By Kumar David –
The economy is hard pressed; the state is being militarised: Sajith is in Gota’s and Ranil is in Mahinda’s pocket
What will happen up to and on 25 April is all but certain; still unsettled details such as the fracas in the UNP are of limited consequence. Today is the Ides of March so don’t tempt providence. From long before 44 BC, when they dispatched Caesar, the Ides (plural) were days for settling debts; before they were occasions for revelry but that soothsayer’s “Beware the Ides of March” ruined it. Afterwards, it was mourning; formalized to three days by Claudius (reigned 41-54 AD). Paradoxically the Ides of March lap the vernal equinox, the coming of spring. Funny fellows these Romans! They did the best-known assassination in human history on what should have been a day of joy.
After that diversion to shake off your Sunday stupor, allow me to introduce some rough and ready numbers. Not election predictions; just pegs to hang this conversation. I propose the following pegs. The SLPP (including Sirisena’s rump) will win about 125 seats; the UNP (Sajith and Ranil whether they contest separately or together will not matter much) say 65 seats; the TNA about 15; the NPP (JVP) and other odds and ends about 10. This leaves 10 to float this way or that; the pegs I told you are a rough reckoner. The point is not peg precision but usefulness, since now these pegs burst into perspective.
1. The government led by MR and will have a stable majority.
2. GR will enjoy 19A-constrained presidential powers; or to put it in more brusquely the two-thirds to amend the Constitution will not be available on 26 April.
3. What shenanigans will then follow (I have zero trust in Sajith and Ranil) or how many MPs will be purchased to reach the nirvana of 150 – well your guess is as good as mine.
4. The bottom line is that without repealing 19A MR will be more powerful than GR.
5. Nevertheless, the government will be able to legislate without restraint.
6. GR as president will have a free run to use and abuse the security apparatus; deja vu.
7. What influence GR’s Viyathmaga business tycoons and ex-military cabal will command depends on how many are included in the candidate list and win seats. I think not many.
The conclusion is that politically it will be something of an Ides of March for Gota; the old Mahinda cabal of disreputable ministers and family hangers-on will consolidate. My friends who are Gota loyalists have a “Just see after the election” song on their lips. They are whistling in the wind. It will be a no change through-train I reckon. Economic policy making will stay under the control of Mahinda and his cabinet; so, I wish to orient this piece to reflections on the economy.
Things look bad, maybe very bad. Not due to the actions of this government, it has not even got started, but because many ongoing trends are negative. I am not only referring to slowing of economic activity and global supply chain disruptions due to coronavirus. This will pass and even in the worst case the world will be over the worst economic hurdles by late this year. What I am pointing at is a number of crucial domestic factors, debt, growth, exports, reserves and development projects, all of which are not doing well. I had a shot at arranging this list in order of importance but that was difficult.
For those who like in-depth reading I recommend Chandra Jayaratnne’s “Citizens await pre-election budgetary report, Namini Wijedasa’s “Govt cash strapped projects” (Sunday Times 8 March), Weeraratna’s “Trade and budget deficits” (Business Times 8 March) and Nimal Sandaratne who repeats himself half a dozen times – is he paid by the word? -in exactly the same words in “Only a small balance of payments surplus” (Sunday Times 8 March), but his repetitious refrain is worth noting. You certainly cannot accuse me of being behind times because all these sources when you read this column will be just one week old.
Prior to ploughing into Lanka talk I need to say a little about the world scene. I did not foresee in February when I dispatched by piece for 1 March that it would be so prophetic. The world economy is gummed up since China is the central cog in the manufacturing supply chain. Breakdown of these chains has had more serious knock-on effects than looming recession in the US. Recession threatens Japan and South Korea already, it will reach America and the West as lock-down continues. The global economy stands on five pillars; manufacturing, communications, energy, transport and finance. China is the heart of industry and infrastructure construction; it’s the hub of goods and components supply and sends components for communication systems and computers the world over. The slowdown has reduced its oil and coal demand upsetting the Middle East and Australia. A global stocks market slump is on. The 10-year US Treasury Yield has fallen to its lowest ever as cautious investors, wary about the health of the economy, flock to safe havens.
The flight to the bottom over oil price has commenced. The two largest exporters Saudi and Russia failed to agree on production quotas, hence price is plummeting. West Texas Intermediate and Brent have both fallen to the lowest in decades. S&P, Dow, Nasdaq, Hang Seng, Nikkei, Straight Times and Kospi are see-sawing as markets turn crazy. Are we on the brink of a Minsky Moment? There seems to be no sliver lining; the virus is feeding into asset-price boom demons that the Fed, ECB, BoJ, BoE and other central banks conjured up from the depths. The corona virus was the trigger, the real demon was in the fundamentals. Putin is playing the devils game by encouraging oil prices to plummet. His game is the bring about the collapse of American shale oil. The break-even price for fracked-horizontal is $60 a barrel; ruin of shale production will trigger a recession in the US. At current trends 50% of US shale production will soon stop.
Gluttony for uncouth food started it in Wuhan, but China has been of service to the world in combatting the virus. Draconian measures, a showpiece of what needs to be done brought it under control, but an example hard for others to emulate. Hubei Province and many cities – 500 million people – were locked-down; two hundred million went home to the countryside for Lunar New Year but the government slowed their return for fear crowded trains, busses, factories and housing will speed up spread. Western democracies can’t do this sort of thing. But China getting its act together won’t restore the global supply chain instantly. Production in China will be up within eight weeks but the rest of the world will not be safe till late summer (Northern Hemisphere). The oil price shocks and layoffs are likely to trigger a recession in the United States. This scenario will not help the Sri Lankan economy.
My Ides of March quip about Gota and the SLPP’s bad luck to have captured the presidency too soon and be poised to win a parliamentary election next month has bite to it. The four articles I named before all say that things are not looking up; their collective consensus is that economic prospects are dismal whoever is president, prime minister or government. The gloomy domestic scene is mediated by worsening foreign debt prospects both short and long term. The government is too broke to pay for work already done on major projects, and trade deficits remain so large that despite some improvements, balance of payments surpluses are small. In an overarching picture the government is embarrassed to release the ‘Pre-Election Budgetary Position’ (PEBP) as it is legally required to do by law.
To add a little detail from the aforesaid pieces, the treasury is heavily in arrears in payment for work done in mega projects on the Central Expressway, water supplies, urban development and housing. Nilmini Wijedasa estimates current arrears at Rs26 billion. Sanderatne says though the trade deficit declined by $2.3 billion in 2019 the balance of payments surplus was only $0.38 billion. According to Weeratarna, 2018 imports were $22.2 billion while exports were just $11.7 billion and hence the deficit $10.3 billion (not $10.5 billion because the Central Bank does its sums in an odd sort of way). In 2019 thanks to tougher import controls this $10.3 billion trade deficit was brought down to $8.3 billion.
Balance of payments, the trade deficit less remittances, tourism earnings and foreign flows into the stock market, should have improved by $2.3 billion if these items remained unchanged. But tourism earnings fell steeply after April 2019, foreign investors in the stock market took some of their money away, and workers remittances declined for a variety of reasons. The result is that the 2018 balance of payments deficit of $1.7 billion did not reverse all the way into a surplus of $0.6 billion (not 2.3-1.7) in 2019, but stopped short at $0.38 billion. The PEBP according to law to be has to be reported by the finance ministry within three weeks of dissolution of parliament. It will make plain borrowing including $2 billion being negotiated with China, the MCC grant which the government will now accept with its tail between its legs and requests for IMF handouts. Revenue and expenditure projections also have to be shown. Chandra Jayaratne is no doubt taking impish delight in highlighting the government’s obligations to report this data.
The sting in today’s column is in the tail. Sajith and Ranil are not talking about, militarisation of state and corporations, interference with the CID, the military sizing CID files, interference with prosecutions, messing with courts, appointment of loka-horu to the cabinet and nepotism in corporate appointments. Why oh way are Ranil and Sajith not taking advantage of an opportunity to expose the government and make electoral gains? I think because both opportunist games up their sleeves. Sajith sees Gota, short of a two-thirds majority to amend the constitution, will need his help. He will cut a deal for provisions to suit himself in a putative 20A and he will betray 19A. Ranil neds Mahinda’s help to tide over the bond scam and stay comfortable with benefits from the state (security, vehicles, allowances). When Ahimsa Wickremesinghe (Lasantha’s daughter) says Ranil threw CID sleuths investigating her father’s murder under the bus when he (and Sirisena) saw where the probe was going, I find it entirely believable. Now it’s up to the JVP to say “Out with these insects” and take on the role of principle opposition since Sajith and Ranil are shirking.