By Amrit Muttukumaru –
The Covid-19 outbreak has dealt a body blow to the economy, social fabric and psyche of the world never before witnessed since the ‘Great Depression’ of the 1930s. What is different from previous calamities including the ‘Great Depression’ is the growing interdependence of world economies and the connectivity of the global community through the explosion of digital technology and the Internet. The impact of Covid-19 on the world economy makes the 2008 global financial crisis look like ‘child’s play’ in comparison. This being the case it will take a long time for the recovery of the world economy. The devastating impact of Covid-19 on the world’s largest engines of growth – US and China with Germany, France, UK and Japan also figuring prominently will exacerbate the economic and social travails of all countries – some more than others. This is mainly due to the disruption of demand and supply chain processes where countries such as Sri Lanka are particularly vulnerable.
Sri Lanka’s economy already in peril prior to Covid-19 due to huge mismanagement by successive administrations has now been driven into a tailspin also due to the prolonged lockdown of the country. It will be affected big time by the economic dislocation in countries which serve as the source of demand for its migrant labor – mainly housemaids, apparels and tourism product which provide the bulk of our foreign exchange and a major source of direct/indirect employment. The impact on tea another major export is yet to be assessed. Human hands playing a major role in the harvesting of tea leaves could have a negative impact on consumer perception and demand. Foreign exchange earnings have also been impacted negatively by the disruption of world shipping and aviation leading to depleted demand for marine and aviation fuel. The country’s perennial foreign exchange problem is now in crisis without the ability to pay for vital imports which include fuel, textiles for the apparel industry, food items, machinery and equipment. Apart from this how are we going to pay for our huge debt a substantial sum in foreign loans incurred in some instances for questionable purposes. Another source of foreign exchange – FDIs which has been a trickle in the best of times, some even from questionable sources is expected to take a major blow.
The economies of these relatively economically strong countries have taken a severe beating with the ‘stay at home’ order to control the spread of the coronavirus. A staggering 30 million Americans have so far applied for unemployment benefits due to this virus. This number is expected to further increase. Would not the reduction in household income with the concomitant reduction in consumer demand have a crippling impact not only on US businesses but on businesses worldwide? Many businesses in the US are also going bankrupt. What about this being replicated in other economically strong counties such as China, Germany, France, UK and Japan? These countries also provide the inputs for our lucrative apparel sector which include textiles and ancillary items.
The mismanagement of the Sri Lanka economy by successive administrations will make it that much more difficult for the country to get out of the hole created by Covid-19. These include (i) little respect for the rule of law and impunity (ii) disruption of social peace and stability (iii) endemic corruption (iv) cronyism with meritocracy having little traction (v) unsustainable fiscal deficits (vi) crippling high debt-to-GDP ratio – some to finance questionable investments (vii) exports not keeping pace with imports – some highly unnecessary (viii) failure to diversify export product (ix) insufficient encouragement for entrepreneurs – particularly SMEs (x) largely inept bureaucracy. There are indications that we have learnt next to nothing and that many aspects of this mismanagement continue to be unaddressed in our response to the calamity unleashed by Covid-19.
While restricting imports may ease the pressure on the Rupee in the short term, it will necessarily increase the cost of freight since empty containers will have to be delivered to facilitate exports. There is now the added danger of foreign countries imposing tariff barriers in retaliation.
Economic mismanagement is so deeply ingrained in our DNA that it has become almost second nature to us. This is in the context of opinion makers particularly business leaders, professionals and media moguls allowing this to take place in furtherance of their selfish interests through state patronage. They have abysmally failed to stand up to the mismanagement by successive administrations.
Endemic corruption and disruption of social peace in particular have contributed to the weakening of the country’s credibility resulting in the failure to attract ethical FDIs.
Despite the country since independence being in an almost perpetual foreign exchange crisis, believe it or not – our regulators in some glaring instances have even prevented the legitimate inflow of USD Billions into the country! A glaring example of this was given by this writer under the section ‘National Outrage’ in a previous ‘Colombo Telegraph’ article viz. Covid-19: Body BlowTo Ailing Economy & Opportunistic Corporates. This has not been disputed by the parties concerned. Here we are now in the midst of the Covid-19 pandemic bending over backwards to even welcome inflows from questionable sources. This is on top of the previous Yahapalana government enacting the contentious ‘Foreign Exchange Act, No. 12 of 2017’ which while purporting to liberalize foreign exchange transactions also effectively facilitates money laundering and fiscal evasion.
It is salutary to recall that Sri Lanka was only recently removed from the ‘Grey List’ of the ‘Financial Action Task Force’ (FATF) for money laundering after being on it for almost two years. FATF recommendations are “recognised as the global anti-money laundering (AML) and counter-terrorist financing (CFT) standard.”
The link between money laundering, illicit drugs and funding of terrorism does not require elaboration.
If frequent detections of large quantities of illegally-trafficked drugs such as heroin is the tip of the iceberg, Sri Lanka may well be on the way to becoming a regional hub for illicit drugs. There is wide perception of a nexus between drug dealers and politicians. Stories doing the rounds of widespread corruption in the customs establishment in the context of the alleged extravagant lifestyles of many customs officers does nothing to allay the fears one may have in the integrity of the proposed ‘Colombo International Financial City’.
It was just the other day on 1 April 2020 that the ‘Daily Mirror’ had a report captioned “Country’s largest ever drug haul” informing us that “The Sri Lanka Navy seized a total of 1184.9kilos of drugs, the country’s largest ever drug haul worth of Rs. 12,500 million”
The state of play in Sri Lanka is such that we have it on the authority of Mangala Samaraweera when he was Finance Minister in the Yahapalana government claiming “personal knowledge”
that Sri Lanka’s top dealers in illicit drugs are some of those holding high posts in social service organizations such as some Presidents of Rotary Clubs, Lions Clubs and Buddhist organisations. The Sri Lanka Customs came under his purview.
His back peddling a few days later is pathetic:
“Inadvertently, I also mentioned Rotarians and Lions Clubs, which I deeply regret.” does not hold up.
Readers can listen to his words in the link given below and decide for themselves whether there is any likelihood of any “inadvertence”?
Samaraweera’s Damning Allegation (3:27 onwards)
There was no “inadvertence” from Samaraweera as far as ‘Buddhist organisations’ are concerned.
Those in leadership positions in our frontline corporates with rare exceptions (if any) have for the most part only considered enhancing their personal wealth with only a marginal or lip service commitment to the national interest.
Have any of our business leaders with rare exceptions ever castigated any government for the glaring mismanagement of our ethnic and religious relations in the context of our multi-ethnic, multi-religious and multi-lingual country? Have not the much extolled leaders of our impressive garment industry used their formidable influence to halt the formation of trade unions? Can they be proud of the appalling living conditions of the thousands of girls working in the garment industry? Can the leaders concerned of our conglomerates honestly place their hands over their hearts and aver that they cannot afford to pay Rs. 1000/= per day to workers in tea plantations?
Have not some major corporates been the beneficiaries of the privatization of some lucrative government assets under questionable circumstances at giveaway prices? Are not some of them a major source of profitability of these corporates? These include virtual ‘cash cows’ – South Asia Gateway Terminal (SAGT) and Distilleries Corporation of Sri Lanka (DCSL).
Our corporates while distributing a major share of profits to the owners who are the elite of society have only kept small amounts to tide over bad times which we now have. The same largely applies to the so-called private banking sector where in reality the government calls the shots. Even the fully state controlled banks such as – Bank of Ceylon and People’s Bank have a large corporate sector bias if the huge non-performing loans (NPLs) are anything to go by. Could the egregious Bond Scam have materialized without the helping hand of the Bank of Ceylon and other state agencies? Will tax payers also have to bail out vehicle dealers with a huge stock of bank financed unsalable vehicles worth billions of rupees?
Sri Lanka’s mismanagement of the economy by successive administrations has compromised its ability to craft an appropriate stimulus package in response to the crippling effects of the coronavirus. The unsustainable fiscal deficits does not give the country the fiscal space for such an endeavor.
Our corporates while distributing a major share of profits to the owners who are the elite of society have only kept small amounts to tide over bad times which we now have. Is it equitable for the state to bail them out without demanding reforms also to address social inequities? They must go far beyond the largely cosmetic CSR activities reported in glossy annual reports. Is not paying a just wage to employees a crucial component of Corporate Social Responsibility?
Have not the ‘bigwigs’ of some of our corporates in their expectation of ‘belt tightening’ by employees in the midst of Covid-19, for the most part kept their ‘perks’ undisturbed? Do not these ‘perks’ keep their lavish lifestyles largely intact? Is it not socially ‘immoral’ for even a limited ‘stimulus package’ substantially funded by indirect taxes to result in ‘business as usual’?
Does not the Rs. 150 Billion Strategy to Revive Economy proposed by former CBSL Governor Nivard Cabraal – now Senior Adviser, Economic Affairs to PM Rajapaksa assist corporate and bank ‘bigwigs’ to continue with ‘business as usual’ without the much needed reforms?
It is hoped that his proposal for “Government and Banks to collectively access foreign investors” will not result in Sri Lanka becoming a regional hub for money laundering as a result of the CBSL “guarantee” that “forex remittances will be exempted from Exchange Control Regulations and taxes and protected under banking secrecy provisions.” Although this is applicable for only “three months commencing from April 2, 2020” will it not open the floodgates for money laundering to effectively convert black money into white money and destroy the integrity of the country? This is on top of the previous Yahapalana government enacting the contentious ‘Foreign Exchange Act, No. 12 of 2017’ which while purporting to liberalize foreign exchange transactions also effectively facilitates money laundering and fiscal evasion.
Does not the silence of our business leaders, professionals and media moguls underscore the need for reforms?
It would appear that the country at large has still not grasped what has hit us economically and socially. One could discern this from widespread comments such as “when things get back to normal”! The expected fast-tracked discovery of a vaccine for Covid-19 appears to have raised comfort levels. As opposed to this, some in the scientific community warn that mutations of the coronavirus which led to MERS, SARS and Covid-19 could further mutate into other strains and bring the world back to ‘ground zero’. The fact of the matter is that we must all get used to a ‘new normal’ in almost every facet of our lives. The ‘new normal’ in essence hinges on ‘social distancing’ and from this reality flows everything else. It hardly needs reminding that ‘social distancing’ is ‘abnormal’ for all ‘living’ things – human, animal and plant.
It is salutary to bear in mind the following in relation to the deadly ‘Spanish Flu’ extracted from the ‘HISTORY’ website:
“Reported cases of Spanish flu dropped off over the summer of 1918, and there was hope at the beginning of August that the virus had run its course. In retrospect, it was only the calm before the storm. Somewhere in Europe, a mutated strain of the Spanish flu virus had emerged that had the power to kill a perfectly healthy young man or woman within 24 hours of showing the first signs of infection.” ~ Spanish Flu Second Wave
In essence, we have to learn to be kind to each other and nature. In this there is no place for social inequity, selfishness and one-upmanship. It is suggested that our policymakers think long and hard to give a fillip to the Small and Medium Enterprise (SME) sector to make it a crucial player in the economy with an international reach. The country should explore ways and means to make the SMEs the feeders to the corporates in Sri Lanka and abroad with ancillary products. There is nothing unique or special in this proposal. It is believed to be a trusted long time practice in many countries including Japan, Taiwan and South Korea. It is time for the state to stop mollycoddling the corporates and make them more socially responsible and accountable.
There is a danger that Covid-19 could be exploited by interested parties to detract from burning contemporary issues such as accountability for the egregious bond scam, money laundering and other acts of criminal wrongdoing.