(Bloomberg) -- On a sunny day in Colombo some 18 months ago, more than 500 members of Sri Lanka’s political and business elite gathered along the Indian Ocean coastline to celebrate the opening of the Shangri-La Hotel.
The star-studded event, featuring both President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe, underscored the importance of the property beyond simply attracting more tourists: It was also a monument to Sri Lanka’s resurgence following a brutal three-decade civil war between the mostly Buddhist Sinhalese majority and predominately Hindu Tamils.
The Shangri-La was built on the old site of the army headquarters, which was shifted outside the city after former strongman Mahinda Rajapaksa’s government won a decisive victory in 2009 with tactics criticized by human-rights activists. Sitting within walking distance of the central bank, president’s house, prime minister’s residence and a $1.4 billion China-financed port city, the hotel embodied the shift in priority from security to economic growth.
The Easter Sunday bombings that tore apart the Shangri-La, two nearby luxury hotels and three Christian churches have made security a top-of-mind concern in Colombo once again. Beyond killing 359 people -- including foreign tourists from about a dozen countries -- the blasts may end up unwinding the country’s shift toward Western-style democracy, even if the threat now appears to be Islamic extremists rather than ethnic conflict.
Even before the attack, more and more Sri Lankans had grown disillusioned with the combination of Sirisena and Wickremesinghe, who formed an alliance to defeat Rajapaksa in a landmark 2015 election. Back then, the pair promised to stop blocking websites, end intimidation of the media and bring market-based reforms that would attract investors other than the Chinese government, which was scooping up key pieces of infrastructure.
“We thought this new government -- a liberal, western-oriented government -- would jump start the economy, get the economy taking off,” said Jehan Perera, a Harvard-educated lawyer who serves as executive director at the National Peace Council of Sri Lanka, a human rights group.
“But it didn’t happen,” he said. “The old government leaders, although they violated human rights, they had a national security state. They gave coherence. And now once again, in this chaotic situation, people are thinking of that.”
Waiting in the wings is Gotabhaya Rajapaksa, the former president’s brother who led the army when the civil war ended. In a phone interview late Tuesday, he accused the government of “pure ignorance” for focusing too much on human rights and reconciliation rather than national security.
“If there was even the slightest thing, we chased them and arrested them and took action to prevent incidents,” Rajapaksa said of his family’s time in power. “Without security, you lose everything. Is there reconciliation now? Is there freedom now?”
In the aftermath of the war, annual economic growth rates repeatedly topped 8 percent on the back of easy credit and pent-up demand. Tourist arrivals increased five-fold since 2009 to more than 2.3 million last year, while foreign direct investment reached nearly $1.4 billion in 2017 -- about seven times greater than in the early 2000s.
Still, in recent years those high growth numbers have faded away. Low fiscal revenues and high debts have forced the government to cut social spending and seek help from the International Monetary Fund -- financial troubles that may now get worse.
After the bombing, Sri Lanka’s rupee fell the most in two months, bonds tumbled and stocks led global declines. The U.S., China and other nations warned against travel to Sri Lanka, threatening to exacerbate the economic impact.
The current government appears particularly unprepared to formulate a coherent response: The two most powerful leaders in the country have been dueling since last November. Sensing the changing winds ahead of a presidential election that must take place this year, Sirisena had abruptly fired Wickremesinghe as prime minister and appointed Mahinda Rajapaksa in his place. The courts forced him to backtrack weeks later.
Razeen Sally, who advised the government on economic policy until several months ago, called the government “dysfunctional” and described the atmosphere in the administration as “poisonous.” With elections looming, he said, the best it can do is “short-term fire fighting.”
“What we haven’t seen since the end of the war is serious productivity-led growth,” Sally said. “It’s not happened because this government has not been able to deliver any serious economic reforms. It’s just drifted along.”
The internal tensions have surfaced in recent days over intelligence failures in the run-up to the blasts. Wickremesinghe said authorities had received warnings but “not enough attention had been paid” -- a veiled shot at Sirisena, who oversees the nation’s security forces.
“If it was known certainly we could have prevented many of the attacks in the churches, and had more security in the hotels,” Wickremesinghe told reporters on Tuesday night in Colombo. “We could have prevented all of the attacks or at least reduced the number of attacks.”
Sirisena acknowledged “lapses on the part of defense authorities” and said he would overhaul the top posts in the country’s security services. Since 2017, Sri Lanka had received intelligence information about the emergence of terrorist groups, including some who’d received training in foreign countries, he said in a statement released late on Tuesday.
While Sri Lankan officials attributed the attacks to a local jihadist group, National Thowheed Jamaath, the Islamic State took responsibility, saying it had targeted Christians and citizens of “alliance countries” -- those involved in the U.S.-led military coalition in Syria. As many as nine suicide bombers perpetrated the attacks and some had studied overseas, the state minister for defense, Ruwan Wijewardene, said on Wednesday.
Islamist attacks against Christians and foreign tourists marks a shift from the violence during the civil war, and could inflame sectarian tensions that had largely been kept under control over the past decade. Whereas previously Tamils were looked at with suspicion, now Muslims -- who already faced discrimination from radical Buddhists -- are at risk of a violent backlash.
Already Gotabhaya Rajapaksa is asking more questions about how the current government has treated Muslim groups, even while saying he wouldn’t seek electoral gains by stoking tensions between the Buddhist majority and Muslims.
“The government from the very beginning wanted to keep the minority vote with them, so they didn’t take any action,” Rajapaksa said.
The violent attacks, the ensuing political uncertainty and an upsurge in nationalism is almost certainly going to strengthen the Rajapaksa family, according to Alan Keenan, a London-based senior Sri Lanka analyst for the International Crisis Group who has lived on and off in the country for nearly two decades.
“They will be able to say, not without some proof, that under their watch terrorism was eliminated and under the current government’s watch, it has come back and only by electing them will the scourge of terrorism once again be eliminated from Sri Lanka,” Keenan said. “That’s going to be their line. And it will resonate.”
(Updates with minister’s statement in eighth paragraph.)
--With assistance from Anusha Ondaatjie.
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