Sri Lanka economic crisis sparks ruling party squabble

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ECONOMYNEXT – Sri Lanka’s Water Supply Minister Vasudeva Nanayakkara said he will not attend cabinet meeting or work at his office in protest over the sacking of two colleagues by President Gotabaya Rajapaksa in the latest internal squabble in the ruling coalition.

President Gotabaya Rajapaksa on Thursday sacked Udaya Gammanpila from energy minister portfolio and Wimal Weerawansa from industries minister. Both were cabinet ministers.

“I have withdrawn from ministerial duties,” Nanayakkara, told reporters flanked by his sacked colleagues Friday (04).

“I will not involve in any ministerial duties. I will not attend cabinet meetings. I urge justice for this wrong decision.

“The government should accept that it made a mistake and rectify it. If not, I will not go for cabinet for next three years and I will not fulfill any cabinet responsibilities for the next three years.

Friday’s drama is the latest twist in a series of internal squabbles of the ruling coalition, which had been intensifying as inflation picked up and forex shortages led to fuel and power and shortages.

“Now that we two are sacked, dollars will multiply, oil will spring from the ground, power cuts will end, and great miracles are due to happen,” Weerawansa said.

Socialist-leaning Nanayakkara’s Democratic Left Front (DLF) along with 10 small parties including the two led by Gammanpila and Weerawansa have been in the ruling Sri Lanka Podujana Peramuna (SLPP)-led coalition government after the August 2020 parliamentary poll.

Both Gammanpila and Weerawansa who have uneasy relations with Finance Minister Basil Rajapsaksa said they have been in bad books of the government after opposing a deal to give a take-or-pay liquefied natural gas deal, an LNG terminal and sell a power plant to US-based New Fortress Energy as well as a port terminal involving India.

The duo blamed Finance Minister Basil Rajapaksa, brother of President Rajapaksa for a worsening forex crisis, triggered by money printed to keep interest rates down amid an expanding budget deficit.

Weerawansa said Prime Minister Mahinda Rajapaksa, another brother, was not involved in the decision to sack them, saying he had superior political acumen.

Both Gammanpila and Weerawansa, with nationalist leanings, helped President Rajapaksa secure a landslide in the 2019 presidential and the last parliamentary polls.

The SLPP, which the duo described as the ‘personal property’ of Basil Rajapaksa has 145 members in the 225 member parliament and commands a two thirds majority with the support of several other legislators.

The Sri Lanka Freedom Party, led by former President Maithripala Sirisena with 15 members has also been critical of the administration as economic woes deepened.

Vasudeva, Gammanpila, Weerawansa and 14 Sri Lanka Freedom Party members contested through the SLPP ticket.

Nanayakkara said he and like-minded colleagues wanted to create a shelter for the two who had now been orphaned but decline to elaborate.

Weerawansa sidestepped a question whether they would join forces with Sirisena and other dis-affected member of the SLPP, as the forex crisis, shortages and queues made the electorate unhappy.

He denied plans to join the main opposition Samagi Jana Balawegaya.

Many governments over the past 70 years in Sri Lanka had been brought down by the high inflation, forex shortages, import controls and social unrest triggered by a money printing central bank set up in 1950 with US help.

The SLPP also came into power after two currency crises were triggered by the agency during the last administration following ‘flexible’ or discretionary monetary policies.

The agency claiming to operate flexible inflation targeting, also engaged in real effective exchange rate targeting and output gap targeting.

It also claimed to operate a flexible exchange rate, which collapses suddenly after money printed for output gap targeting (also known as stop-go policies), but is not flexible in other direction when economic output collapses due to REER targeting allowing the exchange rate to strengthen.

Analysts and economists had called for reform of the central bank law to take away the discretionary powers of its governing monetary board to prevent currency collapses, growth volatility, high inflation and social unrest.

After the latest bout of money printing, probably the worst in the agency’s history, the International Monetary Fund has warned that the country’s debt was unsustainable and the economy risked an implosion. (Colombo/Mar04/2022)

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