By W.A. Wijewardena –
The manifesto of the 43 Brigade
The 43 Brigade led by Parliamentarian Patali Champika Ranawaka, known to electorate as Champika, released its manifesto of economic rescue and thrive two weeks ago in Colombo. This manifesto should be read with a detailed interview which Champika has given to Abisheka Fernando of SL VLOG recently because it is a commentary on what has been presented earlier.
Given the catastrophic economic crisis which Sri Lanka is facing today, it is timely that 43 Brigade has chosen to address the people through a manifesto. The other political parties, including the powerful government party, are yet to come up with such policy manifestos. Hence, the policy document, titled Rescue and Thrive, released by 43 Brigade is the forerunner and the other political movements are expected to follow it.
Kannangara revolution of 1943 is still evolving
According to the website of 43 Brigade, the brigade is made up of those Sri Lankans who were nourished and nurtured by the Kannangara Revolution of 1943 that offered ‘personally non-paying education’ – misquoted as free education – to fellow countrymen. Prior to that, education in Ceylon had been an exclusive prerogative limited to a select elite class. The Kannangara Revolution laid the foundation for a new era, carried forward by another revolution that took place in 1956 but solidified by the educational reforms of Dr. Badiuddin Mahamud in 1960s under Sirimavo Bandaranaike governments.
The establishment of Maha Vidyalayas throughout the island to supplement the central college system initiated under the Kannangara revolution caused education to be truly inclusive enabling thousands of young men and women to attain high education qualifications. These young intellectuals coming from different social strata and geographical locations were able to rise in the social ladder which economists call social mobility. Another revolution in Sri Lanka’s education took place after 1977 when the J.R. Jayewardene administration decided to introduce English medium as a co-medium of instruction reverting to the original vision of the Kannangara revolution.
So, the Kannangara revolution is a process, and it is still evolving. Those who are presently involved in the 43 Brigade are not the original products of the Kannangara revolution; nor are they the product of even the Sirimavo Bandaranaike revolution. They are all products nourished and nurtured by the J.R. Jayewardene revolution and blessed with capability to work in at least two languages. The higher echelon of the administration machinery in Sri Lanka is mostly staffed by them. However, this cannot be said about those in the legislature and the executive. Hence, the goal of the 43 Brigade is to hand over the baton of ruling the country to this latter day Kannangara children who are out there, unused or underused, and waiting for an opportunity to make their contribution. It is a bold attempt at weaving a fabric which is inclusive, progressive, and dynamic.
Perilous state of the economy
Sri Lanka’s economy is at present in a perilous state. All macroeconomic signs show that the economy is no more an ailing patient, but in a moribund state. This is partly due to historical inheritance and partly due to the failure of the top policymakers of the Gotabaya Rajapaksa administration to address the issues effectively and timely. When the budgetary system was gloomy, it was made gloomier by drastically cutting the revenue sources.
The loss of revenue, amounting to about Rs. 500 billion or 3-4% of GDP in each year, was compensated by resorting to using bank borrowings which in turn increased the money stock dramatically by about Rs. 3 trillion or 39%. This was justified by turning to the misplaced wisdom of a breakaway group of economists who called themselves Modern Monetary Theorists. Though the Central Bank has not admitted it openly, its behaviour in the past two years shows that it is not following the traditional monetary theory but this unconventional MMT.
Results of following MMT
This was evident when some policy leaders pronounced in public that money did not affect inflation or currency depreciation. But the result was as expected. It soon led to a worsened external sector position in which foreign reserves fell from $ 7 billion at end 2019 to $ 1.5 billion at end November 2021. By December through some smart accounting, reserves were shown as $ 3.1 billion by adding the proceeds of a Chinese Yuan denominated SWAP facility amounting to about $ 1.6 billion to forex reserves. But what was forgotten was the sharp increase in the negative position of forex assets of the Central Bank and those of the commercial banks.
According to the latest Central Bank data, at end November 2021, Central Bank’s net forex assets were negative at $ 1.6 billion; by December, despite the increase in the gross assets to $ 3.1 billion, the negative position of net assets have increased to $ 1.9 billion. What this means is that the Bank cannot take pride in increasing its gross assets because its foreign liabilities are rising faster than assets.
Creation of a lucrative black market in dollars
When a central bank loses its foreign assets, its ability to intervene in the market and keep the currency at a stable level diminishes. This was exactly what happened to the Central Bank from around early 2021. When the growing dollar shortage in the market could not be recouped by the Central Bank, a lucrative black market sprang up outside the formal banking system increasing the rate to around Rs. 250 per dollar at times. The lack of foreign reserves also created problems for Sri Lanka to honour its foreign debt obligations prompting rating agencies to downgrade Sri Lanka competitively with each other.
While the Central Bank has not yet released its latest foreign reserve position, a statement issued by the private think tank, Pathfinder Foundation, indicates that the usable reserves of the country have now fallen below $ 1 billion. This is to be compared with the foreign debt obligations of Sri Lanka within the next 12 months amounting to about $ 8.7 billion. If Sri Lanka is unable to reissue this debt on maturity, surely Sri Lanka is to fall into a deep abyss needing a quick rescue operation.
Rescuing the economy fallen to an abyss
The 43 Brigade manifesto titled Rescue and Thrive has been issued in this background. What are their rescue operations compared to those of the Gotabaya administration? The latter wants to fix the economy by seeking temporary facilities in small doses from friendly countries and friendly central banks. It is like trying to lift an elephant fallen to a deep agricultural well by tying it to a bullock cart. It is not only ineffective but also causes Sri Lanka to lose valuable time to introduce a permanent solution.
In this background, 43 Brigade proposes a 5-point rescue package to be implemented as a matter of urgency. The first is to fix the budget by increasing revenue and pruning expenditure. According to its manifesto, the Government’s budget plan for 2022 seeks to spend Rs. 5.20 when it earns only Rs. 1.60. This is an overstatement because this spending of Rs. 5.20 includes repayment of domestic debt which can easily be refinanced by issuing new debt. However, it does not mean that the budget is not in a perilous state.
The 43 Brigade proposes to revoke the costly tax concessions offered by the present Government and increase the revenue to 14% of GDP, as it has been targeted earlier, and relieve the strain on the budget. Champika in his interview with Abisheka Fernando says that though it is a bitter medicine, in the current situation, there is no other alternative available. There is a justification for this because the present strategy seeks to finance the budget not by getting people to pay taxes openly but by collecting it by increasing inflation.
Will 43 Brigade seek IMF support?
The second rescue strategy aims at building market confidence by promoting competition, elimination of anti-market regulations, tackling corruption, and helping the market to thrive. The third is to revive the sick economy not by marginal improvements like growing hashish and organic farming but by innovation-based production methods that use high technology. For that purpose, it is proposed to revive the tech city concept which has not received priority from the present administration. The fourth strategy involves the prevention of forex outflow by immediately going for a debt restructuring plan.
Though details have not been given in the manifesto, Champika elaborated on it in his interview with Abisheka Fernando. He said that services of a reputed institution like IMF should be obtained to decide on the structure and method of debt restructuring. The fifth strategy is to improve Sri Lanka’s image by re-democratising the country’s government, governance system, and institutional structure. It is expected to make Sri Lanka a country desired for living and not fleeing. That has also been the foundation for thriving proposed in the manifesto of the 43 Brigade.
Clarifying burning issues
Before laying down the foundation for thriving, the 43 Brigade has spent some time to clarify some of the burning questions that worry most of the Sri Lankans. It says that the open economy system should be continued in preference to the presently advocated closed economy system. State intervention should be done with caution without damaging the economy as it had happened in the old Soviet Union or Cuba. Though the private sector is the engine of growth, it need be regulated appropriately to prevent misallocation of resources.
Economic welfare should be delivered to deserving people. Instead of going for more free trade zones that harness traditional production methods, high tech zones are preferred. The dependence on the low skilled migrant workers for valuable foreign exchange remittances, it is useful to get the professionals to sell their services to foreigners whilst being in Sri Lanka. Bribery and corruption should be recognised as an impediment to growth and eradicated completely.
Culture and religion, instead of treating as an impediment to development, should be used appropriately to enhance the development efforts. Science and technology, whether it is of Western origin or Eastern origin, should be the pillars of economic advancement. As also mentioned in the rescue package, the re-democratisation of Sri Lanka should be done as the final strategy for development.
Proposed strategies are common strategies put forward by all
The last part of the manifesto has been devoted to presenting a wide range of policies to create a new Sri Lanka that merits living in rather than fleeing. They cover democratic governance requirements, national security and foreign policy issues, economy, and agricultural, sustainable, and human development strategies. These are common strategies which every election manifesto lays out for winning voters.
Even the Vistas of Prosperity and Splendour which Gota presented to voters at the last presidential election contained a similar policy package. But after the election, they had been either ignored or implemented with amendments. For instance, the conversion of Sri Lanka’s agriculture to organic farming had been proposed to be implemented over 10 years. Yet, in the implementation process, it was done overnight causing significant damage to country’s entire agriculture sector.
Hence, the manifesto that has been presented by 43 Brigade should not suffer from this weakness. To avoid it, what is necessary now is to prepare a detailed time-bound action plan with key milestones to be attained over a 10-year time period. Without such action plans, planning in Sri Lanka in the past has remained just paper documents. The Ten-Year Plan of 1959 and the Five-Year Plan of 1971 are two classic examples.
Need for a time-bound action plan
This action plan need not be disclosed to the public. It could be kept as an internal document frequently updated and revised in the light of emerging local as well as global developments. Each action under the major plan should be supported by funding requirements and sources, so that it could be activated with quick notice. What should be its major theme? Champika in his interview with Abisheka Fernando gave a few clues about it. He said that the future of Sri Lanka belongs to the youth and the youth should be equipped with technical knowhow and skills to take Sri Lanka to the next stage of development.
Specifically, he said that the youth should participate in the development efforts of the country by helping Sri Lanka to join the global production sharing networks. What this means is that Sri Lanka’s development aim right now should be to seamlessly enter the Fourth Industrial Revolution, codenamed Industry 4.0. For a country which is still in the Second Industrial Revolution or Industry 2.0, it requires Sri Lanka to leapfrog from 2 to 4 bypassing 3.
In this connection, 43 Brigade can take a valuable lesson from Vietnam which introduced a detailed road map in 2019 to gain the status of Industry 4.0 by 2030. This is not a simple task but a necessary step to be taken to ensure effective implementation. However, there is a caveat to avoid too. By the time the plan is implemented, the world may have gone for the Fifth Industrial Revolution or Industry 5.0. Therefore, sufficient space should be provided in the action plan itself to make a quick conversion to Industry 5.0.
*The writer, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at email@example.com