At the beginning of the year under review, the Opposition common candidate, Maithripala Sirisena, emerged as the winner of the January presidential election. The new Presidency brought with it the promise of a new political phase, characterised by the restoration of both democratic institutions and the rule of law, seriously eroded during the previous ten year long Rajapaksa’s presidencies. However, the shift of power at the presidential level was not immediately accompanied by an analogous shift in the Parliament, which at first precluded the possibility of a wide-ranging change of policies. Nevertheless, the Sirisena administration was able to tackle at least some of the most compelling issues affecting the country, in particular by limiting the extensive powers attributed to the Presidency by Rajapaksa in 2010. Despite this and other unquestionably positive political developments, other critical matters – among which the heavy militarization of the Northern region, the maintenance of the draconian Prevention of Terrorism Act and some restrictions on media freedom – were left unsolved.

In foreign policy, the shift was substantial, resulting in the cooling down of relations with Beijing and in a new closeness between Colombo and both New Delhi and, particularly, Washington. This realignment involved on the one hand the interruption of numerous Chinese funded infrastructural projects in Sri Lanka, and, on the other hand, a dramatic shift in the United Nations Human Right Council (UNHRC) attitude towards Sri Lanka. The UNHRC had previously issued three resolutions, sponsored by Washington, harshly criticizing the war crimes occurred in Sri Lanka during the long and gory 1986-2009 civil war. However, in October 2015, a new UNHRC issued resolution on the same topic saw the involvement of Sri Lanka in its drafting, which, not surprisingly, took into account the Sirisena administration demands and needs.

From an economic standpoint, the year under review opened on a rather bleak situation, to which the government reacted by promoting an expansive policy. Although not devoid of positive results, this policy brought about a surge in the debt and a worsening of the balance of payments. After the parliamentary election held in August, which saw the victory of the pro-Sirisena political forces, the resulting new government launched a novel economic policy, presented by Prime Minister Ranil Wickremesinghe in his 5 November  speech. Wickremesinghe outlined a «Third Generation Reforms Plan» made up by a complex set of socio-economic reforms which, while being  mainly congruent with neo-liberal orthodoxy, nevertheless included numerous provisions aimed at promoting the economic welfare of the lower social strata. The budget, presented on 20 November, reflected this dual aspect. At the end of the year, in spite of the many continuing difficulties, the Sri Lankan economy still managed «a respectable growth», exemplified by a full year GDP increase equal to 4.8%.

1. Introduction

During 2015, Sri Lanka witnessed one of the major political developments of the last decade. The authoritarian rule of the President Percy Mahendra Rajapaksa – alias Mahinda Rajapaksa – indeed came to a conclusion in the wake of the unexpected result of the presidential election, held on 8 January 2015, two years ahead of schedule. Though the new President of Sri Lanka, Maithripala Sirisena, used to be the Health Minister of the Rajapaksa administration, his election promised a deep change in the political path followed by his predecessor.

Rajapaksa, head of state from 2005 to 2015, was indeed a controversial figure that came under the scrutiny of international community, mainly as a result of his unwillingness to pursue those responsible for the war crimes committed during the long civil war.[1] With the election of Sirisena as President, a new political phase began, characterized by the progressive restoration of those democratic rules which had been greatly limited during Rajapaksa’s increasingly authoritarian and corrupt rule. This process, however was slowed down and limited by the lack of a parliamentary majority supporting the new President.

If the political shift in domestic policies was limited, although real, that in foreign policy was decidedly more pronounced. The close bond between Sri Lanka and China, which marked the Rajapaksa decade, in fact loosened, while the relationship with Western countries, especially the United States, and India became closer. During the year under review, as a result of the improved relationship with Washington, international pressure on Sri Lanka, above all within the UNHRC (United Nations Human Rights Council), dramatically relaxed. This is not surprising, considering the U.S.’s strong support for Sirisena’s Presidential candidacy. The pro-U.S. attitude of the new President was indeed welcomed by Washington, which was eager to remove the South Asian island from the Chinese orbit.

Once in power, Sirisena proved to be able to politically distance himself from his predecessor. This does not meant that Sirisena’s mandate started a democratic revolution: since the 1950s, Sri Lanka has indeed been a dysfunctional democracy and the road to turn it into full-bodied and mature democracies is bound to be full of obstacles.[2] The first of them is the realization of the reconciliation between the Tamil and Sinhala communities, as well as between the North and the South of the island. Six years after the end of a 26-year gory civil war (1983-2009), the wounds caused by it have not yet completely healed, leaving open geographical and ethnic deep rifts, which are preventing Sri Lanka from consolidating its democratic institutions.

2. The Presidential Election: The unexpected defeat of Rajapaksa

The erosion of Rajapaksa’s popular support had already become evident during the provincial elections held in March and September 2014, when the ruling Sri Lanka Freedom Party (SLPF) recorded an unprecedented decline in its share of votes. It was owing to this electoral decline that Rajapaksa called for an earlier presidential election, aiming to be re-elected for a third mandate before losing further popular support. The decision to move up the presidential election was followed by the emergence of rifts within the United People’s Freedom Alliance (UPFA), namely the SLFP-headed ruling coalition, which, in turn, led to the resignation of three ministers among whom the Health Minister, Maithripala Sirisena. Sirisena’s resignation represented a crucial turn, since he was soon chosen as the joint opposition candidate. His candidature – supported by Sri Lanka’s former President Chandrika Bandaranaike Kumaratunga – united a weak and scattered opposition in the newly created New Democratic Front (NDF). The NDF included several parties, the strongest one being the United National Party (UNP), and was backed by the Tamil National Alliance (TNA), the leftist Janatha Vimukthi Peramuna (JVP), and about 40 civic action movements. Supported by these forces, Sirisena went on to win the presidential election (8 January 2015), obtaining 51.2% of the vote against 47.5% received by Rajapaksa.[3]

The NDF electoral campaign pledged a democratic and corruption-free governance, the end of family rule and cronyism, and the re-establishment of the autonomy of key institutions of governance, in particular the legislature and the judiciary.[4] Above all, the electoral manifesto of the former Health Minister consisted of a 100 days agenda, focused on reforming the presidency, abolishing the Eighteenth Amendment, which made the office of the President extremely powerful, and changing the electoral system.[5]

Sirisena’s unexpected victory took place in a relatively peaceful way and was function of the fact that, together with a part of the Sinhala electorate, the minority communities and their parties massively backed the former Health Minister’s candidacy.[6] Indeed, the main vote support received by Sirisena came from those electoral divisions where the Tamil and Muslim components were overwhelming, in particular the Northern and Eastern Provinces. The peak of votes for Sirisena was reached in the districts of Batticaloa and Trincomalee, in the Eastern Province, where he received 81% and 71% of the popular vote, respectively. Also the Northern Province constituency, especially the Jaffna and Vanni districts, massively endorsed Sirisena’s candidacy, which was supported by more than 70% of the popular vote.[7]

Actually, this voting pattern was due less to Sirisena’s popularity among the ethnic minorities than to their hostility towards Rajapaksa. Ten years after the end of the civil war, Rajapaksa’s appeal as the national hero who ended the three decades old ethnic conflict was no longer sufficient to compensate for the lack of answers to concrete political, economic, and social issued faced by the country – not least inflation and the high costs of living affecting the lower classes of society. This being the situation, as hinted above, even a part – although not the majority – of the conservative sinhala electorate, which had been the core of Rajapaksa’s support, switched behind Sirisena. At the same time – as above stated – the Tamil and Muslim minorities (12% and 10% of total population, respectively), which had been increasingly marginalized during Rajapaksa’s presidency, voted for the candidate in the strongest position to defeat Rajapaksa. They cast their vote for Sirisena, in spite of the fact that he had not made any concrete commitment favouring their political rights. In the close competition between the two presidential candidates, the minority groups’ decision to strategically vote against Rajapaksa proved decisive in determining his defeat. [8]

After the poll, the new President swore in the UNP leader Ranil Wickremesinghe as the Prime Minister, at the head of a minority «national government» which incorporated the Sri Lanka Freedom Party (SLFP), namely Rajapaksa’s party, into the UNP-led coalition.[9] This rather paradoxical development was due to the fact that, although Maithripala Sirisena had won the election as the common candidate of the opposition, he had maintained his role as General Secretary of the SLFP. Soon after the election, on 16 January, the SLFP Central Committee decided to hand over the leadership of the party to Sirisena, justifying its decision with reference to the fact that: «Article 12-2(a) of the SLFP Constitution stipulates in clear terms that when a person contests as a SLFP candidate at the Presidential Election and if he were to win, he automatically becomes the President/Leader of the Party».[10] As a consequence, in a highly ironic development, Sirisena not only took over the SLFP formal leadership from Rajapaksa, but was also made chairman of UPFA,[11] namely – as above remembered – the political coalition which had opposed his candidature to the presidency in the just contested presidential polls. Of course, as was only to be expected, Sirisena was not able to gain effective control over the UPFA parties, while the same SLPF split into a pro-Sirisena and a pro-Rajapaksa’s faction.[12]

3. The first signals of the restoring of rule of law

Despite the weakness of the UNP «national government» and the lack of a parliamentary majority, the new administration proved to be able to deal with some of the most urgent issues of the country, curtailing the presidency’s executive powers, reviving the parliamentary system, strengthening the rule of law, re-establishing an independent judiciary, removing some media restrictions, vigorously pursuing corruption cases, and showing attention to at least some of the needs of the minorities.

In a highly symbolic action, one of the first moves of Sirisena as President was to declare illegal (29 January) the controversial impeachment of the Chief Justice Shirani Bandaranayake, decided by the previous government.[13] The destitution of Bandaranayake in 2013 had indeed caused harsh criticism from the UNHRC and feelings of deep indignation among segments of Sri Lanka’s civil society. The latter perceived the sacking of the Chief Justice as an assault on judicial independence in order to annihilate it.[14] Sirisena formally restored Shirani Bandaranayake to the office of Chief Justice, thereby implementing one of his electoral commitments. Shirani Bandaranayake formally resigned after two days, but Sirisena following choice of a new Chief Justice was also very significant, since the President appointed Kanagasabapathy Sripavan, namely the first Tamil to occupy this top judicial position in 24 years.[15] It was a highly revealing decision, as it underlined the new President’s willingness to pursue a policy of national reconciliation after 26 years of ethnic conflict and a further ten years of majoritarian rule based on a vision of ethnic exclusiveness. After all, Sirisena had received a strong electoral support from the Tamil community; accordingly his pursuit of national reconciliation – apart from being an ethically high profile policy – from a realpolitik viewpoint represented a way to keep the support of the Tamil electoral block.

Once the above has been pointed out, it is worth stressing that Sirisena’ s decision to appoint a Tamil as Chief Justice was not an isolated decision but part of a general strategy. A Presidential Task Force on Reconciliation, headed by the former President Kumaratunga, was established in March 2015, with the aim of identifying the most urgent needs of the minority Tamil community.[16] Also Ranil Wickremesinghe, following his appointment as Prime Minister, expressed the intent to «implement the Thirteenth Amendment within a unitary state».[17] The implementation of Thirteenth Amendment, born out of the Indo-Lanka Accord of 1987,[18] represented the main legal instrument with the potentiality to ensure a national reconciliation process. In fact, it provided for the devolution of conspicuous legislative and executive powers to the Provincial Councils, which would automatically guarantee the autonomy of the minorities, which are numerically dominant in the north of the island.

Up to Sirisena’s election, the Thirteenth Amendment had never been fully implemented, and the central government had withhold the powers entitled to the Provinces, especially the powers related to police and land authority.[19] A week after assuming the Presidency, as an additional gesture aimed at opening up the dialogue with the Tamil community, Sirisena appointed a new civilian governor for the Northern Province. That area – despite the conclusion ten years before of the civil war – had been under the protracted military rule of General G. A. Chandrasiri. Chandrasiri’s replacement with a civilian governor – the long time diplomat H. M. G. S. Palihakkara – met «one of the major requests» expressed by the Tamil electorate.[20]

The Sirisena administration’s conciliatory policies towards the minorities were also directed towards the Muslim community. In the past few years, the Sri Lankan Muslim community had become the main target of a hate campaign carried out by Sinhala Buddhist extremist groups. Significantly, Sinhala Buddhist extremism developed during the Rajapaksa regime, taking root both in society and politics and benefitting from state patronage. As a result, in the past decade Sri Lanka witnessed a series of increasingly frequent communitarian attacks against its Muslim minority which culminated in the eruption of the 2014 Aluthgama wave of violence.[21] Sirisena, since assuming power, has been engaged in contrasting this chauvinistic trend. On the occasion of the SLFP convention on 17 March, he stated that the SLFP was «not a Sinhala Buddhist party».[22] Moreover, on 26 May, the leader of the extremist group Bodu Bala Sena (Buddhist Power Force, BBS), the Buddhist monk Galagoda Aththe Gnanasara Thera, was arrested by the police for the first time. Though the monk was released on bail, the episode marked the end of the immunity that the group had hitherto enjoyed. Through the restoration of the rule of law, the authorities were also able either to prevent communal violence or to minimise it, as happened during the Buddhist Sinhala demonstration at the Kuragala holy site.[23] Communal incidents, which have continued in 2015, with 37 cases recorded in the first four months of the year, have nevertheless experienced a slight decline in comparison with the last four months of 2014, which saw 48 cases.[24]

When Sirisena, in November 2014, resigned as Health Minister to run as a Presidential candidate, he explained: «Parliament is under this [Rajapaksa’s] family, the ministries are under this family, the judiciary is under this family, the military and the entire state sector and business and investment come under the direct control of this family. This country is as unstable as it could be because of family bandyism and nepotism».[25]

Indeed, during the Rajapaksa rule, the concentration of power and wealth in the hands of the presidential family made it similar to a sort of close-knit oligarchy, beyond the reach of the law. That was a situation which, during his electoral campaign, Sirisena pledged to end once for all.[26] Once Sirisena became President, the fight against corruption and the abuse of power was carried out through the establishment of a series of institutional mechanisms. These included the formation of a cabinet subcommittee on corruption, a Police Financial Crimes Investigation Division (FCID), and a Presidential Commission of Inquiry to Probe Corruption and Abuse of Power. The last was designated to investigate matters such as the illegal acquisition of lands, irregularities in the Colombo Stock Exchange, and the handling of money in the Employees’ Provident Fund.[27]

Basil Rajapaksa, the brother of Mahinda Rajapaksa and the former Economic Development Minister, was detained in April 2015 on charges of misappropriating public funds earmarked for the construction of public housing.[28] Another brother of Mahinda Rajapaksa, the former Defence Secretary, Gotabaya Rajapaksa, was summoned in front of the commission appointed to investigate allegations of bribery and corruption on 23 April.

The anti-corruption campaign, focused on frauds in the different government departments and in state owned companies, investigated 220 cases by August, bringing to light grafts and irregularities concerning major development projects and leading institutes in the country. Among the latter there were the arms and security firm Rakna Lanka Company and the Sri Lankan Airlines.[29] The investigations revealed not only the magnitude and intensity of corrupt practices among officials during the Rajapaksa regime, but also the need for an efficient and independent system to either prevent or contain such a phenomenon. However, the mechanisms established to investigate large-scale corruption allegations did not adequately meet these standards, given the politicization of the anti-corruption institutions and the magnitude of caseload. On the other hand, the expectations raised by the government’s rhetoric made it necessary «to act fast to satisfy voter expectations and capitalize on the old regime’s political weakness».[30]

It is worth to consider that the chase against corruption crimes took place in the course of a power struggle during which the former President Rajapaksa, who was able to keep his influence over a section of the SLPF. The antagonism between Rajapaksa and Sirisena reached a peak when the former President’s activities threatened to derail the UNP reform program. In this respect, the anti-corruption enquiries involving Rajapaksa and his inner circle certainly contributed to politically weaken the former President. Since January 2015, the improvement of press freedom within the country has indeed made Sri Lankan citizens more aware of the alarming features that marked the Rajapaksa administration.

4. The arduous path of political reforms

The major and more ambitious goal achieved by the UNP-led government was the passage of the Nineteenth Amendment, on 28 April. Such a constitutional change represented a significant step forward in restoring democracy and the rule of law. Since the end of the civil war, Mahinda Rajapaksa had actually embarked on a process of accretion and centralization of presidential powers, epitomised by the promulgation, on 8 September 2010, of the Eighteenth Amendment. The latter abrogated the presidential limit of two mandates and gave the President direct power to appoint judges and a variety of enquiry commissions.[31] On its part, the Nineteenth Amendment, approved on 28 April 2015, limited the length of the presidential mandate from six to five years, renewable for a second term only. It also limited the presidential power to dissolve the Parliament: under Rajapaksa this power could be made use of after one year, now it could be applied only after four and a half years. Furthermore, the Nineteenth Amendment reduced the legal immunity of the President and envisaged a marginal shift of power and authority to the Prime Minister, though the Supreme Court rejected the provisions that made the Prime Minister the head of the Cabinet.[32] Even if the abolition of the executive presidency was the major electoral promise of Sirisena, the road that led to the passing of the amendment was scattered with obstacles which conditioned the final form of the law. Indeed, the law turned out to be weaker than most of its proponents had wanted. The difficulties that Sirisena encountered in implementing the reforming agenda resulted both from the need to deal with an heterogeneous ruling coalition and the lack of a two-thirds majority in Parliament, which is required in order to pass any constitutional amendment.

The lack of a clear majority proved to be a challenge for the UNP-lead government. Not surprisingly, one of the main controversial issues faced by the new government was that of the electoral reform, which had been promised as part of Sirisena’s 100 day’s agenda and which implied the revision the Twentieth Amendment. The electoral reform aimed at replacing the proportional system with a hybrid system, containing proportional and first-past-the-post elements. Such a system was supposed to ensure both a stable government and a strong opposition. Nevertheless, since the proportional system could enable, to a certain extent, the ethnic, social, political, and ideological diversities of Sri Lanka’s society to find representation in all legislative assemblies, the proposed electoral reform threatened to marginalize both minorities and small parties, consolidating the trend towards ethnic and social majoritarian in politics.[33] Also, there were different viewpoints among the parties about the abolition of the executive presidency: whereas the UNP called for a return to the Westminster-style parliamentary model, the JHU wanted the President to keep key powers to avoid «jeopardising national security and territorial integrity».[34]

The debate on electoral reform witnessed the attempt by some sections of the SLPF to use the issue for short-term political gains. First of all, the majority faction of the SLPF sought to delay the adoption of the Nineteenth Amendment and the reform of the electoral system. Secondly, the SLFP attempted to postpone the parliamentary poll to the end of 2015, using a delaying tactic to exploit the growing anti-incumbency factor. On the other side, Prime Minister Wickremesinghe fought for an early dissolution of parliament, in order to ride the wave of popular discontent against Rajapaksa and the UPFA to secure a majority of seats in next parliamentary election.[35] Despite the Parliament being dissolved on 26 June, without any agreement on the electoral reform, Sirisena was able to negotiate with the SLPF, gaining its support for the Nineteenth Amendment. In order to obtain the SLPF’s support, the President persuaded Ranil Wickremesinghe to accept the substantial changes to the bill required by the SLFP. The most important of such changes was the reduction of the number of civil society members on the Constitutional Council from seven to three.[36] Popular demand and support from civil society played also an important propulsive role in the process that led to the passage of the Amendment. In fact, several organizations joined the Satyagraha campaign arranged by the monk Maduluwawe Sobitha Thera, whose most important moment was the popular march towards the parliament building on 27 April.[37] Overall, the approval of the Nineteenth Amendment to the Constitution was a crucial personal success for Sirisena, who succeeded in passing the bill with a majority of 214 votes in favour.

5. The UNP minority government: a silent revolution?

Maithripala Sirisena’s advent to power and the UNP government’s policies were surely remarkable, in spite of their limitations. Indeed these policies were portrayed by the media as a «silent revolution». However, as highlighted by some observers, what happened in Sri Lanka was mainly a factional struggle within the Sri Lankan ruling classes, particularly inside the SLPF.[38] The progressive centralization of powers in his own and his family’s hands, undertaken by Rajapaksa, had progressively excluded from power an increasing number of political players, including high level members of the very same SLPF. The latter, while not unduly worried for the erosion of the democratic checks and balances, became increasingly uncomfortable as the diminution of their own power.

It is worth noting that Sirisena had held the office of SLFP’s general secretary for 13 years, and had served the Rajapaksa government both as the Minister of Agriculture and as the Minister of Health from 2005 onward. Sirisena had also been the Minister in charge of Defence during the last, and most bloody, two weeks of the war.[39] Consequently, he was in every respect an active and important member of Rajapaksa’s regime. In this respect, Sirisena’s political turn-around could be attributed not so much to a sudden democratic fervour as to political opportunism. The Rajapaksa family increasingly tight and monopolistic hold on Sri Lankan political power had translated into a crony capitalism benefitting the Rajapaksa’s clan and their mignons. This situation had caused the growing anxiety of both the international investors and the local business, which, in turn, undoubtedly was a relevant factor in favouring Sirisena’s decision to challenge Rajapaksa. Once Rajapaksa was defeated, Maithripala Sirisena and the UNP government, which received the backing of the Sri Lankan capital, appeared not to be unresponsive to the call by international financial actors to further push Sri Lanka towards free market and global investments.[40] Actually, both the SLPF and the UNP have favoured a similar economic development pattern, namely that of a «Singaporean hyper-urbanised and consumption-driven» country.[41] The new Sri Lankan regime seemed eager to achieve this goal by rethinking its position on the international stage and, particularly, by reducing Sri Lanka’s dependency on China in favour of a greater integration in the global economy.

Arguably, the steps made by Sirisena’s administration towards democratic restoration were accompanied by a certain degree of continuity with the former regime and the persistence of political anomalies. For instance, the new government appeared reluctant to abrogate the draconian Prevention of Terrorism Act and to proceed with the demilitarization of the Northern area of the island, despite both having so negatively affected the democratic recovery after the end of the civil war.[42] Such caution was presumably caused by the influence of the Sri Lankan army, an influence which had greatly increased following its victory in the civil war. Furthermore, during the Rajapaksa’s regime, the army played a key role in allowing the President to increase and centralize his powers. In turn, Rajapaksa supported and promoted the army’s increasing role in civil affairs.[43] Thus, the Sri Lankan army gained a deep ascendency over both society and politics, which will be hard to remove. Nonetheless, the government adopted some modest measures to marginally reduce the army presence in Northern Jaffna District, by returning about 1,000 acres of military occupied land to the long-time displaced owners. Such an action represented an isolated gesture, extraneous to any coherent programs for resettlement; therefore its concrete effect was pretty insignificant. In fact, the above-mentioned land was undeveloped, with neither original houses nor new military camps or other government buildings.

In addition, as far as media freedom is concerned, the Sirisena administration proved to be ambiguous. The restoration of press freedom was a major electoral promise of Sirisena’s electoral campaign. In fact, after the January election, the blocking of independent news websites, implemented by the old regime, was immediately lifted. Along with this provision, the President also announced, in May, that the government was determined to reopen investigations into all past murders and disappearances of journalists.[44] Yet, two months later, Sirisena decided to restore the Press Council, which had virtually ceased to exist after the January Presidential election. The Press Council was a controversial body, through which the Rajapaksa’s regime had coerced the media.

After Rajapaksa’s electoral defeat, Sri Lanka certainly «took a number of positive steps to address human rights and democracy concerns».[45] In fact, according to a United Kingdom governmental report on human rights in Sri Lanka, the overall situation improved during the first half of 2015.[46] Nonetheless, as shown above, political inconsistencies have marked Sri Lankan democracy even after Sirisena’s election. The positive democratic shift by Maithripala Sirisena and the UNP-led government, although real, has been limited and fragile. On the other hand, the restoration of democratic institutions after a 26 year long ethnic war and a decade of authoritarian and majoritarian government could be neither an easy nor a speedy process.

6. The Parliamentary Elections and the Formation of National Government

In the electoral Manifesto, Sirisena had promised to held new general elections hundred days after the presidential election.[47] This pledge was redeemed in a substantial way, although with some delay, with the dissolution of the Parliament on the midnight of Friday 26 June, namely ten months before the completion of the legislature,[48] and the convening of the general election. In doing this, Sirisena, beside keeping a key promise contained in his 100 days agenda, was trying to consolidate his political basis of support. The electoral competition saw the UNP-led coalition – the United National Front for Good Governance (UNFGG), which included, among others, the All Ceylon Muslim Party, the Sri Lanka Muslim Congress, and the JHU – challenging the UPFA. Yet, the political struggle was not limited to the counterpoising of the two main party coalitions, but was, above all, an intestine fight inside the SLFP, eventually tearing the party asunder. After the poll was announced, the power struggle between Sirisena and Rajapaksa to take control over the party intensified, reflecting deep divisions within the Sri Lankan ruling class. The rivalry became dramatic when the former President sought to orchestrate his return to the scene as the SLFP prime ministerial candidate. On the occasion of the party leaders’ meeting, held on 2 July, Rajapaksa indeed managed to be nominated to compete in the forthcoming polls.[49] His appointment represented a political debacle for Sirisena, because, had Rajapaksa won at the poll and become Prime Minister, he would have wielded those increased political powers, just conferred by the recently promulgated Eighteenth Amendment. In addition, Sirisena faced heavy criticism for having been unable to nip in the bud Rajapaksa’s possible political comeback. However, under the party rules, Sirisena, as SLPF’s President, had not the power to block the nomination.

All this drove the Sri Lankan President to change radically his attitude towards the party. In fact, months of negotiations with SLFP cadres had only resulted in the President’s failure to impose his leadership on the party. Accordingly, on 14 July, Sirisena declared that he would not appoint his predecessor as Prime Minister, even if the SLFP won the majority of parliamentary seats. Sirisena was legally entitled to do that, as, according to the Constitution, the Sri Lankan President had the authority to appoint as Prime Minister «the Member of Parliament who in his opinion is most likely to command the confidence of Parliament».[50] Nevertheless, it is clear that Sirisena intended to exercise this presidential right only as a last resort; in the short ran, his announcement aimed at undermining Rajapaksa’s ascendancy and his electoral prospects, in favour of the UNP candidate, Ranil Wickremesinghe. On the same day of the election (17 August), the Sri Lankan President, in his capacity as the SLFP Chairman, further displayed his strength by removing thirteen General Secretaries from the party Central Committee. The Central Committee is the head decision-making body of the SLFP and most of its members were appointed by Rajapaksa. Sirisena’s move was indeed aimed at consolidating his power over the party.[51]

Sharp antagonism clearly marked the two Prime Ministerial candidates electoral campaigns as well. The rivalry between Mahinda Rajapaksa and Ranil Wickremesinghe was such as to make the parliamentary election a competition fashioned along the lines of the presidential election, namely as a political duel between the Sirisena-sponsored candidate, Ranil Wickremesinghe, and Sirisena’s main political adversary, Mahinda Rajapaksa. Accordingly, the SLPF’s defeat appeared, above all, as Rajapaksa personal defeat. Indeed, the poll – which saw a huge popular participation (70% of the electorate)[52] – confirmed the electoral trend initiated by the January poll. The UNFGG, namely the UNP-led coalition, emerged as the winner, gaining 45.6% of the votes and 106 seats in the 225 members legislature, whereas the rival UPFA obtained 95 seats only. Nonetheless, the UNFGG’s victory was less than total, as the winning coalition was not able to secure the 113 seats required for a having the absolute majority in the new legislature.[53]

The outcome of the parliamentary election essentially reflected the decline of Rajapaksa’s political appeal, rather than the success of the UNFGG coalition. The former President’s defeat as the prime ministerial candidate was due to two main factors. First of all, Rajapaksa appeared to have not learned any lessons from his previous electoral debacle, persisting in underestimating the need to gain the confidence of the minority communities. In fact, he based his electoral strategy almost exclusively on the nationalist appeal to Sinhala Buddhist voters, making extensive use of the language of national security and patriotism. His aggressive electoral campaign centred around three issues: national sovereignty, development, and the security of the country. The first topic was related to Rajapaksa’s struggle against the threat of the supposed foreign «conspiracy». The conspiracy was allegedly organised by Americans, Norwegians, Europeans, and Indians, along with the UNHRC, and aimed at interfering in Sri Lanka’s national affairs. The second issue was based on championing development policies followed during Rajapaksa’s presidency, which emphasized major infrastructural projects. The third, which was also the dominant theme of Rajapaksa’s campaign, was essentially marked by an incendiary communal attitude focused on highlighting the threat of a possible resurgence of the Liberation Tiger Tamil Eelam (LTTE). The former President indeed accused the government of concerting with the LTTE and jeopardising national security by removing the Army from the North and «nurturing terrorists».[54] This divisive approach ended up being rejected by most of the electorate, in particular in the electoral districts with a considerable presence of ethnic and religious minority populations. In those areas, the UPFA performed even worse than it had in January. It is no coincidence that the Tamil National People’s Front (TNPF), which embraced a sharply nationalistic position with a separatist manifesto, also did not gain any seats, in contrast to the moderate TNA. The latter obtained 16 parliamentary seats, thanks to the remarkable support it gained among Tamil voters, who appreciated the role played by the party in calling for the building of democracy by opposing the constantly authoritarian style of the Rajapaksa regime.[55]

Unlike the SLPF, the UNP based its campaign on topics related to development, as indicated by its five-points manifesto – focused on the growth of the economy, the fight against corruption, the enshrining of freedoms for all, investments in infrastructures, and improvement of the education system. This agenda sounded attractive to a wide range of voters, irrespective of their religion or ethnicity. In addition, while Wickremesinghe campaigned all over the island, Rajapaksa carried an electoral campaign that focused on the UPFA strongholds, virtually ignoring the Northern and Eastern Provinces.

Furthermore, since his defeat in the January election, Rajapaksa’s political opportunities undoubtedly shrank because of the loss of the political power he had enjoyed while being in control of the government, with its machinery and patronage network.[56] At the same time, Rajapaksa’s image suffered a gradual deterioration that affected even his formerly immense popularity among the Sinhala electorate, especially in urban areas. The inquiries launched under the Sirisena administration into allegations of corruption, abuse of power, and even murder contributed to dispelling the myth of the national hero that had arisen around the former President.[57] Besides, the news circulated that, when defeated at the Presidential poll, Rajapaksa had sought to orchestrate a coup, eventually conceding defeat only because unable to gain the support of the Army Chief and the Police Inspector General.[58] Despite the fact that this accusation had not been proven, it undoubtedly played a part in further discrediting Rajapaksa. As a result, the UPFA and its Prime ministerial candidate were not able to achieve the same kind of electoral mobilisation that Rajapaksa’s charisma alone had achieved during past elections.[59]

Despite the UPFA electoral defeat, the lack of an absolute majority compelled the UNP to engage in intensive negotiations with other parties, mainly the SLPF, in order to achieve the formation of a National Government able to last two years. This task was accomplished on 4 September, at the cost of conspicuously expanding the cabinet beyond the originally pledged number of 30, following in this way the pattern previously implemented by Rajapaksa’s administration.[60] In fact, the cabinet composition required a great effort by Wickremesinghe and Sirisena to balance different needs and demands. In order to do that, the UNP renounced several important Ministries, such as those of Power and Energy, Petroleum and Gas, and Labour and Trade Unions, in order to accommodate its allies. This was a sacrifice well worth doing, because, according to Sirisena, the unity government represented a prime strategy for achieving «reconciliation among all communities» and «socio-economic development to face the new world».[61]

After the swearing in of the new government, the reconciliation goal was certainly supported by the new Prime Minister’s decision to recognise the TNA leader R. Sampanthan as the Leader of the Opposition in Parliament.[62] That was the first time, after over three decades, in which a Tamil Member of Parliament was appointed to this office.[63] This happened in spite of the opposition of Rajapaksa and his SLFP loyalists, which had joined the opposition. In fact, the former President and his supporters requested the appointment of one of them, Kumara Welgama, as Leader of Opposition. Against this backdrop, Sampanthan’s appointment acquired a double meaning: on the one hand, it was designed as a reassurance to the Tamil community with regards to their place in national politics;[64] on the other hand, it was a measure to further marginalise the former President.[65]

Even with the difficulties faced by Sirisena in the first months of his office, the President displayed his ability by widening his support and establishing his leadership over the SLPF, while the party faction still devoted to Rajapaksa was gradually isolated and weakened. The aim of the National Government was to «work harmoniously at least for another two years to come to a consensus on the basic issues affecting the country».[66]

7. The role of Sri Lanka in the Indian Ocean dispute

The field that has been most affected by the establishment of Sirisena’s administration is that of foreign policy. The ensuing political shift has been highly welcomed by India and Western countries, in particular the United States. In fact, Sri Lanka is a key nodal point for sea-routes, whose worldwide importance has increased as a result of the pivotal role the Indian Ocean plays in the global economy and the geopolitical strategy of a number of countries. In fact, the most significant Sea Lines of Communication (SLOC) and a number of major choke points in the world are hosted by the Indian Ocean. More than 80% of the global seaborne trade in oil transits through Indian Ocean choke points, with 40% passing through the Strait of Hormuz, 35% through the Strait of Malacca, and 8% through the Bab-el-Mandeb strait.[67]

Since the end of the 1960s, in the background of the Cold War, foreign superpowers and local countries have increasingly paid attention to this region, engaging in a competition aimed at enlarging their own areas of influence, securing their vital interests, and imposing their hegemony on the Indian Ocean. Therefore, the United States, China, and India have formed a «strategic triangle», within which their rival ambitions over the Indian Ocean has emerged more and more acutely.[68] After the end of the Cold War, Washington tried to secure a major role for itself in the Indian Ocean, with the purpose of containing Beijing’s influence over the area. In fact, the interests of the United States appeared to be threatened when China started to increasingly assert its presence on the Indian Ocean chessboard, especially from the 1990s onwards, when Beijing launched the so called «String of Pearls» strategy. This strategy has consisted in the establishment of strategic relations with Indian Ocean littoral countries through the installation of maritime infrastructure and Chinese detachments in coastal ports, like Coco Islands, Sittwe (formerly Akyab) and Bassein in Myanmar, Chittagong in Bangladesh, Hambantota in Sri Lanka and Gwadar in Pakistan. The strategic partnership that China has strengthened with those littoral Asian countries has been enhanced by infrastructural and commercial cooperation. This has allowed Beijing to secure a vital maritime line, connecting the South China Sea to the Gulf of Bengal, and then on to the Persian Gulf and the Red Sea. However, the Chinese effort in engineering a «new maritime silk road» predictably collided with both the US and Indian interests in the area. As a consequence, Sri Lanka, because of its commercially and a strategically geographical location, could not avoid being involved in this dispute.[69]

During Rajapaksa’s rule, Colombo approached Beijing and joined enthusiastically its «String of Pearl» plan, which resulted in the launching of a series of Chinese funded projects – such as the Hambantota port, in the South of the island. Throughout his presidency, Rajapaksa massively promoted economic and military ties with China, with India and the United States showing growing concern. As a consequence, during Rajapaksa’s years relations between China and Sri Lanka have grown closer at a rapid pace, along with the increase in Chinese investments in the economy of the island. Foreign direct investment from China, which was US$ 101,2 million in 2008, grew to 149,3 million in 2011.[70] Beginning in 2007, Beijing has turned into the biggest provider of loans to Colombo, albeit at a high rate of interest, overtaking countries such as India and Japan, which had previously been the largest source of financing for Sri Lanka’s infrastructure projects. In addition, the total trade between Sri Lanka and China has been steadily increasing over the years, more than doubling from 2009 to 2012.[71] The friendship between Beijing and Colombo was further strengthened in 2013 thanks to the signing of a Strategic Cooperative Partnership and, in 2014, by the first visit of a Chinese President to Sri Lanka in 28 years, along with the signing of 27 agreements.[72]

The Obama administration was undoubtedly irritated by Rajapaksa’s strong ties with Beijing and eager to bring Sri Lanka closer to its «pivot to Asia» policy. As a consequence, the role played by Delhi and Washington in favouring the change of regime that occurred in January 2015 in Sri Lanka was neither unexpected nor negligible. At first, India and the United States exerted significant pressure on Colombo through the UNHRC and the potential threat of economic sanctions.[73] Given Rajapaksa’s unwillingness to fulfil the UNHRC recommendations, the international body voted in 2014 for a stricter resolution calling on the U.N.’s human rights office to investigate allegations of war crimes, through the establishment of an independent commission of inquiry.

Sirisena’s election to the presidency was strongly backed by two leading Lankan politicians with friendly relations with the U.S.: UNP’s leader, Ranil Wickremesinghe, and Sri Lanka’s former President Chandrika Kumaratunga, the latter being the main architect in bringing Sirisena forward as the common opposition candidate. Also New Delhi seemed to be involved in manoeuvring behind the scenes, with the aim of bringing about Rajapaksa’s departure. Indeed, the Sri Lankan station chief for India’s foreign intelligence service allegedly cooperated with the local opposition parties to get them to agree on a joint contender for the election, facilitating meetings and encouraging defections from the UPFA.[74]

8. Rebalancing Foreign Policy

The confidence of United States and India in Sirisena’s presidential candidacy was actually well placed. In fact, the foreign policy vision outlined in the NDF electoral manifesto was grounded on the consolidation of Sri Lanka’s relationship with its Asian neighbours and a willingness to establish equal relations with China, Pakistan, Japan, and India. In particular, in relation to India, the manifesto, by alluding to the different positions vis-à-vis Sri Lanka taken by India’s central government and by the government of the nearby Indian state of Tamil Nadu (which, being inhabited by Tamils, had a special interest for the Lankan Tamil minority), asserted: «Our Indian policy will take into due consideration the diversity of India». The Manifesto went on stating: «I [Sirisena][75] would act to have closer relations with an attitude that would be neither anti-Indian nor dependent».[76] Such an agenda aimed at allaying New Delhi’s anxiety about its relations with Sri Lanka, which had witnessed a dramatic deterioration, when, in November 2014, a Chinese submarine and a warship had docked in Sri Lankan ports, on the very day the Japanese Prime Minister was visiting the island.[77]

After assuming office, Sirisena’s first foreign visit, significantly, was to India. On 15 February 2015, the Sri Lankan President indeed met Narendra Modi in order to strengthen bilateral relations between the two countries. During the visit, India and Sri Lanka signed four agreements; among them, the most strategically important was the pact pertaining to civilian nuclear cooperation. Such an agreement could not but be perceived as a «major setback for China».[78]

The rapprochement between New Delhi and Colombo was fostered by Indian domestic factors as well. In fact, the landslide victory of the Narendra Modi-headed Bharatiya Janata Party (BJP), in May 2014, allowed the new Indian government to carry out a foreign policy less affected by the requests of the Indian Tamil parties.[79] In addition, the BJP-led administration displayed a renewed eagerness to engage with India’s neighbours and reclaim New Delhi’s status as a major power in the Indian Ocean, as shown by Narendra Modi’s five days visit to the Seychelles, Mauritius, and Sri Lanka (10-14 March 2015). The visit was designed to strengthen India’s key role among the Indian Ocean island states, improve security cooperation in the area, and counter China’s growing presence in the region. Modi’s trip to Sri Lanka was politically very significant, since it was the first Indian Prime ministerial visit in 28 years to the island. [80] The visit mainly aimed to ensure that India gained a stronger presence in the eastern port of Trincomalee, thanks to the joint development of an Oil tank Farm.[81] Nonetheless, Modi also took the opportunity to raise the Tamil issue, urging Colombo to implement the provisions enclosed in the 1987 Indo-Sri Lankan agreement.[82]

New Delhi’s effort at strengthening its position in the Indian Ocean was a product of the need to reverse what had been a protracted phase of policy neglect, which had favoured China’s strategy to become a major player in the area. In fact, as regards to Sri Lanka, India had failed to provide significant investments in the country’s maritime infrastructure, which the island-state perceives as essential to achieving its national development goals.[83] That was a situation that the new Indian Prime Minister appeared keen to reverse.

Not surprisingly, China’s relations with Sri Lanka seemed to be heading for trouble, when, soon after the January Presidential election in Sri Lanka, anti-corruption probes were started, putting under scrutiny the allegedly tainted ties between the Rajapaksa administration and the Chinese investments in Sri Lanka. Following this probe, the construction of the Colombo Port City, a US$ 1,4 billion Chinese project, funded by a company considered a security risk by New Delhi, was suspended until the completion of an inquiry into allegedly unlawful awarding of the contract. To this followed a meeting between the Sri Lankan Foreign Minister Mangala Samaraweera and the Chinese Premier Li Keqiang in Beijing (27 February 2015), during which the Sri Lankan Minister sought to renegotiate some huge loans given by Beijing at rates as high as 8%. Samaraweera also announced the decision not to allow further Chinese submarines docking in Colombo.[84]

Once all this has been pointed out, it is worth stressing that Sirisena’s foreign policy did not aim at breaking ties with China, but at rebalancing them. In fact only one month after his visit to India, the Sri Lankan President went to Beijing to meet Xi Jinping (25-27 March 2015). On that occasion, the two countries reaffirmed their longstanding ties and the Chinese President expressed China’s eagerness to «again promote and elevate the Sino-Sri Lankan relationship to fulfil an important purpose».[85]

Beijing did not appear to be resigned to a weakened friendship with Colombo. China considered its friendship with Colombo as being fundamental to its strategy in the Indian Ocean, in order to keep its favourable position in the region and secure its growing energy needs. Accordingly, the Chinese answer to Sirisena’s rebalancing in foreign policy was to pledge over US$ 1 billion new grant to Sri Lanka after a Chinese luxury real estate project in the capital Colombo was suspended. Furthermore, Chinese companies agreed to cut the cost of the US$ 520 million project to build a road in a Colombo suburb by $ 225,73 million.[86]

The apparent slowdown experienced by Sino-Sri Lankan relations is likely to result in a «normal» relationship with Beijing, which could enable Colombo to avoid irritating India and the United States. According to government spokesman Rajitha Senaratne, the Sirisena’s administration has not been «against China, but we have been analysing and re-evaluating all the projects so that Sri Lanka gets the best deal».[87] Chinese investments in Sri Lanka have been significantly greater than Indian ones and, despite the political change that has occurred in the island, Beijing’s presence in the area will likely «continue to rise in the coming years».[88]

9. The reconciliation between Sri Lanka and United States: implications on the UNHRC attitude

The remarkable shift that occurred in Sri Lankan international relations following Sirisena’s rise to the presidency was reflected notably in the attitude of Washington towards the island-state. The United States, indeed, praised the result of the January 2015 Presidential poll and welcomed the regime change that took place on the island.[89] Apart from the rhetoric about the Sri Lankan democratic twist, Washington was pleased by the pro-Western bias in Sirisena’s foreign policy agenda, which could not but favour the U.S. strategic interests. The ensuing change in the Sri Lanka-U.S. relations was signalled by the visit of U.S. Secretary of State John F. Kerry to Sri Lanka, in May 2015. The visit had a highly symbolic value, since Kerry was the first top-level U.S. diplomat to visit Sri Lanka in ten years. The reconciliation between the two countries brought with it other important consequences, especially as far as the UNHRC was concerned, as the Obama administration adopted a more compliant approach on the issue of war crimes accountability. In fact, the prospect of setting up a United Nations investigation into the war crimes committed during the Sri Lankan civil war, previously strongly supported by the United States, appeared to have become less compelling with Sirisena’s election. The point of view of Washington on the issue was well formulated by New York Times’ journalist Ryan Goodman: «Pushing for full, sweeping accountability in this fragile moment of transition could destabilize the new government and jeopardize the warming of relations between the United States and Sri Lanka».[90] Since the beginning, Sirisena’s administration struggled both to avoid an independent international investigation and to gain a postponement in the release of a UNHRC «landmark enquiry»  into possible war crimes, originally scheduled for March 2015.[91] Essentially, Sirisena sought successfully to convey the impression that his government was, on one side, definitely more open to pursuing the responsible of war crimes than that of his predecessor, but, on the other side, maintained Rajapaksa’s same stand with respect to averting direct international involvement in war crimes prosecutions.

After fruitful negotiations within UNHRC and with Washington, Colombo was able to obtain a six-month delay of the presentation of the U.N.’s report on war atrocities.[92] This concession to the Sirisena administration was granted in anticipation of the conclusion of the scheduled general elections.[93]

In addition to postponing the resolution, the Sri Lankan government reached a further and greater success. This was the achievement, within UNHRC, of a mutually agreeable mechanism for addressing the issue of war crimes and human rights violations in the country. Such a mechanism was envisaged in the resolution passed without any opposition, on the occasion of the 30th session in Geneva on 1 October 2015.[94] The motion had the strong endorsement of India and, importantly, the crucial support of the United Stated.[95] Indeed, the latter took an active part in searching for a joint solution through consensus, and the final UNHCR document represented the outcome of this effort. The final content of the resolution probably exceed even the more ambitious hopes of the Sirisena administration, meeting fully Sri Lankan demands. Firstly, the UNHRC document acknowledged «the steps taken by the Government of Sri Lanka since January 2015 to advance respect for human rights and to strengthen good governance and democratic institutions».[96] Secondly, the resolution largely backed the Sri Lankan aspiration to implement a domestic accountability mechanism, rather than establish an international court. As a result, the accountability mechanism by the UNHRC was pretty far from the hybrid special courts suggested by both the U.N.’s report and the High Commissioner, Prince Zeid Ra’ad Zeid Al-Hussein.[97]

The UNHRC resolution represented a dramatic shift in the United States’ position on the issue of Sri Lankan war crimes. No doubt, this softening of Washington’s stand can be explained by the more collaborative attitude showed by the Sirisena administration and its asserted willingness to make those responsible for war crimes accountable. On the other hand, it clearly aimed at further encouraging Colombo to more closely enter into the US network of strategic alliances in the Asia-Pacific region, leaving the Chinese orbit for good.

Although a clear-cut success, as pointed above, the UNHRC resolution was doomed to disappoint sections of Sri Lankan society, namely both the Sinhala nationalist groups and the Tamil community. The former, indeed, blamed the government for allowing the international community to violate Sri Lankan sovereignty, while the latter perceived the provisions included in the resolution as too mild. A joint statement on the draft UNHRC resolution, issued on 29 September by a wide range of Tamil civil society groups and political parties, reflected their frustration. They regretted the lack of adequate provisions for the setting up of a credible investigation. According to the joint statement, the UNHRC resolution merely sought «to provide the appearance of credibility to a domestic process through the appointment of ‘commonwealth and other foreign judges, defence lawyers, and authorized prosecutors and investigators’».[98] Consequently, the judicial mechanism, managed to a great extent by the Sri Lankan state, was, in fact, branded by the Tamil groups as not credible for the (mainly Tamil) victims. As a matter of fact, the UNHRC resolution called merely for an oral report in June 2016 and a written report in March 2017. This arrangement appeared like a noteworthy attenuation of international pressure on Sri Lankan state, if not even a sort of disengagement.

10. Political Economy

10.1. The Interim Budget and after

At the beginning of the year under review, the economic situation appeared bleak. During the first quarter of 2015, Sri Lanka witnessed a significant slowdown in its GDP growth, which, in comparison with the previous year, went down from 7.4% to 4.4%.[99] Its causes were several. One was that, the country’s total debt had reached US$ 58.7 billion, which implied heavy annual costs in debt servicing.[100] This was a situation which had come into being in the previous decade, mainly as a consequence of expenditures on large infrastructure development projects, the financing of imports, and loan repayments.[101] As half of the total debt was foreign debt, this, by itself powerfully contributed to the worsening the country’s balance of payments. A conspicuous role in it was played by the infrastructure projects funded by Beijing, which caused Sri Lanka to triple its foreign debt over the past five years, due to the high interest rates of Chinese loans.[102]

This situation was further aggravated by the adverse effects of the world-wide international economic crisis.

To the above long term factors, two others added themselves at the beginning of the year under review. The first was the new government’s decision to suspend a series of construction projects funded by Chinese investments.[103] Of course, as has been pointed out above, repaying the debts related to the infrastructure projects funded by the Chinese was a major factor in the Sri Lankan balance-of-payments crisis. However, to suddenly suspend them could not but adversely impact on the economy as a whole, because, since the end of the civil war in 2009, the Sri Lankan economy had mostly been driven by them, allowing the Rajapaksa’s regime to sustain an impressive average annual growth of 7.4%.[104]

The second contingent cause of the economic slowdown was the uncertainty brought into being by the change of regime that occurred in January, along with the prospect of a new parliamentary election during the course of the year.[105]

This being the situation, the interim budget, approved on 29 January 2015, was nevertheless aimed less at remedying the causes of the economic slowdown than at pursuing the goal of social justice (or, should one prefer the language normally employed by the mainstream media and neo-liberal economists, at implementing populist policies). Of course, in whichever way one views the measures characterising the 2015 Interim budget, they had the advantage of likely gaining electoral support for the parties in government during the incoming general election.

Among the most notable provisions, aiming at pursuing social justice by raising the living conditions of workers and the poor, there were the enhancement of the salaries of state sector public servants, the raise of pensions, the cutting of farmers’ loans by 50%, the cutting of taxes on 13 essential food items, the continuation of the agricultural fertilizer subsidy, and the raise of the education allocation to 6% of GDP. Also congruent with social justice goals can be considered those interim budget provisions introducing additional taxes on the most profitable private companies and the wealthy – such as an annual mansion tax, a 25% «Super Gain Tax» on companies whose profits exceed 2,000 million rupees, a tax on casino business-owners, and a onetime tax on telecommunication providers and mobile phone operators.[106]

In spite of its expansive character, the Interim Budged aimed at bringing down the fiscal deficit from the 4.6%, estimated in the previous budget, to 4.4%. This target was aimed at by the dubious method of cutting public investment from 6.2% to 4.5%.[107]

Not surprisingly, criticism to this policy came from the International Monetary Fund (IMF), which disapproved of the financial measures adopted by the Sri Lankan government for lacking credible steps to boost revenues; the IMF warned that such measures could threaten the island nation’s fiscal consolidation.[108] The IMF had indeed demanded that Sri Lanka enhanced its revenues and implemented a policy of economic austerity as a precondition for any new loan.[109] However, as shown above, the interim budget went in the opposite direction, and, in spite of its rosy forecast, the fiscal deficit target was exceeded in the first semester of 2015. According to Government’s data it reached 4.7%, whereas, according to IMF estimated, the full year budget deficit was likely to be close to 6.0% of the GDP.[110]

In spite of the IMF criticism, the expansion of expenditures promoted by the interim budget seemed, at first, to be able to revive the economic growth, which, in the second quarter of the year, increased to 6.7%. The growth appeared to be broad based – with tourism earnings that grew notably by 14% – despite agriculture continuing to underperform because of drought early in the year, which were followed by heavy rains and flooding.[111] Also the inflation trend improved, as it experienced a remarkable drop, especially related to fuel and food prices. Indeed, food inflation went down from 12% in December 2014 to 2.5% in August 2015.[112]

These positive developments were however more than overshadowed by the rising debt and the accelerated worsening of the balance of payments.[113] According to an analysis published in the influential Wall Street Journal in mid-September, «Sri Lanka’s rising debt [was] unsustainable and the country [was] heading for another balance-of-payments crisis». The same analysis went on pointing out that debt financing was «dangerously reliant on commercial borrowing at a time of increasingly volatile capital flows to emerging markets».[114]

10.2. Wickremesinghe’s «third generation» reform plan

On 5 November, Prime Minister Ranil Wickremesinghe, delivered a statement in front of the Parliament, outlining the plan for a complex set of socio-economic reforms. Some of these reforms appeared well thought out, others were barely outlined; all of them, however, aimed at making the economy of the island flourish, while keeping in mind both social justice and the need to heal the wounds of the civil war.[115]

Wickremesinghe’s action plan appeared to be influenced on one side by the history of the island, which, in pre-colonial times had been a major hub in the flourishing Indian Ocean trade routes, and, on the other, by Singapore’s contemporary example. As remembered by Wickremesinghe, Singapore, which in the 1950s looked up to the Sri Lankan example, envisioning to follow it, had conquered a much more advanced position, becoming a major regional power, in spite of its complete lack of natural resources, «not even water».

In order to reach his goal, Wickremesinghe intended to introduce a «third generation» economic reforms. As remembered by the Prime Minister, after the post-WW2 period, when Sri Lanka had «lived with the false notion that the Government must somehow intervene in the economic process» and when «heavy taxes were imposed on the private sector that negatively affected imports and exports», a first set of reforms, were introduced by President J.R. Jayawardena in 1977, starting to change the existing system. These were followed by a «second generation economic reforms», which «took place under the aegis of President Premadasa» (in office from 1989 to 1993). At the time, according to Wickremesinghe: «The investment climate and the stock market were dynamic and free to grow in leaps and bounds.  State enterprises that were considered not relevant to be managed by the Government were given to the public. The initial growth and expansion of the garment sector, which forms a key economic area today, took place at the time.»

According to Wickremesinghe, all that had changed for the worse during the Rajapaksa’s administration, whose procedures, based on «erratic economic process and irregular practices» had pushed the country into an «economic abyss». Now, in Wickremesinghe’s own words, it was the time «to steer the country in the right direction with the third generation economic reforms that would herald in a new era».

What said so far can lead one to think that Wickremesinghe’s «third generation» reforms merely amounted to a more or less extensive implementation of the usual neo-liberal economic policies, giving a free hand to international and domestic capital, without much attention for the needs of the subordinate classes. This is an impression which could not but be strengthened by Wickremesinghe’s reputation as a friend of free-market policies and a critic of state intervention in the economy. But already Wickremesinghe’s reference to former President Ranasinghe Premadasa was a give-away that the Prime Minister’s strategy was something more complex than the simple implementation of the neo-liberal orthodoxy. Indeed Premadasa had started his public life as an activist working for the uplifting of the poor and ended it as a President who had played a key role not only as the author of the «second generation» reforms, but in the field of poverty alleviation. In fact, Wickremesinghe’s action plan, while pushing for a series of policies congruent with neo-liberal orthodoxy, included numerous provisions aimed at promoting the economic welfare of the lower social strata. As claimed by Wickremesinghe himself, towards the closing of his speech: «The economy we plan to build must yield results for all. An economy that will promote the benefits of development among all. An economy that will be friendly to all, beneficial to all.»

In order to achieve this objective, Wickremesinghe outlined a complex set of strategies. The most impressive was the plan to establish a State Holding Corporation Limited, «built along the lines of the famous Temasek Company of Singapore», with the task to manage «on sound economic principles and market economies» all state enterprises. At the same time, the shares of state enterprises would be sold to the public through a newly created Public Wealth Trust, whose managing board would be selected from the ranks of civil society, unions and chambers of commerce, and whose activities would be supervised by the Secretary of the Treasury and the Governor of the Central Bank.

Another key strategy aimed at confronting «the catastrophe facing the rural economy». This strategy implied the establishment of 2500 state rural development centres, the building or strengthening of rural infrastructures, the creation of «large scale enterprises in which farmers can be members». Moreover, «a fully fledged agro marketing authority that will purchase all agricultural produce» was to be established. Its task was handling «all matters relating to marketing, storage, sourcing markets, improving transport, purchasing of produce at a village and provincial level, preserving of produce and freezer facilities». Finally, the Prime Minister planned both «to put into place a mechanism that will encourage and empower landowners investing in new technology and farming methods», and to gear Sri Lanka’s agricultural production to meet the food requirements of the middle class in the SAARC (South Asian Association for Regional Cooperation) region.

An additional key strategy aimed at empowering «3 millions citizens to become land and house owners», through a set of policies, including a low interest loan scheme.

Wickremesinghe also envisioned the carrying out of a series of institutional reforms aimed at making the state machinery more efficient and more responsive to the needs of the Sri Lankan population. Among them there was the creation of a new pension fund; the establishment of a new Employment Council in charge to ensure minimum wages for the working population; structural changes in the Central Bank, making it more independent; the creation of a Tea Industry Committee to enhance the efficiency in tea production; the creation of an International Trade Agency «that will handle all aspects of international trade»; the restructuring of the Board of Investment, of the Export Development Board and of the Tourism Authority. Finally, an Agency for Development, bearing responsibility for «managing all economic activity» and «manned by professionals from the state and the private sector» was to be created within three years. The same deadline was set for restructuring the Board of Investment, the Export Development Board and the Tourism Authority. No clear cut deadline was set for the creation of restructuring of the others above quoted institutions.

Expenditures on education were to be augmented, taxes on knowledge and talent removed, and women were to be supported. In fact, another main government effort was to be geared at «reviewing the possibility of providing economic empowerment for women». «We will implement a policy of ensuring that 25% of all political representation at provincial government level will be allocated to women», said Wickremesinghe. He went on promising that: «In future, from 2017 onwards, when making budget allocations, it will be based on identifying financial needs on a gender basis, enabling women to have better access to opportunities at all levels».

The Prime Minister also pointed out the intention to rebuild the war affected areas in the North and East of the island. To this effect, Wickremesinghe stated that «we have discussed with Japan the possibility of conveying an aid summit in this regard in 2016».

On a more strictly economic plan, the Prime Minister, while taking pride in the economic policies introduced with the interim budget, and pointing out that, as a result, «people have more money in their hands», announced a series of changes, on the whole favouring the business community, but not only it. Among these changes there was the reduction of the budget deficit to 3.5%[116] and the abolition of the «Super Gain Tax». The latter had «served the purpose of propping up demand and providing relevant revenue», but was not needed any more. Also the Prime Minister stressed the fact that, in order to achieve the results broached out in his speech, it was vital «to encourage foreign investment and investment by individuals». Consequently he promised protection for local and global investors and announced the government intention not to make use of Under Utilized Asset Act, which had been misused in the past, in order to harass business, in some cases taking it over. «We will not engage in such activities.» announced Wickremesinghe, who went on saying: «The Government will not take over private enterprises. We will also review the business taken over in this manner».

Business activities were to be further promoted by the establishment of 11 business and development areas throughout the island – some of them in the geographical parts more affected by the civil war – and by the creation of financial and business areas, fitted out both for economic activities and social development («…they will have schools, hospitals and highways»).

At the same time, the Prime Minister pointed out the necessity «to review the tax concessions given to the investors» and announced a policy aimed at the minimization of regressive taxes. The latter policy was to pursue the medium term aim to bring down to 60%:40% the existing 80%:20% indirect/direct tax ratio. Both were steps going against the interest of the business community, although congruent with the general interest.

Concluding the present examination of Wickremesinghe’s speech, it is necessary to dwell on the fact that, as already noted, in it two different – some would say contradictory – themes were present: a neoliberal strategy of economic reforms and the pursuit of social justice. Only the future will tell if one of the two strands will prevail on the other, or if they will coexist side by side. Also, only the future will tell if Wickremesinghe’s promises were just only that – heady promises without any concrete follow-up – or a turning point in Sri Lanka’s history, the beginning of a new phase, not only in the economic field, but in the political and social ones as well. The fact that, at the time of writing the present essay, the latter possibility did exist explains why the present author has dwelt at some length on Wickremesinghe’s «third generation reform» speech.

10.3. Towards the «Third Generation» reforms? The 2015 budget

In closing his 5 November speech, Wickremesinghe claimed that: «The first budget of our Government presented on the 20th [of November] will reflect the third generation economic reforms we have planned».[117] To a certain extent this promise was fulfilled, even if the decisions part of the budget do not – actually could not – be taken as proof that Wickremesinghe’s promises were in the process of being actually translated into concrete policies. After all, as pointed out time and again by Wickremesinghe in his speech, most of the promises there made were part of a medium-term program, needing some years in order to be implemented.

Budget 2016[118] was presented on 20 November by Finance Minister Ravi Karunanayake in a marathon speech lasting more than four hours.[119]

The speech was differently assessed as «a road map for economic reforms»,[120] as providing «relief to people by reducing the prices of essential commodities»,[121] and as an austerity budget, «in line with the pro-business demands of the International Monetary Fund».[122] At the end of the day, however, Budget 2016 can be evaluated as characterized by the same ambiguities already present in Wickremesinghe’s 5 November speech: strategies in line with the neo-liberal orthodoxy coexisted with an array of measures which neo-liberal ideologues would decry as «populist».

On the social front, prices of 11 essential commodities were reduced; a programme to build 100,000 houses in five years for slum dwellers and low income groups were announced; new laws to grant ownership of lands and houses to those who had occupied them for over 10 years were announced; a series of training and financial measures favouring teachers were made known. They were to be accompanied by increased investments in education and health. Moreover, the Finance Minister urged «the private sector employers to increase the monthly salary by at least Rs.2,500 per month of which Rs.1,500 per month could be given in 2015 and the balance Rs.1,000 per month in 2016» [§ 303]. In making his request, Karunanayake pointed out that the «necessary legislations will be brought in to implement this»[§ 303].

Confirming what had already been said by Wickremesinghe on 5 November, Karunanayake also officially announced that: «While the government has committed to a significant amount of funds for the development of the war affected areas, we also plan to convene a Donor Conference in 2016, to generate support from bilateral and multilateral agencies to enhance the rehabilitation of the North and the East» [§ 507]. In fact, many of the budget provisions aimed at improving the situation in the war affected areas, in the North and East of the island, were 70% of the Tamil population lived. Also, Karunanayake announced the Government’s decision «to ensuring that the issues of the internally displaced people are addressed immediately.» «In this regard, – stated the Finance Minister –  we will initiate a rapid large scale resettlement programme for the internally displaced people and provide basic needs and livelihood opportunities to the already resettled families. In this respect, we will be building 20,000 houses especially in the Districts of Mannar and Mulativu,[123] with proper sanitation facilities, access to clean water and electricity» [§ 508].

In consonance with fiscal prudency, Karunanayake announced that the time had come «to critically analyze and evaluate the expenditure needs of the line ministries and departments to rationalize unnecessary expenditure and eliminate excessive administrative overheads» [§ 65]. He also noted that the «social protection and safety network mechanism» aimed «to protect the most vulnerable in the society» was «riddled with issues of inefficiency and sub optimal effectiveness in reaching those who actually require assistance» [§ 410]. Hence the Finance Minister decision to review this scheme.[124]

A main aim of the budget was that of attracting foreign investment. Accordingly Karunanayake announced «an investor friendly Foreign Exchange Management Bill (FEMB), which would help attract foreign flows from the SAARC and the world at large» [§ 199], the removal of tax on leasing of land to foreigners and the lifting of restrictions on land ownership by foreigners in the case of selected investments. The Minister of Finance also assured that any application for foreign investment would be cleared in 50 days and investors allowed to bring money to Sri Lanka «through any bank account existing in the formal banking system» [§ 208].

At the end of the day, and differently from what claimed by some analyst, it is difficult to allege that Budget 2016 imposed «a series of austerity measures on working people while granting significant concessions for local and foreign capital».[125] Rather, the budget, reflecting the guidelines set out in the Prime Minister 5 November programmatic speech, was a complex effort aimed at bringing together measures which could encourage both domestic and international capital to invest in the Sri Lankan economy, while introducing a conspicuous set of measures in support of the poorer and intermediate strata of the population. In this perspective it does not come as a surprise that the budget deficit, which in 2015 was equal to 6%, was brought down of a modest 0.1% to 5.9% in 2016.[126]

10.4. Taking stock of the economy

During the year under review, weak global demand and domestic political change adversely affected the economic situation in the island-state. Investment faltered as investors decided to assume a «wait and see» attitude. Moreover, the Sirisena-Wickremesinghe administration cut capital spending and, as noted above, temporarily suspended some large investment projects approved by the Rajapaksa’s administration. In that situation, growth was sustained by an increase in private and government consumption spending and was led by a 5.3% expansion in the service sector, the largest one in the Lankan economy.[127]

In spite of the above listed difficulties, at the closing of the period under review, the Sri Lankan economy still managed «a respectable growth». In fact the economy expanded 2.5% on a yearly basis in Q4, namely the fourth quarter of the year, bringing full year growth to 4.8%.[128]

Of course, all economic difficulties were still there, in particular an adverse balance of payment and a ballooning debt. Accordingly, only the future will tell if the new Sri Lanka administration will be able to progress on a path of social justice and economic growth, pointed out in Prime Minister Ranil Wickremesinghe’s 5 November speech.