Crisis of Sri Lankan capitalism provokes a popular uprising

29 May 2022
Eleanor Morley

Since early April, Sri Lanka has been engulfed by a wave of mass protests demanding the resignation of President Gotabaya Rajapaksa. Thousands of workers and students have mobilised in the most significant mass movement in 30 years.

Several general strikes have shut down the island nation. Dozens of government ministers have resigned and many of them have since fled the country, while the president is fighting to hold on to power.

Protesters in the capital, Colombo, have established a permanent protest camp at the Galle Face Green park, which has become the political organising space for a new generation of Sri Lankans who are now learning the tactics of mass resistance seen recently in nearby Myanmar and Thailand.

The protests were sparked by the biggest economic crisis since the country gained independence from Britain in 1948. The economy is in freefall, millions of people are suffering and there is no end in sight. Thirteen-hour daily power outages have caused chaos across the country, including in hospitals, where doctors have been forced to cancel critical surgeries. The price of a kilogram of rice has increased from 80 Sri Lankan rupees to 500. Essential medicines are scarce, and the paper supply ran so low that school exams were cancelled in the first months of this year.

There is no single factor responsible for the crisis. Different problems piled up until the whole economy collapsed under their weight: a huge amount of foreign debt, dwindling foreign currency reserves, havoc wrought by the COVID -19 pandemic, policy decisions of the Rajapaksa and previous governments and the actions of foreign international institutions have all combined.

Sri Lanka has long been crisis prone. During the twentieth century, the economy was dominated by a few agricultural crops (tea, rubber and coconut to export and rice for domestic consumption), and services—a legacy of Dutch and British colonialism. When export prices fell, reverberations were felt throughout the economy, hitting workers and peasants hard and leading to mass social struggles, such as in 1953 and 1971.

In 1977, the government dramatically reduced or abolished price controls, tariffs and other regulations, opening the economy to huge amounts of foreign investment. Continuing throughout the 1980s, economic liberalisation resulted in ballooning debt—the foreign debt to GDP ratio tripling in the twenty years to 1990.

A few things began to change in the 2000s. First was the nature of national debt. In the 1990s, Sri Lanka could still rely on low-interest loans with a long repayment period. When the country was upgraded to “lower middle income” status in 1997, access to these loans ended. Commercial borrowing ballooned from 2.5 percent of foreign debt in 2004 to 56 percent in 2019, and came with higher interest rates and shorter payback periods.

The first Rajapaksa government was elected in 2004, led by President Mahinda Rajapaksa. Along with his brother Gotabaya as defence secretary, Rajapaksa waged an unrelenting war on the Tamil national movement, culminating in the 2009 genocide, which killed more than 100,000 people.

Military spending as a share of government spending increased from 11 percent in 2004 to more than 16 percent three years later, according to the Stockholm International Peace Research Institute. It has remained high since—12.3 percent of the 2022 budget was allocated to the military, despite the current crisis. According to the World Bank, Sri Lanka is second only to Israel in terms of the size of its military relative to the country’s population. There is approximately one soldier for every six civilians in the Tamil-dominated north-east.

Following the military’s slaughter of Tamils in 2009, the Rajapaksa government embarked on a plan to develop infrastructure through foreign loans. At first, debt-driven growth yielded success: GDP growth shot up from 3.5 percent in 2009 to 9.1 percent in 2012. But the development relied on ever-increasing quantities of commercial loans, and the initial years of growth fuelled by a construction and real estate boom proved to be short lived.

Sri Lankan economist Dushni Weerakoon writes in an article for Foreign Affairs that the government assumed that “they needed only to use foreign currency revenues to meet interest rate repayments and that they could keep rolling over the more substantial principal payments”. So government debt in relation to the country’s gross domestic product increased from 69 percent in 2012 to more than 100 percent in 2020. Many countries have a high debt-to-GDP ratio; the problem for Sri Lanka has been the increasing amount of government spending dedicated to interest payments, which reached 72 percent in 2020, the highest of any country in the world.

In 2019, Gotabaya Rajapaksa was elected president and Mahinda returned as prime minister. Gotabaya initiated sweeping tax cuts, drastically reducing government revenues. Then came COVID. The tourism industry, which contributes 12 percent of total GDP and a similar percentage of the workforce, was shut down. Remittances, which the central bank describes as “a key pillar of Sri Lanka’s foreign currency earnings”, began to dry up, and the garment export industry suffered from the international supply chain disruptions.

International credit ratings agencies downgraded Sri Lanka’s credit rating, cutting off access to the international loans it was using to buy imports and service existing debt. For a while, existing foreign currency reserves filled the gap. But by early 2022, these had plummeted to US$2 billion from around $8 billion two years earlier. As of the start of May, Sri Lanka has less than US$50 million in reserves remaining.

Every sector of the economy has been smashed. Last year, the government imposed a ban on the import of chemical fertilisers, decimating the agricultural industry that an estimated 60 percent of Sri Lankans directly or indirectly depend on for their livelihoods. This also hurt exports, adding to the foreign exchange crisis, and forced the government to import rice.

Global inflation and Russia’s war in the Ukraine increased the price of imports and sent energy prices soaring at precisely the moment when the money was running out. Now Sri Lanka is defaulting on debt repayments, scrambling for more loans to add to the existing pile of debt and quite literally shutting off the lights.

The effect on all but the very wealthy has been immense. Many who are used to a relatively comfortable life are now struggling to purchase food. Thousands of people across the island responded to this devastation with mass protests, starting 3 April.

When a pro-government mob, mobilised by Mahinda Rajapaksa, tore apart the protest camp in Colombo in early May, thousands responded by descending on Galle Face to drive them out. Within hours, Mahinda had resigned as prime minister and was evacuated to an offshore naval base. Within a day, the houses of at least three dozen government officials were burned to the ground.

But Gotabaya has clung to power. The rallying cry of the movement is “Gota Go Gama”, or go home Gotabaya: a demand for the president to resign, and a dig at his US citizenship and properties.

The Rajapaksa family has ruled Sri Lanka for most of the last 20 years. There were five Rajapaksas in the most recent cabinet. After winning the presidency in 2005, Mahinda ran the country like a family business, appointing three of his brothers to ministries that controlled more than three-quarters of the national budget.

No-one knows exactly how rich they are, but various leaks over the last decade, such as the Pandora Papers, indicate they have siphoned billions of dollars out of the country into secretive tax havens. Until he gained presidential immunity from prosecution, Gotabaya was facing corruption charges for stealing state funds to build a memorial for his parents.

Since Mahinda’s resignation, Gotabaya has tried to quell the unrest by unleashing a wave of violence against protesters—hundreds of people have been arrested in recent weeks—and by trying to form a new “unity government”. But the major opposition parties have refused to join and are instead calling for new elections.

It will be a victory if this movement manages to topple the Rajapaksa family. Some of them have fled the country to their overseas mansions. But the crisis facing Sri Lanka does not stop with the Rajapaksas.

Since independence, most leaders have come from a series of dynasties. Don Stephen Senanayake, described by Fred Halliday in a 1971 New Left Review article as “a plutocratic landowner whose fortunes were derived from the graphite mines on his inherited estates”, was the first post-independence leader. He served not only as prime minister, but also minister of defence and minister of foreign affairs, with his family members filling out all but one of the remaining prominent positions.

Senanayake’s first act of government was to disenfranchise close to 1 million Tamils of Indian origin, helping to set in motion the ever increasing chauvinism of the politicians from the Sinhalese majority, which has dominated Sri Lankan politics to this day. His son and then nephew succeeded him as leaders, and their party, the United National Party (UNP), remains the key grouping in today’s main opposition coalition, the Samagi Jana Balawegaya (United People’s Power).

The rule of the Senanayake family was followed by that of the Bandaranaikes—Solomon Bandaranaike, another son of a wealthy landowner, split from the UNP to construct a new political vehicle for his own rise to power, the Sri Lanka Freedom Party (SLFP). After winning the presidency in 1956, Bandaranaike passed the “Sinhala Only Act”, designating Sinhala as the country’s official language, despite the large Tamil-speaking minority. Bandaranaike’s wife, Sirimavo, later became leader and served on three different occasions. The SLFP eventually became the party of the Rajapaksas, until they established their own, the Sri Lanka Podujana Peramuna (Sri Lanka People’s Front), following factional battles inside the SLFP in 2016.

For more than 70 years, Sri Lanka has been governed by leaders from one of two major parties, who have ruled in the interests of the plantation owners, heads of industry and international investors, while leaning on Sinhala-Buddhist nationalism and the oppression of the Tamil and Muslim populations to divide workers and the poor. These are the opposition parties currently waiting in the wings to take power should Gotabaya fall.

The dominant ideology of Sinhalese elites, which has also been adopted by much of the general population, is Sinhala-Buddhist chauvinism: the notion that Sri Lanka is the heartland of Buddhism and the Sinhala people, and that those from different religions or ethnicities are, at best, to be tolerated on the island.

The state-directed oppression of Tamils has been brutal. Murderous pogroms broke out repeatedly in the decades after independence, Tamils have been discriminated against in the state bureaucracy and universities, their cultural artefacts have been systematically destroyed, and many thousands were forced to flee from the south and west of the country to the north-east, or off the island entirely. The Tamil national liberation movement formed in the 1970s in response to this oppression and took off in the 1980s, eventually under the leadership of the Tamil Tigers.

After crushing the Tamil struggle, the Rajapaksas then stoked violence against the minority Muslim population, allowing deadly pogroms led by chauvinistic Buddhist monks to rampage through the streets of Muslim-populated areas in the 2010s.

So far, the Tamil masses have not decisively entered the protest movement against Gotabaya Rajapaksa. The April general strike was observed in the north-east of the country, where most Tamils live, but it does not appear that these regions, or the Tamil minority in Colombo, have joined the street demonstrations as a bloc with Tamil-specific demands.

Even if Tamils don’t join the current struggle and force a political reckoning with their oppression, the failure to break with Sinhala nationalism will limit how far this movement can progress. Sinhalese elites have used this ideology and practice to bind Sinhalese workers to their rule, even though the wealth and power of the elite minority are built off the backs of workers in the garment factories, tea plantations and tourist resorts.

There are some positive signs emerging from Colombo. Muslims have fought alongside Sinhalese, and on 18 May—known as Tamil Genocide Day in reference to the 2009 massacre—a group of protesters from different religious backgrounds held a remembrance event at the Galle Face camp. These are very small steps, but an indication that fighting a common enemy holds the potential to break down the ethnic divide.

It’s impossible to predict exactly how this movement will develop.

So far, the military has stayed loyal to the president. Gotabaya served in the military for twenty years and is held in high esteem by the top brass for his role as defence minister in 2009. Sri Lankan human rights activist Laxmanan Sanjeev questioned whether the country was becoming a de facto junta in a 2020 article for Foreign Policy magazine. Sanjeev noted that Gotabaya has stacked his ministries with retired military officers and brought 30 different government agencies under the remit of the defence ministry. It seems unlikely the military will break from him, but it is possible that, if the movement gathers new steam, the generals could reason that their power is best maintained by ditching Gotabaya.

The working class is the other powerful force. The trade unions launched an indefinite general strike following the 9 May assault on the protest camp; this could have been a turning point but was called off after a few days. An indefinite strike would paralyse the already crippled country, making it nearly impossible for Gotabaya to govern. A highly organised working class could also start to deal with some of the economic problems directly by transporting essential goods to where they’re most needed and providing food for people who can no longer afford it, for example. Workers have also approached the street movement as industrial groups: contingents of nurses, garment workers, port workers and so on attend the protests together.

The one certainty is that the crisis is not going away any time soon. Prime Minister Wickremesinghe has suggested it’s going to get worse before it starts getting any better, and that could be two years from now. While this will mean even greater devastation for workers and students, it leaves open the possibility for this struggle to deepen its assault on Sri Lanka’s elites.

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