Warning of 'bloodshed' as Sri Lanka's political crisis deepens

Colombo

THE speaker of Sri Lanka's Parliament, Karu Jayasuriya, has warned his country could descend into political violence if the legislature remains suspended throughout a leadership struggle that has plunged the island nation into a constitutional crisis.

His warning came as police arrested the country's petroleum minister after a man was killed on Sunday when bodyguards opened fire to rescue him from a group loyal to the country's president, officials said.

Arjuna Ranatunga, an ally of ousted prime minister Ranil Wickremesinghe, was taken in after trade unions accused him of ordering the shooting.

The capital Colombo was gripped by political intrigue after President Maithripala Sirisena said he had to fire Mr Wickremesinghe late on Friday because of an assassination plot and Mr Wickremesinghe responded by describing his ousting as an anti-democratic coup.

Mr Sirisena appointed former strongman Mahinda Rajapaksa, who ruled between 2005 and 2015, as the country's new prime minister.

On Saturday, Mr Sirisena suspended Parliament. "We should settle this through Parliament," Mr Jayasuriya told reporters in the central district of Kandy. "If we take it out to the streets, there will be bloodshed."

The upheaval ushers in a new period of political uncertainty in Sri Lanka, which saw economic growth last year hit the slowest pace since 2001. Moody's Investors Service has warned social tensions over the next few weeks could damage the economy and investor sentiment, even as the US called on Mr Sirisena to reconvene Parliament and other foreign embassies warned they were monitoring the situation closely.

"The current political crisis in Sri Lanka is credit negative for the sovereign," said Matthew Circosta, an analyst for Moody's sovereign risk group.

On Monday, Sri Lanka's 6.75 per cent 2028 dollar bonds slumped to a record low of 87.4 cents on the US dollar, the biggest decline since the bonds were sold in April, according to Bloomberg-compiled prices.

"Until there is clarity on the political front, there will be volatility," said Adrian Perera, chief operating officer at Equicapital Investments in Colombo. "We could see some positive sentiment from local investors who perceive that Sirisena and Rajapaksa could work better together to boost growth. Foreign investors will hold back, but we can expect Chinese investments to come in and even boost the currency." BLOOMBERG