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India starts talks to aid Sri Lanka

by Atlanta Business Journal

Senior Indian officials began talks Thursday with Sri Lankan leaders on economic assistance, a day after Prime Minister Ranil Wickremesinghe announced the country’s economy had “collapsed.”

Sri Lankans have endured months of shortages of food, fuel and other necessities because of the country’s dwindling foreign exchange reserves and mounting debt, worsened by the pandemic and other longer term troubles.

India’s foreign secretary and the chief government economic adviser met with President Gotabaya Rajapaksa and Wickremesinghe and were later scheduled to meet other top officials.

Indian External Affairs Ministry spokesperson Arindam Bagchi said India was ready to help Sri Lanka achieve a “quick economic recovery through promoting investments, connectivity and strengthening economic linkages.” There was no immediate comment from the Sri Lankan side.

Wickremesinghe’s gloomy comments to Parliament on Wednesday appeared aimed at fending off criticism over a deteriorating situation long in the making. Economists and other Sri Lankans said they were hoping the government would find ways to revive the economy.

“What the prime minister should do is not to make announcements. He has to come up with a plan to reactivate the system,” said W.A Wijewardena, an economist and former deputy governor of Sri Lanka’s Central Bank.

Ordinary Sri Lankans have grown disillusioned as they skimp on meals and go without other necessities, seeing their quality of life crumble because of forces beyond their control.

At midnight Wednesday, retired government employee Dharmasena Perera leaned on his motorbike at a fuel station on the outskirts of the capital Colombo, trying to catch some sleep after spending nearly 15 hours waiting in line to buy fuel. He said he joined the line at 6 in the morning and went without lunch and dinner. At midnight, he was still waiting for his turn.

“He [the prime minister] always says things are getting bad and difficult. It seems he also does not have solutions,” Perera said.

At another fuel station in Gampaha, a town about 18 miles northeast of Colombo, salesman Nuwan Pradeep likewise said people were well enough aware of the crisis, but the government appeared to have no solutions.

“There is no point in just explaining the same problem to us all the time,” said Pradeep.

India has supported Sri Lanka with a $4 billion credit line to help it buy fuel and other essentials.

Sri Lanka also is negotiating with the International Monetary Fund on a bailout after it stopped payments on its debts.

Economists say the crisis stems from domestic factors such as years of mismanagement and corruption.

Much of the public’s ire has focused on President Gotabaya Rajapaksa and his brother, former Prime Minister Mahinda Rajapaksa. The latter resigned after weeks of anti-government protests that eventually turned violent.

Conditions have been deteriorating for the past several years. In 2019, Easter suicide bombings at churches and hotels killed more than 260 people. That devastated tourism, a key source of foreign exchange.

The government needed to boost its revenue as foreign debt for big infrastructure projects soared, but instead Rajapaksa pushed through the largest tax cuts in Sri Lankan history. (The tax cuts were recently reversed.) Creditors downgraded Sri Lanka’s ratings, blocking it from borrowing more money as its foreign reserves sank. Then tourism flatlined again during the pandemic.

In April 2021, Rajapaksa suddenly banned imports of chemical fertilizers. The push for organic farming caught farmers by surprise and decimated staple rice crops, driving prices higher. To save on foreign exchange, imports of other items deemed to be luxuries also were banned. Meanwhile, the Ukraine war has pushed prices of food and oil higher. Inflation was near 40% and food prices were up nearly 60% in May.

Information for this article was contributed by Sheikh Saaliq and Elaine Kurtenbach of The Associated Press.

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