22 June, 2024


Remaking Economy Under Ranil’s New Government!

By Hema Senanayake

Hema Senanayake

Ranil Wickremasinghe is going to be sworn in as Prime Minister tomorrow, that is, on the Sunday of December 16th, 2018. People of Sri Lanka defeated the political coup. Ranil successfully gave the leadership to defeat it. He had a vision for it. But unfortunately, since 2015, he has proved enough that he together with his chosen Cabinet has no vision in economic governance. People understood it, yet extended their unconditional support to Ranil in order to uphold the country’s constitution during the coup. This support should not be mistakenly understood as an endorsement of his economic program which was the worst under his purview since 2015.

Ranil should shed his arrogance and be ready to listen to others who talk about economics with greater sense. As Karl A. Menniger said that, “Listening is a magnetic and strange thing, a creative force. The friends who listen to us are the ones we move toward. When we are listened to, it creates us, makes us unfold and expand.” This is what we expect from Ranil’s new government sworn in tomorrow.        

The economy is a system. When any physical or natural system has come into existence and prevail there is a cause for it. When the cause ceases, the phenomena cease to exist. This is true for all-natural systems which are objects of scientific investigation. As a result, scientists find out certain laws that are associated with those systems. Similarly, the economy is a system which has been put in place by human imagination. Yet, it has its own laws of behavior. We cannot ignore those rules and move forward maneuvering the economy as per our wishful thinking. Such efforts definitely aggravate the unwelcome systemic behaviors. This has happened to many countries. 

The challenge in the area of economy is huge. Anybody or any economists for that matter who cannot explain as to why the richest countries have enormous debt (for example, Japan’s public debt amounts to 253% of GDP approximately) will never tell the new Cabinet as to how the economy be put in a winning trajectory. Read the next line carefully; I assure you that the new government will win the hearts and minds of the people by adequately explaining the macroeconomic reforms that you will bring immediately rather than microeconomic price reduction gambles. In fact, such macroeconomic reforms might help you to engage in limited price reduction gambles if any need arises politically.

What are the reforms you need to explain to the people? There are at least six of them.

1. Dramatic reduction of domestic component of public debt. How? So, I propose the limited use of Full Reserve Banking to deflate public-debt for a very specific time period, say three years or so. Details and the extend of the use of the principles of Full Reserve Banking can be worked out. Once, we worked out the details, I hope, we can convince the IMF and win their patronage for the plan because IMF has itself published a Working Paper on this subject. Implementation of this will never increase inflation and this has been confirmed by the IMF Working Paper. 

2. Reduction of tax burden. How? The above action would facilitate to reduce taxes.

3. Managing current account deficit positively. How? By amending the Monetary Law Act in order to introduce a new piece of legislation to facilitate the Central Bank to acquire a new policy tool (effective in short term) to contain the creation of what is known as “credit-money” in the system. This policy tool facilitate the implementation of the first proposal mentioned above.

4. Stabilizing the rupee. How? Mainly by the amendment proposed in above (3). 

6. Reduction of people’s including businesses’ debt. How? Though general deflation of debt. 

6. Finally, I propose to change the ownership of the system’s holdings of foreign currencies as necessary without increasing system’s liquidity. If we do that the requirement to maintain huge reserves by borrowing dollars will be minimal.  

Nothing significantly will cost the government, in conducting a transparent brain-storming discussion on the above proposals. This is only the path to remake the economic development. I assure you, even though they get direct advice from IMF economists, still without the implementation of above program, the new government too, will never achieve what is best for the country economically. The above program proposes to change the macroeconomic system to put the economy on a trajectory of higher and sustainable growth.

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Latest comments

  • 1

    He won’t remake the economy

    Most probably he’ll hand over the economy to his buddies to make it as they want & take a good sleep.

  • 1

    Most people care little who is in power – Green, Blue, Red or whatever. All they want is a set of “political leaders” who can (1) bring the CoL to affordable levels. dent the Unemployment problem of Graduates and others (2) invigorate exports (3) energise local industries (4) bring in incentives (e.g. Phillipines) to encourage workers to go overseas to boost the country’s revenue (5) ensure the Rupee regains its strength and integrity. That’s a challenge to an efficient Cabinet and Parliament of educated and patriotic men and women.

    Our fellows have only been interested in building their private nests to benefit them and their relatives. If corruption is to be tackled an important move is to strengthen
    the independence Income Tax authorities. Interference with the Tax Dept is one of the sure ways of ruining a country. I realise the virus of corruption has infected deep into the public sector (including the Police and justice system)
    There is little harm in trying to gradually remove the scourge of bribery and corruption in public life. How and when is the challenge facing the political leadership. To start with, send to prison some of the leading corrupt men in politics and public affairs naming and shaming them not excluding reclaiming to the State their ill-gotten wealth.


  • 3

    Make sure you get the AG to hurry up with all the cases, and people accused of various offences are charged. Also tell the American Government that some of US citizens were involved in a conspiracy to overthrow a constitutionally elected government. As suggested by the JVP constitute a Special Commission with legal powers to try such conspirators. There should be no mercy

  • 2

    You have referred to six different matters- Good. but you have failed to mention the most important- Tamil problem which includes Language Colonization, Missing Persons Giving the land back to the owners in the North/East. adequate power Sharing . If these matters are solved Srilanaka will be economically strong with Diaspora assistance.

  • 2

    It sounds so easy. Few policy decisions implemented and all the economic ills of the country will go away. Full reserve banking to deflate public debt! Magic. Can you explain the methodology please.

    How many times this man has been the Prime Minister of SL? Why do you expect anything different from him this time. Shortly his team of cronies from Colombo 7 will be back with ministerial positions and will rape the country again. This man does not know to retire gracefully.

  • 0

    Hema Senanayake will no doubt agree that we have two bad teams. Both teams do not show any concerns about our drift to the ‘Failed State Cliff’. For a decade or so, one team delivered a lot to themselves but not to lay-Lankans. We gave the other team a chance to show their prowess in 2015. They are no different.
    A series of ‘crisis’ from 26 October onwards have ended up with the team getting a second chance. One believes the constraint are less.
    Will they succeed in remaking our economy?

  • 2

    Yes this is not Ranils victory. This is the victory of the people. RW should shed his arrogance and work for the people. He single handedly brought in hora mahendran and forced everyone to accept him He should realise he is not the saviour of Sri Lanka he is curse. He need to change

  • 0

    Is an illusion

  • 1

    I am not an economist and therefore would like to know from knowledgeable folks as to what should be a sustainable;e GDP rate for SL? specially with a country that is not so rich in natural resources but burdened with a high population with no high tech industries? MR’s supporters continuously tell that since 2015 the GDP has been around 3 % while prior to that around 6% and then there had been some discussions on the method that has been used during the two periods have been different? Everyone knows that during pre-2015 we have been taking massive Chinese loans to pump money into the economy to increase consumption. Also we all are aware that there is a large black economy and therefore would the established methods of GDP calculation still be valid to such economies?

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