for the postal voting and the date for the conduct of the local council elections, a senior official of the Election Secretariat said. He said at Thursday’s meeting with the political party secretaries and representatives, they were informed that since the funds were not received for the conduct of the elections and therefore, they had been forced to look for new dates.

“The next option left to us would be to go back to courts and inform it about the failure of the Treasury to release the required funds for the elections,” he said.

He pointed out that during the meeting with Party Secretaries or other representatives, several proposals came up. “Among them were that a new date should be announced only after all arrangements to conduct the poll are ready, that the elections should not be postponed and that the future date should be decided following consultations with the President, Parliament and other stakeholders”.

SLPP General Secretary Sagara Kariyawasam said that at present the party did not have plans to conduct public meetings and would await a fresh announcement about the new dates. SJB General Secretary, Ranjith Madduma Bandara, however, said the party would carry out its campaigns at the village level in limited ways and go on to build party activities. The JVP backed-NPP’s Executive committee member Wasantha Samarasinghe, said they would concentrate on village-level meetings for the next few days until a date was announced.

The decision of the IMF board to grant part of the EFF to Sri Lanka will not only have its impact economically but also substantially in the country’s political spectrum.