Nation State: Journal of International Studies, December, 2022
Vol. 5(2), pp. 75 – 92.

E ISSN: 2621-735X
P ISSN: 2620-391X

Research Article

The Catalyst behind Sri Lanka Downfall:
Overdependence and the Failure of Protectionism
Muhammad Fauzan Alamari
International Relations Department, Universitas Jenderal Achmad Yani, Jawa Barat – Indonesia
Corresponding Email: m.fauzan@lecture.unjani.ac.id
Submission: 20 September 2022| Accepted: 18 November 2022

Abstract
Sri Lanka shocked the world with a downfall due to an economic crisis. Among the states
that had to mitigate the pandemic, Sri Lanka appears to struggle with the situation and
as a result of this event, Sri Lanka is in a position of overdue debt with a total of 51 billion
USD worth of debt. The inflation was created by economic shortage activity with
imbalanced trade records leads to the overthrown of Sri Lanka’s president and as the
result produced a vacuum of power. This paper will use of dependency theory and
protectionism to describe the cause of Sri Lanka’s collapse by examining several factors
such as civil war, pandemic, oil price rise, and recent terrorist attack.
Keywords: Sri Lanka, Inflation, Protectionism, Debt, Dependency

INTRODUCTION
The world had suffered from several economic recessions, from a global recession to
regional recession caused by several reasons. For the last 7 decades, it has been four global
recessions: 1975, 1982, 1991, and 2009. There is also the Asia recession that occurred in
1997 that impacted a lot of Asian countries. The recession that happened in history has
led some countries into nationalism movement to protect their economy. The school of
mercantilism taught this where the best way to run the economy is by protects the
production as an aim to avoid stagnation and more economic depressed (Thomson &
Hechter, 2022). A global recession itself defined as a contraction in global real GDP per
capita accompanied by a broad decline in various other measures of global economic
activity (Kose, Sugawara, & Terrones, 2020).
In a strongly connected and integrated world, these past few years, the global
economic environment experiencing an anomaly circumstance where most of economic
activity in several sectors such as: export-import, production, consumption,
entertainment, etc. need to be stopped due to a global pandemic called Covid-19 or
Coronavirus disease known as an infectious disease caused by the SARS-CoV-2 virus
(Balkhair, 2020, p. 123). Every human activity needs to be re-adjusting due to a lot of
movement restrictions to slow the spread of the virus (Wu, Chen, & Chan, 2020; Meiring,
Gusso, McCullough, & Bradnam, 2021).

©Author(s) 2022. This work is licensed under a Creative
Commons Attribution-Noncommercial 4.0 International License

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Alamari, M.F. (2022) “The Catalyst Behind Sri Lanka Downfall: Overdependence and the Failure of Protectionism”,
Nation State: Journal of International Studies, 5(2), pp. 75 – 92. Doi: 10.24076/nsjis.v5i2.894

Covid-19 took a lot of activities in every segments of society and every layer of
population, from elderly, youngster, people who live in poverty, working people, disability
people, urban citizen, rural citizen and etc. It starts with poor people, since their access to
welfare relatively hard, they were affected the first. Their access to health service shows
the inopportunity to have human security. The circumstance where they are homeless, it
was hard to them to have sanitization, left them to highly expose to the danger of Covid19. The socio-economic crisis that appears to be impacted people, make a lot of working
force to not be able to run their economic activity due to the restrictions. This left them in
a fragile situation where they were difficult to accessing protection and basic service. This
condition leads to economic fall by threatening jobs, especially in informal sectors.
Along with another continent, Asia was huge hammered by Covid-19. With the
status of world driven economy, Asia was at huge loss, consider almost 81 million jobs lost
(ILO, 2020). To borrow the speech of Kuroda Haruhiko (Governor of the Bank of Japan) at
the 62nd Annual Meeting of the National Association for Business Economics; “The
strength of Asian economies has been supported by three driving forces. First is the
development of advanced regional supply chain networks, spanning raw materials and
intermediate goods, as well as final goods. Second is the progress made in trade
liberalization through the concerted enhancement of trade agreements both within and
outside the region. Third is the self-sustained growth of domestic demand supported by
rising incomes from increases in production and trading activities. The interaction of these
three driving forces has enabled Asia to grow both as a manufacturing base (factory Asia)
and a consumer base (consumer Asia)” (Kuroda, 2020).
Since Covid-19 happened, it has shown potential weakness of some states. Supply
chains in Asia has been disrupted due to production suspensions, imbalance supplydemand, and business restrictions. This circumstance has led to the global trading volume
dropped to a point where it never predicted before. In tourism sector, it has no difference
due to the demand to travel has been low caused by travel restrictions. In the opposite,
some Asian countries cannot depend on their domestic demand since some of the countries
depended on International market.
Among Asian’s states, Sri Lanka is one of the extremely affected. The mitigation
plan from Sri Lanka is not well implemented due to readiness by the government. The
lack of resources has been one of the main reasons why it hard to overcome the condition
with a good result (UN Social Protection Working Group, 2020). Sri Lanka’s main share
of income are more than 50% share on national GDP came from service sectors
(Department of Census and Statistics Sri Lanka, 2020). Tourism sector made the
domination in Sri Lanka’s service sectors, since tourism industry has been the main source
of a lot of sectors in Sri Lanka’s Society (Nationsencylopedia.com, 2022), the presence of
Covid-19, put a huge pressure in macro and micro economy in the society. The social
movement restrictions put a new boundary where tourists are not be able to travel to Sri
Lanka and spend their money. Sri Lanka’s Tourism sector contributed to 5% of Sri Lanka’s
GDP. Millions of direct and indirect workers depended in this industry (Press Trust of
India, 2022). With the downfall of the industry, then economic wheel is not being able to
run properly.
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Alamari, M.F. (2022) “The Catalyst Behind Sri Lanka Downfall: Overdependence and the Failure of Protectionism”,
Nation State: Journal of International Studies, 5(2), pp. 75 – 92. Doi: 10.24076/nsjis.v5i2.894

Sri Lanka’s situation is a combination of various economic and political factors,
which have cumulated over periods. This paper will try to explain the conditions of Sri
Lanka into several sections focusing on economic and political factors. In exploring the
roots of problem in Sri Lanka, it needs to discuss the political factors caused by the colonial
era. As written by Nalani Hennayake (2019, p. 23), the legacy left by The British Empire
creates a post-colonial problem caused by unsmooth transformation of government in Sri
Lanka, where the transfer of power of the constitution was debated by Sinhala ethnic
group and Tamil ethnic group which later create political backlash. Thus, this paper will
focus on recent issue that occurred in Sri Lanka. Furthermore, this paper also aimed to
elaborate the discussion by Sirimal Abayratne (2004) which conclude that the Sri Lanka’s
economy has leads nowhere and the discourse of political economy become a core factor
behind Sri Lanka economic failure. This paper is also an update of Abarayatne discussion
that conducted 18 years ago, because that a lot of occurrences have changed the landscape
of the Sri Lankan economy along with the complexity of the issue. Beside two articles
mentioned before, this article also examined a book written by Prema-Chandra Athurkola,
Edimon Ginting, Hal Hill, and Utsav Kumar entitled “The Sri Lankan Economy: Charting
a New Course” (2017), where even it is quite complete in terms of economic discussion, the
paper was not covered historical background and world trade as a caused factor of Sri
Lanka’s high inflation and recent crisis. Thus, reflecting from the literature mentioned
above. This paper will push further to try to find clarity about the question later asked.
This research is important because among the state that experienced high inflation
and recession, the world have seen that Sri Lanka was hit first due to their condition
where they experienced instability, stagnation, and volatile of economic for decades. The
condition which occurs because of many years of mismanagement and corruptions that
create imbalance business environment on the so called “tear of India” country
(Miswood.eu, 2022) will become a deep reflection for other country to manage their
economy carefully and avoid the similar condition of Sri Lankan. Other countries can take
notes that, the unfit government policies have ruined their domestic economy which suffer
because of huge deficit problem that clearly reflected by high inflation rate, imbalance of
import and export activity, along with continuously growing international debt to ensure
the country stability (Attanayake, 2022). As the result, regional problem occurs when
India also affected by this situation, at the same time the world is witnessing Sri Lanka
collapsing, its economy at the edge point. Therefore, this paper discusses about the key
factors of Sri Lanka economic downfall that led into the country’s one of the worst economic
and political crises history, with massive protests asking President Gotabaya Rajapaksa’s
resignation. This research could contribute as a mitigation references to prevent the same
circumstance happen to other state.
In addition to what Sri Lanka and other nations are going through during the
COVID-19 epidemic, the uncertainty surrounding the global economy's recovery is
exacerbated by the conflict in East Europe between Russia and Ukraine, which is being
backed by allies of the West. Directly affecting the entire world as a result of the disruption
on the energy markets caused by the banning of Russia's energy products by western allies
and the imposition of sanctions on any nation that continues to do business with Russia.

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Alamari, M.F. (2022) “The Catalyst Behind Sri Lanka Downfall: Overdependence and the Failure of Protectionism”,
Nation State: Journal of International Studies, 5(2), pp. 75 – 92. Doi: 10.24076/nsjis.v5i2.894

Thereby, the rising price and difficult access to energy sources became difficult. These
latest factors, put Sri Lanka in jeopardy alongside with another country that domestically
challenged by a complex problem. By all the factors that influenced Sri Lanka’s situation,
this research is conducted to answer a question of how the failure of economic policy
became the catalyst of Sri Lanka's downfall?
METHOD AND THEORY
In this article, the research problem examined with qualitative approach and
interpretive method, that are already empirically proven by the scholar to interpret the
phenomena Sri Lanka’s economic downfall to develop a new understanding towards the
factitive of the phenomena (Creswell, 2013). Meanwhile, data gathering conducted
through examination of various resources that includes books, articles, journals, reports,
magazines, news, and bulletins that discussed similar topic. This method was used to help
author to generate the best possible answer that could create a crystal-clear conclusion
towards the phenomenon that occurred in Sri Lanka.
Furthermore, the analysis on this article applied dependency theory. Dependency
theory is a theoretical framework that have a root from Lenin idea on his famous pamphlet
of “Imperialism: the highest stage of Capitalism” that was published in 1914. He argues
that capitalism only exporting the exploitation of their colonies outside Europe and leads
to the competitions between imperialists in Europe to exploit more. This led to
segregations of wealth between the north part of the world and the southern part
(Fukuyama, 1992, p. 99). The dependency theory has roots in Neo-Marxist perspective.
The idea was to response the great depression in 1920, the dependency theory purpose 4
main points, which are: 1. Develop internal demand on domestic market. 2. To boost
industrial sector for achieving a better level of national development. 3. Increase worker’s
income to aggregate more demand in domestic market. 4. To promote more government
role increase national development and production (Dos Santos, 1971). The dependency
theory has a focus in the third world development circumstances using nation-state as a
analysis unit where it discuss the position between core versus periphery (Friedrichs,
1970).
The main discussions of dependency theory were all about the development in the
Third World countries. It starts with the development difference where core nations are
self-sufficient and peripheral nations necessity dependence to the core state. Beside what
mentioned previously, the peripheral state also experiences effects of core country event
such as war, where the periphery will affect in the inflation, trade balance, or even political
stability. Meanwhile, the recovery process also ties periphery state when the industry,
trade and investment try to rise from crisis since they were in the system (Frank, 1967).
Every aspect also relates to the feudal system where it was promoting the classical
European Medieval social system where working people work and fight for noble people
(Merriamwebster.com, 2020).
In the late 1950’s, another scholar responded to the disparity between bourgeoisie
and proletariat and examining the stark differences on economic growth in developed

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Alamari, M.F. (2022) “The Catalyst Behind Sri Lanka Downfall: Overdependence and the Failure of Protectionism”,
Nation State: Journal of International Studies, 5(2), pp. 75 – 92. Doi: 10.24076/nsjis.v5i2.894

industrialized countries and underdeveloped countries (Ferraro, 2008). This research is
conducted by Raúl Prebisch (1949) as the Director of the United Nations Economic
Commission for Latin America (UNECLA) at that time. He and his colleagues believed
that economic activity in developed industrialized countries did not affected
underdeveloped countries in any beneficial matter. Otherwise, the asymmetric activity is
oftentimes created economic challenges in underdeveloped countries (Ferraro, 2008).
Dependency theory became a principal tool to analyze development and
underdevelopment in the international political economy using state as the unit of
analysis. As succinctly put by Brown: “there is no single coherent body of thought that can
be described as ‘dependency’” theory. Instead, various theorists stress the key notion that
some countries are conditioned in their development by their dependence on other
countries (or economies)” (Namkoong, 1999).
Raúl Prebisch (1949) argued that the economic world divided into parts was known
as the center/industrialized countries and the periphery/the underdeveloped countries. He
also argues that the trade activity between the center and periphery is distinguished by
unequal exchange between both parties that leads to underdevelopment of the periphery.
Economically, center countries always try to maximize the benefits that possible by buying
raw materials from peripheral countries, which have the means to transform them into,
finished goods. And the opposite, periphery country will end up purchasing advanced
goods from center countries that required more sophisticated technology at high prices,
technology that they don’t have (Munro, 2022). This imbalanced trade between these two
types of countries created dependency from the underdevelopment countries due to their
lack of knowledge to develop technology (Namkoong, 1999).
Dependency theory itself was debated by many scholars regarding the focus was only
on the nation-state factors without considering the world as factor. In the world system
theory by Wallerstein, it was mentioned that the world condition operates as causal factor
especially for small nations and that the nation-state unit of analysis is no longer fit to
examine the development condition third world or periphery state. This article would also
use the debate to proof the dependency theory significant on this research.
Adding the discussion, the dependency theory in this article is also supported by
protectionism approach to enhance the explanation of the phenomenon whilst producing
more empirically proven result. The protectionism itself is a condition where government
took a policy to restrict international trade so it could protect domestic market using
trading barriers, import quota, subsidies and etc. Protectionism main idea is that
protection could create national positive trade (Peláez, 2008, p. 68). This approach was
popular in house of mercantilism where the main idea is to minimize import and maximize
export to boost economic improvement using import substitution policy (Ekelund &
Tollison, 1981). Even though Adam Smith’s idea about mercantilism was not popular in
postcolonial era, it still has influences in modern economic decision-making process
(Lotha, 2022).
Politically,
this
theory
describes
that
economic
growth
of
colonies/periphery/underdeveloped countries were obstacle by the source that already

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Alamari, M.F. (2022) “The Catalyst Behind Sri Lanka Downfall: Overdependence and the Failure of Protectionism”,
Nation State: Journal of International Studies, 5(2), pp. 75 – 92. Doi: 10.24076/nsjis.v5i2.894

controlled by corporation owned by center countries. This circumstance will lead to lesser
participations in world economic activity. Reflecting to all the assumption in dependency
theory, the application of this theoretical framework would generate new understanding
about the driving factor of the Sri Lanka’s economic downfall.
RESULT AND ANALYSIS
Colonialism Consequences
Colonialism from European kingdom resulted a lot of chaos in corner of earth, among
the colonialist, there was one kingdom which ruled in almost every place in the world, it
was the British Empire The present in every continent make the power that the kingdom
had unlimited. The present of United Kingdom in Asia was represented in some territory,
one of the important areas was British Ceylon or nowadays known as Sri Lanka.
Ceylon was ruled by France before The British Empire started to present in Ceylon
in 1796 in the time of French Revolution war, they take advantage of the circumstances
where France not in a great condition the island. United Kingdom flees from India down
south to rule in the island in 1796, but it was officially control the island started from 1802
as the result of agreement between United Kingdom and France in the treaty of Amiens
which signed in 25 march 1802, it was temporarily ended hostilities between France and
the United Kingdom at the war of second coalition. But it was not control in every inch of
it. There was the Kingdom of Kandy, a monarchy that located the central and eastern
portion of the island of Sri Lanka. The kingdom was founded in the late 15th century and
endured until the early 19th century. The kingdom ruled in the heart of the island, which
had their own territory, but still recognized and protected by The British Empire. The
realm started to control the whole island from 1817 to 1948.
The marks left by The British Empire colonial era in Sri Lanka were faced by the
young country as it struggles to accommodate the difference between ethnics that exist in
the island. The transitions were not smooth, as it seems to be. The demography of Sri
Lanka overall about 74 percent of all Sri Lankans are Sinhala and 18 percent are Tamil
and the rest were mix descendant (CIA.gov, 2022).
The roots of the conflict in Sri Lanka go back to the period of British colonization.
The British Empire left a polarized society between Sinhalese and Tamils. When the
island of Ceylon obtained its independence in 1948, the majority Sinhalese, who are
Buddhist, took power. The problem occurs between ethnicity was not because the portion
of demographic but more about the opportunity to work that utilized properly by Tamils.
In the end of The British Empire era in Ceylon, the Tamils took huge advantage of colonial
compensation or condonation. The relations they had with colonialist bring various
professional chances to work in governmental services, agricultural, civil service, military
and any commercials activity. At the end the population percentages do not divined
prominent position in the country, but the educational achievement brings higher position
in the country system, which is dominated by minority Tamil and was not by majority
Sinhala (Rotberg, 1999). The result of this situation creates a long-armed conflict between
the two ethnicities.
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Alamari, M.F. (2022) “The Catalyst Behind Sri Lanka Downfall: Overdependence and the Failure of Protectionism”,
Nation State: Journal of International Studies, 5(2), pp. 75 – 92. Doi: 10.24076/nsjis.v5i2.894

The civil war that occurs because of the problems that left by The British Empire
created a long mark in the memory of Sri Lanka. The clash between Sinhala led by Sri
Lanka Armed Force versus Tamil led by Liberation Tigers of Tamil Eelam. The war lasted
for 26 years, started from 23 July 1983 until 19 May 2009. It took casualties estimated by
The United Nation as around 70.000-100.000 death (Anandakugan, 2020). After the
bloody civil war, Sri Lanka government starts to reconstruct the state to gain domestic
stability. The poverty created by the long-standing war made the state must regain the
economic strength by asked for financial debt from China, and IMF. (WorldBank, 2022).
Sri Lankan government caught in a situation where they depend more on China’s
loan, due to the good rate of interest. Billions of Dollars transferred by China to Sri Lanka
to fund the government project initiative by Sri Lanka President, Gotabaya Rajapaksa.
The aim to create a strong economy, unfortunately become backfire when The President
decided to made the project based on his personal interest. Instead of investing the loan
money to more prospecting location, The President allocate the money to build an airport
and a seaport in his hometown in Hambantota. After years of building, the investment
turns out did not go as planned, after operating it does not produce prosperity to the people
of Sri Lanka or at least return the investment money (Arasaratnam & Peiris, 2022).
Meanwhile the interest needs to be paid to China as agreed. The miscalculation of
investment led to a circumstance where Sri Lanka strained in a huge debt to China.
Sri Lanka’s economy overall relies on the domestic activities, since the war occurs.
Economic activities in Sri Lanka cannot depend on any macroeconomic industry since they
have none, the war really drained the country potency of growth (CIA.gov, 2022). Among
the potencies that exist, tourism came out as to become faster industry to growth. The
industry started to soared to international tourist since the travel ban lifted after the war
end. Therefore, it became significance because of the contribution to the national growth.
It is also created a huge effect to the society. The effects gave by the industry, touched
macro and micro scale of economy, made it affected a lot of society layers. However,
tourism cannot be the only crutch for the whole countries’ economic growth.
Per first semester of 2022, Sri Lanka owes almost 50 billion US Dollars to several
creditor, unfortunately the government cannot find solution to pay the debt in time.
(Lewis, 2022). Unstable economic conditions made the debt overdue. This condition was
emphasized by the statement of Sri Lanka central bank governor P Nandalal
Weerasinghe: "Our position is very clear, we said that until they come to the restructure
of our debts, we will not be able to pay. So that's what you call pre-emptive default. There
can be technical definitions from their side they can consider it a default. Our position is
very clear, until there is a debt restructure, we cannot repay" (Hoshkins, 2022).
Regarding the described condition, colonialism really becomes the main source of Sri
Lanka miseries. From the colonial time until post-colonial time, the legacy left by
colonialism put Sri Lanka in a cage where they fight with their own flash and blood.
Instead of mastering technology to compete with other state, Sri Lanka was busy with
civil war made it difficult to grow and without any options, relies on other states

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Alamari, M.F. (2022) “The Catalyst Behind Sri Lanka Downfall: Overdependence and the Failure of Protectionism”,
Nation State: Journal of International Studies, 5(2), pp. 75 – 92. Doi: 10.24076/nsjis.v5i2.894

technology to produce goods. The importance to be able to mastering the technology could
lead a country to avoid periphery states’ status.
Sri Lanka Prolonged Inflation
Sri Lanka economy was struck by with a huge inflation as the result of complication
of problems. Sri Lanka in a position where inflation rate remains in between more than
5% to below 10% for the past 10 years (WorldData.info, 2022). It is considered as a high
number compare to other state. Without any significant event in the world economic
situation, Sri Lanka’s inflation seen as an anomaly. This inflation phenomenon that
happened in Sri Lanka was caused by bad monetary decision made by the Sri Lanka
Central Bank. The institution cannot measure the inflation created by price change from
global market, it hit hard the local market (Bhowmick, 2022). The sudden rocket of
inflation in Sri Lanka showed in the graphic 1.1 below.
Graphic 1.1. Inflation in Sri Lanka July 2021-July 2022

Source: (Ondaatjie, 2022)
Based on the curve showed above, Sri Lanka inflation leap in a sudden on March
2022 where Sri Lanka’s inflation streamed to 60.8 percent in July, up from 54.6 percent
in June. The cause of the problem was because of the ability of the country to become selfsufficient or at least have a stable economic environment. Historically, Sri Lanka
expenditure on imports has been higher than the income from exports under successive
governments since 1977 (Irwin, 2020). Sri Lanka hugely relies on domestic economy
especially tourism sector. The government failed to create a balance trade condition
between domestic and international. Despite the importance of the industry, Sri Lanka
already struggled to protect the tourism sectors’ fall because of terrorism attack in 2019.
It was 21st of April 2019, exactly in Easter day, Sri Lanka was hit by 9 attempts of suicide
bombing in 6 different locations at several cities on the same day, which were: Colombo,
Negombo & Batticaloa. From all attempts, 3 of it were detonated in church full of
worshippers celebrating Easter. The 3 other bombs were exploded at 3 luxury hotels in
Colombo, which were: The Shangri-La, Kingsbury and Cinnamon Grand. The next 2

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Alamari, M.F. (2022) “The Catalyst Behind Sri Lanka Downfall: Overdependence and the Failure of Protectionism”,
Nation State: Journal of International Studies, 5(2), pp. 75 – 92. Doi: 10.24076/nsjis.v5i2.894

bombs were blasted in 2 local districts while the last 1 failed to explode in a luxury hotel
also in Colombo. Later on, that day, a bomb succeeds to defused in the airport of Colombo.
Not stop on Easter day, in the following day another attempt of terrors happened near a
church in Colombo, it was also exploded after police try to defuse it. Sri Lanka suffered
269 deaths from total attacks (BBC, 2020). After the attack, Sri Lanka defenses ministry
rapidly move to capture the mastermind behind the attack. It was later announced the
responsible of the bloody attack was an Islamic extremist group known as NTJ or National
Tawahujja Jama'ath. The group believed to have ties with Islamic State of Iraq & Syria
or known as ISIS (Bradsheir & Garcia, 2019).
In 2018, Sri Lanka succeeds to attract 2.2 million visitors. It was a record number of
overseas tourists visit Sri Lanka in one single year, it was produced 4.4 billion US Dollars.
But, sadly the impact of the bombing makes tourist arrival in Sri Lanka dropped by almost
up to 70%. Most of the foreign tourist cancelled their trips to Sri Lanka due to their
countries issued travel ban advisories as a warning to their citizen to avoid travelling to
Sri Lanka (BBC, 2019). Yet to recover from terrorist attack, Sri Lanka was hit by
pandemic situation of Covid-19 in 2020 where it hit Sri Lanka in a huge wave of economic
effects. As mentioned previously, the main source of economic sustainability sector in Sri
Lanka is tourism industry, the money lost from global restriction movement, put Sri
Lanka in a situation where the market that exist created by tourism were not absorb
significantly. The difference between a local tourist and an overseas tourist was the ability
to spend money, where locals cannot hit the level needs to support the sustainability since
Sri Lanka GDP per capita is weak. This condition then it create a position where supply
and demand are imbalances, the product is there but there are no one to buy. As the result
of this circumstance, it creates a scarcity of customers, therefore it also creates
unemployment came from tourism industry such as hoteliers, tour guides, restaurant, and
street vendors (Economy Next, 2020).
The Central Bank of Sri Lanka cannot hold the fact that the value of Sri Lanka’s
Rupee depreciated against US Dollars. It falls from 182 LKR (Sri Lanka Rupee) per USD
in January 2019 to become 202 LKR in January 2021 then 361 LKR per USD in June 2022
(Tradingeconomics, 2022). Comparing the Sri Lanka Rupee in past 4 years, it shown that
the value dip into almost double. As the consequence, import product price rose due to US
Dollars depreciation. The government of Sri Lanka on the effort to protect the economy,
decided to ban import due to the rise of US Dollar. The idea was to boost the domestic
production so they do not rely on foreign product anymore, so at least Sri Lanka could save
money and avoid greater inflation. The action is known, as import substitution policy, the
great idea is to blocking imports of manufactured goods so it can help an economy by
increasing the demand for domestic produced goods. This idea quite common in economic
scholars, as centuries ago this idea appears and spread by Argentine economist Raúl
Prebisch (1949). This economic idea is commonly associated in Latin America and around
the world in the 1950s. This idea was identified as highly protectionist trade policy. This
idea also was publicized in many developing countries and as the result they adopted
import substitution trade as their policy supported by industrialization and capital
investment (Irwin, 2020).

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Alamari, M.F. (2022) “The Catalyst Behind Sri Lanka Downfall: Overdependence and the Failure of Protectionism”,
Nation State: Journal of International Studies, 5(2), pp. 75 – 92. Doi: 10.24076/nsjis.v5i2.894

The import substitution policy taken by Sri Lanka, considered as a fatal move. The
responsibility to protect by the government was aimed as an attempt to fulfill the needs of
its people by trying to prevent economic inequality, poverty and create economic
opportunity (Williams, 2008). The government decided to ban import in agricultural
sectors, to be exact in chemical fertilizer. As predominantly an agricultural country, Sri
Lanka experienced a massive protest from farmers since import ban policy produced by
the government not goes as planned. Local production of fertilizer cannot fulfill the need
of the farmers, because of the different profile used, the plantation needs to readjust into
a new chemical used by the farmers therefore leads to crop failure. This move considered
as a protection to domestic economic environment, even though it supposed to become a
savior movement, at the end it was not. Protectionism that taken by Sri Lanka at some
points might have a good impact, like boosting local workers in local industries due to
improvement of demand created by the policy. But it might be considered as a temporary
solution.
Nationalism movement such as protectionism in economy may lead to a
disadvantages situation where citizens left with no choices since there are no competitors
(Amadeo, 2022). As the country that already in economic crisis, the policies taken became
a backfire to society. Many scholars believe that Sri Lanka required to master agricultural
technology such as fertilizer, pesticides and weedicides, seeds and agricultural machines
at the first place, if they want to ban fertilizer. But as a country that spent most of the
independence fighting a civil war, import was a short cut. Food insecurity appears in Sri
Lanka created a food inflation that never existed before. Reduced agricultural outputs
made Sri Lankan are struggling to access nutritious food. This agricultural uncertainty
condition leads into a contribution to worsen Sri Lanka’s economic crisis. Everything leads
to another, until it safely said that for the first time since in almost 20 years, Sri Lanka
mark a negative economic growth and then create nationalism movement as a reaction to
the economic downfall (Amaratunga, 2022).
Francis Fukuyama in his book of “The End of History and the Last Man” explained
that the decline from development to underdevelopment from a country has relations with
import substitution policy, which adopted as a respond to 1930s economic crisis. The
failure of this policy could be tracked back to Argentina early years in 1900s, at that
period, Argentina’s GDP was more or less equal to Switzerland, doubled Italy and half of
Canada. But, if compared into recent era, Argentina is far behind those countries
mentioned before. This is believed because Argentina the decision to use Import
substitution policies (Fukuyama, 1992, p. 106).
Sri Lanka as a Periphery State
The dependency to industrial state, has led Sri Lanka into a hole where they cannot
escape. Seeing the facts mention from previous discussion, Sri Lanka cannot be blamed
for the incompetency to run the government or to not be able to create prosperity for the
people. This entire situation was a result of global setting where every ex-colonial state
did not have any enough resources to build their country properly. All of the natural

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Nation State: Journal of International Studies, 5(2), pp. 75 – 92. Doi: 10.24076/nsjis.v5i2.894

resources already drained by the colonialist as the result of the idea about mercantilism
which says that every kingdom need to have their own research to avoid compete with
others regarding one natural source. Colonials start to search places where the resources
not yet exploited, Sri Lanka was one of the places. Having ruled by United Kingdom for
more than a century does not mean it brings high civilization of Europe into the island
state. In contrary, after the British left, Sri Lanka must deal with the messes left by them.
Instead of catching up with other countries after Independence Day, Sri Lanka stays still
in the same position for years. The dependency of Sri Lanka to the world economy become
a proof that Sri Lanka’s suffers was by design of central states.
Sri Lanka included into countries that relies on foreign energy to light the economy
activity. So, the impacts of the war in Ukraine are being felt not only regionally in Europe,
but also around the globe because of the region’s significant contribution to food and
energy supplies. Between these two significances: energy was the main answer of Sri
Lanka catalyst on why the country cannot fulfill the domestic need, therefore resulting
government collapse.
Sri Lanka is well known as a country which does not produce oil, therefore it known
as the country that imports every oil drop to be use in every daily activity, from social
activity until economic activity (Vitharana, Kandegama, & W., 2020). Sri Lanka
dependence of oil appears as a solution where oil could run in cheap cost but gave huge
impact. The ease offers by oil made Sri Lanka not focus on developing renewable energy
due to the lack of technology and allocation of budget. It was not a priority for Sri Lanka,
as the country believes the urgency is yet to come (Lo, 2022). It was until serious of world
crisis hit Sri Lanka, before the pandemic rose in every country, the government did not
have any mitigation plan on how to combat a long situation where economic activities are
struck.
Sri Lanka dependency of oil got wrong when the war in Ukraine started to give
affects to Sri Lanka. The wars that start with an invasion by Russia military troops to
Ukraine on late February of 2022, the scale of the event become the first huge military
clash in Europe since Second World War. This diplomatic failure between Russia and
Ukraine was because of geopolitical tension due to the intention of Ukraine to join NATO.
Tracking back history to cold war, Ukraine was a part of Union of Soviet Socialist
Republics or known as USSR where it was composed by several republics inside the state
and Ukraine and Russia was among the republics that encompassed the Union. After the
fall USSR of in 1991, Ukraine was gained independence, even though as an independent
state, Ukraine still serves paramount politics consequence to Russia. The location of
Ukraine set as a buffer zone between Russia and NATO. If Ukraine became a member of
NATO it would create insecurity situation for Russia because of the possibility of United
States could enter Ukraine, which could have been misused by the US, to attack Russia
in their major cities. The article 5 of NATO Treaty mentioned: “if a NATO Ally is the victim
of an armed attack, each and every other member of the Alliance will consider this act of
violence as an armed attack against all members and will take the actions it deems
necessary to assist the Ally attacked” (NATO, 2022). This meant that all members agree
to launch an armed attack against any foreign force that considered attack against one of
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Alamari, M.F. (2022) “The Catalyst Behind Sri Lanka Downfall: Overdependence and the Failure of Protectionism”,
Nation State: Journal of International Studies, 5(2), pp. 75 – 92. Doi: 10.24076/nsjis.v5i2.894

the members. Therefore, Russia would have become highly vulnerable, if Ukraine joined
NATO and it would have created a great deal to the National Security of Russia (Center
for Preventive Action, 2022).
The rise of oil price due to war, made Sri Lanka got no option rather than to limit
the use of oil fuel or raise the price. Problem occurs since Russia is banned the western
ally. Therefore, every country that keeps running the economic ties with Russia will be
sanction by the western ally. This event might be occurring in other part of the world, but
it affects Sri Lanka in the domestic economy show the definition of a periphery state (Onuf,
2017, p. 5), where it got no ties with European politics but got the effects.
Graphic 1.2. Oil Price from March 2021 – March 2022

Source: (Kolaczkowski, 2022)
It was not only affected energy sectors but also in food sector, there are production
and export challenges: these are already associated with reduced availability and price
rises where it already at record levels and will continue to rise if the war does not end in
any time soon. The fact that Russia and Ukraine highly contributed in the world wheat
production, Sri Lanka is one of the consumers of Russia’s wheat. Sri Lanka does not
produce any wheat. It means that with no domestic production of its own, Sri Lanka since
independent has been importing wheat for flour milling (USDA, 2021). Even though, Sri
Lankan agricultural policy has focused over the years on achieving self-sufficiency in rice.
It has prioritized rice production over wheat imports. However, the big support for rice
cannot erase the fact that wheat consumption has been increasing. Wheat flour products
like pasta and roti/flatbread is usually used in daily life to feed plantation workers and
their families (Beillard, 2022). With the rising prices and the world trade policies, it
affected wheat consumption in Sri Lanka caused by exhaustion of Sri Lanka’s ability to
purchase due to hard currency reserves, recently the government began to allow wheat
flour imports of foreign origin wheat since local flour milling production dropped
dangerously. With less wheat flour-based products, as well as the drop in rice availability,

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Alamari, M.F. (2022) “The Catalyst Behind Sri Lanka Downfall: Overdependence and the Failure of Protectionism”,
Nation State: Journal of International Studies, 5(2), pp. 75 – 92. Doi: 10.24076/nsjis.v5i2.894

consumers have to reduce their consumption and as the result, it creates more inflation
(Beillard, 2022).
The other effects felt by Sri Lanka is the disruptions of International trade. It was
not direct impact of the war, it relatively indirect impact on sourcing and movement of
goods around the world. The significant of supply chains disruption, raise the risk
possibilities of Sri Lanka to be stranded in crisis much longer (Congressional Research
Service, 2022). Sri Lanka’s biggest export is to United States of America, it more or less
25% or a quarter of total Sri Lanka’s export. Most of the export to US is garment product
such as T-shirt, Jacket, Shirt, and etc. where for the period of 2020 fall due to movement
restriction in US. The dependency of Sri Lanka in limited sectors of production made it a
hard fall when the mitigation does not work well. US domestic affairs were not only create
direct impact to Sri Lanka but also indirect (Trading Economics, 2022). Another major
disruption came from India, as it the second large export destination of Sri Lanka. Most
of the export to India is tea product, as the status of Sri Lanka as the world second biggest
tea exporter (Statista, 2022). The condition in Sri Lanka already creating a situation
where sudden cease of tea supply by Sri Lanka to the global tea market this major
disruption to international trade and supply also put risk on global consumption. Based
on what explained in dependency theory, the global south countries will be circled in the
production of raw materials, not an ended product.
On the other hand, India gave Sri Lanka hard time because of the possibility their
exports of not getting paid. Sri Lanka in a position where they have uncertainty of import
payment. The government of Sri Lanka already have an overdue debt and while this world
economic situation remains the same in near future, then Sri Lanka has no ability to pay
it in any time soon. Therefore, this fact makes India rethinking to send their export
shipments to Colombo port, since it has not any assurance from the government of Sri
Lanka. A year before the world pandemic, India bilateral trade with Sri Lanka 6.1 billion
USD, but when the pandemic rose in 2020, it was drop to 4.1 billion USD (Chakraborty,
2022). On the other side, India for decades relies on the Port of Colombo to serve India’s
goods for global trade. The port was operating as a transshipment hub for India, it almost
60% of India’s international cargo is handled by the port. However, at present, thousands
of containers from India to Sri Lanka, including India’s international shipment cargo, have
been stuck at the port. This situation made India have a huge interest to help Sri Lanka
coped with the crisis, because of any disruption in operations at the Port of Colombo makes
India vulnerable to an increase in export shipment costs (Bhardwaj, 2022).
From all the discussion mentioned in this chance, showed that Sri Lanka could only
rely on the position gave by the world which is not much. Sri Lanka only could utilize the
nature resources they have and the geographical position they have. So, it makes that they
cannot offer much to the world, then this make Sri Lanka struggle even more to provide
the needs of the society. Comparing to Singapore which have the same status which is an
island-state and also former British colony with good geographical location for port and
even lesser natural resources, Singapore manage to become one of the best economies in
the world. The different between both countries was the monetary policies taken by the

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Nation State: Journal of International Studies, 5(2), pp. 75 – 92. Doi: 10.24076/nsjis.v5i2.894

government of Singapore, which follow the world trade by maximizing the advantage of
every aspect instead of using protections policy such as import substitution policy.
CONCLUSION
The crisis in Sri Lanka showed a situation that could happen in any country in the
world. A high inflation that caused by the incompetence of government to take a measured
policy without considered the side effects that could affect the society. The lack of
knowledge by the government could track back into the colonial era where it leads to the
involvement of European Kingdoms, and in this occasion was British Empire or United
Kingdom. The overexploitation by British left no room for Sri Lanka to grow after gained
independent. Sri Lankan government was busy try to help to survive by simply guarantee
food availability for their citizen when the occupation era ended. The clash between to
ethnicity caused by segregation of job and educational chance made Sri Lanka busy to
create peace. However, at the end it experienced a civil war caused by ethnicity difference.
Based on the theory used in this paper, the dependency that created by design, put
The Global North superior toward The Global South, therefore it created the unbalanced
development in Sri Lanka which lead to export commodities are focused only on raw
materials instead of ended up product. It made Sri Lanka disadvantageous situation. The
same condition as before Second World War, the colonials took raw materials directly from
the colonialized country then imported to the mother country after independence, the
practice only changes into the form of imperialism as it represented by Multinational
Corporation which owned by colonialist. The main difference was only in indirect
involvement in the country. The terms use to differentiate the producer and consumer
showed that the world is really fragmented into two categories, known as central/core state
and periphery state. Sri Lanka categorized as periphery state by the definition, since Sri
Lanka experienced a condition where it suitable the description described before.
The economy crisis in Sri Lanka showed that, an event happened in outside Sri
Lanka’s region could give a serious affect to domestic affairs. The direct and indirect
impacts toward Sri Lanka are responsible to any final result of recent situation such as
inflation, budget deficit, or even a revolution. From many of world events, Ukraine war
with Russia believed as a catalyst of Sri Lanka’s fall. The impact on energy, food, and
world trade made Sri Lanka’s mitigations were tested and it appears every plan cannot fit
into succeed. Even though it has world factor, it was not matching the world system theory
by Wallerstein, since there was not any presence of International Corporation in favor to
control or influencing the government of Sri Lanka in taking decision.
In the end, using Singapore and Sri Lanka as an example, it came down to the fact
that Singapore did not undergo a civil war that lasted 26 years while Sri Lanka’s did. This
caused Sri Lanka to focus all their work on how to win the war rather than developing
their technological expertise like Singapore did. The condition which experienced by Sri
Lanka led them to took protectionist economic policies as a short-term solution and
without a decent calculation this policy become a decision that drag them to experience
massive monetary lost that led to their economic downfall. No wonder if this worsening

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Alamari, M.F. (2022) “The Catalyst Behind Sri Lanka Downfall: Overdependence and the Failure of Protectionism”,
Nation State: Journal of International Studies, 5(2), pp. 75 – 92. Doi: 10.24076/nsjis.v5i2.894

socio-economic condition ignite a massive nationalist movement to overthrow their
president as the peak action of society that aspire national stability. At last, it appears
that more than 100 years colonialism in Sri Lanka took a big responsibility in why Sri
Lanka’s stranded in a crisis they never had before.
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