27 October, 2020

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Cameron Stole The CHOGM And The Budget Before A Crisis

By Ahilan Kadirgamar

Ahilan Kadirgamar

Ahilan Kadirgamar

The 2014 Budget unveiled by the President is a Budget for everyone. It addresses infrastructure, health, education, business, banking, agriculture, fisheries, housing, pensions and anything and everything everyone wants. It is for this reason that it is confusing and difficult to criticise. What is the economic policy vision and strategy and what are the priorities in the Budget?

This article analyses the 2014 Budget as a continuation of the open economic policies since 1977, and particularly, a reinforcement of the accelerating neoliberal policy trajectory after the war ended in 2009. It discusses policy priorities by revealing the scale of investments in urban construction and infrastructure. It critiques the lack of redistribution and increasing inequalities promoted by tax policy. It analyses the process of financialisation supported by this Budget in order to understand the dynamics that could create an economic crisis.

Bowing to Pressures

The Rajapaksa regime has mastered electoral politics. And more, the regime has been able to take the wind out of every mounting struggle. Political parties are broken and their members are bought over. Militant struggles are appeased with hand outs. Even as the regime becomes more and more authoritarian and arrogant, it has not lost sense of the pulse on the ground. It is the Budget most of all that reflects the populist grounding of this regime.

AKEven as it has stolen the UNP’s neoliberal vision – thereby disarming the opposition of an economic critique – it has also appeased many of the trade unions and sections of the rural masses through hand outs. Indeed, the regime boasts the full spectrum of political parties under its fold from the Sinhala Buddhist Nationalist Right to the bankrupt Old Left. The regime works with the confidence that if it can buy parliamentarians for a pittance, it can buy the masses for even less. It expanded the Cabinet and provided ministries with little powers for patronage, and similarly, it has expanded the Budget with subsidies and hand-outs for the population. Just as political power has been entrenched within the authoritarian regime, wealth creation for the financial elite and the dispossession of the lower classes accelerate with the neoliberal transformation.

So, what is in the Budget that is attractive to the larger population? Public servants and pensioners are getting a cost of living allowance. The pension scheme for farmers, which was abandoned a few years ago, has been reinitiated, albeit with the age of qualification now at 63. University lecturers, who were credited with putting together the second longest strike in the history of the country last year, will be given a raise next year. Hostels are being built for university students and labs for secondary schools. There is going to be greater investment in healthcare, vocational training, SLTB buses and rural roads. The questionable major fertilizer subsidy will continue and even a subsidy for government field officers to purchase motorcycles.

Contrary to most claims, Government spending as a percentage of GDP is only 20 %, and compared to other countries, quite low. State sector salaries and allowances are Rs. 390 billion, pensions amount to Rs. 125 billion, fertilizer subsidy, pharmaceutical drugs and welfare transfers are Rs. 100 billion. The point here is that the populist measures that include salary increases and subsidies are not determining the trajectory of our economy.

Infrastructure and Urban Construction

In this context, what economic changes are prioritised through public investment? Much of the capital expenditure is going to be on infrastructure, particularly roads, irrigation, ports, power plants, airplanes, hospitals and housing. In an impressive move, the Chinese have provided a grant of US$ 180 million to develop the Colombo, Kalubowila and Ragama hospitals. Next, the Government intends to build fifty thousand houses in Greater Colombo to resettle shanty dwellers even as hotel and property development in Colombo moves forward. There are also plans to build fifty thousand houses in the plantation sector. Both these massive housing schemes will be built through a US$ 750 million international bond for the Urban Development Authority and an additional US$ 750 million from government-led development projects.

The Government has mobilised a US$ 1.2 billion loan from the Asian Development Bank for road building and connectivity. Such plans for massive build-out comes after over US$ 3 billion has already been invested in tourism related infrastructure. This drive to build infrastructure with global finance has led to a construction boom:

“The contribution of the country’s construction industry now accounts for 10 percent of GDP. This sector is growing at around 17 percent due to expanded investments in infrastructure as well as higher private investments in urban property development, housing construction, tourism facilities, new factories and other logistics.”

Thus the main priority of public investment is infrastructure and urban development. The Budget states:

“Urban development initiatives of the Government have gathered a new momentum. These public investment initiatives which are funded with domestic finances along with foreign finances from the World Bank will be extended to cover greater townships of Kandy, Badulla, Kurunegalla, Galle, Ratnapura, Anuradhapura, Jaffna, and Trincomalee. The Southern Expressway and the proposed Northern, Kandy and Ratnapura Expressways that are due to commence construction next year will connect neighbouring semi-townships, to universities, teaching hospitals, tourist zones, investment zones, ports and airports, while also providing a wide range of services.”

In other words, the physical and economic geography of the country is going through a major transformation. The important question is whether such investments will provide the necessary returns to sustain this transformation.

Taxation and Financialisation

One major criticism of the Government’s economic policies is the lack of revenues to sustain its level of expenditure. As Table 1 illustrates, total tax revenue is even less than recurrent expenditure. So, where will the funds come from to pay for public investment and the accumulated debt? While the Government has some plans to expand the tax base, much of it continues to be indirect taxes, particularly, the VAT as opposed to progressive direct taxes targeting the income of the wealthier classes. Indeed, problematic tax policies that came with tax reforms in 2010 are continued even as inequality increases.

The tax logic in the Budget is not about redistribution but about incentives to investors and businesses. The question is whether such incentives in fact work and who do they serve? For example, there is a 50% tax holiday for three years for those companies that get listed in the Colombo Stock Exchange in 2014. This is a move to prop up the stock market and the interest of financiers.

Indeed, in recent years the central shift in the economic policy trajectory is financial liberalisation. The Government is proud of its achievements:

“Our country is now well integrated with the international financial markets. The Government and banks have mobilised funds with 5-10 year maturities through internationally traded bonds. This has improved availability of foreign funds required for the financing of both Government and private development expenditure.”

But are such funds used for investments with returns or consumption resulting in the accumulation of debt?

In any event, the Government is continuing to encourage such financialisation to boost international capital flows, the promotion of banks and finance companies and further loans down to the rural sector. For example, the Government is going to push for the merging of the development banks, particularly NDB and DFCC so that they can float larger euro dollar bonds. The model is the Bank of Ceylon bond floats totalling US$ 1 billion and the NSB bond float of US$ 750 million; both brought considerable foreign exchange at high interest rates and are exposing domestic banking to external risks. It is also pushing Banks that have finance companies as subsidiaries to merge their operations. These moves are a recipe for financial contagion and crisis, even as they garner greater inflows of global finances in the shorter term. Finally, as if indifferent to the massive indebtedness in the countryside, the Budget is encouraging rural loans, particularly micro credit loans for women.

The Government assumes that tax incentives and financialisation along with the expansion of the market will create employment. It is blind to how the market is in fact undermining rural economic life, particularly the lot of the farmers and fisher-folk, broadening inequalities. Job creation continues to be the priority, but beyond expanding the public service it does not have a vision for employment. Tourism is proving to be a fickle industry, the garment industry is a global race to the bottom in wages and revitalisation of earnings from tea has been reduced to blending and marketing. Larger sections of the population are forced to choose problematic migrant labour in the Middle East with atrocious working conditions and related social problems at home. Sadly, foreign employment continues to be the primary foreign exchange and income earner for the country with expected earnings of US$ 7 billion.

In the meantime, financialisation from the rural up to the national level may throw the country into an economic crisis.

CHOGM, Cameron and Austerity

Given the Commonwealth summit that preceded the Budget Speech by a week and the President’s proud reference to it in the Budget, it may be appropriate to end with it.

Indeed, CHOGM was as much about economic priorities as it was about political clout. It accelerated beautification of urban Colombo and completion of the Katunayake Expressway. And it was pitched as attracting foreign finances including for building casinos. However, there is one point about CHOGM that offers the Rajapaksa regime and its critics some learning.

David Cameron stole the CHOGM show and many felt it was a blow to President Rajapaksa. On the other hand, it is through London that a considerable share of the global finance capital propping up the Sri Lankan economy flows. While Cameron, the first official leader of a country to visit Jaffna, can claim to shine the media spotlight on Tamil concerns, he cannot offer aid for the reconstruction of the North beyond a pittance. Cameron cannot put money where his mouth is, because he is the austerity Prime Minister of a country pummelled by the economic crisis. Cameron is too busy clawing away at the social welfare of his own citizens and therefore lip service at best for the welfare of the war-torn Tamils.

With neoliberal globalisation, horrific images are there to be rapidly circulated and consumed, but in the interest of corporate media profits and Western establishment interests. They rarely contribute towards equitable reconstruction of post-war societies and much less social justice. Many of the regime’s most vocal critics have been pinning their hopes on international actors. Critique and oppose the authoritarian regime they must, but it would be prudent to understand the character and interests of their enemy’s enemy.

The lesson for the Rajapaksa regime is that when the financialised economy collapses, it may be hard to find even the populist hand outs. The very donors and financiers that have been pouring in capital will scream austerity and privatisation. When the crisis hits, the mask will have to come off, with only the neoliberal face of Cameron in the mirror minus of course colonial privilege. The people should be aware, will this be the Budget before a crisis or will there be more?

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Latest comments

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    Ca-MORON did not like Democracy.

    HE had a CLOSED – DOOR PRESS Briefing only for Foreign his journalists, those from his country.

    CHANNEL 4 came they did not like Protests by civilians. They left saying INTIMIDATION.

    IS this how a LEADER from DEMOCRATIC COUNTRY, the LEADERS OF THE CROWN JEWEL OF BRITISH COMMON WEALTH DEMOCRACY WORK ?

    IS this the DEMOCRATIC PRESS OF GREAT BRITAIN ACT ?

    Don’t you see how ridiculous it is ?

    You Tamils always have Orgasam when you see British.

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      mahinda gave cabinet ministerial post for the person who organised the protest against channel 4 in anuradhapura, may be you are in line for a deputy ministerial post for your services to mahinda and gota. You have been cleaning their arse with your tongue so you should be rewarded. keep faith.

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    Why don’t you say that Indian Prime minister showed his to you Tamils by not attending CHOGM.

    If he came to CHOGM he should have visited Jaffna too ?

    That would be more serious than Ca-Moron visiting Jaffna. Remember British farbour that Australian Woman Terrorist – Adele who gave Cyanide capsule necklaces to your Tamil girls. How much do you appreciate that ?

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      No need for Adele to give our tamil girls their cyanide necklaces. They had the guts to reach out and take it themselves. Unlike your ponna Sinhala men who left their womenfolk and ran into the jungles shouting Onna Koti Enawa, our tamil girls have always been role model freedom fighters.

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    Cameron may have stolen the show but now the carpet is being pulled under his feet. Sir John Stanley, chairman of the arms export control committee is asking Cameron how he justifies the “questionable” approach on arms exports of £8m in 2012 to Sri Lanka.
    http://www.theguardian.com/world/2013/nov/22/david-cameron-quizzed-arms-sales-sri-lanka

    I agree that the financialized economy can collapse (as can in the UK, US etc). However, Sri Lanka is 80% rural and should be able to weather such a storm. i.e most people (in rural areas) use firewood for cooking and can manage without electricity.

    Its industrialized countries with 80% urban population that should worry about collapse of economy. Imagine any large city in the west without electricity. no water (no nearby wells to walk to), 20 flights of stairs to get home, no toilets. Highly developed societies are much more vulnerable and fragile.

    e.g.
    Cruel windfall: How wars, plagues, and urban disease propelled Europe’s rise to riches
    The above article argues that even though there were enormous gains in productivity, because of dense urban populations the society was vulnerable to war and sickness (Think life portrayed in Dickens). War and plague killed of large swaths of population leaving a society with huge technological advances resulting in extreme jumps in the standard of living. (Think US after the Depression of the 30’s and World War II).

    On Similar lines is The Collapse of Complex Societies: by Joseph Tainter (The reviews are also an overview)
    Tainter lays out his theory of decline: as societies become more complex, the costs of meeting new challenges increase, until there comes a point where extra resources devoted to meeting new challenges produce diminishing and then negative returns. At this point, societies become less complex (they collapse into smaller societies). For Tainter, social problems are always (ultimately) a problem of recruiting enough energy to “fuel” the increasing social complexity which is necessary to solve ever-newer problems.

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    Rajapakse will need to learn a thing or two from fantasy Ealam PM Rudrakumaran.Best to follow Rudrakumaran.NO BUDGET!

    • 0
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      MAD Max rides again??

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        Hi mike,
        You like my riding,eh?Let me tell you a secret.Your,wife!Oh!god she really knows how to ride.The other day,she rode me non stop.Whatever the differences i have with the defeated Tamil terrorists,their wives are the best.They ride non stop.No wonder you guys are fantasizing of Ealam,while your wives are asking for more from me.

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          So, you left your wife for veddas to smell…

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            Ferdy, Mad Max has now switched from sniffing Hitlerpaksha’s underwear to Jayalalitha’s undies (his own words!). This bugger believes that variety of rotten fish is the spice of life??

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    Mr. Kadiragamar:

    How do you explain the following in your line of reasoning ?

    “David Cameron challenged to justify arms sale to Sri Lanka
    Chairman of arms control committee said it was ‘not credible’ to claim weapons exported were all used to combat piracy”

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    According to this analysis the Rajapakse government, on balance, will be stable for many more moons. That is till that “collapse” of the “financialised economy” comes along. Whether the analysis is flawed or not is another matter, but its implications are clear.

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    Indeed inequality and the urban rural divide is expanding but seems that Rajapassa is counting on China to cancel his debts at some point in the future.. Let us hope that China has learned a lesson from Myanmar and is now investing in the Sri Lankan people, rather than the Rajapakse Family businesses and white elephant infrastructure in Hambantota – Port , airport etc.

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    Let them destroy this country. And this for what they all voted for. Let them reap what they sow. Nepotism, cronyism, bribarism, barbarism (JHU/BBS/RAVANA Monk(ey’s)comics), Murders, assassinations, whole sale robbery of the country’s wealth, stealing of big time companies into family’s wealth list…etc.

    My Advice: Yo lotus eating shmucks (UPFA/JHU/BBS) Destroy the country fast…so that the fools just enjoying the watching may wake up to react…or fall asleep once again.

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    Ahilan Kadirgamar,

    [Edited out]

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    London is a global business and financial hub and has just gone for Renminibi convertibility..

    If the buzz there is that Sri Lanka is a political mess and the regime a ticking time bomb and not a good place for secure investment – even 10 CHOGM shows in Colombo will not help…

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    The sting was in what was not presented in the Budget speech- the increase in commodity prices that are being announced in bits and pieces by gazette notification! Tax on gold has been however reduced.

    The already overburdened poor and middle classes are going to feel the additional pain inflicted by ‘gazette budget’ quite acutely.

    Dr.Rajasingham Narendran

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    This is only the binging.

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    Rs 400 Billion deficit. The country is living beyond its means. Someone has to pay for the excessive socialist agenda.

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    This is a must digest for the Cosmopolitan Intelligentsia who have been badly let down by the petty politics of their Leaders for eight years now, and are getting ready to be fed the same loser feeling for another four to six years.

    Mega City in Katana, adjacent to the BIA which will transform Gampaha into a satellite of Colombo with the Katunayaka Expressway already in place.

    And What does the Cosmo’s Leaders say?. Nothing but Bull Crap.

    Just one example of the stupidity of this lot.

    EY is even in even Galle and Kandy now ,in addition to the Harbor city.

    1300 crammed into CG to listen to the the Treasury Chief’s take on the Budget sponsored by them.

    Sounds good to me,

    Not sure whether Cameron manged to make a dint on the post Nathikadal prosperity of SL.

    But he made himself look like an idiot, when the Fallon fella in Parliament divulged the 8 Million Arms sales to SL was approved in year 12, under Cameron’s watch.

    And our Murali did the rest.

    Our inhabitants wouldn’t be losing any sleep over, about West not bailing us out .
    Chinese will be happy to take the Infrastructure for their Super Funds going forward, the same as Yanks have done in nearly all English speaking countries.

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    How many at the grass-root level holding the destiny of this regime in their hands at the next elections, will truly understand the hidden horrors of this budget?

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    /* The lesson for the Rajapaksa regime is that when the financialised economy collapses, it may be hard to find even the populist hand outs. */

    Ahilan,
    You would be surprised to see how Rajapakses will use patriotism overcome any economic collapse. Rajapakse will stand out as winners.

    Rajapakses used CHOGM, Cameroon get a new local life.

    Rajapakses even branded UNP Sirikotha as traitors and send their monks to attack. finally UNP had to apologize to thugs.

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      Sumith,

      “Rajapakses used CHOGM, Cameroon get a new local life.”

      And to think we have to foot the bill for it.

      Don’t be surprised the next time Rajapaksa might convince the gullible voter that he’s going to be crowned King of England and they will for even that.

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        Sorry it should read-

        Don’t be surprised the next time Rajapaksa might convince the gullible voter that he’s going to be crowned King of England and they will fall even for that.

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    The writers proposition “…after the war ended in 2009” is a total misnomer. Do your Masters think the Wars in Afghanistan and Iraq were over on the days they bumped off Saddam Hussain / Bin Laden?. No, they are going on even today. (The Coaliation forces are slowly leaving the region not because the war is over but because they realise the human and financial cost of continued presence is too ghastly).

    Likewise in Sri Lanka’s the war did not end on the day Prabhaharan was eliminated. It is continuing up to today. Just that it has entered a different phase. The diaspora, with the help of their constituents in the West (Canada /UK ) has been relentlessly continuing their war. The pressures they bring to bear on Sri Lankan government to carve out an Eelam are patently clear.

    Question is are patriotic Sri Lankans sensible enough to see these through and unite to keep these evil forces at bay.

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    Akilan Kathirkamar’s analysis of Budget 2014 has no merit to consider it is a budget for all. The reality there is lot for Rajapakse family than the people of Sri Lanka. He didn’t talk about the level of corruption and the militarisation of the country which are major components of the budget which goes directly in the pocketsof Rajapakse family.

    I don’t know why he considered CHOGM and Cameron in this analysis. Tamils don’t want aids from Cameron. Tamils expectations are justice and the right of self determination.

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