5 December, 2020

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Another Dimension Of Corruption

By Hema Senanayake

Hema Senanayake

Hema Senanayake

The contemporary money based economic system is very peculiar. It does not behave the way that most of us want to. It behaves in a very particular way. However, like many other phenomenon, its behavior can be explained under the cause-and-effect principle. Due to this very reason we can put it to behave the way we want it but only if we understood its systemic behavior accurately.

It appears that the economy is a physical system; it produces, it distributes and it innovates –And all these activities are tangible. But amazingly this whole system is purely depended upon on a hypothetical system created by human imagination –And that hypothetical system is known as monetary system. The monetary system is not real or physical phenomena. In fact I do not know any large physical system that truly depends upon a hypothetical system than ECONOMY.

Corruptions exist in such a system. It is a reality. Corruptions increase the cost of doing businesses. It distorts the distribution of consumable output. Once, a Cabinet Minister asked me to explain the economic impacts of corruptions. I told him that, “Up to a certain level the corruption is a moral issue, but beyond that it becomes an economic problem.” This means that corruptions at any level is a morale issue hence must be stopped; but it also intimates that corruptions are not always an economic issue that prevents economic development.

This is why I always insist to appoint a professionally qualified person as the Minister of Finance.

This is why I always insist to appoint a professionally qualified person as the Minister of Finance.

Assuming that Maithri would be won on January 08th of 2015, I recently wrote an article to explain that two options are available to finance the economic concessions promised by the common candidate of the opposition. Unfortunately, I did not mention that stopping corruption could be another option available. Instead I suggested two other options. Some might have thought why I did not pointed out that stopping corruption as a possible option in finding money in financing the economic concessions offered. I did it purposely because you may win an election on corruption charges but you can’t run an economic system by just being not corrupt. This means stopping corruption would not give you any new money to finance the salary increases etc. This truth will be found out soon by the new government.

The same issue of corruption came up somewhere in September in 2010 when the Finance Ministry was preparing the budget of 2011. Specially, one Cabinet Minister asked this question from me. In an email message dated October 11, 2010, I wrote him as follows;

“The government’s budget expenditure can be put into two modes; one is “consumption mode” and the other is “enterprising (or investment) mode. If we do not put the government’s projects in their “due” modes, in the short to medium term there are chances that the country will have a monetary disorder. It appears as inflation or “debt crisis” or as both. During such a crisis people might feel that they do not have enough money (liquidity) for day to day expenses. But on the other side there are “Mega Projects” erected or being erected of which benefits could not be reaped by the populace at large. So it is not unnatural for the people to think that people are cash starved because there is a lot of corruption taking place in the country under the premise of development; but corruption is not the culprit instead the real culprit is monetary disorder. Lack of consumer liquidity itself is a low degree monetary disorder.”

My above view has been proved correct. We had a massive currency depreciation and inflation in the first part of the year 2011. As a way out of this crisis the government contained the private credit growth heavily. The resultant effect is the lack of consumer liquidity which still continues –And it is a “low degree monetary disorder” as I pointed out in my above quote.

By that time perhaps my reply was not taken kindly or seriously. In a further conversation the said Minister asked me again as to whether the government can save more money in order to increase welfare subsidies if corruptions are prevented. I said “NO” because there is no real economic relationship between the stopping of corruption and finding new money for the Treasury. Stopping corruptions might reduce the cost of doing government business. But systemic arrangement of the economy is such that it does not necessarily being in new money to increase welfare payments. Unfortunately, sometimes corruptions bring in new money into the system. This is true four years ago and is true now.

I am writing this not to absolve the government from the culpability of corruption. But I want to enlighten the general public and the civil society organization activists who happened to be the vanguard of the current movement of the opposition in order to make them intellectually ready in economic governance. Then they can be a true force acting outside the new government. They need to be mindful that powerful anti-corruption charges/allegations would have limited and minute impact once the new government sworn in. Perhaps subsequent litigations against corrupt politicians or officials might help to recover and bring in a few millions to government coffers. It cannot be huge, I guess.

Instead structural economic adjustments and changes made in regard to policies might have huge positive effect on the lives of people. This is where we must put more attention once the new government is sworn in. This is why I always insist to appoint a professionally qualified person as the Minister of Finance. Understanding a larger physical system which depends upon a highly complex hypothetical system is not common sense anymore. Running it efficiently is not simply a matter of good governance and stopping corruptions.

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Latest comments

  • 3
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    Corruption at all levels of the government must be completely weeded out. In order to achieve this the system of governance must be modified to ensure checks and balances. Further, the public should be enabled to be vigilant. “Right to Information” must be made with an act of parliament so that information can be sought by the public where it matters. The total atmosphere will change if all independent commisions are established and the public would automatically be energised.

  • 0
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    “Instead structural economic adjustments and changes made in regard to policies might have huge positive effect on the lives of people. This is where we must put more attention once the new government is sworn in.”

    In this context I wish to re-post my response to your previous article.

    Both Quantitative easing as an immediate relief measure and Structural Adjustments as long term measures are necessary to revitalize the economy.

    If one looks at current budget allocations its obvious that austerity measures are in place.
    (Look at allocations for Education, Health, Social developments etc. which are minimal)

    Biggest spending is on Defense. Significant amount also allocated to Urban Development Ministry.

    Natural areas of redistribution in spending would be in these.

    Size of Government i.e number of ministers and deputies have to be limited.

    After annihilation of LTTE there is absolutely no justification to increase defense spending by 25%.

    Downsizing the military and spinning off of the military enterprises will create jobs and provide economic stimulus badly needed in war affected areas.

    Other models of fiscal responsibility should be considered.

    One of JVP’s qualms about Provincial councils is it’s expense.

    If properly devolved fiscal responsibilities are in place councils themselves have to fend for both capital and recurring expenditure.

    The ability of provincial councils to attract Foreign direct investment should be enhanced.

    Tax system has to be overhauled (both direct and indirect taxation.)

    As Bill Clinton said It’s the ECONOMY STUPID!

    DEMILITARIZE, DEVOLVE AND DEVELOP.

    Demilitarizing and devolving powers to provinces has economic/ developmental benefits and it’s an economic necessity.

    Now try explaining this to the Sinhala/Buddhist Supremacist Fascist elements.

  • 1
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    To start with, all Military run business should be taken over by the
    respective Provincial Councils and managed by civilian staff – a
    feasibility study should be made by an accredited Organisation for this
    change and set-up.

    The Defence Budget should be re-formulated with a new Committee of
    Public Servants and Heads of the Forces.

  • 1
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    Hema Senanayake

    “There is no real economic relationship between stopping corruption and finding new money for the treasury”

    There is and this is how it works. In Sri Lanka, say for example, a freeway that cost 100million to build actually cost only $50million and the rest ends up in a Swiss or Bank account in Dubai of a politician/cronies as commission/bribes. At the same time the SL government treasury has taken a loan from the Chinese government for $100million that the Sri Lankan citizens will have to repay over the next 10-20 years at commercial interest rates (China does’t lend money at lower rates the World Bank or the ADB does!).

    The $50 million has left the SL financial system probably for ever and SL is indebted by additional $50mm on an asset that worth half of its real value. The treasury debt level has increased by $50 million or ability to borrow new money has reduced by $50million.

    This is actually happening. India has been building freeways at a rapid rate. But they are always subject to a transparent and competitive bidding process UNLIKE IN SRI LANKA. The average cost of the ten freeways I looked at cost anywhere from $2million to $3.9million per kilometer for the Mumbai-Pune freeway. If one has travelled from Mumbai to Pune, you can see that it is very difficult terrain (hills, tunnels, bridges) to build a freeway unlike in Sri Lanka with flat terrain on the freeways completed so far. In addition, most Indian freeways consist of a minimum of 6 lanes unlike Sri Lanka’s 4 lanes which increases the cost for India.

    International rule of thumb for building a freeways is around $3 million per kilometer and Sri Lanka with flat terrain so far is not and exception.

    Now let us look at the average cost of building freeways in Sri Lanka. Katunayaka cost $14 million per kilometer, Galle $7.4million, Matara $20 million, and Kadawatha-Kerawalapitiya $56 million per kilometer.

    The cost keeps increasing and one can see where the money ends up!

  • 0
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    free Market Economy depends on mans desire or thanha. A controlled Planed Economy direct towards specific goals. In China for the New Year they have a plan for Reforms and Law. Regulation is important and has being introduced the World over because of the Crisis the World over. A unity Government can introduce both concepts. While a Plan is not hundred percent effective we can expect with reliability a large percent of the plan to succeed. It is for us to asses the success of the plans offered. The array of top politicians in the opposition as well as government support that is not forthcoming because of files maintained. We must remember that there are files on key Leaders Internationally as well as Money tracing programs to root out corruption. A black Economy in a Planned Economy directs unplanned Economic activity. Legislature must be put in place in a wide area to stop corruption substantially.

  • 0
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    Finally we have to accept the corruption is an essential tool for the economic growth of a country. Hema, Is not it you try to explain.

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