17 June, 2024


Incipient Signs Of Overcoming Irrationality With Rationality

By Jehan Perera

Jehan Perera

Headstrong and misguided leadership has brought the country to a sorry pass. The Fitch Rating agency has downgraded Sri Lanka to a rank of CC. This reflects its view of an increased probability of a default event in coming months in light of Sri Lanka’s worsening external liquidity position and drop in foreign-exchange reserves. The government has responded by finding fault with the ratings agency for being biased and not looking at the entirety of the country’s financial situation and likely sources of foreign exchange inflows. The governor of the Central Bank had stated that the fast-depleting foreign reserves will receive a boost before the end of the year. On the other hand, the grim reality is that with every passing month the country’s foreign reserves have been shrinking and positive predictions to the contrary have not materialised.

A similar situation obtained for over six months in the case of the ban on chemical fertilizer. The government stubbornly stuck to the position of a total ban on the import of chemical fertilizer for use in agriculture and its replacement by organic fertiliser. The fact that there is no country in the world that relies solely on organic fertilizer for farming was disregarded. Instead the government held to the ideal that organic agriculture was the best practice, from both a health perspective and in terms of protecting the environment. There was no instant solution. In practical terms this meant a drastic reduction in the country’s agricultural production as hybrid crops that respond best to chemical fertilisers did not receive adequate quantities of nutrients. A similar phenomenon can be seen in the bid to keep the price of dollars low by artificially restricting demand for them.

A basic feature of economic theory is that if the price of a commodity is kept artificially low by means of price control, its supply will shrink. On the other hand, if the price of a commodity is allowed to rise based on the demand for it, the supply of that commodity in the market will also increase. This is an economic reality that applies in the case of dollars as much as it will apply in the cases of any other commodity traded in the market. Due to the price control imposed on dollars, there is a shortage of dollars in the market. We are nearing the parameters of a failed state, when the state is unable to restrain companies from selling gas cylinders that explode killing and maiming dozens and ships are berthed in the harbor awaiting payment to be made in dollars for the good they have transported. Today the prices of fruits, vegetables and grain are at an all-time high due to short supply. Adding to the woes of citizens is the shortage of essential commodities such as milk powder and kerosene oil.

Remedy Available

There is a need for rational thinking at the present time. The government demonstrated rational thinking when it ended the ban on chemical fertilisers in the face of farmer protests and expert agricultural advice emanating from Sri Lanka’s academia and practitioners. It reaffirmed that its longer term policy was one of pursuing organic fertilizer but agreed that the ending of the ban on chemical fertilisers was the rational thing to do in the prevailing circumstances. In a similar manner the government needs to deal with the foreign exchange crisis. Instead of denying the fact that a serious problem exists and hoping that hoped for future flows of foreign exchange would ease the situation, the government needs to take concrete steps to rectify the situation immediately.

In a rationally argued position paper, the Pathfinder Foundation has recommended that the government goes to the IMF to secure financial assistance. So far the government has refused to go to the IMF on the grounds that it imposes its own conditions on the loans it grants which are costly to the people of the country. According to this analysis, an IMF programme could include strengthening the government’s revenue base (widening the tax base and improving tax administration); improving the primary balance in the budget [revenue – (expenditure-interest payments)]; proactive, data-driven and non-interventionist monetary policy; a flexible and realistic exchange rate policy to assist in building up external reserves; commercialisation of SOE operations, including full cost-recovery in the pricing of electricity and fuel, restructuring of the CEB and the CPC, the implementation of the Statements of Intent and addressing the losses being incurred by SriLankan Airlines.

The analysis also makes the point that other countries might be more willing to support Sri Lanka if they were confident that the country would come out of the economic doldrums. “The package of assistance offered by India is an encouraging start and needs to be finalised as soon as possible. It has to be supplemented by financing from other friendly countries, like Japan. There is scope for India and Japan to work together to support Sri Lanka at this critical juncture. Their willingness to step forward is likely to be greater, if it is known that Sri Lanka has taken a decision to approach the IMF. While our development partners will be wary of having to make an open-ended commitment, they are likely to find bridging finance more palatable.”

Rational Choices

The appointment of Foreign Minister Prof G L Peiris as acting Finance Minister, increases the possibility of rationality in the decision making process taking the upper hand. As Foreign Minister he has been tasked with winning more international support for the government. This would include ensuring that foreign policy and human rights pressures on the government do not lead to an adverse outcome. The international community, especially the Western countries, are looking for signs that the government will pursue some reforms on the lines of the 13th Amendment, Prevention of Terrorism Act (PTA) or other globally accepted norms. One of the more serious challenges to the government is to safeguard the GSP Plus tariff privilege that was made available in 2017 after a seven year hiatus when the GSP Plus was withdrawn due to unsatisfactory performance on human rights issues.

Among the initiatives that Minister Peiris has been leading is the amendment of the Prevention of Terrorism Act. In recent weeks, as chairman of the ministerial subcommittee on amending the PTA he has invited both sections of civil society and the Bar Association for discussions where the proposed amendments have been presented and responses to them obtained. Several PTA detainees, whose cases had received international visibility, have been released on bail following these meetings, including the young poet Ahnaf Jazeem, who had been held for over a year and a half in remand prison.

There are other indications of rationality emerging in choices being made in different areas. One would be the reinstatement of Dr Shihabdeen Mohamed Shafi and pay his salary arrears after it was suspended in 2019. The surgeon was falsely accused of sterilising thousands of Sinhalese women without their knowledge in the operating theatre during a time of nationalist frenzy that had been whipped up for political reasons. This is not the time for nationalist politics. The new appointments made to independent institutions that are expected to play a watchdog role such as the Right to Information Commission and Human Rights Commission are also likely to send a message that the government is getting serious about charting a new path. If the current changes are shown to be sustainable, the government will be able to generate greater confidence both locally and in the international community which is crucial for economic development.

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  • 0

    This comment was removed by a moderator because it didn’t abide by our Comment policy.

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    • 3

      Dr JP the COvid-19 irrationality continues: Sri Lanka is being flooded by its US citizen Rajapakase first family with expensive and dangerous mRNA Pfizer vaccines from US while 70 percent of the population is vaccinated!
      The Govt, has spent 700 billion on Covid-19 which is milder than seasonal flu in tropical countries that administer BCG vaccines to children. Now they mandate vaccine cards to keep up the Covid-19 fear psychosis and above all prevent Protests..
      Many deaths this year are due to vaccine injury.. while Covid-19 FEAR ploy is to keep the public distracted and destroy the economy and society and block PROTESTS as the US citizen Rajapaksa brothers sell off Kerawelapitiaya power plant and other strategic assets to US which is desperate to COLONIZE Lanka and has already Weaponized the Shinahla Buddhist LA Diaspora for this, to set up a military base in stratgeic Lanka to monitor the Sea Lines of Communication (SLOC), particularly the Submarine and undersea Data Cables (UDC) in the Indian Ocean.

  • 4

    Rationalism is scientific and therefore is always the best policy for individuals as well as countries to follow.
    The government would not have been in this sorry plight, had they followed rational policy in all matters.
    It is best to include rationalism as the guiding principle in the new constitution.
    The children should be taught in school from primary level to think rationally and act.

  • 8

    ……..if the price of a commodity is kept artificially low by means of price control, its supply will shrink…..
    Or create a black market depending on demand at whatever value.
    Equilibrium between supply and demand is the basis.
    ……The new appointments made to independent institutions that are expected to play a watchdog role such as the Right to Information Commission and Human Rights Commission are also likely to send a message that the government is getting serious….
    Ha Ha. You are joking.
    The appointment of Upali Abeyratne as Chair RTIC and Gnanassara as Chairman One Country One Law PSF are signs of Govt kicking the faces of good sense and propriety, and cares nothing of the public feelings in general and minorities in particular.

  • 5

    Any sensible person, even without formal management training, will consider a feasibility & ‘what if’ scenario’ planning before embarking on a new venture. Our President, obviously surrounded by self serving ‘yes’ men (& women), has been very much the bull in the china shop, destroying everything around him. A bull should not be in a china shop & GR should not be in the high office. The Rajapakse clan have accumulated wealth to last generations, therefore, should enjoy retirement with their ill gotten wealth, preferably, in exile (prison would be better but that’s asking too much), otherwise, not only the china but the entire shop will collapse. We need a builder now to prop up the crumbling structure before a gradual re-build but for that to happen, the bull must be removed & that goes to the rest of his cronies

  • 5

    We all talk about rationalism but Rajapaksas are confident of that they can find the dollars by selling the country to China instead of going to IMF. I understand that China has promised to offer 1500 billion dollar but we will never come to know what is the deal done behind the doors. This is the secret within Rajapaksa family along with Central Bank Governor. The recent visit of China ambassador to North with sponsorship of Rajapaksas is an indication that the country is falling under China. It is nothing new to Sri lanka handing over this country to foreign countries. Since 1500 we sold Sri Lanka to Portuguese, Dutch, British and now to China.

  • 12

    Trusting GL Pieris is like trusting a tortoise to cross an ocean. We have seen how GLP has been changing his political ideology based on his “monkey politics” jumping from one party to another. GLP is one of the worst politicians in Sri Lankan history. He has no character, that too no one can trust him. He is a slave who can be bought with money and benefits.

  • 0

    Dear JP

    (1) The IMF and the non organic farming is a no go territory for any Nations sustainable future. Both are toxic and proven to be the reasons for all that is diabolical in our planet. Any visionary planning a Nation Building Blocks will remove those scenarios are the lessons learned part of any intelligent person.
    (2) To compound the same with Indian and Japanese loans is comical is it not. Even if India offers us loans not as borrowed money but as compensation for the crimes she has committed on our Children by the Tamil Nadu crooks we should not touch the IMF money.
    (3) Any futuristic lenders around the world should be funding Sri Lanka to be a model Nation in total Organic farming. Specially now they all having to clean up their historical blunders for all that is wrong with non organic farming is a scientific fact.
    (4) India to say we will lend you money if you sign upto IMF loans is in line with all that has transpired and where we are today. She will say anything to feed the population explosion and we should not end up as the feed once more. We should have some self respect after all that we have lost limb’s & life’s.
    (5) You see we are importing contaminated coconut oil after exporting all the good coconut that we have exported. This sums up state of affairs for us today.

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