25 September, 2018

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Mr. Prime Minister, Please Be Serious About Economic Governance!

By Hema Senanayake

Hema Senanayake

Hema Senanayake

Let me write freely. I knew that Prime Minister and his close political associates strongly believed that they know economics better. Therefore, they did not pay any attention to any serious government official or other economic analysts who performed their duty outside the government by airing their views through media. Politicians thought that they can instruct the government officials as to what they should do. This wishful thinking has almost ended by now. The economy is in a mess. It seems politicians have now surrendered to officials.

Officials of every kind might think that they can now dictate to the elected officials of the government as to what they should do now. There are chances that the political authorities would listen to them this time around because they come with IMF side by side. First, let me prove my point, so read the following quote carefully.

“It is politically difficult. We need to raise taxes. Policymakers need to convince the public that they should be able to pay more taxes. There’s no other choice as the government will have to collect more revenue.”

Who said this? It was the Deputy Governor of the Central Bank of Sri Lanka (CBSL). Please read it again. He insists that “…that there is no other choice.” I do not agree with him. These officials, I define as inexpedient, I mean in regard to the very job they are supposed to perform that is to take care of the country’s economy and economic governance. Do you need a proof? Let me give you just one example but this one is astounding.

CBSL is the official economic advisor to the government. Its Board of Directors known as Monetary Board met on February 23rd 2015 and made the following decision:

“… the Board instructed the Superintendent of Public Debt to conduct a 30 year Treasury bond auction during the week and arrange to list sovereign bonds in Euro Clear Exchange in future.” (Board Paper No: MB/ER/4/2/2015, date 23-02-2015).

What is this decision? Dear readers you do not need to be expert in the subject but you use simple logic and question as to whether the Superintendent of Public Debt has ever arranged to “list sovereign bonds in Euro Clear Exchange.” If the answer is NO, what do you think of this decision? Nonsense!

Yet, we categorize this decision as a microeconomic decision. If CBSL makes this kind of blunder in regard to a microeconomic decision do you think that they can make prudent macroeconomic decisions? I do not think so.

This is the reason that Deputy Governor wants the politicians (policy makers) to convince the people to pay more taxes. For these officials taxation is a mechanism to collect revenue for the government and again this is a microeconomic thinking. But taxation is a macroeconomic subject which can be used to put the demand-and-supply equilibrium at increasing output levels quarter after quarter or year after year. What does this mean? It means economic growth, more output for consumers and more demand for the entrepreneurs. Is this difficult to convince?

What is politically difficult is to convince the microeconomic plan of taxation which CBSL want to sell to the political authority of the government. It is wrong and not prudent even though IMF supports it.

Anyway the government has to listen to its officials. This too is not prudent and I proved it above. Instead, the best strategy for the political authority is to listen to serious government officials while listening to those who criticize those officials’ point of view. This is important in view of the reforms the government is planning to implement. Recently, Deputy Governor had talked about some of these plans.

He said, “We are going to see very strong reforms focusing on addressing fiscal imbalances we have been having for about 10 years – declining government revenue and increasing spending…We’re now working with the IMF on fiscal consolidation… The IMF program will contain a large number of very important structural adjustment reforms of state owned enterprises like SriLankan Airlines, Ceylon Petroleum Corporation, Ceylon Electricity Board and the Water Supply and Drainage Board…If we can implement those reforms, it will boost growth.” (Economy Next, April, 28, 2015).

I do not agree with his final conclusion which says that these reforms boost economic growth. Why? The ultimate structural adjustment they could do is to privatize all of them. Even if you do that it would not boost economic growth? All these measures are microeconomic adjustments. But what the country now needs are macroeconomic adjustments under which fiscal consolidation is treated as a sub-subject.

In view of above, we urge the Prime Minister to be more serious about the economic governance.

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Latest comments

  • 4
    1

    The “Ease of doing business” index is here,

    https://en.wikipedia.org/wiki/Ease_of_doing_business_index

    Sri Lanka was invited to Davos and the G8 summit. Both have a prestige when it comes to global business.

    Although on paper, its easy conduct a business in Vanuatu, Ghana and Kyrgyzstan than Sri Lanka!

    I think the opportunities are missed because the systems are not in place. The red tape and the manual delays are taking a heavy toll.

    What is missing is a comprehensive IT system to manage all govt departments. Tenders should be called to implement an all encompassing IT system that manage all govt business.

    • 0
      1

      Hema Senanayake

      RE: Mr. Prime Minister, Please Be Serious About Economic Governance!

      “Let me write freely. I knew that Prime Minister and his close political associates strongly believed that they know economics better.”

      They are not economists. They are politicians.

      Economists, who follow the Pseudo-Science of Economics, are wrong 50% of the time.

      Politicians, who follow the Art of Lying and Deception, are wrong most of the time.

      The Art of Deception

      The Art of Deception is a book by Kevin Mitnick that covers the art of social engineering. Part of the book is composed of real stories, and examples of how social engineering can be combined with hacking.

      All, or nearly all, of the examples are fictional, but quite plausible. They expose the ease with which a skilled social engineer can subvert many rules most people take for granted. A few examples:

      A person gets out of a speeding ticket by fooling the police into revealing a time when the arresting officer will be out of town, and then requesting a court date coinciding with that time.

      A person gains access to a company’s internal computer system, guarded by a password that changes daily, by waiting for a snowstorm and then calling the network center posing as a snowed-in employee who wants to work from home, tricking the operator into revealing today’s password and access through duplicity.

      A person gains lots of proprietary information about a start-up company by waiting until the CEO is out of town, and then showing up at the company headquarters pretending to be a close friend and business associate of the CEO.

      A person gains access to a restricted area by approaching the door carrying a large box of books, and relying on people’s propensity to hold the door open for others in that situation.
      This book also, after giving an example, will tell what tricked/conned the victims of the scam, and how to prevent it in real life or business.

      The book ends with Mitnick’s strategy and business plans to prevent most if not all of the scams in the book.

      https://en.wikipedia.org/wiki/The_Art_of_Deception

  • 0
    1

    I don’t know much about treasury bonds and Euro Clear exchange, but it seems that this is another formula for stimulating economic growth at micro-economic levels – with for all sectors of Lankan society in mind.

    Previously, it was all about the macro-economic policy of latching ourselves to a superpower and letting them take care of the monetary creation. Money therefore only went to the top Lankan elite, and if the system failed, the elite were always made sure their security was ensured. The Middle-East was there for the poorer masses.

    For the first time has each and every facet of the economy and social groups been looked at, and the vulnerability of the Lankan economic system has become glaringly obvious. It is time to incorporate the taxation system that other successful countries (who are the money creators), been doing for a long time.

    • 0
      0

      correction : *It is time to incorporate the taxation system that other successful countries (who are the money creators), have been doing for a long time.

  • 3
    3

    Batalanada Ranil’s Economics knowledge is all made and transfusedd in the US consulate in Colombo.

    You ought to be an A list dumb ass not to know that the West do not give money to third world countries to build Infrastructure,such as Schools, Universities , Hospitals, Power Plants, Harbours and Air Ports.Rail Roads and Highways.

    Batalanda Ranil couldn’t even get a Volkswagen Plant to build Polos. Because they can’t sell cars in Srialka.

    Simple as that. And Batalanda goes around promising one million assembly jobs for the Dalits.

    And the Yahapalana suckers say Hooray..

    • 4
      0

      Sumane, your slip is showing. VW are facing fines in excess of USD 200 million for their emissions scandal. Do you really think they are going to set up factories in Sri Lanka when they are on the brink of collapse? Is this all the baiyyas can keep harping about?

  • 16
    0

    Mr Prime Minister,

    Let’s be honest by the general public and your self. When are you going to get rid of the cronies you have appointed to the Srilanlan Board od Directors. For example:

    Mr. Niranjan De Silva Deva Aditya – Travels every 6 weeks to Sri Lanka from London to run his bankrupt restaurant at Horton Place Colombo 7

    Mr. Mahinda Haradasa – Travels from London to Colombo to run his businesses in Sri Lanka.

    Mr. Harendra K. Balapatabendi – same story as the above.

    The only person whom we know who pays for his official or private travel is the Chairman Mr. Ajith N. Dias.

    All the other Directors of Srilankan are there for the same reasons (the perks of free travel)

    • 4
      2

      No wonder Batalanda now wants to bail out Srilankan.

      Otherwise how can they come to check on their businesses, when even the sale price of Qatar Business class is over USD 6000 a pop.

      Yahapalanay seems to be too kind to Batalanada and Bodhi Sira’s Family & Friends.

  • 3
    0

    Thanks for this, author.
    Prime Minister & Co should take note of what Prof Sally said last December:
    ”……Sri Lanka has a culture of acting irresponsibly over its finances and then expects to be bailed out by the IMF. ……… Sri Lanka could not expect the IMF to come and sort out all its problems as much of the reforms must be carried out internally” -http://www.dailymirror.lk/100241/imf-bailout-unavoidable-next-year-prof-sally
    (CT, pl allow the weblink for the benefit of the readers)

  • 2
    0

    The whole trouble is our “Professorial Types” use terms such as “Micro” “Macro” etc. and the ordinary folks who try to make a decent living go about unconcerned because of the pressure brought to bear on them. When can our people understand that “borrowing” beyond means of “repayment” for whatever reason is “DEADLY”. That is the language the people would understand; and they know if the “borrowing” does not generate any “income” to repay, there is no alternative other than to commit suicide.
    Also it is the culture of a large majority of our people to be ashamed of living with debts; other than those “elites” who are up to all types of corruption. So in “simple terms” tell the people, this country is not generating ENOUGH INCOME to REPAY the DEBTS. Then the people will very rightfully “QUESTION” as to why we have BORROWED if those “Investments” are not generating any INCOME. Next the people would ask very rightfully, why we are again BORROWING only to repay the LOANS. Why people have not understood this simple logic? It is nothing other than all of our crooked politicians have suppressed the TRUTH and made PROMISES to create a HEAVEN for the people to live with the sole idea of GRABBING POWER for them, their families and goons to LIVE in their own HEAVEN. Do you see any of these Politicians, whether in Government or Opposition, living a life of any type of POVERTY ? Do they have to STRUGGLE for food,clothing, shelter, commuting, education, security, health etc, and have they ever SACRIFICED any of those COMFORTS having realized the STRUGGLES of the ordinary people? So to keep themselves in the COMFORT ZONE they have to SQUEEZE even the least available resources by way of TAXATION and whether it is termed “Micro” or “Macro” is immaterial. This CYCLE of suffering due to “cause and effects” will go on and on until the PEOPLE realize the TRUTH.

  • 0
    0

    A culprit during the decade of MRs rule could be Tax evasion, which
    could be continuing, due to lack of supervision at the top? A chart
    showing the Budgeted Revenue year by year and the Income Tax recovered
    against it should be an eye-opener. The forecast of tax evasion year
    by year as a percentage should be interesting, during the above quoted
    times.

  • 0
    0

    This is what happens when you promote a Spade as a Heart………….
    It would not have made any difference if P.Harrison was made the Prime Minister and conferred Ranil’s portfolio.

  • 1
    0

    Economic Governance ???????????????

    Just ask Bonding Mahendran the all time scammer or Galleon Ravi the man who stole among other things, Christine Lagardes you-know-what.

    • 1
      0

      @ mangy-ge kolla

      ‘Just ask Bonding Mahendran the all time scammer’

      Bonding Mahendran.
      Oh Yeah, he bonds very well with his son-in-law.
      Also with the spineless PM.

  • 2
    0

    Since 1948, idiots run the country and they continue it until Sri lanka goes bankrupt.

    Bankruptcy is very near.

    Raise the salaries, reduces petrol prices, run govt institution on loss . these colombo elite think they are the chosen people.

    Ranil proved another time, he can not do it.

  • 3
    0

    Sri Lanka doesn’t have to increase taxes. It has to cut expenditure and eliminate losses from the government owned enterprises. Increasing taxes doesn’t stimulate growth. No country has benefited from tax increases. Please check on the “Laffer Curve” and learn about how Ronald Reagan stimulated the U.S. economy in the 80s with the tax cuts.

    U.S. manages a $19 trilion economy with 15 cabinet ministers and 7 agency heads who got the cabinet status. Sri Lanka needs 92 ministers to manage its $82billion economy. Sri Lanka is a country run for the benefit of the politicians and not for its citizens. With so many ministers nothing gets done as they keep protecting their turfs and continues infighting.

    Sri Lanka spends enormous amount of money taking care of its politicians, their pensions after 5 years, security, travel etc. In most countries, politicians work for the people. In Sri Lanka, people worship the politicians. Something is not right.

    The state owned enterprises are run for the benefit of the politicians. There is a huge cost to doing so as Sri Lankan Airlines is showing today. There is no business for the government, neither they have the expertise, to run businesses. Just take Sri Lankan as an example. Running an airline is a really hard thing as one has to work with so many variables (fuel, labor, political risk etc). It is an international business and one is up against the best in the world. Only a few airlines in the world actually makes any money even today with rock bottom oil prices (Emirates, Cathay, Singapore etc). We kicked out the best airline running our airline (Emirates) and then get a bunch of politicians/cronies to run it. You can see the repercussions now as every Sri Lankan citizen is paying for it. Oil at $30 Sri Lankan can’t make any money and CPC still loses money. There is something wrong. It is the politicians, cronies and the corruption where the money is going. These rooks think they own the country and do what ever they want.

    Ranil’s problem is he likes his cronies around him and he thinks he knows everything. If he knows everything, he should not be going behind Soros. Soros makes money sucking the juice out of economies (UK, Thailand, Malaysia) and not helping them. And the SL President/PM go to the Taj’s swimming pool to meet him. Something is not right.

    When a country’s debt level gets too high, eventually something has to give in. The new government took one year to get the right numbers! Isn’t that amazing. May be 2-3 SOE’s actually had foreign loans in addition to the central government. Normally it gets reflected in the currency eventually (look at Argentina, Greece). SL is a country totally depends on housemaids’ remittances. IMF loan is a patch work. SL has spent $bilions on unproductive assets (ports, airports, stadiums) with commercial rate borrowings from China and the international investors. I won’t be surprised to see a 20% sudden evaluation in the Rupee.

    I can go on and on but this is enough for the day. It is time SL elects some honest people to run the country. Modi is eliminating corruption at the top beautifully. Eventually it will come down to the lower level. SL keeps changing the players and the same old corruption/cronyism continue.

    • 0
      0

      Sarath I hope more people will read your article carefully (open narrative of what happen to SL after its independence) – I personally believe SL has no future because nothing here is happening the way it should happen – mainly because we elect countries best idiots into the Parliament in bulk (as our leaders) and they ruin the country in style – they rarely take decisions for the benefit of the country – because they do not posses the brain capacity to do so –

  • 0
    0

    Premier Minister of UNP Ranil W… was in failure delivered of positive result of politics and economist front 16 months.
    He did not deliver any growth rate result on Economic front last 16 months, instead of that he made uncertainties of Economic Development and undermined that all large scale projected start by Previous Govt. led by MR democratic alliances.

    Well that only Ranil W….and his collages of UNP of Ravi.K…. Smarawickrama, and Arjuna Maharada of their personal involvement of inside trading of Central Bank -Bond Trading is serious offence been covered by using state power supressed an inquire by UNP leaders blessing MS and CBK!

    Ranil.w.. did not allow see Cope Report in Parliament investigation by engaged of opposition member of Parliaments of all parties were involved.
    Before that they dissolved Parliament avoided published Cope Report to the public by misusing power of Executive by Mathripalal Sirisena.

    That is serious offence of under the misappoated of Govt. Wealth of nation by Ranil w and their high hand members of UNP leadership. Is that serious of economic governance? BY Ranil W.. of UNP .
    Did Ranil maintain any political and Economic credential by himself ?

    The pending report of investigation of that looting the national Wealth is national crime by misused UNP leadership of blessing of Central Bank run by Foreigner of Arjuna Mahdarana.

    How can such man like Ranil w.. of UNP put National Economic into correct order?
    How can Ranil be good at serious of Economic “Governances” in future of our nation?

  • 1
    0

    ‘I do not agree with his final conclusion which says that these reforms boost economic growth. Why? The ultimate structural adjustment they could do is to privatize all of them. Even if you do that it would not boost economic growth? All these measures are microeconomic adjustments. But what the country now needs are macroeconomic adjustments under which fiscal consolidation is treated as a sub-subject.

    In view of above, we urge the Prime Minister to be more serious about the economic governance.’

    This is what is being said in most of the comments. PM must think seriously of forming a large industrial zone in an area centered around Trincomalee to generate income asap by forming a consortium of investors from disciplined nations to generate income. At the same time close all doors for corruptions and discipline local economy. Otherwise his vision will remain a mirage only.

  • 1
    0

    ” Increased taxation is the only way.”you can reduce the unnecessary expenditure. You gave a hand out of Rs 10,000/= To public servants before the election. for 1.5 million it costs 1500 million(15 Billion) a month. ie.180 Billion a year. with increased pensions it will amount to over 200 billion a year.ie.10% of total revenue for the year.No increased production due to this.no taxation.
    Admit that it was a mistake and we cant afford to pay at present and withdraw it

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