19 November, 2017

Budget 2018 & The Failure Of Neoliberalism

By Sumanasiri Liyanage

Sumanasiri Liyanage

Minister of Finance, Mangala Samaraweera presented his maiden budget to the Parliament on November 9. It was the fifth budget of the so-called Yahapalana government headed by the President, Maithripala Sirisena and the Prime Minister, Ranil Wickremesinghe. Nobody expected a miracle from the new finance minister as what he can perform is structurally limited very much by the dictat of the International Monetary Fund. However, it was not a hindrance since he is open and much more explicit over his ideology than his predecessors. As usual custom prior to the budget, the Prime Minister presented a policy framework within which the budget was to be designed. Moreover, a couple of months ago V2025 framework document was also presented at the BMICH with the presence of the President (playing a low key and eyeing for his own V 2030 document that is in the process of drafting by his economic consultants) and the Prime Minister (taking the upper hand in V2025) delineating the basic direction that the economy would be planned to steer in the next 7- 8 years.

Minister Samaraweera has branded his budget as “Blue-Green Budget, the Launch of Enterprise Sri Lanka”. Of course, he does not mean the budget of green blue coalition, but the ocean and the environment. If the ocean, the environment and the enterprise go together making a coherent entity is theoretically problematic since in many instances entrepreneurial drive has disturbed the equilibrium of both the ocean and the environment. However, in area where I live, the fisher folks has found their livelihood that depends very much on sea is continuously perturbed by the entrepreneurial drive of the construction of the so-called Colombo Financial Port City. Blue sea has now become muddy for the people in Baisawatta and its vicinity with their houses destroyed and livelihood disturbed. 

Ideology Behind the Budget 2018

The ideology behind the budget has been summarized in the following words: “In line with Vision 2025 we need to undertake bold reforms in factor markets in order to eliminate price distortions and restore property rights in accordance with market principles aiming at promoting faster and sustainable growth. Capital market reforms to capture its full potential are imperative for ensuring high growth over the medium-term and beyond. Without proper ownership of land and property, no country could achieve faster growth ensuring prosperity for all. In this context the country’s land and property ownership issues need a careful and urgent appraisal. Country’s labor demand demand against the constraints of labor supply requires a closer examination of all areas of the labour market including labor laws, to pave the way forward to harness the productive resources of the economy.” What does it mean? It simply means reversing all the safeguards that had been implemented to protect small producers and workers. “Capital market reforms to capture its full potential are imperative for ensuring high growth” are no doubt aimed at the large resources accumulated in the Employers Provided Fund. In this direction, the concrete actions proposed make it clear how the budget 2018 would affect the lower rung of society not immediately but in the medium run and beyond. It would be catastrophic for them. Let us read this section. “Much more has to be done. For example, the Rent Act, No 7 of 1972 which limits the ownership of houses and the rent to be charged requires amendments;  Paddy Lands Act, No 1 of 1958 and the Agricultural Land Act, No. 42 of 1973 will be amended to allow the farming of alternate crops; the Shop and Office Employees Act, No 15 of 1954 will be amended allowing the employees flexibility in choosing their working hours; bankruptcy laws to be amended to make them more efficient.”

This list has clearly revealed one simple truth. The relatively progressive measures introduced by the previous governments partly because of the pressures at the grassroots level are now planned to be reversed back. Just looking at the years at which these measures were introduced have also shown that the President Sirisena has now become the “killer” of his own party’s long admired and accepted policies. Can a true SLFPer who still adheres to its basic principles vote for the budget? The ideology behind the budget may be summarized in two mantras: (1) “liberalize and globalize; (2) eliminate “non-tradable drivers”.

So in my opinion, the budget 2018 entails the neoliberal ideology in its most crudest form. It proposes to adopt all the prescriptions of the Washington Consensus to an extent that has never been applied before. The radical changes that have been proposed to change property rights would definitely ignite a process of what David Harvey called “the accumulation through dispossession”. Similarly, proposed changes to labor laws in order to make labor market flexible are aimed at the creation of economic surplus based primarily on the appropriation of absolute surplus value. As Mezaros has argued this has been a contemporary practice in modern capitalism.

Towards a Consolidation State

Wolfgang Streak in his book Buying Time: The Delayed Crisis of Democratic Capitalism has identified three phases of the modern bourgeois state, namely the Tax State, the Debt State and the Consolidation State. Neoliberalism forces indebted states in crisis to put into practice measures leading to a consolidation state. Streak writes: “In the wake of the financial and fiscal crisis, the debt state that supplanted the tax state has to convert itself into a state dedicated to fiscal consolidation, completing the neoliberal farewell to the [welfare] state system and to the political economy of its Keynesian founding period. The consolidation state is being constituted, not accidentally, as an international regime operating at multiple levels of government. The possibility that internationalization and denationalization may be linked with liberalization has been present in the public mind at least since the discussions on the political consequences of globalization.” (p. 97) Minister Samaraweera’s Budget 2018 is nothing more than an attempt to build a consolidation state through getting rid of all the legislation starting from education act of 1939. Moreover, he has set of proposals by the name of flexible factor markets directly aiming at land grabbing and facilitating labor exploitation. His boasting remarks on increase in government revenue also indicates an attempt to pass the burden of debt state on the ordinary masses.

Irrespective of all these, there is no assurance that his plan would bring about anticipated results. Minister Samaraweera has agreed that V2025 is nothing more than a deception. Let us see the data he has cited in the budget speech. According to V2025, per capita income in year 2020 would be US$ 5000. As the former deputy governor of the Central Bank of Sri Lanka, Dr W.A Wijewardena has shown that to achieve this target the economy should grow at the rate of 9 per cent per year in the next three years assuming rate of growth of population remains around 1 per cent. The Minister’s projection of economic growth has shown that this would be an unachievable target. According to him, the rate of growth in year 2017 would be 4.5%. Projected rates for 2018 and 2020 are 5% and 6% respectively. According to Dr. Wijewardena, to achieve 9 per cent growth rate the energy supply should increase by 18 per cent a year based on the assumption that Incremental Energy-Output Ratio remains at 2: 1. In the Budget there is no mention how the energy sector would be reorganized to achieve 18 per cent growth in spite of so much banal talk on non-fossil fuel use.

The last point I wish to make is on the budgetary data. Since the IMF has been involving in the budget making process in Sri Lanka, the Minister of Finance has to offer non realistic targets to please the IMF. The Budget 2018 targets budget deficit of 675 billion rupees that is 4. 8 per cent of the GDP. This is well below IMF threshold mark of 5 per cent. Any careful study of the budgets in the last ten years shows that the actual budget deficit exceeded the projected budget deficit. In 2017, the estimated budget deficit was 4.6 per cent of the GDP. However, as the Budget 2018 says the actual budget deficit of 2017 would be 5.2 per cent of the GDP. So the Minister Samaraweera’s maiden budget would finally also end up as a farce.

*The writer can be contacted at sumane_l@yahoo.com

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Latest comments

  • 0
    2

    An excellent analysis!

    • 4
      0

      <bIn a country state assets to have been looted and emptied by the mismanagement of Rajapakshe dynasty – not leaving any records, what more talks we need about the successive budgets ?

      Please folks, try to sense, the current men cant tell you the size of the gaps Rajapakshe monkeys have deliberately made in srilanken economy.

      It is high time, the current men to expose the truth about the size of the losses Rajaakshes made during those 9-10 years-
      Good thing was elemination of terror within lanken bounderies found its end, with collective efforts of forces and leadership. But that should NO means be abused for looting tactics. Rajapakshes and their rascal mind set di dnot know beyond it.
      This happens when people are made blind keeping the facts and figures away from them.

    • 4
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      Dayan

      When did you discover Sumanasiri Liyanage is an excellent analyst and his commentaries? He is being sought after by left leaning persons of integrity. Also he has been around for quite some time.

  • 2
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    Unfortunately what sort of praise could you expect from a a well known sucker of Paksa Clan.

  • 2
    0

    I agree with Dayan.
    I am sure that Dayan will concede that budgets of the Rajapaksa regime were no brighter by the criteria used by the author.

  • 1
    0

    Empty vessels are making sound do not serious about this view.

  • 0
    0

    Sumanasiri liyanage,

    Do you expect the Finance Minister to produce a socialist budget?Unlikely.
    The Finance Minister was not very ideologically inclined , but somewhat admitted that it was a social market economy budget.whatever it means?

    . It may be actually a neoliberal budget.

    Naturally it follows that the Acts of Parliament passed during the days of closed economy were archaic and needs revision for a neoliberal agenda.

    . Why you call it crudest form is a beyond me to comprehend!.

  • 0
    0

    When mahinda took the economy it was only less than 25 billion economy in 2005 due to an utterly poor management by jr,premadasa and chandrika.but mahinda is a great neo liberal administrator who brought this economy up to more than 75 billion usd economy in just 10 years with excellent infrastructure and urban development. a single example i am pointing direct foreign investment in 2014 was 1.6 billion usd see in 2016 it is only close a to 0.44 billion. unp is the people like jr or premadasa they do not have ability of handling a huge business neo liberal economies.rajapakshe government are masters in doing that. Of cource mahinda is the most powerful president in srilanka.he is a dictator.he does not care about democracy.that is why he was voted out by srilankan public including me but he is the architect of this huge neo liberal economy he has the great support of the srilankan business community. This unp government is utterly poor in handling this economy because they never handled a huge economies like this.they are still in rural based janasaviya economies and their administration skills are so poor comparing with mahinda or gotabaya. we have to be very open minded in politics. If some one had done good job we have to accept it. the economical stats shows every thing. I can be any party by scolding any one with angry we cant hide the truth.

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