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From left to right, the presidents of Russia (Vladimir Putin), Iranian (Ebrahim Raisi), and Turkey (Recep Tayyip Erdogan) hold talks in Tehran.
What We're Watching: Tehran trilateral, EU food jitters, Sri Lankan presidential vote
Putin, Raisi & Erdogan in Tehran: friends with differences
Leaving the former Soviet region for the first time since he ordered the invasion of Ukraine, Russian President Vladimir Putin met in Tehran on Tuesday with his Iranian and Turkish counterparts. The conflict in Syria, where Russia and Iran are on the opposite side of Turkey, was the main item on the agenda, but little of substance was announced beyond a pledge to rid the country of terrorist groups and to meet again later this year. Importantly, Turkey’s recent threat to invade northern Syria to destroy Kurdish militant groups based there still hangs in the air — a point underscored by Recep Tayyip Erdogan’s call for Russia and Iran to be more “supportive” of Turkey’s security concerns. Still, both Moscow and Tehran have warned him against an invasion. Putin and Erdogan also failed to close the remaining gaps on a UN-backed plan to restart Ukraine’s seaborne grain exports. Lastly, while Putin and the Iranians traded shots at NATO and the West, there was no public mention of the current, fast-fading efforts to revive the long-stalled 2015 Iran nuclear deal.
EU fillets financial sanctions over food concerns
The European Union is planning on Wednesday to relax sanctions against several major Russian banks in a move to address high global food prices. Although there are no Western restrictions on Russian food or agricultural goods specifically, many global traders have avoided taking Russian cargo because the Russian banks that finance those exports are sanctioned. The news comes as Ukraine and Russia are nearing a UN-brokered deal to reopen Ukraine’s Black Sea shipping lanes for grain exports. Before Russia invaded Ukraine, the two countries were leading exporters of grain and cooking oils, and Russia was a top fertilizer exporter. The war and sanctions interrupted much of those shipments, driving up global food prices and jeopardizing the livelihoods and food security of hundreds of millions of people globally. Although global food prices have eased since hitting historic highs in May, they are still 23% higher than they were a year ago, according to the UN. For complete coverage of the global food crisis, check out our Hunger Pains project.
Sri Lankan MPs pick unpopular president
Following last week's dramatic resignation of disgraced former President Gotabaya Rajapaksa, Sri Lankan's parliament on Wednesday endorsed his unpopular chosen successor amid mass social unrest sparked by a months-long economic collapse and political crisis. Ranil Wickremesinghe, the former prime minister appointed acting president after Rajapaksa's departure, was confirmed in the top job by a majority of MPs over the little-known opposition hopeful Dullas Alahapperuma. On the one hand, Wickremesinghe has the experience to lead the country through tough times and crucial negotiations for an IMF bailout after serving — checks notes — sixstints as PM. On the other, most protesters want him out because he's considered a Rajapaksa loyalist (they even torching his private residence at the height of the popular uprising). The opposition now says they’re willing to give Wickremesinghe a chance, but the political turmoil will likely continue.
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Sri Lankans celebrate the resignation President Gotabaya Rajapaksa in Colombo.
What We're Watching: Sri Lanka swears in new leader, Bolsonaro spends big, Biden to kiss the ring
Sri Lanka has a new acting president
Gotabaya Rajapaksa finally resigned — by email — on Thursday as president of Sri Lanka, a country rocked by months-long mass protests, economic collapse, and political turmoil over his rule. He fled the country on Tuesday, likely to avoid arrest, and is now in Singapore, but Rajapaksa’s final destination remains unclear. Ranil Wickremesinghe, the sitting PM Rajapaksa appointed interim president before getting out of Dodge, was sworn in as acting president on Friday. Wickremesinghe’s ability to govern, however briefly, is uncertain given that protesters also want him out. Parliament’s process for selecting the new leader now begins, with a vote coming as early as next week. MPs will have to come up with an alternative candidate to serve out the remainder of Rajapaksa's term until 2025, or hold a snap election. Whoever becomes president will then have to pick a prime minister to lead a government that'll need to pass tough economic reforms to secure an IMF bailout, the only way Sri Lanka can salvage its ruined economy. Demonstrators ignored a new curfew to publicly celebrate Rajapaksa’s resignation overnight, and all eyes are on what happens next on the streets of Colombo.
A Bolsonaro bonus?
Brazil’s embattled far-right President Jair Bolsonaro is hoping that a massive new social spending package will boost his chances of being re-elected this fall. The country’s lower house this week approved a bill that would increase welfare payments by 50% and give special bonuses to certain workers, in particular self-employed truckers and taxi drivers. To pass the bill, lawmakers had to scrap a constitutional limit on government spending. Supporters of the bill say it’s necessary to help ordinary Brazilians cope with an inflation rate currently hovering around 12%. Critics say spending this much money will only worsen inflation, and that it’s merely a political ploy to help Bolsonaro, whose polling numbers badly trail those of his archnemesis, leftist former President Luiz Inácio Lula da Silva. The first round of the election will be held on Oct. 2.
Biden enters the kingdom
On day two of his Middle East trip, US President Joe Biden on Thursday signed a pact with Israeli PM Yair Lapid in which the US and Israel pledge to prevent Iran from developing a nuclear weapon. But each party has their own idea of how to do that. Washington is still holding out (fast fading) hopes of reviving the 2015 Iran nuclear deal, while the Israelis, skeptical of a deal, have always placed greater faith in a military deterrent. On Friday, Biden visits Palestinian Authority chief Mahmoud Abbas in the West Bank. The meeting revives US-PA ties that the Trump administration had broken off, but Biden isn’t expected to unveil any fresh vision for Middle East peace. All eyes are really now on Biden’s onward journey to Saudi Arabia, where he’ll spend two days meeting with Gulf leaders including Saudi Crown Prince Mohammed bin Salman. Biden will look to secure more Gulf oil production to bring down crude prices as well as broader Arab-Israeli cooperation against Iran. One little question with big optics: will Biden shake the hand of MBS, the man he once pledged to make into a “pariah”? Biden’s team says COVID protocols prevent him from doing so, but that hasn’t stopped him from pressing the flesh in Israel …Demonstrators celebrate after entering the Sri Lankan PM's office in Colombo to demand his resignation as interim president.
Sri Lanka slipping into anarchy
Things have gone from bad, to worse, to outright crazy in Sri Lanka since the beginning of the year.
We warned you early on that the country would default on its huge sovereign debt, which it did in May. Since then, the economic crisis has quickly morphed into full-blown political turmoil and a social catastrophe the likes of which the region has not seen for a long time.
And there’s no easy fix.
The backstory. Thanks to the double whammy of COVID killing tourism and dismal economic policies — like banning chemical fertilizers to grow more organic food — the island nation depleted its foreign currency reserves weeks ago.
Sky-high inflation has pushed food prices through the roof and left one-quarter of Sri Lankans hungry. Life in Colombo has become a dystopian nightmare of empty schools by day and dark streets by night to save power since the country is virtually out of fuel.
Long-simmering public fury at deeply unpopular President Gotabaya Rajapaksa boiled over last weekend, when protesters occupied the presidential palace to demand his resignation. The president, from a dynasty that has dominated Sri Lankan politics for two decades, reluctantly agreed but has not been seen or heard from since.
The latest. Rajapaksa fled the country on Wednesday, and from the Maldives appointed his also-reviled PM Ranil Wickremesinghe as caretaker president. Wickremesinghe — who’d previously promised to quit himself — then declared a nationwide state of emergency, which protesters defied by storming his office. The interim leader responded by ordering the army to do "whatever's necessary" to maintain order.
We’re still waiting for Rajapaksa's official resignation letter, and no one seems to know who's really in charge.
So, what might happen next? Don’t count on a swift resolution, says Akhil Bery, director of South Asia Initiatives at the Asia Society Policy Institute.
Even if Rajapaksa and Wickremesinghe keep their promises to step down and MPs appoint successors, Bery believes a new interim government will lack a popular mandate, and be too weak and unstable to pass the tough economic reforms the IMF requires to bail out Sri Lanka. What’s more, Rajapaksa’s party controls parliament, having won a two-thirds majority in the 2020 election.
Finally, opposition leader and presidential hopeful Sajith Premadasa is also quite unpopular, and he lost big in the 2019 presidential election against Rajapaksa.
What about a coup? Bery says a military takeover — which would be Sri Lanka’s first — is unlikely because the army so far hasn’t cracked down hard on protesters. And the institutions, especially the judiciary, remain strong.
The only way out seems to be to hold a general election. But no one is talking about that, the cash-strapped government can hardly afford the cost, and the people are clearly in no mood to wait four months to vote.
The scarier and more likely scenario is continued unrest. What would that look like?
"Anarchy," predicts Bery, drawing a comparison to crisis-ridden Lebanon. "Sri Lanka has gone from having one of the highest development indicators in South Asia and being on the cusp of becoming an upper-middle-income country to [...] going backward. You could be staring at a lost generation here."
Meanwhile, the anger will keep bubbling. "There's as much frustration with the political situation and the capture of politics by the elite as there is with the economic crisis," Bery says.
"The no. 1 big political risk in South Asia is food inflation. People don't care about much, but if you can't put food on the table, that's when they take to the streets."
Demonstrators gather on the lawn of the Sri Lankan prime minister's office in Colombo.
Chaos in Sri Lanka
Just when we thought Sri Lanka’s worst-ever crisis was about to end, things took another unexpected turn on Wednesday.
Deeply unpopular President Gotabaya Rajapaksa, who has reportedly agreed to resign but has not been seen or heard from in days, fled to the Maldives and is believed to be trying to secure asylum in Dubai or Singapore. Rajapaksa and his family were initially held up at Colombo airport by immigration officers who refused to check their passports inside the VIP lounge, where they were hoping to avoid crowds like those who occupied the presidential palace last weekend.
The president then appointed PM Ranil Wickremesinghe, a Rajapaksa ally who’d also promised to step down, as acting president until parliament meets to select a new head of state, which could take days. Wickremesinghe subsequently declared a nationwide state of emergency and curfew.
As expected, anti-government protesters — who want both men out — ignored the order, storming the prime minister's office in Colombo following a standoff with security forces. Wickremesinghe's whereabouts are unknown, and it's unclear who’s really in charge or who the military will side with moving forward.
Meanwhile, Sri Lankans are getting angrier, and things could go further south if the people don't soon get a new leader without Rajapaksa baggage.
Demonstrators celebrate after entering the p-presidential palace in Sri Lanka.
What We’re Watching: Sri Lankan anger boils over, Musk sours on Twitter
Protesters occupy presidential palace in Colombo
Long-simmering public wrath directed at Sri Lanka’s leader over the country’s economic collapse finally boiled over.
Fed up with months of food and fuel shortages, thousands of protesters broke through security barricades on Saturday to invade the official residence of President Gotabaya Rajapaksa, who had fled hours earlier. The demonstrators ransacked the premises, swam in the pool, and took selfies surrounded by luxury that ordinary Sri Lankans can only dream of. They also set fire to the nearby prime minister’s home, and say they won’t leave until Rajapaksa steps down — which he has agreed to do by Wednesday.
How did we get here? Sri Lanka's economic collapse is as much a result of the government's mismanagement — and piling debt — as the country's vulnerability to external shocks: first the loss of tourism revenue due to the pandemic, and more recently inflation and shortages aggravated by Russia's war in Ukraine. Sri Lanka defaulted for the first time ever on its sovereign debt in May and later ran out of foreign currency to pay for basic imports. India has provided a credit line and China a currency swap, but Sri Lanka still faces a humanitarian crisis.
What happens next? Opposition leaders met on Sunday in Colombo to negotiate the composition of an all-party interim government. Once they show a majority of votes in parliament, they'll accept the resignation of the president and the PM, and the speaker will become caretaker president. Rajapaksa’s whereabouts remain unknown.
The much bigger problem, though, is the economy. Sri Lanka needs a massive IMF bailout, but it'll have strings attached: the international lender requires economic reforms that’ll be unpopular yet ensure the now-bankrupt state will be able to pay back the money. Sri Lanka’s fate depends on the new government agreeing to those terms.
Musk vs. Twitter
It’s not official, but it’s getting there. Twitter is going to war with Elon Musk for dropping his $44 billion bid for the company over the social media platform’s bot problem, vowing to sue the world’s richest man. The location will be Delaware (where Twitter’s white-shoe legal firm does its thing). But the backdrop will be MAGA Land, as former US President Donald Trump & Co have panned the gazillionaire’s inconsistency, arguing that Twitter’s censorship policies will be bolstered by his (in)decision. The political soundtrack to the ensuing courtroom battle will be about endorsement and online support, like which candidate Musk will back with his 100 million Twitter followers for the 2024 presidential election. Wall Street won’t be happy, as investment banks will likely miss out on a massive payday. And then there are the conspiracy theories, including that Musk faked his bid as a cover to liquidate his expiring Tesla options at a good price. Ultimately though, there’s a larger-than-law conundrum: even if he loses, Musk may say he still doesn’t want to buy. What will Twitter do? Block his account?Sri Lankan army patrol on a main road in Colombo following clashes between anti-government protesters and supporters of the Rajapaksa family.
Sri Lanka on the brink
For weeks, Sri Lanka has been in the grips of a deepening economic and political crisis, teetering on the brink of anarchy and chaos as a largely bankrupt state at risk of becoming a failed one. Massive protests driven by soaring fuel and food prices have forced the resignation of Prime Minister Mahinda Rajapaksa and upped the pressure on the international community to help alleviate the suffering of Sri Lankans. China and India, which have both vied for influence in the small island nation, are looking on nervously. We spoke to Eurasia Group’s Peter Mumford to get a sense of what might happen next and what the geopolitical stakes are.
Will the prime minister’s resignation help end the political crisis?
It will only modestly assuage protestors, who are unlikely to be happy unless his brother, President Gotabaya Rajapaksa, steps down as well. He is unlikely to do so, at least in the immediate future, though protesters may feel increasingly emboldened by his sacrifice of Mahinda (and other family members) to push for the president’s scalp too.
That said, Mahinda’s resignation could pave the way for a “national unity” government that includes ministers nominated by opposition parties. This could help calm tensions in the streets initially. Ultimately though, a new administration, whatever its makeup, will quickly become unpopular because it'll be unable to remedy the existential economic crisis and the woes of its citizens. That will probably require a new IMF debt restructuring program and an improvement in the global economic outlook.
How did Sri Lanka get to this point?
The economic crisis is a result of mismanagement by the Rajapaksa administration (and its predecessors) as well as Sri Lanka’s vulnerability to external shocks. The pandemic and Russia’s invasion of Ukraine have had a devastating impact. The Rajapaksas pursued populist economic policies — including unaffordable fuel and food subsidies and printing money to finance them — that spurred inflation. The president was heavily criticized for a disastrous “100% organic” policy that aimed to reduce the strain on foreign currency reserves by banning the import of chemical fertilizers. The policy resulted in slashed agricultural output at a time when food supplies were already running low and prices were soaring.
Meanwhile, foreign tourism — a key source of jobs, economic growth, and foreign currency — fell after the 2019 Easter bombings and then collapsed during the pandemic. The spike in international commodity prices, which has been exacerbated by Russia’s invasion of Ukraine, has piled further economic pressure on Sri Lanka. The country relies heavily on imports of food, fuel, and other essential goods to feed the people and keep the lights on.
What role did China play?
Sri Lanka’s crisis is often blamed in part on China’s so-called “debt-trap diplomacy.” While it is true that Colombo has borrowed large sums of money from Beijing for infrastructure projects, China accounts for only about 10%-15% of Sri Lanka’s total external borrowings (although the share has risen in recent years). Private international investors hold just over half of it.
Beijing has supported Sri Lanka in the current crisis by providing a large currency swap agreement to temporarily bolster Colombo’s foreign exchange reserves. Still, it's just another loan. China has also allowed Sri Lanka to roll over some bilateral debt repayments but has yet to offer any debt forgiveness.
What would Sri Lanka need to do to get IMF debt relief?
The IMF has already started negotiations with Sri Lanka on a new program that will require a broad debt restructuring, economic reforms, and spending cuts. But those talks could take months to conclude, and the IMF now says that Sri Lanka does not meet the criteria for a Rapid Financing Instrument, which allows countries to get cash fast to meet urgent payments without a more comprehensive program in place.
Gotabaya has assembled a team of expert advisers to help, though discussions with creditors could take some time unless Colombo unilaterally announces “haircuts” — that is, a reduction in the amount it is willing to repay. The IMF will also need to be convinced that the government is serious about implementing the broad reforms needed to get the country’s finances back on a more sustainable path, including spending cuts and tax hikes. The central bank dramatically raised interest rates recently, signaling its willingness to take tough measures to tackle inflation and rebuild currency reserves.
What about India? Can Delhi do more beyond giving Sri Lanka food and cash lifelines?
India has provided Sri Lanka with credit lines for the purchase of much-needed fuel and other essential goods, even as India faces its own shortages and inflationary pressure. It has also offered a small currency swap agreement and indicated a willingness to provide debt forgiveness as part of an IMF package. As an important stakeholder at the IMF, India is also lobbying the fund for more and faster multilateral support for Sri Lanka.
Sri Lanka is voting, China is smiling
Voters in the island nation of Sri Lanka, located in the Indian Ocean just off the coast of India, head to the polls today in a legislative election that could not only reshape the country's democracy, but affect the geopolitical balance of power in Asia.
The election is a family affair. The vote is an opportunity for a party controlled by the Rajapaksa family, a powerful political dynasty that ran the country with a strong hand from 2005 to 2015, to cement their rule over the country again. In 2015, they lost the presidency to the opposition, which took steps to strengthen Sri Lanka's democracy but failed to deal effectively with terrorism and the economy.
Boosted by that government's failings, the Rajapaksas last fall made a big leap towards a restoration when Gotabaya Rajapaksa, an authoritarian army man known as "the terminator," won the presidency and appointed his brother (and former president) Mahinda as prime minister to lead a minority government. In today's election, the family's SLPP party is expected to win in a landslide.
Within Sri Lanka, the likely SLPP victory has raised concerns among activists and democracy watchdogs. The Rajapaksas are credited with ending the country's devastating 30-year civil war during their first stint in power. But rights groups worry about their authoritarian inclinations, human rights abuses, and strong ethnic Sinhalese nationalism, which puts them at odds with the country's sizable Tamil and Muslim minorities.
But outside powers like India and China are keenly interested in what happens too. Why? Because Sri Lanka is a strategic gem in the Indian Ocean, a waterway crisscrossed by boats carrying half of the world's oil shipments, and up to 80 percent of the energy consumed by both China and India. As Beijing and Delhi vie for strategic supremacy in Asia, each wants to have Sri Lanka on side.
Sri Lanka's closest commercial and diplomatic partner has traditionally been India, with which it shares cultural ties, as well as a complicated history of Indian involvement in the Sri Lankan civil war. But the previous Rajapaksa governments made a big effort to engage with Beijing, massively boosting Chinese trade and investment in the country. It was under the Rajapaksas that Sri Lanka signed a massive port deal with China – the subsequent government defaulted on the loans and handed over control to a Chinese company in 2017. More recently, the current president Rajapaksa has moved to revisit a planned Indian port deal in the capital, Colombo.
The Rajapaksas, who style themselves as "Sri Lanka first" nationalists, say they are simply trying to extract maximum benefit for their country by signing deals with the highest bidders, who happen to be Chinese. But all of this has worried India, and domestic Sri Lankan politics has in recent years become increasingly dominated by the (intensifying) China-India rivalry. When Mahinda Rajapaksa narrowly lost re-election in 2015, for example, he blamed Indian spies for helping the opposition. More recently, India and China have competed to provide aid to help Sri Lanka tackle the coronavirus, while China, ahead of today's vote, has been actively cultivating ties across the Sri Lankan political spectrum.
As China and India square off over technology, economic influence, and strategic supremacy in Asia, Sri Lanka will figure more prominently in their rivalry. And today's election will likely mark a turning point in Beijing's favor.