Thread by @ChayuDamsinghe

On this independence day, I'd like to tell a story of a country in economic crisis and why, despite everything, I'm still cautiously hopeful for the long term of Sri Lanka.

#SriLanka #lka #SriLankaIndependenceDay #EconomicCrisisLK

After years of borrowing that led to an unsustainable situation, an external moment triggered a huge economic crisis in the country, possibly the worst in modern history.

The exchange rate skyrocketed, inflation rose to very high levels before falling, interest rates shot up to unexpectedly high levels. There were huge shortages across the country, especially of food and medicine in the poorer parts of the country.

At the start of the crisis, the country was led by an extremely powerful leader, who had gotten his family intimately involved with the politics and economics of the country. While this leader approached the IMF, they were also unwilling to follow through.

As the crisis got worse, and unrest on the ground got worse, the situation evolved so that this powerful leader was chased out of power, in a great victory to the people.

Afterwards, what actually happened was that a leader that was considered by many to be a friend to the ousted leader, became the President of the country through a constitutional process.

This leader led the IMF programme and generally followed the process. They also made some political and governance reform - including pushing for more democratic elections, improving freedom of speech, and regional autonomy.

However, as widely expected, there were minimal anti-corruption measures. The previous leader wasn't prosecuted and many accused the new leader of protecting the old as part of a deal. In fact, members of the new leader's staff testified against some prosecution of the old family

After going back and forth on whether they would stand for reelection, the new leader ultimately decided not to. They were followed by a "new face leader" from a recently established party that was largely from the membership of a previous organisation.

This new face leader defeated their opponent, who was the child of a leader from the past, who was widely expected to win. The new leader campaigned on a platform of new leadership and continued political reform, but won mostly due to a fractured parliament coalescing around him.

The new face government started off with a few moves, aimed at anti-corruption and reforming welfare. However, before too long, allegations of corruption and stirring communal disharmony were thrown at the government.

While the economy was weakly recovering, there were questions about how much policy support was really coming through. The IMF programme was also slowing down through this period, though broadly still on track.

After a series of revelations of corruption, as well as sacking of a bunch of coalition ministers, the parliament turned against this new face leader. After a long spat of trying to get rid of each other (including attempted emergency), the parliament finally impeached the leader

Following this, the "child of a previous leader" who was defeated previously, ended up as the country's new leader. As a symbol of the main opposition, they were widely acclaimed at the start but soon things went aside.

This leader was accused of indecisiveness, lack of direction, and slow progress on economic and political reform. Corruption also continued, though the involvement of the leader was said to be minimal.

Due to their lacklustre performance, this leader was defeated soundly in the next election. The next leader who came in was from a military background, but was considered to be more of a moderate presence.

After the chaos of the 3 leaders following the first leader was chased out during the crisis, this new military origin leader was quite popular, and presided over a relatively good part of the country's history.

It took 6 years after the crisis to get there, but the country got there in the end. The country didn't end on a perfect situation, there was still plenty of governance and corruption issues, but the overall trajectory of the country was good.

The military leader led the country for 10 years. After that, a new leader came in from a business background. By the end of that period, the country had already held the presidency of the G20, was one of the few countries that faced a global inflationary recession well.

I wrote this story to imply this is a possible future story of Sri Lanka.

It is not.

This is, in fact, the story of Indonesia from the fall of Suharto in 1998 to the current Jokowi presidency. I've focused on the similarities and downplayed differences.

The reality of Indonesia's crisis and post-crisis situation was far worse than I mentioned. The threat of military coups existed throughout, given the larger role the military played in Indonesia. Even post-Suharto, Indonesia had likely weaker institutions than Sri Lanka.

During the crisis, things were far worse. 1000s died in race riots. Entire provinces had food supply halted. In the years after, there were multiple series of terrorist attacks.

Yet, despite all this, despite the imperfect recovery, despite the imperfect governance reform, Indonesia didn't just recover, but is doing quite well now.

I am broadly optimistic the same will be true for Sri Lanka as well. The politics can stay messy, even chaotic, but Indonesia shows that things can, and do, still turn around. Mostly due to the structure of the economy changing.

The short term may be painful and tough, and possibly more so. It may not look like progress is made. But I'm confident enough in the long term - that the structure of the economy will remain changed. And for that long term, we can all wait and build.

Note: There are plenty of differences between the two countries. Indonesia started from a much worse governance standpoint, the military and the religious establishment had more power over policy. The country was also much poorer than we are today. They had commodity exports

In a way, that makes the argument stronger - a worse situation that Sri Lanka worked out DESPITE a minimal focus on anti corruption. Economic policy worked for Indonesia - I think it can for us too.