Colombo Telegraph

Economy Needs A Major Overhaul: Mahinda Chintana Or NM Chintana?

By Team Anik Pituwa –

The 1972 Constitution, the plantation takeover, and Pieter’s housing reforms are major changes made by the 1970 coalition government; in retrospect they have also been controversial to varying degrees. Surprisingly, what in Team Anik Pituwa view is the most significant achievement of the coalition, has received less attention, though its importance is less disputed on both sides of the political divide; we refer to NM’s 1971 to 1974 budgets. He pulled the country’s external finances out of the abyss they were staring into, corrected major structural defects in the internal finances, and thirdly NM put in place financial systems to support development and growth. It is open to debate whether the austerity measures went too far, but sound long-term management of the economy in the public interest, not cheap populism, was his guiding lodestar.

What a contrast from today! The national economy is in shambles; the mess in the external finances has resulted in devaluation, a dangerous decline in foreign reserves, and frightening rising sovereign indebtedness. There is no credible structure in place internally to support and promote a systematic programme of economic development and growth – touting seeni-bola tourism and praying for foreign direct investment is all that the Central Bank and Finance Ministry are capable of.  The government has cut its own previous 8.3% growth forecast for 2012 to 7.2% but we think it may end up even lower, and the rupee has already fallen over 15% to the dollar, which means inflation may reach double-digit levels later this year or in 2013.

Some Left leaders who misled their supporters describing the Rajapakse regime as being pro-poor and anti-neo-liberal have been eating their words. The government is taking directions from the IMF and has oriented itself along a business friendly, foreign investment dependent line, and loading considerable burdens on the poorer class of society. The trade unions and the middle classes are angry and restless. The upper classes of society are supportive of this belt-tightening for the masses in order to provide a supportive environment for capitalist policies. The financial pages in the newspapers and seminars by business leaders manifest support for the new business friendly policy turn of the government and express hope that devaluation, increasing the price of oil products and consumer items, and wage restraint, will work, and there will be growth on a capitalist basis. Mass struggles and conflicts with the working class are on the way and these will decide the eventual outcome.

Professor Buddhadasa Hewavitharana in his book on NM’s policies as finance minister and Dr Saman Kelegama in a review of the book in the Daily News of 6 January 2007 have explained how NM refused to bow down to the IMF, but at the same time kept his cool, knowing that as a small country we faced limitations, and still he managed to chart a forward looking economic course. It was a terrible period he had to navigate; Sri Lanka’s terms of trade (comparative price of our goods in international markets) declined 44% from 1970 to 1975, because of the 1973 oil-shock petroleum product prices rose five-fold in this period, the 1971 insurgency disrupted the economy and 1974 was a severe drought year. The point to understand is that, like the present period, the coalition government also went through a difficult international scenario, and what is worse, is that at that time global neo-liberalism was on the rise and threatening, while today neo-liberalism is in global decline.

The government must change economic direction if it wants to survive. Yes, it is correct that market competition can help in efficient resource allocation and enhance enterprise efficiency; but it has to be managed to ensure social fairness and ensure that the poorer classes receive a basket of basic commodities and essential services at affordable prices. Yes, bureaucratic state enterprises with political interferences are a disaster; professionalism is essential. But the Administration has lost its head and its sense of balance on both these matters.

On the macroeconomic front we do not oppose foreign investment or the expansion of local capitalism, far from it, a country at Sri Lanka’s stage of development needs help from all sides. However the state must have long term economic vision; it needs policies to generate adequate domestic resources and it must lay down programmatic foundations for the sustained development of the domestic economy. The government has abandoned a strategic economic role of this nature. It has tied itself up in an absurd excess of infrastructure projects, some useful some wasteful white elephants, instead of engaging itself in a well thought out and comprehensive strategic economic development programme.

At this time, in Sri Lanka, when the left movement has been letting its identity slip, and when many people do not see the difference between the left and the SLFP or the UNP, it is good to reflect on NM’s approach to rescuing and rebuilding Sri Lanka’s economy during a previous dark era. In this perspective we can better see what a mess the present Administration is making, and get an idea of how to correct the mess. Of course after 40 years many details of NM’s programme are no longer relevant; what is important is his way of thinking.

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