Pompeii, in the Indian Ocean

The protests are peaceful, largely, so far. Yet anger simmers just below the surface, stoked by desperation - Pic by Lasantha Kumara

“Nemesis, the goddess of measure and not of revenge, keeps watch. All those who overstep the limits are pitilessly punished by her.” – Albert Camus (Helen’s Exile)

by Tisaranee Gunasekara

We are in the twilight hour, a luminal time hovering between a better day and a darker night. The protests are peaceful, largely, so far. Yet anger simmers just below the surface, stoked by desperation. This is particularly so with protestors whose lives have been upended (rather than merely inconvenienced) by the Rajapaksa-led economic unravelling. 

The attack on parliamentarian Roshan Ranasinghe’s house is a crime and a warning. According to pictures and videos in circulation, the attackers seem to be men in motorcycle helmets (like the Mirihana arsonists) and a monk. This highlights the danger of common criminals and/or provocateurs using the lure of extremism to highjack the protest movement. If unchecked, such outbursts of violent lawlessness could delegitimise the entire struggle and open a door to Rajapaksa repression.

Lankan youth have rightly claimed the ownership of the protests. With ownership comes responsibility, a willingness to acknowledge errors and to take remedial measures. They mustn’t be like the politicians they correctly decry. They need to condemn the attack on parliamentarian Ranasinghe’s house and do their utmost to avert a recurrence. Preventing this hopeful moment from degenerating into a vortex of violence is in their hands. 

The protestors are united in their determination to get rid of the Rajapaksas. Underneath that common awning run deep cleavages. Any vision of a post-Rajapaksa future, any roadmap to get to that future, must acknowledge and address those cleavages. The unity of this moment is real; but so are the differences rooted in the socio-economic and the primordial. Ignoring them would poison, perhaps fatally, any post-Rajapaksa future.   

The people are managing the protests. The Opposition should focus on achieving an orderly transition to a post-Rajapaksa future and designing a socio-economic plan that can mitigate both conjunctural (shortages, etc.) and structural (poverty, inequality) problems besetting most Lankans. 

A roundtable consisting of Opposition parties and non-partisan experts to iron out a plan of action would be ideal. If the Opposition is incapable of uniting across their divisions, they should form their separate plans on how to revitalise the economy and democratise the polity. Not promises, or pie-in-the-sky statements, but concrete proposals. Resolving the fuel crisis with the generosity of friendly Middle Eastern nations is not a proposal; ending the debt crisis with dollars from Lankan comrades abroad is not a proposal; bridging the fiscal deficit by eliminating corruption is not a proposal. If that is the best the Opposition can come up with, it is woefully inadequate. Instead, there should be detailed blueprints, including tax plans (will all of Rajapaksa tax cuts be reversed or only the VAT part of it?) and spending priorities (will the bloated defence budget remain untouched?). 

At a late-night protest in Maharagama, a young economics teacher said, “I’m embarrassed when students ask me whether the governor of the central bank doesn’t know economics... (He is) openly saying that excessive money printing doesn’t cause inflation.” In the absence of realistic and socially fair proposals for revenue generation and spending cuts, printing money is the only way out for any government, be it a Rajapaksa or an anti-Rajapaksa one. And therein lies the way not to a safe shore but to a Lebanon-outcome where the kerb-rate ranges around 30,000 Lebanese pounds per dollar and close to 90% of people have slipped below poverty line.

The IMF way out of Rajapaksas’ acolyte capitalism 

Jerome K. Jerome’s timeless classic, ‘Three men in a boat’ begins when the narrator reads a medical tome and concludes that he is a ‘walking hospital’ beset by every illness listed in it, other than housemaid’s knee. 

Lankan economy was far from well when the Rajapaksas regained power. But the Rajapaksas, in two and a half years, managed to turn Lankan economy from a patient with a few sicknesses into a walking hospital suffering from every possible economic malady. It is this reality which has caused the amazing unity in our streets, across socio-economic and ethno-religious lines. Everyone is hurting in some way, other than the ruling family and their top political and business acolytes. 

This situation is no accident but the result of deliberate policy choices. Within days of regaining power, the Rajapaksas got down to the task of manipulating the economy to benefit their henchmen and women. First came the huge tax cuts, probably the largest in Lankan history, a bonanza for the well-heeled. Tax-free allowance threshold was increased from Rs. 500,000 to 3 million. Personal income tax top marginal rate was decreased from 24% to 18%. Corporate income tax top marginal rate was decreased from 28% to 24%. PAYE was scaled down to the point of non-existence. VAT threshold was increased from Rs. 12 million in annual turnover to 300 million. The only tax cuts that could have helped ordinary consumers, decreasing VAT rate from 15% to 8% and the abolishing of the Nation Buildings Tax, barely had an impact on prices since the regime didn’t intervene to ensure that the benefit of the tax cut was passed onto consumers. 

Tax manipulation didn’t end there, but became a recurrent feature of Rajapaksa economics. A prime example was the sugar scam; slashing import levies on sugar from Rs. 50 per kilo to just 25 cents. This caused a loss of 15.9 billion as the finance ministry informed the COPA in March 2021. The Government then ordered Sathosa to purchase sugar from private wholesalers at Rs. 120 per kilo and sell it at Rs. 85 per kilo (one kilo per person). Another prime instance of tax manipulation was when import levy on coconut oil was briefly removed in July 2020. Oil imports jumped from 25 million in 2019 to 107 million in 2020, with most of the increase happening during the tax window. 

According to media reports, a major beneficiary in both instances was Pyramid Wilmar Ltd., a subsidiary of Wilmar International whose head, Kuok Khoon Hong is a member of well-known Kuok business family which owns the Shangri-La hotel chain. Colombo Shangri-La was built on the land that once housed military headquarters. The land was sold to the company during the previous Rajapaksa regime. The hotel became a regular venue for Viyathmaga events including a gala gathering at which Gotabaya Rajapaksa presented his Vision 2030 policy program.

When tax manipulation caused a massive hole in public finances, the regime responded with a money printing binge, starting in February 2020. As the economics teacher in Maharagama pointed out, any of his students could have warned the Government of the dangers inherent in that path. The question is, did the Governor of the Central Bank and other top officials warn the President? Or did they maintain a self-protective silence, as they did vis-a-vis the 2019 tax cut? 

A recent Reuters article quotes the then deputy senior governor Nandalal Weerasinghe that the 2019 tax cut was implemented with no consultative process including with the Central Bank. Prof. W.D. Lakshman, the first Central Bank governor appointed by President Gotabaya, is quoted categorising the tax cut as a mistake. Why didn’t they speak out then? Their failure points to another key problem besetting Sri Lanka – institutional degeneration. Institutions which are supposed to act as guardrails are dysfunctional because the officials manning them fear to antagonise the powers that be. 

In one of those ironies history delights in, the most comprehensive proposals to address the current crisis have been formulated by the IMF. This is no accident but a result of the organisation’s own change in the aftermath of 2008 financial meltdown. A key milestone of this transformation was an influential paper by IMF economists Jonathan D. Ostry, Prakash Loungani, and Davide Furceri on the link between growth and equity. The paper moved decisively from the dogma of trickledown economics. Using real world data, the authors pointed out that economic inequality not only reduced growth but also shortened the duration of growth; “policymakers should factor in the distributional consequences when designing and evaluating policies,” they pointed out. 

In its 95-page document on Sri Lanka (which the Rajapaksas tried hard to keep out of the public domain), the IMF explains the connection between the 2019 tax cuts and the economy’s current plight. It also points out that Sri Lanka has one of lowest tax-to-GDP ratios and social-spending-to-GDP ratios in the region. Sri Lanka also has a weaker social welfare net compared to her peers in the region, including Bangladesh.

The IMF proposals include increasing personal and corporate income taxes, reducing State expenditure, ending money printing, stabilising the rupee at a realistic level (more a soft peg than floating), strengthening social security net via increased spending, widened coverage, and improved targeting to mitigate the adverse impact of macroeconomic adjustment. These were measures condemned as ‘socialist’ or worse when the old Washington Consensus reigned. Times, they are a-changing, and this creates an excellent opportunity to redirect the Lankan economy towards a more just and inclusive path. Why no Opposition party has hastened to use this opportunity is an intriguing question. Is it because they nurse the hope of attracting the Rajapaksa business acolytes to their sides, a realistic possibility given that even Derana and Hiru are lashing their onetime masters?

For a post-Rajapaksa Sri Lanka, the most urgent goal would be restoring political and economic stability. No amount of tax holidays would attract investors, if the country is not stable. This means an economic package which is manifestly fair, which does not burden the poor and the middle classes while sparing the rich, in the name of growth. It also means questioning what we previously accepted as desirable or inevitable. Why does a post-war Sri Lanka spend the largest chunk of her budget on defence? Why is highway construction our second budgetary priority, way ahead of education, health or technology? Why should parliamentarians be entitled to a pension? Why should all ministers be given official residences? Why should parliamentarians or anyone else receive duty-free vehicle permits? If even the IMF says progressive taxation and social spending are not anti-growth, shouldn’t we rethink the old shibboleths of economic neo-liberalism?

Can this secular moment endure?

In Kandy, a young man held a poster containing pictures of top pro-Rajapaksa monks including Galagoda Aththe Gnanasara, Muruttetuwe Ananda, and Medagoda Abayatissa, with the caption, ‘Become Ordained at least now’. An attempt by a political monk to join the protest in Battaramulla was respectfully foiled by protestors. 

One of the most encouraging features of the ongoing protest movement is its secular nature. Yellow robes are conspicuous by their near-total absence as are the garbs of other religions. No one is chanting pirith, checking auspicious times, saying prayers or invoking this or that supreme god. Instead, there are slogans, songs, and music. Is this a mere flash in the pan or will it endure, leading to a secularisation of Lankan politics? Will this moment help lay the groundwork of the necessary separation between all religions and politics/state? Can the Opposition follow this lead, and leave clerics, religious places and symbols out of any future election campaign? Will the likes of Galagoda Aththe Gnanasara become a bad memory and Aturaliye Ratana thero the last saffron-robed parliamentarian in Sri Lanka?

As Jacob S. Hacker and Paul Pierson point out in ‘Let them eat tweets – How the right rules in an age of extreme inequality’, in the US, policies which hurt the poor and help plutocrats are being sold to poor whites by stoking racial resentment. The Rajapaksas were consummate and innovative users of this brand of politics. But its effectiveness has ebbed due to the extremity of the crisis and of the resultant suffering. Attempts by Weerawansa-Gammanpila-Medagoda Abayatissa combination to resurrect the dead Tiger has not worked. Their primal howl about a secret return of the Indian army did not fly. The protestors are united in seeing the Rajapaksas and no one else as their enemy. 

Is this non-racial/religious political moment ephemeral or can it last? The failure of the moderate centre to understand the essential nexus between political democracy, progressive economics, and social liberalism strengthens racial extremism and religious fundamentalism. We might succeed in evicting the Rajapaksas for good this time, but the noxious ideology they fostered to advance their familial project would not die. If a post-Rajapaksa Sri Lanka abandons even one prong of this triad, it will open a door to a new alt-right, politicians akin to Weerawansa-Gammanpila combo, extremist monks, and possibly those sections of the military which developed a taste for political power thanks to Rajapaksas-led militarisation of civilian spaces. 

We are witnessing history in the making. Where that history will leave us is unknowable. All that can be known are some lessons from the past. Keep race and religion out. Remember the poor are the greater sufferers and must not be burdened more than they already are. Don’t descend into violence. Resist the lure of extremism. There’s nothing in human history more utopian than utopia.