20 January, 2022

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Managing The Crisis: The Solution!

By Hema Senanayake

Hema Senanayake

I stole part of the above caption from a recent article of Dr. Dayan Jayatilleka as this article discusses the same subject.

Ajith Nivard Cabraal’s “Six Month Road Map” is failing. The crisis is unprecedented and about to explode. Therefore, it requires quick radical reforms. However, Dayan Jayatilleka warns that, “the more radical the reform, the more radical the reaction. The more radical the economic reform, the more radical the ideological, social and political reaction. Therefore, the liberal policy intellectuals who advocate radical reforms as the only way out of the crisis had better be prepared for a radicalism of the Right or a radicalism of the Left as outcomes.”

On the contrary, more erudite thinkers and true leaders think differently. They think, the graver the crisis, the more the opportunity to unify the country, the more the opportunities to unify Right and Left on a well-thought pragmatic, quick but lasting solution. Unfortunately, this is the kind of thinking that lacks in our country. But Dayan points out some existing ideas in the political realm for crisis-management. According to him, it would contain a National Government, a rush to the IMF, privatization of State-Owned Enterprises (SOEs), the scrapping of SriLankan Airlines, reversion to the 19th amendment, abolition of the executive presidency and restoration of a parliamentary system etc. He argues that these are neo-liberal policies and for example if Sri Lanka goes to IMF, the awaken trade unions might launch a general strike. So, he argues “middle path” is the solution. In economic reforms, there is no middle path I can ever think of. There is only one way to do it, at least when we consider macroeconomic fundamentals on which the progress of whole economy rest upon.

There is no unique path for President Gotabaya Rajapaksa. There is no path unique to SJB or JVP or any other coalitions, including FSP. There is only one path to reform the economy. Let me explain it.

The growth of economy depends mainly on two factors. One is the increasing allocation of money for capital formation and the other is the increasing allocation for consumption out of which a part will become taxes. Now, from where, do these two allocations of money originates? It is from the sellable output or in other words the money allocation for capital formation and consumption originates from total national proceeds. Therefore, if any political party promises to ensure economic growth, then there is only one way to do it. That is to expand or increase the total national proceeds (not GDP) or total sum of sales. This understanding may unify the country, possibly may unify the SJB, JVP and much injured Gotabaya presidency.

The next obvious question is how we increase national proceeds. As I said earlier, proceeds are the sum of sales coming from sellable output. So, who produce the sellable output? Not government, because government is an institutional consumer or home gardens, home gardening is good for a hobby. Sellable output originates from entrepreneurial activity, nowhere else. Then what should we do? Now you know the answer. You all might say that we have to expand the entrepreneurial base. This understanding again, may unify the country. It might unify the SJB, JVP and much injured Gotabaya presidency. This understanding might unify the employers of the entrepreneurial sector and trade unions of that sector.

Then comes the most important and tricky question. How do we expand the entrepreneurial base? There is no political answer for this question. Entrepreneurial base expands only when entrepreneurs invest capital in expanding the existing businesses or new businesses. If these business activities change the country’s national current account positively, the expansion of entrepreneurial base is much more beneficial. In this game “business confidence” among entrepreneurs is the most single important factor. This understanding leads to another question. How do we increase the “business confidence?” In fact, “business confidence” is not a tangible thing but instilling “business confidence” among true entrepreneurs depends on very important tangible macroeconomic parameter. That is none other than the stability of domestic currency. When there is a significant difference between the official exchange rate in banks and non-banking money exchangers, entrepreneurs know the massage, that is the domestic currency is not stable. Further they know, the country’s balance of payment might be worsening. Right now, the “business confidence” is at its worst. On this point the country is unified. Employers and workers are unified. This understanding may unify the SJB, JVP and much injured Gotabaya presidency. So, what is the solution? Or what is the immediate solution?

The problem we identified above is clear. It is a problem in the national current account and at a more overall level, a problem in the Balance of Payment. Unfortunately, there is no domestic solution for this crisis. Cabraal proposed a Road Map for Sixth Month beginning from October 01, 2021, to get out of this crisis. Launching this Road Map Cabral promised to bring in USD 10.85 billion (net amount) before the end of the Road Map period on March 31st, 2022. Almost half of the period gone by now. How much dollars he has brought in? Anura Priyadarshana Yapa answered and said “nothing.” This is the bitter truth. Similarly, there is no unique solution for this problem for the SJB, JVP or FSP or any other political entity Right or Left. This understanding may unify the country again. So, what is the solution?

The solution begins by going to IMF. Its mandate is to support to solve the Balance of Payment crises of any member country and Sri Lanka is a member country of IMF. The IMF will not solve all the problems, but it can help to stabilize the exchange value of country’s domestic currency at a realistic value while helping to increasing the credit ratings facilitating a chance to rollover old debt at a favorable interest rate. This will be a major part of the solution as it would instill the “business confidence” among entrepreneurs local and foreign. This is important to broad base the entrepreneurial sector which will in turn increase total national proceeds or total sum of sales. If we can ensure the expansion of entrepreneurial sector, the IMF would not demand the privatization of SOEs. I am pretty sure about it. Instead, the IMF would request us to increase the economic efficiency of SOEs by putting them to run by professional managers not political cronies.

IMF has no magical economic solution. If its economists know everything, then India would have done economic wonders by now because India appointed Dr. Raghuram Rajan, a former chief economist of IMF itself as the Governor of Reserve Bank of India (RBI) in the year 2013. He did not perform well rescuing India’s economy and its dwindling currency during his tenure and as a result his governorship was limited to a one term even though he was promised two terms in office.

A country can and has the power to negotiate with IMF. But I am sure that if the country has the most unprofessional team in the helm of economic governance (treasury secretary is an environmental economist, the governor of CBSL is an accountant, P.B. Jayasundara is a philosophical disaster and the Minister of Finance know nothing about economics), we will not be able to negotiate a promising IMF package to embolden the “business confidence” of our entrepreneurs. This understanding will again unify the country. The country will say, put a better team perhaps under a National Government and we will be able to solve this severe crisis within months as there is no political party specific solution. Why is this not happening?

At least one from the Rajapaksa family knows the true problem in the government. He says that when his uncle (Bappie) became the president, a cocoon was spun around him by cronies, preventing him listening to the best of minds of the country. On this point he is correct, I guess. He is young Rohitha Rajapaksa (Chi Chi). It is up to Bappie now to make a self-assessment. Country needs a quick revival.

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Latest comments

  • 7
    0

    “He (chee-chee) says that when his uncle (Bappie) became the president, a cocoon was spun around him by cronies, preventing him listening to the best of minds of the country”.

    Chee-chee is correct. Baappie should stop listening to the cronies and listen only to him. After all, he says that acquiring doctoral degrees is a hobby (and who can’t pursue a hobby successfully when another is paid to publish papers and write theses under Chee-chee’s name?).

    Baappie is already showing signs of listening to Chee-chee….how many of you heard Baappie saying to his gama-samaga-pilisandara people that he has already earned the equivalent of two PhD-s by virtue of his stirling efforts at ruining a country?

    Chee-chee indeed.

  • 3
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    Solution may be THIRUPATHI.
    .
    Please look at the scenes….. This reminded me the last days of Gadafi.
    .
    https://www.youtube.com/watch?v=onnfjIvlrvQ

    The kind of idiots were re-elected to ruin thi snation. Good riddance !

  • 3
    0

    well, the piece has some good suggestions ……….. but you have completely skirted around corruption.

    I believe, even more than a stable currency and business-confidence ……… what is required is a bedrock of longstanding corruption-free set of fair and far-reaching rules and regulations that people can have confidence in and depend on.

    No one likes to invest their money in a quagmire of constantly changing business environment of quicksand.

    Stability! ……. Although I don’t like Singapore, even to visit ………. that was LKY’s brilliant foresight/insight. Not complex but elementary simple. It’s elementary, Eagle Eye! …….. LKY was a single-minded brute with a vision (like our very own great visionary, VP) ………. and the end justified the means: built an economic powerhouse from a dump.

    We have had 73 years of multi-minded “means” by governments of all shades and hues without the end to justify: systematically reduced an economic powerhouse handed to us on a platter to a dump.

    • 4
      0

      continued

      We had a relatively stable currency under Indrajit Coomaraswamy – a well brought up, classy man, from good stock (let’s see, if that rubs salt in the lesions of the thick-skins of scum of the earth like Cabrral and the Rajapakses) – but not much FDI came in because the investors were not sure how long the government/business-environment would last. And the investors were correct ….. and prophetic. Investors who have to risk their money are always onto things way before the punch-drunk “patriots” ….. especially the slow “smart-patriots!”

      This economic-crisis is long overdue ……. should’ve happened 65 years ago …….. nothing will cleanse the entrenched maladies in the system/society like a monumental economic crisis …….. to rub people’s faces in reality and force them to think rationally.

      I couldn’t watch the footage (on BBC channel 4) of our people being shelled ……… and I can’t watch our people standing hungry for hours in long lines; especially some old ladies that were interviewed ……

      But this crap has to stop somewhere ………… and I’m watching this …………

  • 1
    2

    It’s too late to go to IMF now. Only way out is to default on ISB and SLDB bonds – repayments and interest.

    SL must increase export earnings and other $$$$ income. Find import substitution industries. Restart KKS cement factory. Restrict tourists from India, Pakistan who work in SL and remit money.

    Government should reduce public sector without affecting people. That can be done by getting rid of the provincial council system along with all PC staff. SL functioned with less corruption, waste and more efficiently before PCs introduced in 1987. These are white elephants introduced to ruin the SL economy.

    If Tamils and Muslims need a political solution, just divide the island equitably and give them their very own nation in the north and east and relocate people based on ethnicity. Half solutions always fail.

  • 7
    0

    Then make Chi Chi the president and Bappie the PM. Anyway nothing left to lose.

    • 1
      0

      “Therefore, if any political party promises to ensure economic growth, then there is only one way to do it.”
      Quite true. As we can now see, the very people who poured scorn on a fuel price formula want it back. The very people who stuffed the public service with deadwood have stopped recruitment, and those who swore never to sell public assets are doing just that. Nobody so far has been fool enough to buy Srilankan though.
      In the 70’s, we had 2 political camps vying for our attention. Now there is only one WTO and GATT, and even China has signed on.

  • 1
    0

    I cannot speak of the economic wisdom the writer Hema Senanayake brings forth. He is qualified to dwell on it. He may not be totally correct; but, there is every chance that he is.
    I come in on, ‘It is up to Bappie now to make a self-assessment. Country needs a quick revival’.
    I can comment on it, for it is not on economics, but on ‘common sense’.
    Anyone who believes that Bappie has sane advisors around him to make the necessary adjustment raise your hands up!

  • 1
    5

    Hema: The Crisis is GLOBAL, Sri Lanka is not an island unto itself!
    The Financial Crisis is an intrinsic part of the Covid-19 Plandemic to destroy Economy, society and democratic Rights to Protest. Weaponizing the Sinhala Buddhist Diaspora, wtih the US citizens Rajapakse Brothers Goat and Basil working for the Deepstate and promoting DIGITAL COLONIALISM is the name of the Covid-19 Virus and Vaccine Bio-terrorism Plandemic, which was to enable the Corruption Epidemic, asset stripping by US and Anglo-Saxon partners (AUKUS) and NATO the countries of the Global South. Ensure state failure. and continued COLONIZATION

    With the Covid-19 Plandemic Digital Colonialism, the biggest ROuge State in the World, has money printed USD 9 trillion in the last 2 years so that its hedge funds Black Rock could to asset strip around the world as economies crashed and people were kept in Covid-19 lockdowns to stop them protesting against the sale of their national assets. This is the real project of Covid-19 bioterrorism – bankrupting the Global South and asset stripping it to Make America, AUKUS and NATO great again and destroy the rise of Asia as the Growh Hub of the world
    The “West versus the Rest” Euro-American DIGITAL COLONIALISM plan with the Covid-19 mask with FAIL! The US citizen Rajapakse Brothers, Basil and Goat, must be sent back to Los Angeles!

  • 2
    1

    “That is none other than the stability of domestic currency.”
    When we talk about stability we only think about money but we fail to talk about political and social stability. Business and Investment needs confidence and security. Much of the talks are about SJB, JVP and SFB but nothing about Tamil or Muslim based political parties. Are we thinking of Economic Development for Sinhalese only excluding Tamils and Muslims?

    • 3
      0

      I am sorry. I did not mean to exclude Tamils and Muslims. This mistake happens because I was referring to an article of another writer.
      Hema Senanayake

  • 2
    2

    Hema Senanayake is saying he is answering to Thero. In that mode, it is posing some real arguments. It is true Lankawe has/had no economic policy, financial policy,……. education, health, labor management. Lankawe has fallen on every aspect for it was well known in the mesosphere, including the morality, leave aside its criminal, murderous, rapist Sinhala Buddhism. The government lost all the advantage it had in 1948, only because it started with one single policy, that is “how to annihilate Tamils”. One thing they want to claim proudly is that they won the LTTE. What they are misunderstanding is that they successfully created LTTE and sold them-selves to International predatory governments, to get help to win the LTTE, the genie they opened and let out. We wrote here many times about the Panchatantra story of the horse and the stag. Yes, the horse won the mighty stag in the war with the help of the hunter. But the hunter immediately harnessed the horse and took it to his field to plough it.

  • 1
    2

    Sinhala Intellectual proposing many economic solutions to liberate the country. This may put, if they are successful in their ideas, more hay in the masses’ mouth. But it is not going to have the harness released from their mouth, the leash of which the predatory government has well secured in their hands. I don’t think that the IMF can negotiate a fairer term from China for the past loans, without Lankawe hand over many more villages of lands and Islands. That will tighten the Chinese noose tighter on Lankawe’s neck. After all pleadings & begging to the new colonial masters, Lankawe seems to have arranged $5B consumption loans from China and India. These are strictly earmarked for imports of commodities from the respective countries. Some may say that it is too late to go to IMF. But these loans are specifically designed to delay going to the IMF immediately, but tactically ease the consumer shortage with new high interest, short term loans. By this game, Appe Royal Aanduwa hoping to shift the IMF problem to the future government. That is same trick Yahapalanaya played to Royal Government. So, what will happen after one or two years is anybody’s guess.

  • 1
    2

    About a solution for economic problems, a thorn can be taken out by only another thorn. The IMF loan alone can’t do anything to change Aanduwa’s mentality. Remember the EU’s GSP+; Mangala signed Resolution 30/1 and got back the withdrawn GSP+. But this government withdrew from the Resolution 30/1 as soon as it came to power. Then where will the EU’s GSP+ go? If Royals borrow from IMF, what will Valaiththodam do to that in two years? Nobody knows if he will cancel that loan or pay back honestly. So, this destruction to the economy can be corrected by additional destruction to the economy. The whole mass of the Sinhala Buddhists has to rise up and launch hartals and protests against the government. This must be led by educated, erudite top notch people guiding the middle class. The 6.9M, Arrack & Briyani bribe crowd must be left out, to reduce their influence in the coming outcome. These protests and strikes will damage the economy further. But the government merging out of it will be an honest one.

  • 1
    2

    There are Sinhala Ministers and Sinhala Intellectuals commenting that the Tamils parties are forming new groups to ask for 13A, when they show the Royal Aanduwa is in trouble. Actually, even if I write a full essay to deal with nasty, dirty & ugly comments, it will not do. I leave it aside with one line. SJV did not convene the Vaddukoddai convention to inform Tamils to start a freedom fight, after seeing the Sinhala government in trouble. Leader Prabhakaran and other groups started to fight only after the Standardization was imposed on Tamils. It was the 1983 pogrom that recruited the needed boys to the Tamils Army. Further, without leaving Tamils alone, nothing will be a stable solution for Lankawe.

  • 1
    2

    Guys – the readers and contributors- think about this new “LOW”: There is new rule that if one is marrying a foreign national, they should get permission from defense department. This is a law many times below the 1970’s Standardization. The result of this law is if you are applying for clearance from outside for a local spouse, and if you & your fiancé are Tamils, then you will be told either you or your fiancé or both are LTTEyers. Then your relatives will be picked under PTA to get witness about you. It will not be possible the wedding house families returning from the 4th floor with all limps in properly working. If you marry a Sinhala Partner or pay a good sum for immigration, you will be approved. Even the Tamils’ marriage is needed the Rapist Army’s approval. Ex Indian Opposition Leader Sushma Swaraj reported in Indian parliament that the Rapist Army is forcefully enter in the Tamil Girls’ Sari Ceremony celebrations. I am sure now that without NATO or UN Peacekeepers landing in, nothing in Lankawe can be fixed.

  • 1
    1

    HS,
    “Ajith Nivard Cabraal’s “Six Month Road Map” is failing.”
    Not only that, he has started using a Stool in addition to the walking stick recently, to ensure he does not fall between the Executive chair which ‘swings around and up and down’ and the wall, after sending the SL economy to the Wall!
    At this rate he will not see the outcome even extended for 12 months instead of Six!?
    Sending Indrajith “packing or motivating to do” that was like 1970’s packing off of Dr. Wickrema Weerasooriya!
    Only reason was that FDB did not like Gamini Dissanayake Bill in the Finance Ministry as FM! Vanity!! Or what is it?
    These current blokes are nothing different! Are they? No.
    Instead you have hangers on experimenting at Sri Lankans expense! Is it not?
    Then get foreign consultants!?

  • 5
    0

    To manage a crisis, the first step is the recognition of the crisis. As we see now the Pohottuwa/Vyathmaga/Rajapakse Family military/police government does not recognize the crisis.

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