By Harsha de Silva –
What this country now needs is neither budget support nor balance of payments support. What this country need is life support!
The economic lifeblood of the people of Sri Lanka is being sucked dry the political crooks; be it in handing out front-loaded and unviable projects to the Chinese at horrendously unfavorable terms or in using the money of the millions of employees to manipulate the Colombo Stock Exchange to benefit the mafia. Like we have said in the past it is now becoming clear the regime is only interested in the 0.1 percent of the people at the expense of the rest. While the clique drives in under-invoiced Rolls Royce Ghosts that are paid for by the man on the street he is taxed on even the packet of instant noodles he buys for his children to stay alive.
The President, in his capacity of Minister of Finance announced with the presentation of the 2013 budget that there will be no foreign commercial borrowing to bridge the deficit this year. This is because the government has borrowed so much under commercial terms that repayments are beginning to bite. Therefore it was expected that the government would seek the assistance of development partners for budgetary support at concessional terms and also shift the focus to domestic borrowing.
However, when Dr P B Jayasundere announced recently that the government was seeking budgetary support from the IMF, we pointed out this was highly unlikely, as IMF does not have such programs for middle income countries like Sri Lanka, as far as we are aware. We argued that the government could have perhaps negotiated an Extended Fund Facility (EFF) given to countries facing serious medium term balance of payment problems due to structural weaknesses as in the case of Sri Lanka. But such negotiations we noted would have certainly included reforms that cannot be postponed and very well understood by the learned Secretary. In times like this, it is in the interest of everyone to accept reality and deal with it instead of attempting to pretend that we are doing so well that we are not only the wonder of Asia but also the latest Breakout Nation!
In this background we have today been informed by the Governor of the Central Bank that the negotiations with are IMF are over as we do not require any more balance of payments support; neither in the form of a EFF nor in the form of a Stand-By Arrangement like the one we used to bail ourselves out last time. This, he had said, is because the Central Bank has more than sufficient foreign exchange reserves.
This is almost a tragi-comedy! The right hand does not seem to know, or care, what the left hand is doing. One the one hand, the Treasury is looking for budgetary support and on the other, the Central Bank is refusing balance of payments support.
Perhaps the Governor wanted to pull the plug from the conditional ‘Nirvana’ the Secretary was hoping to attain while starting on the reforms the learned economist knows is essential. That is if IMF gave the Treasury the USD 1 billion up front to be spent even with limited conditions, then that would have meant a huge relief for the Treasury and it would have been possible to undertake the reforms even on a staggered basis.
But now that option is not available. With the World Bank confined to a project to spruce up Colombo and the ADB continuing with its limited infrastructure financing and no other donor in sight it seems inevitable that the government has no choice but to go back to high cost and almost choking commercial borrowing and Chinese loans, however, with extremely lucrative commissions for the arrangers; all of which will have to paid by the 99 percent of the hard working people of this country.
With a few more years of such sucking out of the economic lifeblood of the people the current need for life support will no longer be there. The manipulating clique will live in the lap of luxury skiing in the Alps while the rest of the people will be long gone.