Sri Lanka’s new ‘diplomatic’ PM begins foreign aid talks amid political stability concerns

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ECONOMYNEXT – Sri Lanka’s new Prime Minister Ranil Wickremesinghe began talks on Friday on foreign aid for the economic recovery of the beleaguered island nation, his office said.

Wickremesinghe, 73, who was handpicked by President Gotabaya Rajapaksa on Thursday, held preliminary talks with foreign envoys representing India, Japan, the United States of America, Britain and the China on Friday and talks focused on rapid economic recovery in the next few months.

His office did not give further details about the foreign aid consortium.

“He is trying to get foreign funding through a donor conference,” a close aide to the prime minister told Economy Next.

Sri Lanka is facing its worst financial crisis since independence from British colonial rulers in 1948.

It has already suspended repayment of its foreign debt worth US$51 billion from April 12 as the island nation has run out of dollars even to buy essentials for its 22 million people.

Amid prolonged power outages due to lack of fuel imports, residents of the US$84.5 billion economy face severe shortages of fuel, medicine, food, cooking gas and milk powder, mainly due to President Gotabaya Rajapaksa’s economic mismanagement in Sri Lanka Podjana Peramuna (SLPP).

Wickremesinghe’s appointment came amid continued protests by hundreds of people near the presidential secretariat demanding that Rajapaksa, his brother and then Prime Minister Mahinda Rajapaksa as well as the SLPP government step down.

Mahinda Rajapaksa resigned on Monday (09) after his supporters brutally attacked hundreds of unarmed and peaceful protesters near the presidential secretariat and Temple Trees, the prime minister’s official residence, who were demanding the resignation of the two leaders.

Diplomatic hiccups

Wickremesinghe’s appointment also came when diplomatic relations with many foreign countries were severed from time to time under Rajapaksa.

Senior government officials told Economy Next despite repeated pleas by then-foreign minister GL Peiris that many countries refused to heed his pleas after a series of ‘cardinal mistakes’ in international diplomacy .

Then-Prime Minister Mahinda Rajapaksa unilaterally canceled the US$500 million Eastern Container Terminal (ECT) project that had already been signed between India, Japan and Sri Lanka in 2018.

Similarly, President Gotabaya Rajapaksa unilaterally canceled a $1.5 billion Japanese-funded Light Rail Transit (LRT) project linking the commercial heart of the capital Colombo to the suburbs even after the project was implemented.

President Rajapaksa also canceled a US$480 million grant from Millennium Challenge Corporation (MCC) in the United States for rural infrastructure projects. He rejected it on the advice of an expert panel report that said that, based on the current status of countries that had implemented MCC-funded projects, the fate of these countries is tragic. Sources at the US Embassy in Colombo, however, said the content of the expert panel report on the MCC grant was exaggerated and based on unsubstantiated facts.

The Rajapaksa government’s close relationship with China has also led other countries to have a “minimum level” of diplomatic relations with Rajapaksas in the past, officials from the island nation’s foreign ministry told Economy Next.

China aided Rajapaksas with billions of US dollars in post-war infrastructure loans between 2010 and 2015 when Mahinda Rajapaksa was president. But many projects have yet to yield a significant return on investment to repay the loans, which many Western countries call a “debt trap” and has contributed to the country’s debt burden.

However, President Rajapaksa said China never dragged Sri Lanka into the debt trap.

political maneuver

The Rajapaksa government has also run into trouble with the European Union over a pledge it demanded in exchange for GSP plus, a trade concession worth more than US$500 million annually that has helped The Southeast Asian island nation’s main export is clothing.

The trade concession was signed in 2016 under the previous government, but Rajapaksa’s government was reluctant to implement some commitments, including scrapping a four-decade-old anti-terrorism law.

When the EU raised the issue, some members of Rajapaksa’s government publicly stated that the country could not jeopardize the people’s mandate to pursue the trade concession. However, the slump in the economy forced the government to engage with the EU and eventually change the anti-terrorism law.

The Rajapaksa government has also backtracked on three renewable energy projects awarded to a Chinese company in the northern islands after India raised security concerns. The Chinese company was selected through an internationally accepted bidding process. However, the Rajapaksa government unilaterally withdrew the project awarded to China, also unilaterally, leading China to have reservations about financial assistance to the Rajapaksa government.

Sri Lanka’s human rights conduct has also raised international concerns.

Former Finance Minister Basil Rajapaksa gave a liquefied natural gas (LNG) project to a US company New Fortress Energy in an unsolicited way after the authorities had received international bids through an internationally accepted process.

As a result of all these diplomatic setbacks, many countries had been hesitant and reserved to help Rajapaksa financially amid numerous allegations of corruption.

“Diplomatic Prime Minister”

Retired Sri Lankan diplomats said the new prime minister stood out for his diplomatic way of handling issues.

“He is a diplomatic prime minister. He knows who to go to internationally for what and when,” a retired career diplomat told Economy Next.

“That’s why you see all these diplomats meeting him within 24 hours.”

Wickremesinghe in 2002 proved his ability to manage an economy in crisis.

The island nation’s economic growth contracted in 2001 after Tamil Tiger rebels who demanded a separate state within Sri Lana destroyed the only airport and entire state-owned SriLankan Airlines fleet.

Wicktremesinghe became Prime Minister after winning instant polls in December 2001 and approached international partners to help the country’s economy recover.

His long-term efforts helped him organize the “Tokyo Donors’ Conference” on June 10, 2003, which was attended by 51 countries and 21 international organizations.

At the end of the conference, Wickremesinge, who personally attended the event, secured pledges of over US$4.5 billion for the reconstruction and development of the whole of Sri Lanka.

Sources close to Wickremesinghe said the plan was to have immediate funding to ensure essential products that the public are currently lacking.

“Once that’s settled, his plan is to focus on debt restructuring and the IMF program,” he told Economy Next, asking not to be named.

However, many analysts say it may not be as easy as Wickremesinghe thinks.

Undiplomatic politician

The new prime minister is seen as a stubborn and elitist leader by his own center-right members of the United National Party (UNP).

Already, most opposition political parties have said they will not support his leadership in parliament, as the majority of them see it as contrary to the mandate of the people.

Some critics also see his appointment as a way for Rajapaksas to buy time to evade possible prosecution demanded by most people for corruption and hoarding of wealth.

Wickremesinghe’s UNP, for the first time in its history, did not win any seats in the 2020 legislative elections. He was also personally defeated. However, he entered parliament on a bonus seat in the 225-member legislature.

Many opposition parties, including Samagi Jana Balavegaya (SJB), Marxist Janatha Vimukthi Peramuna (JVP), National People’s Power, and Sri Lanka Freedom Party (SLFP) refused to support him in parliament and rejected his request. acceptance of the cabinet’s ministerial portfolio. .

The president’s SLPP has pledged to back Wickremesinghe, but political analysts say the new prime minister may need the backing of some opposition members to secure a parliamentary majority.

Many parliamentarians see him as a leader unwilling to listen to their views, some opposition lawmakers said.

Wickremesinghe wants a parliamentary majority for a new budget that includes tough economic, fiscal and public sector reforms to secure an International Monetary Fund loan and to move forward with plans to restructure foreign debt. (Colombo/May 14/2022)


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