26 September, 2020

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Can Maithri Deliver His Economic Promises?

By Hema Senanayake

Hema Senanayake

Hema Senanayake

“Sirisena promises 10,000/= rupees salary increase but does not show how he obtains the money to pay this.” This comment was posted by a concerned reader of Colombo Telegraph in response to an article published under the caption of “Maithri’s Manifesto Launched; It Is For Provider Government With A Vision” (December 20th, 2014). The same concern was re-echoed by Minister Susil Premajayantha and said that most of the promises mentioned in Maithri’s Manifesto cannot be delivered. He must be primarily referring to the economic promises.

Hudson Samarasinghe, the Chairman of SLBC wanted to do it in a more credible way. So he called the best official expert in the subject of economics in order to be interviewed on “Rupavahini.” The expert was Dr. P. B. Jayasundera who is the Treasury Secretary. The interview went on for two hours. The intension was to seek his professional analysis on the promises mentioned in the Manifesto of Maithri.

Accordingly, it may be useful to submit my views on this matter; the matter on economic concessions promised by the common candidate of the opposition.

In general, all the economic concessions that any candidate promises would create an impact on national budget or public debt or both because the current budget must be financed either with tax revenue or loans, if money is not printed or do not use the technique known as “quantitative easing.” Since the loans obtained at present would be paid back from the future tax revenue the loans obtained now would create an impact on future taxes. Hence promises to make economic concessions would affect to the “taxes” at present or in the future. The “taxes” could be direct taxes or indirect taxes. No economist can deny it. This is the first point we need to keep in mind.

businessforumThe second point is that there is a technical limit for economic concessions if taxes are left unchanged. Excessive concessions could create financial instability and as a result would cause economic chaos and would hamper economic growth. The most possible financial instability would be a sudden devaluation of rupee in the same way that happened in early part of 2011. Previously I wrote that any level of corruption would not make the economy collapse suddenly, but financial instability would.

Therefore, economists cannot ignore both above factors when any government proposes new economic concessions. This is equally true for Maithri’s new government if he is elected to be the new President on January 08th 2015.

Under the light of above two concerns, my analysis is that Maithri can deliver his promises even though I do not agree with some promises he made but those promises has minute impact on the national budget; moreover such promises were inherited from the legacy of the existing administration. Let me submit my analysis as follows.

The subject we are discussing about falls into a specific area in economics. It falls into the area of the “distribution.” But I prefer to call it the “distribution of distributable output” or the “distribution of consumable output.” From my definition it intimates that only a part of economic output is distributable and there is a part that cannot be distributed. This is true but our focus here is only about the distributable part of the output. Economic concessions constitute a part of the distributable output or the consumable output of the economy. Therefore economic concessions primarily do change the distribution of consumable output. Is this possible?

In a money based economic system, no economists would doubt the government’s ability to make policies to change the distribution of consumable output as the government wants to. If the government wants to do the distribution equally it can be do so. The question on the mechanisms of adjusting the distribution of distributable output has been resolved globally. Taxation and credit are quiet sufficient to do the distribution of distributable output equally or unequally. But what is not resolved globally is the suitable model for taxation that helps to promote economic growth.

Some economists strongly suggest that the way distribution is being done, has a direct impact on the economic growth. They say equitable distribution does not reward entrepreneurship and the risk taken by entrepreneurs. In the event the economy would not grow. So, they prefer to have a structure of taxation that ensures enough rewards for entrepreneurship. This cannot be ignored because if the economy does not produce or grow we will not increase the consumable output. In the first place we need to produce in order to distribute. The World Bank and IMF cater to this idea and hence Maithri like other global leaders might have to accept the existing economic wisdom.

Therefore imposing heavy taxes on the rich and businesses might not be on his plan. Instead increasing the efficiency of tax administration by preventing tax evasion would be appropriate for him and this is a cause that would be helped by IMF and World Bank. If there are no new direct taxes imposed on the rich and businesses, how Maithri is going to get money in order to finance the newly promised concessions? This was the question of CT’s reader mentioned at the very beginning of this article. The same question was raised at a formal business forum by leaders of businesses when Maithri and Ranil met them recently. The question is highly valid.

In response to the question of business leaders Ranil made an important statement. Ranil said that the objective of offering new concessions (may be except a few) is to increase the aggregate demand. This visionary statement is important. When the aggregate demand is increased there would be a new demand for goods and services produced by entrepreneurs. As a result business activities would increase and possibly the economy would grow. But the question is that you can’t change the aggregate demand just by adjusting the distribution of distributable output. Therefore, increasing of taxes cannot be on the table at least in the transitional government to finance the concessions. If this is the case there are only two options available.

One is that the new government can make adjustments to the common interests that the government is supposed to produce. What the government is produced is known as common interest services. Such services constitute part of the total demand or aggregate demand. Therefore, what the new government could do is to cut the expenditure of a certain ministry by a certain percentage and use that money to finance the concessions. Perhaps, since they are going to abolish the Executive Presidency, the cost involved with it could be reallocated to finance the concessions. Will these adjustments increase the aggregate demand? Perhaps it is not. Would these adjustments change the GDP? No. It is not. But these adjustments would possibly increase the credit growth on the part of consumers. If this happens it could increase the aggregate demand.

The second option is to use the technique known as “quantitative easing” temporarily. In simple terms what happens in quantitative easing is that the government gets new money from the Central Bank mostly in electronic form. This does not have the same effect as “printing money” even though some economists think so.

When the demand is slack and the banks do not create enough loans the Bank of Japan used this technique for the first time in the decade of 1990s. Then, after the Great Financial Crash of 2008, the United States used “quantitative easing” in order to increase the aggregate demand function. Ranil sees that demand is low and wants to increase the aggregate demand. It seems that Ranil envisions using quantitative easing in the new government. This technique can be used subjected to one important condition. That condition is that it should not create financial instability. Such situation can be easily prevented if the inflow of non-credit-based dollars (reserve currencies) is increased.

In short, since the economic concessions promised are targeted to increase the aggregate demand it is more likely that there won’t be increases of taxes. Instead the strategy could be to adjust the government expenditure with a view to promote consumer credit growth or to use quantitative easing temporarily or using both maneuvers in combination. If this is the case I see that Maithri can deliver his promises. In other words he can find money to deliver his promises.

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Latest comments

  • 6
    1

    Both Hudsun Samarasinghe and Dr P.B. Jayasundara are representing the present regime and therefore they will not present a fair picture on maithrees promises on salaries etc. They will have to relook and analyse various expenditures and find economies to finance the additional salary increases. Ranil has a good view on the economic aspects and they will pull through.

    • 2
      1

      Hema Senanayake –

      If you take the Cut the MaRa family and their shills and goons were taking, yes.

      The productivity gain alone would pay for it.

      • 0
        2

        Ye, all listen. The economic miracle is talking economics.

        “He wouldn’know “productivity gain” [Edited out]

  • 4
    3

    “Can Maithri Deliver His Economic Promises?”
    Don’t think so; Not with a corrupt son who launders Swiss Francs and tries to ride something other than a four-legged horse.

    • 0
      0

      “……Not with a corrupt son who launders Swiss Francs and tries to ride something other than a four-legged horse.”

      Fool; He doesnt know that riding 4 legged horses is much better than riding 2 legged ones. Very much so.

      • 0
        0

        Namal Baby,

        The best riding of all is riding no-legged “JaraaPakse” wearing a “raincoat”

  • 1
    0

    Even the certain promises Maithripala Sirisena gave, let they be broken promises and, should not be implemented. Sri lankan industrial sector is mostly service based and I think the major foreign exchange earner is by women who are working overseas. All other workers are mostly govt employment and they are not doing any production related work.

    Even the producing countries are keeping salaries very low in order to keep their products competitive in prices.

    The new govt should not cut down the Petroleum products prices. Instead must use this opportunity to gather much needed foreign exchange and local money.

  • 5
    1

    This thesis is on secondary side issues about which there is absolutely no need to discuss at this point in time. As a matter of fact, if all the waste and corruption (including the maintenance of the jumbo cabinet)are dealth with, there will be enough funds to better distribute among the struggling masses.

    Need of the momemt and the focus should be the banishing of this terrorist dictator and his family for good. So let’s concentrate on that.

    I suspect the writer has a hidden agenda in trying to digress from the main issue.

  • 3
    1

    Maithripala on economy? I don’t think so, he doesn’t have experience in economics, but when the powers are vested to Parliament this will be controlled by Prime Minister Ranil Wickremasinghe who has powerful vision in economics.

  • 2
    4

    Inhabitants are well aware of Ranil.s Economics .. And they have experienced it first hand a few times.

    I am talking about the great majority of the inhabitant population. who now can afford a chicken, at least for the X Mas feed.

    Then can now By Pass the Rice Mafia and buy a Kilo of Rice at an affordable price from the CWE .

    My Three couldn’t run the Health Ministry because he was out witted and out smarted by the Drug Mafia ..This is his own admission…Right

    Does he know anything about Micro and Macro Economics, unless the two Brothers have put him through a Crash Course…

  • 2
    1

    Is he going be another Saradial. If he win the election by chance, he will be under the chair and Ranil and Chandrika
    Will fight for the Chair. Helautumya and
    Maduluwave Sobitha Thera will be in the
    dustbin

    • 2
      0

      Chandrika will not be active in parliament, She will overthrow the incumbent President and takeover her party from him as revenge. She will only become chairman of SLFP and the leader will be someone else that’s her close associator.

      She has united with Ranil and she doesn’t see Ranil as her rivalry now. Time has changed and they have united to fight the corrupted incumbent President. What else they can do? Maithripala to hide under the chair? Why should he hide? He will become the President of Sri Lanka and restore the democracy rights of the citizens.

      Maithripala will be equal as citizen and not above the law like corrupted incumbent President. There will not be any “chair“ to fight, The powers of Presidency will be vested to Parliament and the 225 chairs will have powers to decide the right path for Sri Lankan citizens.

      Maduluwawe Sobitha Thero is not Member of Parliament he is just a Buddhist monk to represent the Buddhism religion and your argument is invalid!

    • 2
      1

      Looks like Chor Rajini is somehow getting her plans of a come-back materializing. Cunning Witch But, thasnks to a corrupt MR, an effeminate Ranila and an even worse M3 who has the personality of a village Sillara Kade Mudalali.

      • 1
        1

        Idiots of your kind would spread falsehoods of this kind. This is pitty nature of the ruling bunch who failed to notice who would be the common candidate to contest with Meeharaka Rajapakshe ?
        And shame on you buggers failin to stop henchmen of ruling box leaving for s pore. This has proved well the ablities of ruling coalition making it further clear that there is no place for justice, law and order under meeharaka Rajapakshe. People are not that fool to give an another mandate to him. You may be talking from your backside to drop this kind of thoughts.

  • 1
    0

    The combination of Ranil-UNP, & CBK-MS mostly rely on mainly Western donors led by IMF WB and ADB that is purely, that Neo-colonial Bretton Woods system in operation since 1945.

    This Bretton Wood system of Monetary is lopsided had been weak , that is a rapidly declined, since 2008 Great FREE FALL OF WALL STREET LED BY CENTRE of USA ECONOMY.

    The poor UNP read OLD Economy, which UNP Economic SCHOOL OF THOUGHT out dated and CBK -back, MS has no knowledge ongoing changes and emerging financial trends and development of Global Economy.

    Political- Economy has shifted peaceful Rise of China, Indian, Brazil, Russia and other emerging countries, that build New Venue of Capital, Investments and Trade market in Globally. There for dramictally an opposite Economics co-exist in Globally beside US EU and Japan Centre Old Economy Order.

    Writer is blind on new changes Global Economic-order , that New Order already exist in operation and playing major role in Capital market and Investment; but indeed this writer too believed all Sri Lankan are foolish and blind as him.

    People of Sri Lankan more wiser and they must awaking in NEW Development in world order. We have new options and new avenues has been an open and came into exist for our future.

    We don’t want go behind ONLY that West no longer economic revival is possible and developments of Island.

    Of cause I ever-never denied important role play by USA, EU and Japan Economy in Globally. We want West for development of National economy, its new innovation of Technology and sciences our New Sustainability of Capitalism, its development.

    We are a democratic nations having similar values closed to WEST, that Parliamentary Patten of Democracies. Our path and model of Economic development having own historical roots of 2600 years civilization and its values base on Buddhist outlook and its Philosophy mindset. It has deep rooted effects and impacts of New Line sustainability of Capitalism.

    Writer is one sided reading of Economics-Political theories of Western mindset. Needless to say MS is uneducated and HE has no knowledge of Future Sri lanka.

    He(Mathirpala Sirsena)and his coalition of UNP and CBK is far behind every spheres of New Development in Globally and Locally.

    Even his local Sri lanka education level and back ground far below average level. We want more educated and political Elites and class of persons to be REPLACE MR Presidency 2015 January.

    Mathirepala Sirisena is incapable and NOT FIT FOR PRESIDENT OF SRI LANKA.
    He cannot deliver to our future development and Democracy of Sri lanka.

    • 0
      0

      Bretton Woods system.

      15 August 1971, the United States unilaterally terminated convertibility of the US dollar to gold, effectively bringing the Bretton Woods system to an end and rendering the dollar a fiat currency.

    • 0
      0

      Piyadasa Galayata?

      Nothing comes out of your harangue! What are you trying to say?

  • 0
    0

    If waste, corruption are eliminated and loosing state enterprises closed down, and, unfit beaurocrats are sent home, the economy will recover.
    The cabinet must be limited to twenty with twenty deputies.
    All allowances to parliamentarians must be pruned and ‘advisers’ sent home.
    All those with unexplained wealth should be prosecuted.
    The army should be pruned to 100,000 and the rest sent home.
    Al unqualified diplomats should be sent home.

    • 0
      0

      This is what the opposition is trying to do, While the ruling party talks trash and lies!

  • 1
    0

    If a person like Mahinda Jarapassa could win eleciton, a man like My3 WITH 47 years in parliment politics should have all energies and capablities to do it much better.

  • 0
    0

    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.

    Naturally, areas of redistribution in spending would be in these areas.

    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,DEVELOP.

    Demilitarizing and devolving powers to provinces has economic and developmental benefits and its an economic necessity.

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

  • 0
    0

    K.A.Sumanasekara is prattling on like a `godaperakadoruwaa`! He seems to be quite happy about MR`s economics!

  • 1
    0

    Hema Senanayake
    This whole article has little to do with whether Sirisena can pay for this allowance than showing off how much of an economics analyst you are. Half the things you talked about has nothing to do with the subject.

    Just multiply the 10,000 by the number of public servants in the country and come up with a number. You will find that it is a fraction of what the current crooks earn in commissions on projects. Never mind the waste on airlines and hedging in CPC!

    After all the blah blah of quantitative easing etc., what is the conclusion, yes he can find the money!

  • 1
    0

    Dear Mr, Doctor, Professor or whatever you are Hema Senanayake,

    This type of article in the context of today’s current discussions is boring. Improve your English writing skills. Try to tickle the mind of the reader without putting him to sleep. There are excellent courses in Journalism. But that aside …

    You were really struggling to find a happy medium to balance the budget in a manner benevolent enough for the country AND for the masses. And you did not quite succeed, unless such result was intentional. And shame on you, you forgot about the most obvious solution.

    Maithri’s Tax Solutions become relevant only if he is elected, and is allowed to assume the Office of President. That also is a big IF. Let us grant that happens.

    With all the talk of the corruption of gargantuan proportions, surely Mr Senanayake, there will be at least 1 Billion Dollars that is floating around here and abroad, that can solve Sri Lanka’s financial challenges and can be grabbed by the Government, quite legally, under the UN blessed international anti money laundering regime.

    How you neglected to mention this in the Article is a mystery to me. Because you are so knowledgeable. Not only that, you should have realized that it is so easy to capture the floating bonanza.

    After Maithri sits on the Presidential Chair, all he need to do is arrest all those who are suspected of stealing government funds – specially relating to the Mega Projects – like the ones that provided 2000 percent returns to individuals in the government and contracting community.

    Surely you know the most effective fact finding (money in our case) methodology pervading the George Bush doctrine of Enhanced Interrogation Techniques, that was even recently in the news. Remember Dick Cheney was pissed off about it? You should have even given internet references to how that recent United States report, about the finer points of torture, can be accessed.

    Do you think the Rajapaksa brothers, Sajin Vaas, Tissa Attanayake’s businessman friend, Maharaja etc etc etc are capable of withstanding such interrogation. They will shit in their pants in case they are interrogated with their pants on. At some point in time they will even consider it their sacred duty to legally transfer to Maithri’s government all the hora salli they have hoarded during the last few years, starting with the Tsunami Hijack. In any case during and after the interrogations there will be a deluge of funds available for distribution among the Sri Lankan Equus Africanus Asinus (read V. Kanthaiya’s Article “Why We All Should Vote For Mahinda”.

    The ordinary folks can be given everything they need, anything they want. No pain at all.

    Next time you write try to be smarter.

  • 2
    0

    Come on Thonda. Everyone has left MR except you.

    Leave MR or upcountry Tamils will desert you too.

    Cross over Thonda. Don’t be a fool. Support My3.

  • 3
    0

    Stop MARA’s greed.Everything else will be fine.Nobody
    will stop cost of living steadily flying high but
    people can be armed to deal with it in many ways.For
    that to happen,playing fool with people’s lives must
    stop.Why an airport and sea port in Hambantota is such
    an urgency?Why entire transport system gets express so
    urgently?Why city beautification projects without proper
    garbage removal or dumping mechanisms?Without decent
    flood diversion?All these, at a time cancer patients are
    only given prescription and not medicine at hospitals.
    Which one should be the top priority?Most deserving
    patients who need top quality medicines, are left without
    any help while money borrowed for projects at the cost of
    that same dying cancer patients?What development is this?

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