18 May, 2022

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A Critique Of The NPP Policy Statement – Rapid Response

By Harsha Gunasena

Harsha Gunasena

Certainly, this policy statement does not provide a rapid response to overcome the current challenges facing the country although the statement claimed so. It is just like an election manifesto as claimed by many.

This article focuses on the first chapter of the statement titled “ A thriving economy instead of a dependent economy” which deals with the fundamental economic issues since the most pressing current challenge of the country is the status of the economy.

Economies are dependent and are based on giving and taking. One cannot take without giving. Let alone the economies, the entirety human society is based on this. If the NPP is thinking of an independent economy, it seeks isolation which is not possible.

It goes on to state, “Introduced in 1977, the Open Economic Policy has been destructive through its prioritization of personal gain over social responsibility. A clear indicator of the culture of greed this economic system has bred is how a select group of people benefits, and profit from fraudulent and corrupt business practices even in the face of the pandemic. This culture of greed and the destructive economic thinking that shapes it has also created a system of political power centered in the hands of a few.”

Not only the open economic policies but all other economic policies which are associated with socialist systems are based on greed. One is based on the greed for money and the other is based on the greed for power. Greed is a personal trait which should be controlled by the society for the benefit of all. It could be done effectively in an open society economically as well as politically in comparison to societies which are closed economically as well as politically.

The policy statement identifies that the anti-democratic open economic policy laid the foundation for the current severe economic crisis. “Instead of prioritizing and strengthening production, the key features of this policy are the unnecessary expansion of financialization, austerity measures, subsidy cuts, creating market monopolies, inefficient and excessive borrowing, and sale of public property and state-owned enterprises to a small coterie of favored individuals and companies.”

This is contradictory. It appears to be that NPP is against creating market monopolies and sale of state-owned enterprises. If a recent example is considered, there are only two companies in the Sri Lankan cooking gas market. State owned Litro Gas owns around 80% of the market and it is a virtual monopoly. The government has not taken any action against Litro Gas for repeated property damage and loss of lives due to sub-standard gas cylinders in the market. At the same time, the Colombo Crimes Division arrested the Managing Director of Sakurai Aviation for criminal negligence due to a forced landing of an aircraft causing injuries to two passengers and two pilots. Isn’t Litro Gas liable for criminal negligence?

The people of this country and the NPP think that state-owned enterprises are people friendly and provide better service to the people compared to the private sector companies. The best example to prove that this assumption wrong is Litro Gas. If Litro Gas were a privately owned company at least the government should be able to act against the company as in the case of Sakurai Aviation.

The successive governments want to keep state-owned enterprises to provide employment to their henchmen and henchwomen. This is to pay reciprocal compensation for support in the elections. Also, by this method the political authorities can exercise more power to their personal satisfaction. Trade Unions are supportive to be under government ownership simply because they can work leisurely in comparison to the work in the private sector. All this gamut is covered by the propaganda of false patriotism and the victims are the public. Litro Gas proves this tragic reality.

Open economic policies promote production and the economic growth. NPP has to look around and see the thriving and dependent economies which practice open economic policies. India opened its economy in early 1990s, much later than us. Vietnam was transformed from a centrally planned economy to a market-oriented economy. Their exports have an exponential growth in the last two decades. Bangladesh is having a high growth rate and their intention is to become a high-income country by 2041.

Vietnam is having an export led economy of which FDI attraction has played a key role. In 2018, foreign owned companies accounted for 70% of Vietnam exports. Export of Goods and services and Imports to GDP of Vietnam in 2019 was 106% and 103% respectively. This shows that exports and imports are the two sides of the same coin. This is dependency which is giving and taking. The economic patriots of this country including NPP think otherwise.

Bangladesh exports accounts only 15% of the GDP and the country is mainly depending on apparel exports to which they get preferential tariff from European Union under GSP+ scheme. Bangladesh government try to diversify the exports. Their wage rates are low and population is high.

Japan is having budget deficits and having the highest rate of debt to GDP. However, their trade balance is positive which means their export income is more than the expenditure of imports. Greece is the second highest country of debt to GDP ratio. Greece had high budget deficits and trade deficits.

Sri Lanka is also having the same issue, long standing budget deficit and current account deficit which is calculated after adding foreign remittances as well to the trade balance. This resulted in increasing the government debt. Unnecessary investments by the governments using borrowed money aggravated the situation. However, the blame cannot be assigned to the open economy. In fact, the situation deteriorated due to high government expenditure on state-owned enterprises and government subsidy schemes out of which haves as well as the have nots were benefited. NPP is in favour of promoting the SOEs and giving subsidies to all. Therefore, the failure of the system was partly due the practice of the so called socialist policies recommended by the NPP and not the implementation of the open economic policies.

If Sri Lanka can have a favorable trade balance, it may be a rapid response to the present economic crisis in comparison to the policy statement of the NPP. This is the situation of Japan as well. But the dilemma is how to promote the exports.

Sri Lanka at present cannot attract FDI as Vietnam did. The average income of Sri Lankans is also high compared to a country like Bangladesh. The population of the country is getting older. Therefore, Sri Lanka should believe on the entrepreneurs. There are entrepreneurs of the country, and they are handicapped due to unavailability of the funds. Therefore, a SME Development Fund which provides necessary seed capital to the entrepreneurs is needed. In addition to that there should be a Credit Guarantee Fund which provides necessary guarantee to the commercial banks in support of the entrepreneurs who do not have necessary collateral to be given to banks.

A considerable percentage of the shares of Export Development Board should be offered to the private sector and the Board should be allowed to take a commission from the exporters to whom the Board has connected the prospective buyers. This is powered by greed.

The ownership of the two large state banks, Bank of Ceylon and Peoples Bank should be shared with the private sector which would facilitate to reduce the inefficiencies of those banks. Private banks maximize their profits under the cover of these giants. There are eight banks among the top 25 companies of Sri Lanka. This list does not include the unlisted privately owned companies, mainly the apparel exporters. Cashflow based lending to the needy entrepreneurs should be promoted among the banks.

In the broader sense there are quite a few reforms which could be recommended and all of them go against the policy statement of the NPP.

The NPP did not touch the cooperative sector of Sri Lanka. If properly directed this sector could be effectively used to promote exports. Although the statement promotes socialist ideology it is silent about the growing inequality of the income distribution and excessive defense expenses of the country.

Prabhakaran in third round of peace talks with the government held in Oslo in December 2002 agreed to explore a political solution founded on internal self-determination based on a federal structure within a united Sri Lanka. Later, he abandoned this idea to appease the cadres of LTTE and fought to death.

If JVP, the base party of NPP, continues with their socialist ideology to appease its cadres, it would face the same fate Prabhakaran and LTTE faced. It is advisable to change now. The world has changed already. This suggestion is made since their personal traits are suitable to get the leadership of the country.

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Latest comments

  • 4
    0

    “However, the blame cannot be assigned to the open economy. In fact, the situation deteriorated due to high government expenditure on state-owned enterprises and government subsidy schemes “
    True. Our problems come from the way the open economy is manipulated by oligarchs. Consider the way local ceramics doubled in price after the ban on imports. Of course, by then, Dhammika Perera had bought up the major factories. Was it inside information? If local production of everything is good, how come local state-owned milk powder factories raised their prices in tandem with imports?
    We wouldn’t be in so much trouble if taxes were not used to provide state employment to the majority community or to provide Samurdhi to the able-bodied. Our claims of being a “middle income” country have been exposed as just hallucinations built on a foundation of reckless borrowings. We have performed worst in South Asia. There has to be a reason for that.

  • 1
    0

    Harsha Gunasena,
    There is nothing sinister in the way you are looking at The NPP Policy Statement.
    .
    I would concentrate on ‘Greed’.
    Greed is a basic human trait. (I have brought this up in another context, on CT.)
    .
    A good platform would ‘utilize’ this trait to the advantage of the nation. In my opinion, Capitalism does exactly that.
    Capitalism has its weakness. It could be manipulated by the wealthy!
    That is why Capitalism has earned a bad reputation.
    How to prevent manipulation?
    The answer is proper checks and balances, – good Laws and proper Implementation..

  • 0
    0

    This comment was removed by a moderator because it didn’t abide by our Comment policy.

    For more detail see our Comment policy https://www.colombotelegraph.com/index.php/comments-policy-2

  • 2
    0

    Policies and planning are meaningless as long we have corrupted governments like Rajapaksas who are not just corrupted but in turn promote corruption as a culture among their supporters and business people. Countries like Japan and S.Korea too are plagued with corruption, but time to time admit and take necessary steps in curtailing the cancer. Whereas in Lanka public knowingly re-elect corrupted politicians who now have recruited law enforcement and judiciary in raping the country. This kind of sickness is unheard except in bankrupt dysfunctional states. If interested in knowing about revamping read about Cafe Coffee Day, a starbucks like coffee outlets started in 1996 as few, in Karnataka, India, in no time expanded to more than 1000 outlets all over India and abroad. So much so private venture consortium KKR invested $ 250 million in 2010. Mean time rapid expansion and few wrong decision (foray into wrong/ non profitable ventures) saw the company acquiring debt more than 7000 million INR. The owner became desperate and ended his life in 2019 and the expectations were, the company to dissolve and declare bankruptcy. . But his widowed wife, (just an engineer) took over and turned it around , where the outlet business continues to thrive and grow bringing the debt under 1000 million INR in no time. (even with pandemic). They sure will be a profitable company again by end of this year.

  • 0
    0

    Modern socialism, considered by desperate citizens as the answer to corrupt ridden despotic regimes in South America, has failed. SL now is very much similar to a third world South American country, plagued with corruption, & to many, the remaining option is the unknown angal in the form of socialist JVP/NPP.

    As the author has outlined, SL needs direct foreign investment & the ‘transfer of technology’ to keep up with the industrialised world but a socialist govt. would only raise red flags to potential investors. The foreign policy would also dictate aid, trade concessions & international goodwill but socialist ideology is most likely to continue isolate SL. The NPP is not clear how prevailing corruption, oligarchy & wasteful expenditure will be combated. Would they continue to fund loss making govt. enterprises, such as, Sri Lankan Airlines? Therefore, with my limited knowledge of economics, international finance & world politics, I will stay clear of JVP/NPP & so called ‘socialism’.

    • 0
      0

      Venezuela had been doing well on paper with its petroleum resources since the 1970’s. But successive Capitalistic governments did not diversify industry (especially with local food production), but relied almost entirely on oil production. Money was in the hands of the Elite, whilst their Masses lived in dire poverty.
      *
      When Socialism took over, Hugo Chavez distributed the country money for social programs and reduced social inequality. But diversifying industry takes time, and when global oil prices took a dive around 2010, the country plunged into economic depression. Money was printed which caused severe hyperinflation. People fled the country.
      *
      In Sri Lanka’s case, we have our local industries created by our previous Socialist governments, and plentiful of food production (although the organic fiasco is creating much hardship towards farmers and consumers alike). Furthermore, we have low unemployment numbers as our Masses work in foreign countries like in the labor camps of the Middle East, bringing in continuous and essential foreign currency.
      *
      Instead, current GoSL has taken the Capitalistic stance, concentrating Lankan money in the hands of a few Elite, placed country money of the struggling Masses on the international Hedge Funds (that will vanish into Western interests ), sunk Lankan money of the Masses into Channel Island accounts, and controlled the whole debacle with the Lankan military.

      https://www.usatoday.com/story/news/factcheck/2020/08/08/fact-check-socialism-alone-did-not-destroy-venezuelas-economy/3323566001/

      • 0
        0

        And Raj-UK, Brazil, that is mostly a Capitalistic country, has had a severe economic crisis since 2014.

      • 0
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        On top of that, they paid their investors(who took the wealth of the Lankan workers in the form of bonds that matured on the hard work of the Lankan Masses), so investors can reinvest for the next cycle of Lankan hardship. In no way has Lankan money been put into building up a democratic system for the economy that would be wholesome for our Motherland (e.g. appropriate taxation and commercial and bank regulation) .

  • 0
    0

    “The successive governments want to keep state-owned enterprises to provide employment to their henchmen and henchwomen.”

    Well, at least they don’t concentrate the profits for the top elite, and then invest it in the global hedge funds to benefit major powers like Russia, USA, and China.
    *
    Nowadays socialists have developed very sophisticated systems where profits made are shared with the workers, thus developing good work ethic and entrepreneurship.

  • 0
    0

    Harsa Gunasena,

    Food for though !

    Open economy with adequate checks and balances is preferable, but is it practicable.

    Greed and envy and two important human emotions that no check and balances effectively control..
    China and Vietnam with their communist/ socialist market economy seems to be a success story, but how communist/socialist is their market economy. Is it for internal consumption and to hoodwink the masses.

    It is authoritarian, no doubt. But once it gains more confidence, will it be able to bring in more real democracy, freedom and human rights.

    NPP need not be in a haste,they have all the time to think and formulate a long term realistic economic policy.

  • 0
    0

    a correction,
    It is not though, but thought.

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