By Hema Senanayake –
Part of economics is politics because suppressive politics and weaker domestic currency can ruin a country. We, the Sri Lankan witnessed this firsthand. President Ranil Wickremesinghe cannot do magic in economics. That is what IMF’s recent review said in their own diplomatic language. In fact, neither Ranil nor Sajith nor Anura can have their own plans to take the country out of this economic mess.
Economic theory or macroeconomic fundamentals tells a different story to the country. Check this with Dr. Nandalal Weerasinghe, the governor the central bank, and other learned economists, if you can. The country needs a theoretically sound unified approach to come out of this economic mess. Let me explain this point.
No country will grow economically if it can’t increase something known as capital allocation and consumption allocation steadily, both of which originate from the country’s total proceeds or total sum of sales or total sellable output (not GDP). This means that the country should expand total sellable output in order to increase both capital allocation and consumption allocation. From where does the total sellable output originate? It is easy. It originates from a single economic activity. Total sellable output of any country originates from entrepreneurial activity. So, if we need to increase total sellable output then a country should have a strategy to expand entrepreneurial base. Even tax, which is a part of consumable allocation, originates from the total sellable output which again means from the increased business activity. So, there is no prudent method of increasing taxes without increasing the country’s total sum of sales or entrepreneurial activity. Ranil forgets this truth, or he ignores it.
“Business confidence” is the key to expand entrepreneurial activity. Two things can jeopardize business confidence, local and international. One is suppressive politics and secondly a weaker domestic currency. If the government threatens social media, social activists and even the judiciary, it is suppressive politics. This is why I said that part of economics is politics. Then, the currency can be stabilized only by improving the national current account balance. This doesn’t mean that there should be a positive balance in the current account always. However, if there is a moderate deficit in the current account, it should be balanced off from the noncredit based dollar inflows taking place from Foreign Direct Investments (FDIs). The FDIs expand the country’s entrepreneurial base while having positive impact in the current account. This approach is true for all political parties. Even if NPP designs its economic plan targeting a production-based economy, while solving the country’s balance of payment problem, enhanced FDI inflows provide a better strategy. What the country, local entrepreneurs, international entrepreneurs, and international lenders need is the unified vision of all parties based on sound macroeconomic fundamentals.
This approach is much better than Ranil’s low hanging fruit of tourism. FDIs brings in noncredit based dollars and expands entrepreneurial production base. Foreign investors too need business confidence. They look for stability of domestic currency and political stability. This is why a unified approach is necessary.
A unified forum of all parties should tell the country and international community that the country is concerned with the stability of currency and political stability. This is the only way out. Other than this Ranil cannot do magic as said earlier. He should agree with the opposition to hold the national elections on time and withdrew all suppressive legislations. Part of economics is politics as we value business confidence. Then only our local entrepreneurs can attract their foreign partners for more FDIs. Additionally, if the united forum or government diplomatically win the hearts of major importing economies like USA, Japan and EU, the FDI inflows will be quick. In regard to China, Deng Xiaoping did a similar thing in 1979 with the U.S. The next year, in 1980 a lot of major companies from the U.S., Japan and Europe flocked to China to take advantages of new opportunities.
Ranil’s arrogance will not help this country. He is not a good economist or even a good listener. In philosophy, pride is considered singularly a bad thing even if it is authentic. Ranil and his team are immersed in false pride. So can other political party elites. If one positive thing that learned professionals can do for the country is to demand all political parties to have a unified vision for the country based on sound economic theory, at least at this moment of great economic crisis. Such a unified approach based on macro fundamentals is the way forward.