Sri Lanka's former prime minister Mahinda Rajapaksa (L) and his brother, President Gotabaya Rajapaksa, are seen in this picture taken in Colombo, Sri Lanka, August 9, 2020. REUTERS/Dinuka Liyanawatte

COLOMBO, June 8 (Reuters) - It was the moment when two brothers who had dominated Sri Lanka's politics for nearly 20 years finally went their separate ways.

On May 9, when a crowd of ruling party supporters marched towards activists protesting against a crippling economic crisis, President Gotabaya Rajapaksa ordered police to stop the pro-government mob, fearing violence.

"He was screaming at the police to disperse the crowd," said former media minister Nalaka Godahewa, who said he was with the president at the time.

Despite the president's order, the demonstrations against inflation, power blackouts and shortages of essentials turned deadly. Nine people were killed, hundreds were injured and the property of Rajapaksa loyalists was attacked.

The violence marked a pivotal point in the crisis. Gotabaya's older brother, Prime Minister Mahinda Rajapaksa, had addressed the government supporters earlier in the day. He was sitting down for lunch when he was shown a video of the violence by an aide, according to a source with direct knowledge of events at the prime minister's house in the commercial capital Colombo.

"He knew what he would do next," said the source.

The 76-year-old, one of Sri Lanka's most popular politicians in his heyday, finished his meal and had a nap, the source said. At 5.02 p.m., he announced his resignation as prime minister, making public a rift in Sri Lanka's ruling dynasty.

The source, who spoke on condition of anonymity to avoid retribution, said the president had already been pushing the prime minister to resign since early April as a concession to protesters demanding the ouster of both men because of their response to the economic crisis enveloping the island.

"GR (had) told MR to go," said another source close to the family, who also requested anonymity, referring to the president and the prime minister by their initials.

Neither Mahinda Rajapaksa nor the president responded to requests for comment for this story. They have not publicly said anything about their differences.

After he quit, Mahinda went into hiding at a naval base and stayed under protection of the armed forces for several days because of the wrath of the protesters. Gotabaya, 72, continues as president, deeply unpopular with many Sri Lankans, while political leaders discuss a move to clip the executive powers of his office.

But the Rajapaksas are not done yet.

A third brother, Basil, wields considerable influence over the country via his hold over the ruling party that dominates parliament, according to at least five people who spoke to Reuters, including Godahewa and two other former ministers.

The new prime minister, Ranil Wickremesinghe, is heavily dependent in parliament on the ruling Sri Lanka Podujana Peramuna (SLPP) party to pass an interim budget within weeks that will outline measures to mend public finances. He has also proposed reforms to curb the president's powers and strengthen parliament in response to demands from protesters. read more

The International Monetary Fund wants evidence of reforms before agreeing to a bailout, for which negotiations are ongoing. read more Sri Lanka also needs an agreement with bondholders and bilateral creditors to restructure its debt, and regain access to global financial markets. read more

Wickremesinghe belongs to a party that controls just one seat in parliament, while the SLPP and its coalition partners have a comfortable majority in the 225-seat legislature.

All five sources said the ruling party remains loyal first and foremost to Basil, 71, who helped rebuild it when the Rajapaksas surprisingly lost power in a 2015 presidential election. One of the sources, who is close to Basil, said the former finance minister would support the president, his elder brother, but not at the cost of the party.

Events in Sri Lanka are being closely watched in neighbouring India, South Asia's regional heavyweight, and China, which has invested billions of dollars in infrastructure projects in the past decade as part of its Belt and Road Initiative linking it to the rest of the world.

Political scientist Jayadeva Uyangoda said Wickremesinghe faced a balancing act to meet the demands of the protesters and Sri Lanka's international creditors, while placating the ruling party with an agenda that Basil would accept.

"What Basil Rajapaksa wants will be what parliament approves," Uyangoda said.

Basil, who has not spoken publicly since he resigned in early April along with the rest of the cabinet, did not respond to requests for comment.

Among the nine Rajapaksa siblings, Mahinda, Gotabaya and Basil were once a tight-knit political unit.

Mahinda, a lawyer by training, became Sri Lanka's youngest ever legislator when he entered parliament in 1970. By 2004, using a combination of political charisma and guile, he rose to become prime minister. The next year, he was voted president.

The brothers' popularity soared after Mahinda and Gotabaya, a retired infantry officer who was appointed defence secretary, crushed a decades-long Tamil insurgency in the north and east of the country in a brutal government offensive in 2009.

Mahinda won a landslide re-election in 2010, promising to heal the country's deep divisions. He also drew Sri Lanka closer to China, inviting heavy investment like the $1.4 billion Hambantota port that irked India, which feared losing influence over its southern neighbour.

Then, in 2015, a shock defeat for Mahinda in presidential elections threw the Rajapaksas into disarray.

Basil, a U.S.-Sri Lankan dual citizen who served as a long-time adviser to Mahinda while he was president, was instrumental in reshaping a minor political party into the SLPP in 2016, making it the dominant player in Sri Lankan politics.

In 2019, coordinated suicide bombings by Islamist militants that killed more than 250 people presented the Rajapaksas with an opening to return to power.

With Basil unwilling to renounce his U.S. citizenship and Mahinda barred from standing due to term limits, Gotabaya ran for the presidency and won by a landslide.

Mahinda was named prime minister soon after and Basil became finance minister in 2021, but things had started unravelling.

The start of Sri Lanka's slide into economic chaos can be traced to 2019, when the Rajapaksas implemented populist tax cuts shortly after returning to power, shrugging off criticism from some advisers.

Godahewa, the former minister, said he advised Gotabaya that the cuts would be a "disaster" because of the already precarious state of public finances, but was overruled.

Government officials have previously said that the tax cuts were aimed at resuscitating the economy by putting more money in the hands of people.

Then the COVID-19 pandemic hit, decimating tourism and with it a critical source of foreign exchange. Foreign workers' remittances also dropped.

A manifesto pledge to turn to organic farming and phase out the use of chemical fertilisers over the next decade was implemented abruptly in May 2021 by the president, throwing the country's farming sector into turmoil and leading to food shortages as crop yields fell.

By then, relations between Mahinda and Gotabaya had deteriorated, according to four of the sources.

The two brothers differed over the president's fertiliser ban, but a move by the prime minister in 2021 to reverse the decision was blocked by Gotabaya's staff, according to the source at the prime minister's residence.

No such differences between the two have previously been reported.

Even when the country's massive debt problems became apparent, the Rajapaksas dragged their feet about going to the IMF to seek financial aid. A government official said early this year that Basil, then finance minister, wanted the local economy to shake off the effects of the pandemic before going to the IMF. read more

Shortly after being appointed energy minister in August 2020, former Rajapaksa coalition partner Udaya Gammanpila began poring over the accounts of Ceylon Petroleum Corporation (CPC), the country's biggest public corporation in terms of turnover, and said he was appalled by what he saw.

CPC was selling petroleum products at a huge discount to consumers, and had run up a bill of some $4 billion with suppliers, despite not having adequate income to repay them.

In October 2020, he said he warned a cabinet meeting the country was heading towards a foreign currency crisis and suggested restricting non-essential imports and an immediate free-float of the rupee to avoid a currency black market.

Gammanpila told Reuters he also urged the Rajapaksas to seek the support of the IMF as early as possible. His suggestions were rebuffed, he said.

"We can manage the situation," Gammanpila quoted Mahinda as saying. Gotabaya rarely asserted himself during cabinet meetings, according to Gammanpila and Godahewa.

Last month, the government said its foreign reserves had dwindled to almost zero.

But Gammanpila said his chief opponent was Basil.

The two men clashed frequently, with arguments descending into shouting during at least five cabinet meetings, according to Gammanpila.

His description of arguments over economic policy was corroborated by the source close to the family, who said Basil felt he knew what he was doing and shouted down objections.

"Other countries spent what they earned," Gammanpila said. "We spent what we borrowed. That was the difference."

Additional reporting by Uditha Jayasinghe; Editing by Mike Collett-White and Raju Gopalakrishnan

Source: Reuters

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