By Sarath de Alwis –

Sarath de Alwis

“From Pandora’s box, where all the ills of humanity swarmed, the Greeks drew out hope after all the others, as the most dreadful of all. I know no more stirring symbol; for contrary to the general belief, hope equals resignation. And to live is not to resign oneself.” ~ Albert Camus, The Myth of Sisyphus

‘A break from the past, A new beginning in Sri Lanka’ was the arresting caption of an Op-Ed piece that appeared on 25^th September in the Hindu. It was just four days after President Anura Kumara Dissanayake was sworn in. It had been penned by Emeritus Professor of Political Science University of Colombo Jayadeva Uyangoda. I shared Professor Uyangoda’s assessment and optimism. As the historian E H Carr points out, revolutions don’t easily live down utopian visions which have inspired them. A society which has no utopian dreams is truly rotten and our people were in mood to let that happen.

If AKD’s Presidency is indeed a break from the past and it denotes a new beginning in Sri Lanka President AKD should instruct/request or persuade his ‘Econocrats ‘ in the Central Bank and the Treasury for a full disclosure of all financial institutions and individuals who received Rupee Bonds in exchange for the International Sovereign Bonds they acquired in the secondary market in 2020 – 2022  following their steep downward spiral following the global pandemic.

If the perfidy of bankers and speculators are to be rewarded while AKD leads his team towards a clean thriving economy so be it. But at least let the people know.     

Deputy Minister of Economic Development, Dr. Anil Jayantha Fernando, along with Deputy Minister of Finance and Planning, Dr. Harshana Suriyapperuma in a press briefing reiterated that ‘Economic stabilization’ was key to take the country out of abyss created by past regimes.

“Much delayed ISB restructuring had passed several stages of negotiations with agreements, disagreements, changes to proposals, adjustments in line with DSA and IMF consents, had finally agreed in principle (AIP) on 19 September 2024 just two days prior to the presidential election. Ad Hoc Group (AHG) and Local banking consortium represent ISBs which account for USD 14.2 billion including a past due interest of USD 1.7 billion.

By prioritizing and facilitating actions in a timely manner, the new government has demonstrated a strong political commitment to steering the country toward economic stability. These efforts toward financial stability have been independently acknowledged by third parties, including rating agencies which have upgraded the ratings by several notches, which was only possible due to the correct prioritization and implementation of economic stabilization measures.”

This is not stabilization. Simply put, this exercise is about not upsetting the currently in vogue apple cart.  It is political expediency and a compromise with the neo liberal technocracy of the rotten state that AKD barely managed to take command of garnering a magical 42.31 % of the popular vote.

Our progress towards a thriving economy and beautiful lived experience are now subject to grades we get from International Rating Agencies.

The idea of International Sovereign Bonds is to obtain funds from the International Capital Markets. Studies by eminent economists on the history of sovereign default in the last two centuries have conclusively established that regimes with myopic self-interest resort to ISBs as the ‘Yahapalanaya‘ of Ranil Wickremesinghe did to keep an unrealistic exchange rate. When in default the same myopic self-interest drives them to restructure ISB debt no matter at what cost.

When in Sovereign Default, the Elephant in the room is not whats owed to foreign pension funds but the dubious financial mumbo jumbo of domestic financial services sector. Euphemism is to avoid the four-letter word beginning with ‘B’.

The IMF website has an interesting paper – The Cost of Sovereign Default by its research department. It is worth reproducing verbatim one of its observations.

“More recently, recognizing that holders of government bonds are not only foreign investors (in fact, perhaps a majority of investors in government bonds are domestic institutions and resident individuals in many cases nowadays) more attention has been paid to the consequences of default for the domestic economy, in particular the banking sector.

This channel is particularly relevant because, in many emerging economies, banks hold significant amounts of government bonds in their portfolios. Thus, a sovereign default would weaken their balance sheets and even create the threat of a bank run. To make matters worse, banking crises are usually resolved through the injection of government ‘recapitalization’ bonds and central bank liquidity. But in a debt crisis, government bonds have questionable value and the domestic currency may not carry much favor with the public either. A corollary of the domestic economic costs of debt crises is that they may also involve a political cost for the authorities. A declining economy and a banking system in crisis do not bode well for the survival in power of the incumbent party and the policymaking authorities. While such linkage has been noted in the case of currency devaluations, for example, it has not been explored in the case of debt defaults. “

Given the depth of the abyss we are overwhelmingly bogged in, the Rupee Bonds exchange is a compelling yet, inconvenient tryst with the lesser evil.

In his policy statement inaugurating the 10^th Session of Parliament. President AKD, made a momentously significant observation on how we landed in a sovereign default.

He said “….  The economic structure of our nation is severely compromised, akin to a system suffering from significant structural collapse. Therefore, to navigate out of this breakdown, we must adopt a new economic strategy.”

One hopes that his reference to our ‘severely compromised “economic structures” includes the financial services sector principally steered by our local banks.

With gushing jubilation Professor Uyangoda noted in his essay four days in to the AKD presidency “If Sri Lanka’s electoral democracy since its independence in 1948 had guaranteed the dominant elites unbroken continuity in political power, it has now produced a break with the past; a moment of the magic that democracy and free and fair elections can occasionally produce.”

I too agreed. The Hindu doesn’t allow free accesses to its op-ed pages. Reading the captivating headline, I reached out to the noted academic who readily mailed me his essay.

But it seems we celebrated an imaginary seismic transformation. The system is thriving.

Economists and Economic commentators grapple with hunger and malnutrition as a statistic. To a grandmother caring for her orphaned grandchildren hunger and malnutrition have real life consequences.

The NPPs surprise performance at the parliamentary election has produced a steady stream of Economic punditry from an overflowing reservoir of “Economic Experts ( ‘Arthika Osthar’ is the colloquial term for high pitched punditry in the discipline) tracking  international rating agencies assessing our reputational ranking in international capital markets.

It seems even the vociferous ‘Arthika Osthars ‘aren’t anxious to learn the identity of our Financial Institutions and individual investors who purchased our ISBs in the secondary market in 2020 to 2022 following the Pandemic and the global downturn.

Will President AKD reform our broken Financial Services Sector? Will he ignite the needed centrifuge that will separate Value Extractors from Value Creators?

Will he open the Pandoras box?

Albert Camus’s Sisyphus is our solace. Hope equals resignation.

Professor Jeffrey Sachs in his groundbreaking treatise ‘Economic Possibilities For Our Time’ devotes the fourth chapter to ‘Clinical Economics.’

His exploratory paragraph I explained to two of my granddaughters. I want them to understand economics in the new world that whispers to them which I can no longer hope to see or understand.

“The rich world dominates the training of Ph.D. economists and the students of rich world Ph.D programs dominate the international institutions like the IMF and the World Bank, which have the lead in advising poor countries on  how to break out of poverty. These economists are bright and motivated. I know. I have trained many of them. But do the Institutions they work for, think correctly about the problems of the countries in which they operate? The answer is no. Development economics needs an overhaul to be much more like modern medicine, a profession of rigor, insight and practicality. “    

Philosopher Economist Ludwig Von Misses foresaw what the science of econometrics and its jargon would do to confuse us mere mortals. In his magnum opus – Human Action he explained the gimmickry of “Neo Liberal Arthika Ostthars”.  It is strongly recommended to the economics team of the NPP.

“Economics must not be relegated to classrooms and statistical offices and must not be left to esoteric circles. It is the philosophy of human life and action and concerns everybody and everything. It is the pith of civilization and of man’s human existence… In such vital matters blind reliance upon “experts” and uncritical acceptance of popular catchwords and prejudices is tantamount to the abandonment of self-determination and to yielding to other people’s domination. As conditions are today, nothing can be more important to every intelligent man than economics… Whether we like it or not, it is a fact that economics cannot remain an esoteric branch of knowledge accessible only to small groups of scholars and specialists. Economics deals with society’s fundamental problems; it concerns everyone and belongs to all. It is the main and proper study of every citizen.”