By Sumanasiri Liyanage –
At my age an uninterrupted sleep is a luxury. My prostate wakes me up at least two to three time. Hence, it is hard to distinguish dreams from imaginations. It was almost 1 am, I just finished my first lap of deep sleep when I heard knocking at my front door. “Who the hell at this time of the hour” I came out of the bed grumbling. I opened the door and I couldn’t believe my eyes. It was Dr NM Perera. “Comrade, at this time of the day” Astonished I asked even not inviting him to come in. “May I come in” he asked, “it’s a bit chilly outside”. “Please do comrade and take a sit”. “May I make a cup of tea for you.” Having felt guilty, I asked apologetically. “Yes, it would be nice to have a hot cup of tea in a chilly morning like this. But no sugar. We must leave sugar only for kids.” He said making his beautiful laugh. I prepared him a mug of tea with no sugar but with Highland fresh milk.
Being a third or fourth generation Samasamajist, my links with the first-generation leadership like NM, Colvin and Leslie were quite distant. Vasu who is a third generation Samasamajist was the closest to us. When I rejoined the LSSP in the late 1980s, Bernard was the general secretary of the party. I can only think of three previous encounters with NM. None them were politically important. First was immediately after the 1970 general election at a Public meeting in Kitullgala. In my speech, I raised the issue that private banks should be nationalized immediately. In his speech he replied to my remarks saying that the nationalization of foreign banks would not bring any positive results but setting up of a national savings bank is imperative.
My second encounter was in Gampola when he came to open up new bank branch. My third encounter was when he came to Kandy once again to open some thing that came under the purview of his ministry. Two prominent Kandy lawyers comrade Wijaya Wickramaratne and comrade Lal Wijenayake invited him for tea at Queens Hotel. Wicks and Lal asked me to join. He talked about the resistance to progressive policies within the government, a group led by Felix Dias Bandaranaike. Since the conversation was conducted in English, I was not able grasp what he actually said.
So, his sudden appearance at my door in early hours of the day really surprised me. “I read your columns in CT.” He told me realizing my uneasiness created by his sudden visit. “Especially your writings on the economy. They are informative, also interesting.” He added. Hadn’t you faced a similar situation in the 1970s.” I asked. “Well, yes and no. The crisis in the 1970s was made exogenously. Nine times increase in oil prices, a serious food crisis in a near famine situation. We were not the creators of the crisis; we were made its victims.” NM explained. “But the way in which responded to it created a lot of hardships to the people.” I interrupted. “Yes, of course! But our approach was qualitatively different, it was not an elitist approach. As you know we increased direct taxes and highest income receivers had to pay 72 per cent of their income. Important steps were taken to increase food production, especially the production of import substitutes.”
“Coming back to your initial question, I would agree that there were exogenous factors at work. The Covid-19 pandemic and the associated increase of prices and shipping charges have contributed to exacerbate the crisis sign of which had already appeared in 2014. The present crisis is essentially structural and endogenously driven. I think you have correctly emphasized this in your writings.” He continued.
I barge in: “if you were the Ministry of Finance, how would you grapple with the present crisis.”
NM: “I think it is not a fair question. Had I been the Minister of Finance since 1970, throughout the last fifty years, there would not have been a crisis like what Sri Lanka is facing today. As you can remember, Sri Lanka had positive trade balance for the last time in 1977. Since then Sri Lanka has had a deficit in its trade account. Even current account of the balance of payment has been in deficit. None of the finance ministers who were in charge after I was removed from the post has failed miserably to manage the economy, especially its transactions with the rest of the world. Not only the negative trade balance was not corrected, Sri Lanka has continued the same policies by creating a mountain of foreign debt. When the corrective measures were not taken at correct time, crisis is imperative. That is the difference between the crisis in the 70s and the crisis of today.”
SL: “Let me rephrase the question making it hypothetical. Had you been appointed as the Minister of Finance by President Gotabaya Rajapaksa, what steps you would have proposed to resolve or at least to contain the crisis.” NM laughed. “Gotabaya Rajapakse is not Sirima Bandaranaike. Different people and different time. My first response is that I would not accept such a post in Rajapaksa regime. My party took a wrong decision accepting minister post in SLFP-led governments since 1994. In 1964 it was a tragedy, but after 1994 it was a farce. But I know what you meant by phrasing the question in such way.”
NM: “Although Sri Lanka’s foreign exchange reserves were nearly 8 billion dollars in 2019, the economy was in extremely a fragile situation. Pandemic hit the economy in 2020. It was the responsibility of the new government and the finance minister to take immediate steps to reverse the situation by imposing import restrictions and restricting capital movements. Moreover, steps should have been taken to balance the gap between government revenue and recurrent expenditure. These are the basics that were not taken seriously.”
SL: “Do you think that going to the IMF is unavoidable”.
NM: “In the short run, Sri Lanka has to handle its debt situation. Until 2017, Sri Lanka has to allocate five billion dollars for debt servicing. That is a huge amount. Add nearly ten billion dollar negative trade balance to it. In such a serious situation, debt restructuring, rescheduling or defaulting is unavoidable. During my time, we asked for IMF assistance knowing very well its pros and cons and also taking steps to move away from the IMF grip as soon as possible. But the present government oppose the IMF because it thinks it would be a restraint to its arbitrary spending. On the other hand, pro-IMFers want to establish once again free market trade regime even abolishing limited import restrictions imposed by the present government.”
SL: “What do you think about the future of the country.”
NM: “Unless an elected government change the track and develop an alternative policy framework to the so-called export-oriented development strategy, the country’s future, I would say is bleak. No sign of an emergence of a political movement that stands for such a change. All three or four contenders for power claim openly that they would not change the basic components of the present policy paradigm.”
SL: “My last question: what do you think about the concession package announced by the Minister of Finance last night?”
NM: “We, always welcome concessions to low income earners. Nonetheless, they should emerge from a broader policy paradigm. Moreover, how this package is financed should also be revealed.” With that words, he disappeared.
After N.M left around 3 o clock in the morning, I was thinking there is a gap in our conversation. I spent about three hours grappling with the question what concrete steps be taken to get the country out of its current mess. Some time ago, I advanced a concept of low-level equilibrium and argued that the march towards economic recovery should begin at this point that is one step back. Continuous negative trade balance Sri Lanka has had since 1975 shows that the country lives beyond its means. So, the maintenance of this level of total consumption, both the recurrent and productive, cannot be maintained in the long run unless the country get foreign assistance in the form of outright grants or foreign loans to finance the deficit. We adopted the latter at increasing scale especially as we entered the twenty first century. The current equilibrium level cannot be maintained and attempts to maintain it at this level would deepen the economic crisis that Sri Lanka is going through today. While I was grappling with those issues, I received a letter with the return address: No. 106, Kotta Road, Colombo 8. Since the letter provided an answer to many questions raised above, it is not inappropriate to reproduce it in full.
Since I had not given a proper answer to your questions regarding policy issues, I drafted this letter on my way back. I understand, one of the criticisms against the left and heterodox economists is that while mainstream economists propose concrete measures that have to be taken to end this crisis, left and heterodox economists stop at criticizing the current system. Of course, the critique should precede an action program. Nevertheless, the question that needs an answer in advance is what measures the left in power would do to get the country out of this mess.
It seems that the left parties and groups confront this challenge in three ways, namely, (1) revolutionary, (2) reformist, and (3) adoptive. Those who stand for a revolutionary solution assume that it is imperative to capture the state and reorganize it in order to deal with the broader social and economic issues produced by capitalist system. Your friends at Frontline Socialist Party appear to hold this position. The other extreme to this position is what I call adoptive approach. The best example for it can be seen in the policy package of the National Peoples’ Power. Recently I watched a TV footage of a speech made by Sunil Handunethhi, the spokesperson of the NPP on economic affairs. The crux of his speech was that the NPP and JVP stand for adopting the neoliberal program by restraining associated corruptive practices.
My approach is closer to the view proposed by Edward Bernstein at the end of the nineteenth century. I firmly believe, Marxists should stand and struggle for the development of structures of associated production, like cooperatives, social enterprises and other forms of associated production. Hence, what I am going to list below may not lead immediately to building a socialist economy, but to what I call a ‘solidarity economy’.
A Simple Presentation of the Crisis
As you know, I love facts and figures and arguments based on them. So, let me paint the situation in next five years (2022- 2026). I assume there will not be major changes in our import and export structures, but small increase in tourist income and foreign remittances.
Table 1 shows that if we continue the present policies, after five years, the difference between foreign exchange requirements and expected receipts will be – 36.4 billion dollars. Of course, if there will be an increase in tourist income and foreign remittances, the deficit would be lower. Now let me briefly list my concrete proposals.
Five Proposals for Immediate Implementation
1. Default all foreign loans for a period of five years informing the creditors that loan repayment with justifiable interest would be reconsidered in 2027. This is actually a moratorium for five years. There will be pros and cons of this unilateral action. However, as Jeromy Roos has shown, this is not a totally unnatural step a sovereign nation could take. This step would reduce the difference between foreign exchange requirements and expected receipts to – 14.5 billion dollars.
2. Reduction of Total Imports and Import Substitution: Although import restrictions were imposed in 2020, Sri Lankan imports remains as the main withdrawal element from the income stream. As import bill of the fossil fuel is the largest single component and it is vulnerable to price changes, steps should be taken to encourage other sources of energy generation and to introduction of a ration system in fuel distribution. Similarly, an industrialization policy promotes cluster effects when industries are selected. This is very weak in Sri Lanka. Hence, when local industries are promoted the importance of local supply chain should be highlighted.
3. The Tax System: Sri Lanka’s tax system is one of the worst tax systems in the world. It favors the rich. Two important proposals should be introduced with regard tax system immediately. First, progressive income tax system should be introduced. I propose the following percentages. I also propose that foreign nationals working in Sri Lanka should also be taxed. This will not only increase government revenue substantially, but also change the proportion of direct/ indirect tax revenue. Secondly, profit tax over manufacturing industries have to be lifted or reduced to 5 per cent as an incentive to the development of manufacturing sector.
4. Introduction of a dual exchange rate: One of the key issues that is under review is the preferable exchange rate regime. As the entire world is adopting floating exchange rate in one way or the other, it is hardly possible for a country like Sri Lanka to swim against the stream. Hence, while maintaining the current exchange rate regime, I propose that Sri Lankan nationals working abroad should pay an additional 25 per cent of the official exchange rate when they remit money to the country. This will increase official transfer of foreign remittances and would affect income distribution in favor of those families.
5. I propose setting up of two National Development Banks for industrial and agriculture sectors respectively by nationalizing and amalgamating DFCC, NDB, Sarvodaya, SDB, RDB and Coop Banks. Through these development banks, the transfer of capital in productive way and according to the industrial policy may be performed.
Of course, these proposals provide merely a short-term solution to the crisis that needs the change of policy paradigm. I will try in the following table (Table 3) the possible outcome of my proposals. One can say the selection of data is very much arbitrary. They are. Nonetheless I looked at past figures and the ongoing trend in projecting tourist income and remittances.
If all works as I assumed, the country would enjoy a positive difference (16 billion dollars) between foreign exchange requirements and expected receipts. This will help in reducing some of the restrictions imposed during 2022- 2026.
NM knew very well he was not someone with a magic wand. He also understood the impatience of the young revolutionaries within his party in the 1970s and was ready to face them. Nonetheless, capitalist class forces within the front and without were gradually mobilizing against him and his policies. People went with them believing that the “Singapore dream” can be made true.
*The writer is a retired teacher of Political Economy at the University of Peradeniya.