By Uditha Devapriya –
Advocata Institute’s “A Framework for Economic Recovery” is both comprehensive and succinct. A response to the spiralling crisis in Sri Lanka, its publication has been well timed. Striking a realistic and pragmatist note, it foretells the worst for the country, unless certain urgent reforms are implemented. What it admits at the beginning is that the pandemic only highlighted the need for such reforms; the problems they seek to resolve have been in the offing since independence. If the present government is to address them, it should address two concerns: its fiscal and external current account deficits.
The Framework is in two parts. In the first, titled “Macroeconomic Stabilisation”, its authors propose six reforms based on the six pillars of the IMF’s Extended Fund Facility programme: fiscal consolidation, revenue mobilisation, public sector reforms, reforms of SOEs, monetary policy effectiveness and exchange rate flexibility, and trade and investment. These reform proposals reflect Advocata’s abiding belief that trade, not manufacturing and production, is what will reverse Sri Lanka’s diminishing economic fortunes. Outlining six options for the Sri Lankan government, the authors recommend a debt restructuring strategy, which requires going to the IMF. For Advocata, all other cards on the table, including sovereign default and debt monetisation, remain untenable and unadvisable.
Yet going to the IMF means enacting certain important, far-reaching changes. These the Framework delves into in the second section, titled “Structural Reforms for Sustainable and Inclusive Growth.” The authors propose five reforms: improving Sri Lanka’s Doing Business Environment and global competitiveness, increasing access to land, making labour markets more open and flexible, building human capital through health and education reforms, and developing infrastructure through, inter alia, public-private partnerships. If these proposals are not fast-tracked, we are told, Sri Lanka will keep on consuming more than what it earns and produces. The authors mention 16 IMF programmes it has gone through over 50 years, even though they don’t clarify whether these resolved problems so well that we do not have to go for a 17th. But their message is clear: to the IMF we must go.
Among elite political circles, going to the IMF has become a mantra of the hour. To quote Devaka Gunawardena, there is in general an “unshakeable belief” that doing so will provide “a pathway for Sri Lanka out of crisis.” Undergirding this sentiment, obviously, has been the economic woes of the country. The statistics tell us perhaps half the story, but they do paint a dire picture: on nearly every front, from unemployment to inflation to foreign reserves, Sri Lanka faces a reckoning in the not-so distant future. While the Governor of the Central Bank has repeatedly assured both locals and foreign investors, most recently via an interview with Bloomberg, that the country faces no imminent risk of default and hence will not resort to a debt restructuring programme, this has done little to reassure his critics. In the face of what many consider as a deeply unpopular administration, such optimistic predictions continue to be met with scepticism. In short, people are angry, and want a way out.
Opinion regarding the IMF option remains divided, though economists tend to favour it. While Devaka Gunawardena’s intervention (published by the Social Scientists’ Association) does show that civil society views this option critically, elite MPs and policymakers continue to promote it. Their rationale is that we don’t have a choice: to handle economic woes, we need to go for the kill by way of fiscal consolidation. Partly because these policymakers are in a majority, until recently next to no debates regarding this cropped up. Gunawardena’s critique was crucial, in that sense, because it enabled such debates: where once arid winds blew, now a thriving dialogue ensues. Although these remain limited to the English media, there are signs that the Sinhala media is picking them up. What used to be a monologue has thus turned into a conversation, with various stakeholders pitching in.
These debates have entered the political field as well. To say the lines are drawn between the Opposition and the government, with the former for and the latter against the IMF line, though, would be to simplify a complex political issue: the most crucial lines of debate have crept up, not between the SJB and the SLPP, but within the SJB itself.
Hence while the likes of Harsha de Silva advocate Advocata’s proposals, other SJB MPs have stopped short of endorsing those proposals, suggesting in their place welfarist measures like controlling food prices and clamping down on private mafias. In fact the latter MPs seem to resemble their counterparts from the NPP and the FSP, who have highlighted the inexorable contrasts of poverty and affluence that the pandemic has thrown up. Such divisions have in turn opened up rifts within the SJB, between its right and left wings.
Advocata’s point about the futility of denying the crisis is, all things considered, correct: in the absence of an alternative, we may run out of alternatives. But what of the solutions it prescribes? The Framework projects an almost Panglossian belief in the private sector: its whole focus is on tapping the potential of the market. This is a line that has been touted by previous administrations; to a certain extent, even by Mahinda Rajapaksa’s. Indeed, if faith in the efficiency of the market can be considered a good yardstick for the prospects of the economy, those prospects would have improved a long time ago. That they have not, so far, implies that such assumptions and paradigms are not beyond critique.
Perhaps the biggest critique to be made of the Framework is that it reduces the crisis we’re going through to orthodox theory. In saying this, I am not arguing that we should ignore or forego on economic imperatives. Far from it: any way out for this country must be framed with due regard to those imperatives, appealing to reason, not rhetoric.
However, in arguing that we need to liberate the market, it rationalises the crisis we are in as a failure of the public sector, and neglects every other consideration. What are the social consequences of its proposals? What would, for instance, its suggestion that we “liberalise” the labour market by making it easier for employers to fire workers amount to in the face of unemployment and mass social discontent? Orthodox theory suggests that, in the absence of restraints, the market will adjust and unemployment will resolve itself. But has this been the experience of countries that have dabbled in structural reforms?
Orthodox theory also suggests, or assumes, a separation between politics and economics. That is why free market advocates deplore this government’s authoritarianism, yet hail the J. R. Jayewardene administration’s economic reforms as having liberalised and rescued the country. Here, human rights NGOs and advocacy groups have been more prescient than the neoliberal right in pinpointing the link between those reforms and the political tensions they generated. It remains to be seen what advocates of free markets would have suggested when the Jayewardene government was trying to tackle working class discontent in the face of welfare cuts and rising costs of living. Perhaps they would have remained quiet over that administration’s crackdowns on trade unions and its proscription of the Left: actions which contributed to the escalation of the war. Yet to side-step these is to ignore the link between politics and economics. What purpose does or will that serve?
Consider another of the Framework’s proposals: SOE reforms. Neoliberals usually contend, as Advocata does, that SOEs place “a significant burden on public finances and are a major source of inefficiency in the economy.” As far as orthodox theory goes, the solution seems reasonable enough: restructure, deregulate, and divest. But the importance of SOEs goes beyond imperatives of costs and revenues: in certain regions in the country, they have not only become a source of employment, but also facilitated linkages with the fabric of their societies and the livelihoods of their people. Privatising these outfits without accounting for such linkages would generate far-reaching externalities for those regions.
Having left the issue of managing these tensions to the State, neoliberal policymakers have effectively given carte-blanche to authoritarian regimes to exercise impunity in the interests of capital. In the face of the worst health crisis we have seen in decades, this could facilitate authoritarianism surpassing the excesses of even the Jayewardene regime. What is ironic is that in light of such paradoxes, no less than the logic of neoliberalism has managed to turn in on itself. Put more simply, these reforms, boldly envisioned and promoted, have actually led away from the outcomes they were supposed to lead to.
Take a very simple proposition: that in order to boost exports, we should allow the value of the rupee to come down. On the face of it, this seems clear enough. But as Jeevan Kelum notes in an analysis of Sri Lanka’s tea sector, rupee depreciation has not boosted exports. Au contraire, while tea export volumes have increased, value added as a percentage of GDP has actually declined; plantation companies bemoaning the decision to mandate a rise in wages have, going by this, not delivered. Kelum’s argument that reforms are needed in the private sector, involving investments in technology, might be at odds with the neoliberal solution of retrenchment and divestment in the public sector, but it holds up.
Economic discussions in Sri Lanka has for so long been dominated by neoliberal theorists and utopian populists. The conventional view is that the latter appeal not to reason, but to rhetoric. This may fit in neatly with the distinction that an anthropologist drew between the “arthika” thrust of the UNP and the “jathika” thrust of the UPFA at the presidential election in 2005. Yet as the last 40 years or so have illustrated well enough, neoliberals have shown a reluctance to engage with the logic of their reasoning too.
In claiming the market as the epicentre of society, elite policymakers both dislodged the State from its place in that society and granted it carte blanche to deploy untrammelled power in the interests of corporate bosses. Thus these prescriptions, though underscoring an urgent need to chart a way out of the crisis, can open up social rifts. With its history of suppressing dissent, the Sri Lankan State, of whatever political persuasion, will likely wield its baton against marginalised groups protesting those rifts. What we need, then, is not so much an alternative to what we have, as an alternative to what is proposed.
*The writer can be reached at email@example.com
old codger / September 27, 2021
“If these proposals are not fast-tracked, we are told, Sri Lanka will keep on consuming more than what it earns and produces”
This is indeed the core of the problem. We have 300,000 in the military, and million or so in pointless state employment. Neither generates any real value, though some try hard to prove otherwise. Once salaries and pensions are paid, what is left for health and education? We may proudly claim totally free education even to University level, but is it really so? Do parents not shell out huge amounts to tuition masters? Is the level of education the same at Royal College and Ranna MV? So why keep up this charade? It is the poor that have to be supported. So, charge a fee from those who can afford it. After all, we are a “Middle Income” country, right? (Cont.)
old codger / September 27, 2021
Parents should be prepared to pay at least half what they pay tuition masters, and these tuition masters must be banned as in China. That should improve the teachers’ wages and incentivise them to actually teach, apart from attracting better teachers.
The same logic should be applicable to the supposedly free health system. Charge a flat fee from those who can afford it, and ban private practice. But which politician will take on the GMOA?
“its suggestion that we “liberalise” the labour market by making it easier for employers to fire workers amount to in the face of unemployment and mass social discontent? “
That would mean rolling back all the rights workers have won over the years. But then, hasn’t this already happened in the Free Trade zones, which are practically in a different country. So, it is in fact possible.
Finally, contrary to their natural tendencies, politicians themselves MUST take a pay cut, and forego their pensions. There will be pain on all sides, but we will have a better country.
Native Vedda / September 28, 2021
“That would mean rolling back all the rights workers have won over the years. But then, hasn’t this already happened in the Free Trade zones, which are practically in a different country.”
How would you deal with workers who are incompetent, lazy, unskilled, ….. thieving, bribe taking and treat work place as holiday resort or another political theatre, especially the state employees?
leelagemalli / September 28, 2021
Rajapakshes stupid nature dont allow them to see it right about the saferguarding basic human rights, they only focus on their own human rights, let me recap the developments from the day they returned to power
NOT A SINGLE PERSON AMONG PUBLIC IS AWARE WHAT AND WHEN THE VACCINES WERE INJECTED TO RAJAPAKSHES. IT SHOULD BE AT THE VERY BEGINING ::: AS FAR BACK AS Feb 2021.
1) No independent commissions which were introduced by GOOD GOVERANNCE for good of the people are empowered today/ instead, they are weakeneded with police become very like SERVANT boys of the mlechcha family memebers.
2) It was President GR who came to power promising it will be ” one law for all ” but it is clearly the opposite being obvious to many today, when looking at any step being taken by current govt. GR himself stays mum as if his senses are stolen by various crooks in that virulent outfit-SLPP.
In fact, until he moved out of the country to be preset in August Aseembly (though it is held in september, but known as AUGUST ASSEMBLY) people were not even aware of GOTABAYA whether he breathes in or not. No matter what it is, today nothing is open to the nation.
nimal fernando / September 29, 2021
I agree with all you have said …….. except this,
“This is indeed the core of the problem. We have 300,000 in the military, and million or so in pointless state employment. Neither generates any real value, though some try hard to prove otherwise.”
The greatest waste in the country are the number of pols. ………. put 95% of them to collect the garbage rotting in the streets ……. and let their salaries/remunerations/perks be decided/awarded by the Salaries-Commission (or whatever) that decides the salaries of the rest of the public servants.
old codger / September 29, 2021
Yes, all those Provincial councils are totally unnecessary. At the most, three would do. And we have far too many MP’s . 100 or even less should do fine.
old codger / September 28, 2021
“How would you deal with workers who are incompetent, lazy, unskilled, ….. thieving, bribe taking and treat work place as holiday resort “
Shhhh!! The President himself told the UN the other day that we have an “educated and efficient” labour force. Who are we to disagree?
But how do you explain the popularity of people like Eliyantha White when 74% are said to have passed O levels?