By 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.

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.