20 May, 2024

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IMF Bailout: Will Enforced Austerity Lead To A Fascist Government?

By W A Wijewardena –

Dr. W.A Wijewardena

Parliament assuming accountability for painful policies

To receive a bailout package of $ 3 billion from IMF, formally known as an Extended Fund Facility or EFF, over the next four and a half years, Sri Lanka as a debtor has agreed to implement a policy package which is normally prescribed by IMF to all its borrowers. This package was approved by Sri Lanka’s Parliament as demanded by President and Finance Minister Ranil Wickremesinghe so that it is the Legislature that will take ownership of and accountability for the policy package relieving the Executive of taking responsibility for that burden. Now the Parliamentarians cannot blame the President or those in the Central Bank or the Ministry of Finance for agreeing to the harsh conditions that are incorporated into the package. They themselves have endorsed it.

Forced curtailment of aggregate demand

It is not clear whether the Parliamentarians in question overwhelmingly voted for it with the knowledge that the policy package being implemented is based on the neoliberal economic ideology. That ideology has several features. First, it believes that the markets can do wonders for an economy. This feature is known as market fundamentalism. Governments cannot do these wonders. Second, the government should not engage in business and, therefore, should divest its ownership in favour of the private sector which can do a better job. Third, arising from the second, if the government is faced with financing difficulties, whether it is current, capital or repayment of past debt, it is perfectly alright to sell some of the government assets to generate the needed cash.

Fourth, if things have turned sour because the nation, including the government, has spent more than it has earned, it should immediately go for an austerity program, known in popular parlance as belt-tightening. In economic terms, this is curtailing the aggregate demand drastically to match the available aggregate supply so that inflation and exchange rate depreciation could be avoided through the overheating of the economy. To attain and sustain this state, market fundamentalism should work through an increase in interest rates and cost reflecting market price adjustment of goods sold by both the government monopolies and private producers.

Fifth, since money printing by the central bank has been the cause of the boosted aggregate demand, its curtailment should be supported by putting a cap on money printing and government financing through such printed money. Sixth, arising from the fifth, to ensure that the central bank will behave properly, it should be made independent from the crutches of outside influencers, namely, those in power and those power groups in society.

Cost-reflecting pricing

There have been three instances of resorting to cost-reflecting pricing by the Government recently. One is the reintroduction of the price formula for fuel prices and making price adjustments every month based on past costs that include both the production cost and the taxes paid to the Government. The second is the imposition of a controlled price on eggs, Rs. 44 per egg or Rs. 880 per kilo, to alleviate the rising cost of living of people. This is a market intervention by the Government in the case of an economic activity engaged by the private sector. Hence, the price control has prohibited the retailers from selling eggs above the controlled price irrespective of the cost of production of the poultry farmers or the purchase price by the retailers.

Since the price per egg fixed at Rs. 44 per egg has been below the costs, it is not ruling in the market. The per kilo price has literally increased the price of an egg well above the costs and it is this price which is now ruling the market functioning as a maximum retail price or MRP. According to market source, the cost of production is lower than this MRP but since the Government has imposed it, the retail market prices have not fallen. Hence, this is an instance of a wrong use of the market intervention by the Government because, instead of helping the consumers, it has imposed an additional burden on them. The third is the upward adjustment of electricity tariff in two rounds, as announced by CEB and the political authorities, to reflect its production costs and avoid making losses.

CEB’s new tariffs reflects more than costs

However, in the absence of an effective public authority to examine the veracity of the costs and the suitability of the tariff, CEB seems to have chosen a tariff structure well above the costs. Those electricity consumers who have installed solar panels on their roofs had been paying the minimum fixed charge of Rs. 30 per month. But in terms of the new tariff structure, they are now paying a charge according to the use of power which amounts, on average, to about Rs. 2,000.

Since the cost is zero according to the bill, it reflects an increase of more than 6,500%, surely not an option those solar panel users would have bargained for. In the case of an ordinary middle-income family, the tariffs as reported in the bill, are about 85% over the cost of production. Hence, the cost reflecting tariff appears to be too harsh for the low level of electricity consumers. If this anomaly is not corrected immediately, the Government will not be able to sell its cost-reflecting price systems.

Leading challengers of neoliberalism

Given these weaknesses in the implementation of the bailout package, a new challenge has now arisen about the validity and suitability of the neoliberal economic ideology. Of them, a leading critic is the Cambridge University Don Gary Gerstle who published his critical review in 2022 under the title The Rise and Fall of the Neoliberal Order. Another is the young American economist Clara Mattei who published in the same year a book challenging the austerity being promoted by IMF package under the title The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism’. The views expressed by them are being given wide publicity in seminars and conferences hosted by top universities in the US and the UK. It is therefore useful to examine their views and see how far they are valid because there is now a growing public opinion in Sri Lanka questioning whether the IMF bailout is the best and whether it will work.

Meaning of an order

An ‘order’ is a system of beliefs about an ideology. When it is used in the context of a particular ideology like the neoliberal order or the capital order, it is generally believed superior to all other ideologies that had existed in the past or present today. What this means is that when we refer to the neoliberal order, we believe that it is superior to all other ideologies in economics like Keynesianism or Socialism or Communism. In the same context, capital order means that capital is superior to the other main input in production, namely, labour. Hence, these ideologies are like dogmas which people tend to believe without questioning them.

Gary Gerstle: Neoliberalism has now died

Gerstle has examined the birth and the death of two such ideologies that have overwhelmed the 20th and early 21st centuries. One is the New Deal Order that prevailed from 1930 to 1980. This order introduced by President Franklin D. Roosevelt emphasised that if markets are left to do everything, it will lead to disastrous results and therefore, the government should intervene in the economy at the cost of the expansion of the government sector. The other is the Neoliberal Order that started in 1970 and ended in 2020.

According to Gerstle, both the New Deal Order and the Neoliberal Order have a political aspect also. The key feature of this political aspect is that the political party that proposes it tends to coerce the opposition parties to accept it as necessary and those politicians in the proposing party keep on justifying the use of the political power to eliminate the opponents. Such anti-democratic measures taken to implement the particular ideology are the main source of its death as well.

This is an important pragmatic observation which the present Ranil Wickremesinghe administration should not take lightly. Democratic economic governance which is an important component of the social market economy being proposed by his administration requires not coercion, but collaboration and cooperation of all parties involved in implementing contentious economic strategies.

Clara Mattei: Austerity will lead to fascist governments

Mattei’s main proposition is that austerity which is expected to stabilise an economy is the main source of its eventual death. But it is the main component of the present IMF bailout package which Sri Lanka has promised to implement. According to Mattei, capital order requires policymakers to hold capital above labour and it is the capital owners who will acquire political power to steer an economy. When labour protests are held, sometimes violently, the governments which are supported by capital owners will suppress them. Austerity will come as the solution to the issue of overspending. Governments resort to austerity, according to Mattei, by cutting wages, fiscal spending, and public welfare programs. Such a policy appeases the creditors because they are assured of sufficient funds to meet the government’s debt obligations. But they have devastating effects on the social and economic welfare of ordinary people.

Today, austerity has been the most favoured policy option of countries that have got into trouble due to profligate policy measures adopted by them. But austerity is enforced squarely on low income and middle-income earners. But the high-income earners and those in power are insulated from austerity measures. This social injustice leads to social tension, and social division. The social protests and consequential uprisings are not what the politicians desire. Therefore, in the name of ensuring social stability, the governments resort to repressive measures through the establishment of fascist states. This is what has happened in Latin American countries and in some East Asian countries in the recent few decades.

JR’s repressive measures were costly

The prognosis of the emergence of the fascist state by Mattei and President Ranil Wickremesinghe are a way apart from each other. Mattei says fascism is brought in by governments which want to repress popular uprisings against enforced austerity on people. President Wickremesinghe holds that it is those repressed classes which want to establish fascist states and the government should annihilate such movements by using every power vested with it. As independent observers we can conclude that both types of fascism will kill the society’s desire to establish systems to attain prosperity for people. Hence, instead of attaining social, political, and economic stability, moving toward a fascist state will destroy the ground conditions necessary for attaining that goal.

This was experienced by JR Jayewardene after he repressed the popular uprisings against his neoliberal policies in 1980s. His wrong approach in trusting suppression instead of moving for an amicable policy dialogue cost Sri Lanka dearly in the three subsequent decades. His suppression of the strike in 1980 led to three popular uprisings that stunted Sri Lanka’s initial growth initiatives. The rise of Tamil militancy through LTTE, the Indian intervention in Sri Lanka’s domestic affairs, and JVP’s ruse to use Indian presence to fight his Government cut the growth drastically, created balance of payments difficulties, dragged the country to a foreign and domestic debt trap, and finally bankrupted the economy. These are some lessons which the present as well as future administrations in Sri Lanka should learn in the hard way.

Buddha: Austerity should be practiced by all

Is austerity an abhorred practice? Not according to the Buddha. His advice to householder Singalaka in the Singalovada Sutta was to practice austerity for the proper wellbeing of a family. The Buddha said that one should divide his income into four parts. The first part should be used for his own consumption, the second part for the welfare of the family members and outside pious personalities, the third part for investment in enterprises that will generate wealth in the future, and the fourth part as a deposit to meet emergencies in a rainy day. According to this formula, one should consume only 50% of his income, while the balance 50% should be saved and invested.

This is a very strict belt-tightening that should be practiced by all, including the kings, aristocrats, and wealthy classes. Such an inclusive austerity being practiced by all will not lead to social uprisings. Instead, they bring in social harmony by getting the support of all the social classes in a society to implement painful policies. If this is practiced by all, the aggregate demand is voluntarily curtailed obviating the necessity for IMF to preach it or political powers to enforce it.

Sri Lanka has no choice but to embrace austerity

Sri Lanka is in a pathetic situation today. Due to past profligate expenditure programs that have not generated wealth, its Government is bankrupt, and it has resorted to begging from neighbours, rich countries, and international organisations and lending institutions. Such a country cannot ignore the need for practicing austerity at all levels of society. It cannot wastefully spend the money that has been acquired through begging, since begging cannot be repeatedly practiced. At a certain stage, those donors may turn back and say no to pleas by Sri Lanka’s political leaders for further assistance. Sri Lanka has already reached that stage. Hence, austerity is not a choice but a mandatory requirement.

But austerity will lead to the emergence of a fascist state, as Mattei has observed, if it is practiced with exclusivity. But it can be avoided, and it should be avoided, by getting everyone including those in power on board. President Ranil Wickremesinghe should take this challenge seriously. If he continues to resort to repressive practices, he will lose both the nation and its goal to become a rich country by 2048.

*The writer, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at waw1949@gmail.com

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Latest comments

  • 9
    4

    What is needed is a younger, brighter, educated politicians in power, not the present decrepit lot whose mindset is basically money laundering. To achieve this age limits and term limits should be introduced to elected office to prevent the culture of impunity and crooked politics continuing ad uncinatum since independence.
    It’s not so much the ism’s that is responsible for the current state of affairs; it is the characters and motives of the present and past lot of politicians.
    Wake up.

    • 4
      2

      MSarriij,

      “What is needed is a younger, brighter, educated politicians in power, not the present decrepit lot whose mindset is basically money laundering.”
      Your thoughts are welcome. There should be a constitutional limits and standards and accountability proceduares. The law should be equal to all whether it is President or sweeper. We now know that those who go through the deplomatic route was not checked in the airport. Just imagine that an LTTE deputy leader who was with LTTE for more than two decades and carried cyanide was given a deplomatic passport to travel another country illegally.
      Even now there are number of Ministers in this government who were found guilty by Court. There are also murderers as Ministers. Even a flight Captain have to go under the check but not the so called deplomats elected by people. What a shame?

    • 2
      0

      Solution won’t come through the age or education…. .(How all these high educated highrachies screwed up Dr.Shaffie)
      The mahavamsa facto and the golden robs, untouchable Kandy ac Mullas…..
      75yrs of mayhem put more statutes all over hills top of the trees and under
      Super human beings

  • 6
    2

    What is needed is a younger, brighter, educated politicians in power, not the present decrepit lot whose mindset is basically money laundering. To achieve this age limits and term limits should be introduced to elected office to prevent the culture of impunity and crooked politics continuing ad infinatum since independence.
    It’s not so much the ism’s that is responsible for the current state of affairs; it is the characters and motives of the present and past lot of politicians.
    Wake up.

    • 12
      0

      Did we really need IMF bailout or austerity measures leading to a fascist regime ???? The simple fact that we are discussing reconciliation after a decade of post war and economic / political recovery after 75 years of/ IN dependence says other wise.

      • 17
        0

        Didn’t a prelates yearn for a Hitler?? Didn’t fugitive Hitler assign his Nazi propagandist to formulate ” one family , one country and one Law.???? I thought Lanka was Bankrupt a decade ago but not the experts. Same with dysfunctionality, and failed state , while Viyathmaga was promising prosperity and splendor. I guess “FASCISM” needs redefining, for Lankans.

    • 2
      5

      WWW,
      Austerity measures are usually not voluntary, but have to be enforced. When there is a necessity what is the alternative but to enforce them by law, where is fascism in that particular measure. Your argument is farfetched. But, of course whereon eveyone irrespective of their position should be brought under the net!

    • 2
      0

      MSarrij,
      Very good proposal and much needed one too!!??
      My take is that, there should be a good mix of old (well experienced) and New initiations to ensure a good blend and thought that the inflow of vast number of young and uninitiated SLPP in the last election would have had some sobering effect!!!??
      Performance, though up to now, seems to demand correction!!
      Has anyone or anywhere the average age of SL Parliamentarians exposed??? Foremost Importance “Bring-Back all stolen Funds”!!!???
      If not, it’s a good idea to discern that along with the number of Terms Each and Every Parliamentarian has been in office CONTINUOUSLY!!!??
      Notwithstanding, weeding out corrupted should be ‘Main attempt’ and resolve!?

  • 2
    0

    Similarity to aragalaya must chase away the robbers so as to benefit all citizens. Then only can there be arrest in the growth of a fascist state, where we are heading now.

  • 11
    0

    “younger, brighter, educated”
    Any guarantee of being honest and not greedy?

  • 3
    0

    The essayist has very clearly enunciated the IMF bail-out.

    Will the enforced Austerity lead to a Fascist Govt;?
    Or will it be the other way round?
    Will the enforced Austerity lead to a Revolution?

    • 0
      4

      Plato,
      Yes! The enforced austerity measures may lead to a revolutionary situation and results in an overall system or systemic changes, that could be welcomed by all of us who believe that systemic change is the panacea for the present calamity.

  • 3
    0

    ” If he continues to resort to repressive practices, he will lose both the nation and its goal to become a rich country by 2048.”
    There is nothing wrong in setting a target which is genrerally used by every institution including the government. The assumption is that there is no barriers including reoressive practices for development from 2023 to 2048. RW set up this target because he is not answerable to people or judiciary or IMF because it is approved by people representatives. He is now nearly 75 and he knows that not only he is represented by people and the members of parliament approve everything as long as they hold power as ministers and MPs. For examle, the MP who smuggled gold and phones was saved by his government and he was sent back to smuggle more gold from Dubai. He is an example but that may be the norm. Every one uses this opportunity of the constitutional gift and RW is not an excemption.

  • 6
    0

    Ranil will make sure …….. ol’ austerity is for the barely surviving hard-working poorest of the poor …….. the bloodsucking pols won’t even know the meaning of austerity.

    • 5
      0

      nimal fernando

      Do you think we ought to individually get Saffron Mullahs’ permission to attend stand-up comedy and laugh along with audience?

      Please read:
      Did you attend Natasha’s comedy show? Police will quiz you
      https://www.dailymirror.lk/top_story/Did-you-attend-Natashas-comedy-show-Police-will-quiz-you/155-260050

      • 2
        1

        Native,

        Nothing is sacrosanct ……… humour/comedy is a necessary element of society to pierce through the armour of sanctimonious humbugs – especially in evolving societies. ……. That’s one of the few tools available to the masses to expose the corruption/immorality/hypocrisy of the rulers.

        How Nietzsche stumbled onto the Dionysian traits/aspects of ancient Greeks. …….. https://www.youtube.com/watch?v=r1J7OoErWvs

        The CID is overworked to keep the entrenched corrupt rulers in power: nothing more. ……. With the tacit approval of modern-day Lankan Nietzsches/great-thinkers like Old Codger!

        Perhaps he sees something Ramona/we doesn’t/don’t. :)))))

        • 2
          0

          Nimal
          You probably know of the overweight Mahiyangana monk being arrested on a complaint by another monk?
          I figure monk #2 was put up to it by Ranil. Should we expect a wave of complaints by monks against other monks? Easy enough to organize…….
          Whatever you might think about RW, predictability isn’t in his book.

      • 5
        1

        Native, the best stand up comedians right now, are in parliament, Being around, Mullahs get to enjoy shows freely. Selfish.

    • 4
      3

      Absolutely, nimal. Since March this year, Ali Sabri Raheem has made at least six trips to Dubai.
      .
      https://www.sundaytimes.lk/230528/columns/vip-smuggler-mp-travelled-to-dubai-six-times-since-march-this-year-521315.html

      Since he’s now back there again, and not remanded, it may now be seven trips. Those seven trips, and what he has done there, will cover the loss incurred by him when the Customs fined him a paltry sum for his offence.
      .
      srikrish has made two comments above. In the second, he seems to support a revolution, but that is all bogus, because elsewhere he has shown himself a loyal supporter of Ranil. And, in his first comment, above, he wants to enforce starvation on the all who, like me, are now below the poverty line. It is a necessity he says.
      .
      Is it also a necessity now for us to be denied Local Government Elections, Provincial Council Elections (residents in seven Provinces don’t want them) Parliamentary Elections, and Presidential Elections (his fascist uncle’s Third Amendment to the Constitution) seems to stand in the way.
      .

      • 4
        0

        S-M: As MP – Ali Sabri Raheem went out for the “7th” time a “Stand Up Comedian” in the Cabinet has proposed that the “Entry/Exit” VIP lounges be closed to all “Politicians” and subject them to normal check-in/out procedures at the airports.

        Isn’t that presentation better than that made by “Stand Up Comedian” “Nathasha” now in remand prison? All the “VIP/VVIPs” will now lodge a complaint with the CID asking to probe the “Minister” on his statement. Mr. Minister be ready to stay in “Prison?”

        • 2
          0

          No.
          Parliamentary privilege protects him.

        • 6
          0

          Simon , if true , Law Breaker Ali Sabri Raheem is absolutely right on this. According to unconfirmed news item (gossip??) after getting elected Ali Sabri claimed, ” in general most Lankans including our politicians as well citizenry are corrupt and immoral and no one is righteous to question others”. The same news outlet also claimed , Ali being upset with Ranil / Dinesh, for not bailing him out.

      • 0
        5

        This comment was removed by a moderator because it didn’t abide by our Comment policy. The key to maintaining the website as an inviting space is to focus on intelligent discussion of topics.

        For more detail see our Comment policy https://www.colombotelegraph.com/index.php/comments-policy-2

        • 5
          0

          SM & LM,

          Both of you should drop your crap about each other …….. and give the rest of the forum a break.

          Both of you flooding the forum with your crap about each other …….. is making the forum unbearable.

          Just bury the bloody hatchet …… and don’t read each other’s crap. That’ll help you to forget each other’s existence. ……. Just don’t read each other crap! ……. It’ll die a natural death.

          No one wants to get dragged into your nonsense ……… certainly not I !

          • 0
            0

            Dear nimal,
            .
            Thanks for the sound and helpful advice.

  • 4
    0

    nimal fernando

    Do you think we ought to individually get Saffron Mullahs’ permission to attend stand-up comedy and laugh along with audience?

    Please read:
    Did you attend Natasha’s comedy show? Police will quiz you
    https://www.dailymirror.lk/top_story/Did-you-attend-Natashas-comedy-show-Police-will-quiz-you/155-260050

    • 4
      0

      Native,
      You probably know of the overweight Mahiyangana monk being arrested on a complaint by another monk?
      I figure monk #2 was put up to it by Ranil. Should we expect a wave of complaints by monks against other monks? Easy enough to organize…….

  • 0
    0

    The IMF policy initiative “DICTATED” to Sri Lanka and very “SURRETPTITIOUSLY” presented to Parliament for “Adoption” (after signing it behind closed doors) by the President was the most “Deceitful” action by an “Ageing” (failing in performance and age) political leader of the country. The people will know and experience the implications that would fall on the country in weeks and months as and when “New Legislations” would be introduced. Already, we saw such legislations ( e.g. “ATA” (Anti Terrorism Act); “Rehabilitation”; “Labor Law”; “Anti Corruption” etc.) in the pipeline to cut back on “Social Support”; “Suppressing Workers’ Rights”; “Encouraging Privatization”; “Sale of National Assets” – all design to “ABORT” a “STRUGGLE” to give birth to a “NEW BORN” (economically and socially feasible) “Home Grown Economy” and a much desired “SYSTEM CHANGE” that would put the country on a sustainable position.

    MSarriij: Welcome to the Forum. You have said all that, all Sri Lankans MUST know and DO. Thank you.

    • 0
      4

      I agree, Simon, that MSarriij adds value to this forum. Don’t you think that all Sri Lankans would be much beter off if thelikes of “leelagemalli” stopped having anything to do with Sr Lanka?

    • 1
      0

      Simon

      What is your idea of Sri Lanka?

  • 6
    0

    The author is an economist. However, he must also learn to look around him and make assessments like in the egg matter and CEB matter and the government playing hell with thousands of poor people dying every week due to starvation, lack of basic medicines, lack of proper immunity due to malnutrition and other causes like suicide, acute depression related health complications etc. The perpetrators of this national tragedy are guilty of crimes against humanity. There needs to be a very quick call to arms (peaceful though) where everyone rises and enables a change in the system, arrest of all the ruling class criminals and their trial in an international court. Nothing less will suffice as no justice can be seen in the horizon for the millions of people deliberately pushed into poverty. This is not “austerity” but imposed violence of the highest order, far worse than war as it kills, disables and impoverishes generations to come.

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