By Suren Sumithrarachchi –

Dr. Suren Sumithrarachchi

Sri Lanka elected its sixth Executive President in late 2019, and has since seen a continuous decline in the country’s performance, in all sectors. It is unfortunate, but every decision taken since the president assumed office was to the detriment of the country. None of them were based on any form of theoretical or scientific understanding of managing a state, or even based on the advice of knowledgeable sources. It appears the President was experimenting with the economy of the country, a “home grown solution” as it was called, based on the advice of a small group of his confidants, who themselves were neither competent in matters of governance, and in retrospect appear to have only been fulfilling a personal agenda. In this context, the credibility of the president to provide leadership to the country, is questionable. This short essay discusses the decisions of the ruler that caused the progressive decline of the country’s economy, the present state of the country, the hardships that are being foisted on the masses, and the delay in taking corrective steps to resuscitate the economy, suggesting that the country may not be able to come out of its current state for some time. This question is now being reinforced after the president’s interview with Bloomberg in which he categorically announced that he will not quit as a failed president, suggesting that the country will be forced to endure a further two and a half years of experimentation at his hands.

The decisions of the ruler and its effect on the country

The decision of the president that started off the slide was the dismantling of Rs. 600B taxation instruments within the first two weeks of ascending to office. This, being a substantial proportion of the annual national income, its loss caused uncertainty in the country’s ability to service its debt, resulting in being downgraded by the rating agencies, and as a consequence denied access to foreign exchange markets. Next was the hideous decision to ban chemical fertiliser. This resulted in a reduction in agricultural productivity, causing food shortages. It also led to poverty among the farming community, who comprise the largest segment of the national workforce. The third was abandoning the light rail project which had been negotiated by the previous government with the government of Japan, at extremely concessionary terms. This decision prevented the inflow of the valuable foreign exchange to the country, and also caused a strain in the relations with one of Sri Lanka’s closest friends, Japan. It has also caused the continuation of the regular traffic snarls on the road stretch between Athurugiriya and Colombo, a stretch not serviced by any other means of transport. The fourth was the reduction in the Statutory Reserve Ratio on financial institutions from 4% to 2%, and flooding the money market. This caused an immediate reduction in the interest rates on fixed deposits and hardships on those living on fixed deposit interest. This decision did not take into consideration that more that 85% of the national workforce is employed by the private sector, and do not get a pension, and live their retirement years on the interest of their deposited provident fund. Another fallout of this decision was the disincentive it caused to the saving habit. The fifth was the failure of the government to seek IMF support when the country’s economy showed clear signs of failure, despite advice by knowledgeable sources. The president also allowed the then Governor of the Central Bank to stubbornly and in an ill-conceived manner delay the floating of the rupee before the complete depletion of dollars, which resulted in the rapid sliding of the rupee against the dollar. It also created an aggressive black market, diverting the dollar inflows from remittances, which otherwise were through the formal banking system. The next was the indiscriminate printing of 1.6 T rupees leading to inflation. The president also let the Minister of Finance produce a budget where large sums of money were allocated to development activities in the districts and the money to be used by political activists, when the priority was for the scarce money to be used elsewhere. He also allowed the Governor of the central Bank to settle a matured International Sovereign Bond of $500 million, when the country’s dollar reserves were at its lowest, and the country badly needed it to meet the acute shortages of fuel, essential medicines and food items. These failures clearly question the managerial skills of the president and his ability to provide leadership to the country.

The present state of the country and the hardships faced by the masses

The sum effect of these decisions is that the country is on its knees and the brunt of the economic fallout is being forced on the masses. In fairness to the incumbent president, it must be mentioned that part of the present problem lies in the indiscriminate investment decisions of the 2010 to 2015 government. Projects such as the sea port in Hambantota, the airport in Mattala, the cricket stadium in Suriyawewa, the conference hall in the deep south of the country, the Lotus tower, built on dollar loans taken at high interests, have no return on their investment, and have become a burden on the present administration. However, the government of 2015 to 2019 successfully coped with the debt burden they inherited, through prudent economic management. Hence, the torch light focusses on the failure of the present ruler, and his experimental approach to the problems of the country’s economy. The onset of the Corona pandemic early in the tenure of the President also disrupted the regular source of foreign income from tourism. Also, the decline in the remittances from expatriate workers exacerbated the situation. As a consequence, the $7.9B that were in the state coffers at the beginning of the president’s tenure were spent on debt servicing and essential supplies, and today the country is on its knees.

The country is faced with regular power outages, sometimes for protracted periods, severe fuel shortages with motorists forced to stay in queues for long periods, shortage of essential food items and having to pay exorbitant prices for them, shortage of medicines and essential medical supplies, with almost quadrupled prices. There are also no fertiliser and agro chemicals for the agriculture sector and crops have failed. Quite apart from the erroneous decisions, today’s issues are a result of the non-availability of foreign exchange to order these items, and even when ordered on time, cannot clear them from the port due to the foreign exchange constraints.

Power cuts cause inconvenience to the lives of the people, and affects the students preparing for examinations. They also disrupt industrial activity, adversely affecting their capacity to earn the urgently needed foreign exchange. While fuel shortages affect the mobility of the people, attendance in schools, offices and thus affect the general life of the public, it also has harmful effects on the economy in many ways. It causes disruptions to the production in the manufacturing sector during power outages due to the inability to run the generators. It also affects the transport of raw and packaging materials from the port to the manufacturing sites, and of finished goods from factories back to the port to meet shipment commitments. This results in export oriented industries losing their markets to competition, eventually reducing the country’s potential foreign exchange earning capacity. Shortage of essentials has given way to long queues and denial of many traditionally used food and other consumable items. Shortages of essential medical supplies disrupt the smooth functioning of the state hospitals, forcing them to limit their surgeries to the minimum. The unavailability of fertiliser and agro chemicals has caused severe crop failure, with farmers reducing their plantations to plots just sufficient for their own consumption needs. The unavailability of fertiliser and agro chemicals for the tea plantations has caused a drop in tea output, leaving Sri Lanka open to be surpassed by competition in its best-known agricultural product.

The delay in taking meaningful corrective steps to resuscitate the economy

The onset of the current situation was foreseen a long time back. In fact, it was predicted by knowledgeable sources, and even brought up in parliament on a number of occasions by informed members of the opposition. Sadly, the response from the government benches was to ridicule the opposition. The former Governor of the Central bank, who at the time was a minister of the government was in the forefront of the attack on the opposition, claiming their assertions to be unfounded. Even the president failed to respond to clear signals of such an impending crisis.

Despite the full-blown effects of the economic crisis that have affected the country, and the lapse of two full months since the country officially acknowledged that it was bankrupt, no meaningful steps have been taken on activities that bring new foreign income to the country. No fertiliser is available and the tea industry is tottering. The new Minister of Agriculture has gone on record that there is no fertiliser in stock. Therefore, the tea industry cannot be revived to generate the share of foreign income it traditionally generated. It is not clear if the garment industry. another key foreign exchange earner, is sufficiently serviced in terms of the raw material requirements, and diesel to run their generators. There does not seem to be any special action on the part of the government to incentivise Business Process Outsourcing activities, which can be a speedy and inexpensive source of foreign income. The Aeroflot issue was another blunder that affects the tourist industry, where Russian tourists who form the meagre numbers that arrive here are likely to be lost. In the meantime, news is circulating that part of the loans from donor countries are being used to import asphalt and steel pipes. Once again the message is mismanagement, or experimentation with the economy.

In this context, the president remaining in office does not serve a useful purpose for the country. In fact, if the president continues to experiment with the economy, it can further exacerbate the already adverse conditions in the country, and even become a stumbling block to the restorative process. Also, with the unhindered power given to the president under the provisions of the 20^th amendment, it is likely that he may attempt to influence all decisions, in order to fulfil his ambition to recover from the status of a failed president.

Also, as things are, the Parliament is unstable, with the Rajapaksa ghosts still in control of the decisions. The prime minister is not able to get anything done his way, and remains their prisoner. It is unlikely that those negotiating with the IMF will not find this an obstacle. Therefore, the president quitting office is the most merciful alternative from the country’s perspective. The president leaving office also creates the possibility that expatriate workers who are currently refusing to send their earnings home, fearing they may get into wrong hands, may be catalysed to review their decision.

Also, as it stands now, Sri Lanka as a democracy has the most-queer arrangement, where the incumbent president has lost the support of the masses, and has appointed a prime minister who also has no mandate from the people. This duo needs to be reminded that in a democracy legislators are elected based on the will of the masses and can remain in office as long as they continue to have the support of the masses. However, when they lose mass support, they have a moral obligation to respect the will of the masses and quit. I believe it is a travesty of justice, and a denial of democracy that the incumbents of these offices are getting behind a mandate they received some years back, and refusing to acknowledge the present reality. Remaining in office against the will of the masses is only one step away from dictatorship.