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Updated: Oct 29, 2018 18:53 IST

The speaker of Sri Lanka’s parliament 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.

The capital Colombo was gripped by political intrigue after President Maithripala Sirisena said he had to fire Prime Minister Ranil Wickremesinghe late on Friday because of an assassination plot and Wickremesinghe responded by describing his ousting as an anti-democratic coup. Sirisena appointed former strongman Mahinda Rajapaksa -- who ruled between 2005 and 2015 -- as the country’s new prime minister. By Saturday, Sirisena had suspended parliament.

“We should settle this through parliament,” Karu Jayasuriya told reporters in the central district of Kandy. “If we take it out to the streets, there will be bloodshed.”

One person has already been killed -- and two injured -- on Sunday when former petroleum minister Arjuna Ranatunga’s security detail opened fire on Rajapaksa supporters inside the Ceylon Petroleum Corp headquarters. Ranatunga was arrested on Monday over the shooting incident, according to the office of police spokesman Ruwan Gunasekera.

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 U.S. called on 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. “The president’s sudden appointment of Mr Rajapaksa as Prime Minister significantly heightens policy uncertainty. Additionally, the possible social tensions that may unfold in the next few weeks would have a negative impact on the economy, which is already growing slowly.”

China Ties

The appointment of Rajapaksa -- whose administration was criticized by human rights groups for extrajudicial killings, enforced disappearances and jailing journalists -- is good news for China, which enjoyed close ties with Sri Lanka during a 10-year rule that saw the island nation rack up large debts to fund infrastructure projects.

He said he accepted the premiership in order to steer the country out of “deep crisis,” the state-run Daily News reported.

Wickremesinghe had attempted to re-balance Sri Lanka’s foreign relations away from China and toward India and Japan. On Monday, Sri Lanka’s 6.75% 2028 dollar bonds slumped to a record low of 87.4 cents on the 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.”

Leave Cancelled

People returned to work as normal Monday, with little added security visible on the streets.

The avenue leading up to Sirisena’s official residence was barricaded over the weekend, and law enforcement officials canceled vacations for police officers. Police spokesman Ruwan Gunasekera did not answer calls to his mobile phone on Monday.

Wickremesinghe said he still commanded the majority backing in parliament and called for a special session of the legislature to prove it. For that the suspension needs to be lifted.

“Parliament is supreme,” Wickremesinghe told reporters in the capital on Monday.

Outside Wickremesinghe’s official residence in the capital, there were a handful of Buddhist priests chanting prayers. Buddhist flags lined streets around the area.

Rocky Relationship

Relations between Wickremesinghe and Sirisena had been strained this year, especially after their coalition was defeated in local government elections by a party backed by Rajapaksa.

“Sirisena’s drive to push out Wickremesinghe points to his attempts to preserve his political standing,” said Shailesh Kumar, Asia director with political risk firm Eurasia Group, adding that the local election results showed Rajapaksa maintained strong support. “With respect to debt, leverage will likely pick up once again with Rajapaksa in a decision making seat as he will likely court Chinese investments all over again. He will unwind the policy till date which sought balanced relations between India and China.”

Wickremesinghe on April 4 survived a no-confidence vote brought by Rajapaksa loyalists. Sirisena had also shuffled his cabinet several times and this month called for a change in leadership at Sri Lanka’s two main state banks, people who had been picked by Wickremesinghe. Over the weekend, both men lobbied lawmakers for support.

Rajapaksa’s supporters seemed well prepared for the surprising shift of power. By Sunday, posters and billboards sporting a smiling Sirisena and Rajapaksa had popped up around the capital.