COLOMBO, Sri Lanka — The mob was bashing on the gates of the Sri Lankan prime minister’s official residence, its size and fury swelling dangerously.

For weeks, Mahinda Rajapaksa, the 76-year-old prime minister, had been under pressure to resign as the economy imploded and protests erupted. The brother of the president, Gotabaya, and a patriarch of his own political dynasty, Mahinda was once hailed as appachchi, the beloved father of the people. Now he was huddled in his second-floor bedroom, accompanied by relatives who frantically called army officers, pleading to be rescued.Are you on Telegram? Subscribe to our channel for the latest updates on Russia’s war in Ukraine.

Outside the gates, anti-government protesters who had been attacked earlier by Mahinda’s supporters were taking their revenge — rioting, burning buses and torching hundreds of homes owned by allies of the Rajapaksas. A lawmaker from their party was beaten to death, his body dragged through the streets.

That day, May 9, was one of the most violent andchaotic in recent Sri Lankan history. But it was precipitated by years of turmoil inside the house of Rajapaksa.

The Rajapaksa brothers have dominated politics here for most of the last 20 years. After helping Mahinda win the presidency in 2005, his brothers Chamal, Gotabaya and Basil took over ministries that controlled three-quarters of the national budget and built popular support despite allegations of human rights abuses and corruption. But by 2019, when Gotabaya became president, the family was marred by infighting and dysfunction that would drive South Asia’s most developed nation into ruin.

In interviews, current and former ministers, foreign diplomats and Rajapaksa confidants, some of whom spoke for the first time as they saw the family splinter, said Gotabaya and Mahinda, and their respective factions, clashed over ministerial appointments and agricultural policies, investment deals and political favors. As the economy went into free fall this year, Mahinda, backed by several Rajapaksa scions, resisted Gotabaya’s wish that he step aside.

Distrust deepened to the point that members of Mahinda’s inner circle, besieged in his compound May 9, felt that the president had abandoned them. Udayanga Weeratunga, a cousin who was with the prime minister, and another family aide who was present, told The Washington Post that they suspect Gotabaya’s supporters in the army purposefully delayed coming to their aid for six hours.

Gotabaya is clinging to power after replacing his brother with a new prime minister, who revealed this week that Sri Lanka has less than $1 million in foreign reserves, dwindling medical supplies and almost no fuel.

Sri Lanka faces “total destruction,” former president Maithripala Sirisena said. “The country has learned a lesson about dynastic politics.”

The family business

When Mahinda, the son of a wealthy rice and coconut farmer who was active in politics, ran for parliament in 1970, he was following in the tradition of the few elite families that dominate Sri Lanka, a lush teardrop-shape island off the coast of India.

“You cannot win [in politics] if you’re not from an established family,” said Razeen Sally, a professor at the National University of Singapore. “So the system is left to established insiders who can pillage the state.”

The second of nine children, Mahinda was charismatic, loved crowds and stuck close to his younger brother, Basil, who is considered the family’s political strategist. Their middle brother, Gotabaya, was always different: aloof, politically inexperienced, a teetotaler and vegetarian who spent 21 years in the military. “He would visit the ancestral home only during New Year,” recalled Weeratunga, their cousin who is close to Mahinda.

The Rajapaksas ran the country like a family business during Mahinda’s 10-year presidency, starting in 2005. He named Gotabaya defense secretary while Basil and their oldest brother, Chamal, were placed in charge of irrigation and economic development. Sri Lanka enjoyed years of growth, fueled by a mountain of foreign debt.

Mahinda enjoyed the adulation of voters, who approved of his bloody but decisive victory in a 26-year civil war against Tamil rebels and his frequent appeals to Sinhalese Buddhist nationalism.

But allegations of corruption, including questionable deals with Chinese state companies and officials, swirled around Mahinda. Gotabaya was also implicated, though to a lesser extent, and faced scrutiny over the 2006 purchase of MiG fighters from Ukraine.

Sankhitha Gunaratne, deputy executive director of Transparency International Sri Lanka, said Mahinda and Basil have faced numerous accusations, including diverting tsunami relief aid and using public funds to buy land, but many cases have stalled or been withdrawn. “The alleged Rajapaksa corruption is like a large tree that provides shade to many people,” she said.

In 2021, a leaked trove of financial documents known as the Pandora Papers revealed that a niece of the Rajapaksa brothers had millions of dollars hidden in offshore accounts.

Amid growing anger over the Rajapaksas’ alleged cronyism and corruption, Mahinda lost a bid for a third term in 2015. Almost immediately, an eclectic coalition of pro-Western business executives, military hard-liners and Buddhist monks identified a new candidate: Gotabaya Rajapaksa.

The middle brother

It quickly became apparent that Gotabaya, backed by new political sponsors, would clash with Mahinda. The men rarely confronted each other directly, yet they disagreed on everything, including high-stakes political gamesmanship and petty corruption, family confidants said.

Dilith Jayaweera, a media magnate who is widely credited with launching Gotabaya’s candidacy, remembers an incident from 2018 when he was called by Mahinda to Gotabaya’s home. Mahinda had put Gotabaya’s name on the title to an illegally built resort so that a powerful monk, a political ally, could get free electricity. The scandal was about to leak and, as was often the case, Mahinda was reluctant to tell his brother, so he nudged Jayaweera to break the news to him.

Gotabaya was “livid,” Jayaweera said, and stormed off to a Buddhist temple, refusing to share a car with his brother.

In October 2018, a constitutional crisis erupted when Sirisena, then president, fired his prime minister, Ranil Wickremesinghe, and replaced him with Mahinda,who he had defeated at the polls just three years earlier. The capital was tense as both men made claims on the country’s No. 2 job and rumors swirled that Wickremesinghe might be removed by force. Fearing Mahinda and Basil were trying to outflank him and engineer their own return to power, Gotabaya secretly met Wickremesinghe to pledge his support.

Soon after, the Supreme Court ruled against Mahinda’s claim, and he backed down. The family had no option but to support Gotabaya.

In the run-up to elections, terrorist attacks by Muslim extremists rocked Sri Lanka, galvanizing Sinhalese Buddhist support around the former military man. On the campaign trail, Gotabaya spoke of security, good governance and development, pitching himself as a technocrat, and Colombo, with its emerging skyline of Indian- and Chinese-funded skyscrapers, as the next Singapore. He won in a landslide.

On the day of his swearing-in on Nov. 19, 2019, Gotabaya signaled a break from his family. He refused to wear a red “sataka,” the Rajapaksa clan’s signature scarf, favoring a short-sleeved shirt. Unlike Mahinda, who printed his own image on 1,000-rupee notes while he was president, Gotabaya prohibited government offices from hanging his official portrait.

But the next day was “the beginning of the downfall,” said Nalaka Godahewa, a former financial executive who was later Gotabaya’s minister of mass media.

Gotabaya’s pro-Western business-sector backers had recommended a list of appointments, but when the president unveiled his first Cabinet, it was led by Mahinda as prime minister and stocked with Basil and Mahinda loyalists. They enacted steep tax cuts and argued against seeking aid from the International Monetary Fund despite mounting debt. Gotabaya personally pushed through a ban on chemical fertilizers that hurt crop yields, just as global food prices soared.

Mahinda’s supporters said they had shaped the Cabinet only to be undermined by Gotabaya’s appointments. In several instances, the government issued trade policies that were retracted within 24 hours. “You had ministers fighting secretaries,” Weeratunga said. “Fighting permeated the administration.”

The Rajapaksas were united on one issue: A constitutional amendment passed in 2020 that weakened commissions investigating corruption and granted the president far-reaching powers over the courts.

The fall

By early 2022, the economy was in free fall. Foodstuffs like rice doubled in price from a year prior. Gasoline and electricity were in short supply. Foreign currency reserves were running out.

In April, nightly demonstrations took root in the capital demanding that the Rajapaksas leave politics, and some turned violent. Gotabaya’s entire Cabinet — which included Basil, the finance minister; the elder brother, Chamal; and Mahinda’s son — resigned, giving Gotabaya a chance to form a new government. Sri Lanka needed a stable image to present to foreign lenders and negotiate an urgent bailout.

But Mahinda, the prime minister, resisted calls from the opposition and even signals from the president to quit.

Gotabaya didn’t force the issue. “G.R. would say, ‘He knows what I want,’ ” said Godahewa, who joined the Cabinet after several Rajapaksas departed. “He felt he needed the support of Basil and Mahinda.”

With pressure mounting on Mahinda, his supporters organized a May 9 rally at Temple Trees, the prime minister’s compound. The patriarch, feeling deflated and mulling resigning, suddenly seemed energized, according to two family insiders and videos of the event.

“As a leader who has always listened to the people, I now ask you: What needs to be done?” Mahinda said to thousands of supporters sitting cross-legged in a chandelier-lit hall. “You must stay!” the crowd roared. “Does that mean I shouldn’t resign?” he asked again, soaking in calls to fight on.

When the rally ended, supporters streamed out of Temple Trees with steel rods and wooden sticks, beating anti-government protesters and sparking a bloody backlash that shocked the nation.

Holed up in Temple Trees with his sons, who had urged him to stay, Mahinda told his speechwriter at 4 p.m. that he was resigning. The speechwriter spread the news to the media, but that didn’t stop the violence, said two people inside the compound. Despite the family’s pleas, the army didn’t send reinforcements until 11 p.m., after protesters had already breached a gate. At 4 a.m., Mahinda was evacuated by soldiers to a military base.

“Mahinda understood this stalling was deliberate,” said Weeratunga, who accused Gotabaya of trying to intimidate his brothers. But two ministers who were by the president’s side that day said he furiously called military officers to no avail.

“He could neither control the army nor police,” Godahewa said.

Godahewa and foreign diplomats said army commander Shavendra Silva — who has been in frequent touch with Western officials — was reluctant to deploy his forces for fear of being seen as ordering a military crackdown.

The absence of the military that day widened the fissures among the brothers. In a speech to parliament this week, Chamal chastised Mahinda for not leaving politics in 2015. And at a recent meeting of the Rajapaksas’ party members, family allies angrily askedwhy they were not protected on May 9 in a rare display of discord. “How Gotabaya treats the party now will decide the direction of the people’s wrath,” Weeratunga said.

On May 12, an embattled and isolated Gotabaya named a new prime minister: Ranil Wickremesinghe, the man he secretly met with in 2018 when he first jockeyed for the position against his brother.

Four years later, Sri Lanka’s most powerful family was crumbling — maybe for good, said Jayaweera, the media magnate.

“The Rajapaksas, and Sri Lanka, ended in tragedy,” he said. “It ended because of their own doing.”

The Washington Post

As western countries retreat from international aid, China is poised to swoop with its ‘belt and road’ programme

There is not a country that has escaped the combined economic shocks of Covid-19 and the global spike in oil and food prices triggered by Russia’s continuing invasion of Ukraine. Painful for wealthy countries, for low- to middle-income countries it risks being existential. Sri Lanka – mired in crisis – last week defaulted on its debt for the first time in its history.

While its collapsing economy is as much a product of its corrupt politics as of global economic trends, Sri Lanka is also a worrying bellwether for the instability elsewhere that may be triggered by declining economic security in countries with high levels of poverty.

The situation facing Sri Lanka’s citizens is dire. Soaring inflation has taken the price of basic goods out of reach for many, and extreme shortages of food, medicine and fuel mean people have to spend hours queuing in the extreme heat while shops have been forced to close. For months, there have been peaceful anti-government protests, driven by anger with the political elite. But in recent weeks, they have turned violent; one politician has been killed by a mob, and others have had their houses set alight.

This crisis has been long in the making: the product of 20 years of unsustainable levels of borrowing to fund unwise projects, and levels of taxation that have been too low. This made Sri Lanka particularly vulnerable to the impact of Covid, including on its tourism industry. Additionally, the current administration cut taxes further just before the pandemic, and banned the import of chemical fertilisers in April 2021, which has had a ruinous impact on Sri Lanka’s domestic food production, making it even more reliant on expensive imports.

There are other countries where political turmoil and economic vulnerabilities mean that further economic shocks will lead to more hardship for their populations, with the risk of triggering instability and violence. Global food prices rose by more than 30% in 2021, and the war in Ukraine pushed up wheat and maize prices by almost 20% in the course of just one month this year. The economic impact of Covid, already bad, is far from over: lockdowns in Chinese cities such as Shanghai and Shenzen have disrupted supply chains worldwide.

Russia’s aggression in Ukraine has reawakened western commitment to the Nato alliance as a way of promoting global security. But that is not enough: wealthy countries such as the US and the UK need to be alive to the impact of these global economic trends on lower- and middle-income countries, not just because they have a moral duty to do more to alleviate global poverty, but also out of self-interest with a view to security risks. Instead, the chancellor, Rishi Sunak, has cut £4.2bn from the British aid budget, breaking the Conservative manifesto pledge to keep aid spending at 0.7% of gross national income. Countries such as Syria, Bangladesh and South Sudan saw their aid from the UK reduced overnight by 69%, 62% and 49% respectively, and the UK has cut £1.5bn of aid from a World Bank programme focused on helping poorer countries recover from Covid. Last week, the foreign secretary, Liz Truss, published a government white paper on international aid spending that proposes halving UK spending on multilateral agencies such as the UN and the World Bank to redirect aid spending towards the UK’s own trade interests.

Western retreat from international aid will leave more room for China to fill the gap. Lending to countries such as Sri Lanka through its “belt and road” infrastructure programme is a key part of China’s strategy to increase its soft power. In a world of increasing economic insecurity, Britain’s cuts to international aid are not just immoral, but short-sighted in the extreme.

The Guardian

“Right now, the problem of inflation cannot easily be solved by tightening the interest rates. It can be tightened in some cases, the government is trying to do it in the case of wheat by putting an export ban,” says Swaminathan Aiyar, Consulting Editor, ET Now.

How real is the fear of the rising rates and the slowing growth which is making the markets of the world very nervous?
We are at the highest rate of inflation – some people will say for five years, for ten years, for fifteen years. The wholesale price index for April had just come in at 15:05%. The consumer price index 7.8%. These are extraordinarily high rates and there is nothing special about India.

In America, where the target inflation is 2%, their latest inflation rate came down a little to 8.3%. So there is global inflation. Prices of commodities of all kinds, prices of services, manufacturing and everything has been going through the roof in the last 12 months. The inflation had begun even in 2021 and then after the Ukraine war started in February, it accelerated even more.

So the world is caught in a huge inflationary trap right now with the physical shortage of a large number of commodities which was building up over time and over and above those physical shortages, there has been the shock of the war and the sanctions imposed on Russia which is an important supplier of a number of items.

The Black Sea which is one of the greatest supply routes out of Russia and Ukraine that has been blocked by the war. On top of everything else, China has committed a kind of hara-kiri by having a complete lockdown in an attempt to stamp out Covid and so on its own, there is a separate supply shock because there is no production going on in China.

So these different strands have all come together for a gigantic shock. Two things are happening at the same time; on the one hand, demand is going down because there is a lack of production. There is a lack of production as the prices have gone up and China has got into a self-made recession; it’s a hara-kiri recession of its own. Meanwhile, with the prices going up, all the central banks are having to raise their rates.

So we are in a situation where on the one hand there is a recessionary trend, recession is coming because demand is falling. At the same time, prices are going up. Some people call this stagflation. In the case of India, we are hit both ways. We were hoping that it would be a very good year for growth, the IMF was saying India will be the fastest growing major country and perhaps that will still be the case, but earlier they were hoping for 9% growth and now people say maybe 7%, 7.5%, or maybe 6%.

We are in a tough position right now as the inflation is rising fast because inflation is rising everywhere else in the world and because of that we cannot escape it alone and the recessionary trend is also coming the world over and we cannot escape that. We are perhaps better positioned to withstand the problem that some other countries can’t. We will not collapse like Sri Lanka or Pakistan but we are certainly in trouble.

Do you think the situation is in control of the central banks and can they control inflation by just raising the rates?
Raising interest rates is not going to solve the supply problem. If there is an overheated economy with too much demand, then one can slow down that demand by raising interest rates and making it difficult for people to buy. But that is not the case today. It is not like we have an overheated economy and there is too much demand. In fact, there is not enough demand. Take a look at the corporate sector. The results that are coming in show the auto sector is not in good shape, demand is not there therefore the production is coming down.

There is a shortage in some areas like metals and so on but even there, the prices have come down very sharply. So right now, the problem of inflation cannot easily be solved by tightening the interest rates. It can be tightened in some cases, the government is trying to do it in the case of wheat by putting an export ban. The international price of wheat is something like Rs 40 a kilo and if we freely allow the export of wheat from all our surplus buffer stocks, we can have a huge export boom but then if the Indian price equates with the world price at Rs 40 a kilo, there will be mayhem and riots on the streets.

SO the government has tried to do supply management by saying we will stop all exports of wheat. This I think was a bad move. It should have been more gradual and they should be allowing some exports but right now that is one thing that they can do. They have put a ban to improve the supply of wheat and this can help to reduce inflation on that front. Beyond that, we will have to live with the global trends and cannot wish away the global trends.

The government up to a point can reduce import duties or excise duties on edible oil. It can do that in the case of crude oil, petrol, diesel. But all this would be a limited amount of relief. It is not that prices will come down but one can limit the extent to which the prices rise.

Beyond that, we will have to wait for this war to play out and for this business cycle to play out, those are items beyond your control.

The Economic Times