23 October, 2020

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Vulnerability & The Resiliency Of World Economy In The Wake Of Destructions Such As Covid-19 

By Lakshman Jayawardena

Lakshman Jayawardena

The economic theorists have advocated, the supply and demand as the basic premise of market equilibrium having no room for exploitation, subject to “all other things equal”. However, COVID-19 pandemic made us learn the difficulty in keeping everything equal and the catastrophe it created across world and many facets of life.

It was apparent that COVID-19 has dramatically changed our way of life, running businesses, trade deals between countries, and conduct of governments which hitherto practiced and accustomed to. These models have been pushed beyond imagination and create and opportunity to think differently. Although this is viewed as a catastrophe and negative impacts, I strongly believe and urge everyone to reap new opportunities through overcoming challenges and barriers to discover the hidden treasures and harness positives for betterment of humankind.

As per my beliefs, COVID-19 is no doubt is an act of God, I also recall from the Old and New Testaments, the two biblical stories, global flood of Noah’s time and the burning two cities Sodom and Gomorrah to ashes. Although, these biblical stories do not reveal the aftermath, I strongly believe such cleansing have resulted incorrupt and sin free societies. 

Over the past centuries and decades, we have witnessed many worldwide mass scale destructions, World Wars, orchestrated by men (e.g. WW2) and devastations occurred naturally. The evidence shows that every aftermath had resulted unprecedented progress, improving quality of life, not limited to technological advancements but with environmental changes. It should also not be forgotten that these destructions had also resulted emergence of superpowers (Soviet Union, United states). The advancement in technology had not only been used for improvements but also to inflict destructions to the humankind thus showing the supremacy of one against another. This is a major concern and need to be addressed urgently through the international organisations affiliated to UN. Are UN afflated organisations unbiased?

In the recent past, we have also seen the superpowers, overpowering nations for their economic supremacy and “quasi-acquire” resource rich areas of the globe. Although this shows ethical in in terms of traditional economic modelling, which hold good when all other things are equal, “ceteris paribus”, has caused irreparable damages to many nations and prolong dependencies. 

Without further elaborations, I will now attempt to correlate these effects in the midst of pandemic COVID-19 and impacts to global economy and the shift of power centres. The most economic fundamentals breakdown and become invalid in the wake of such large scale disasters. Keeping an “all other things equal” is impossible at all times. Therefore, there is a necessity to consider them in the context of local interest and cautiously evaluate what has been advocated by the international agencies. Blindly following such advocacy is a foolish thing and there is evidence how the powerful are controlling and manipulating the most vulnerable. 

Interesting consequence need to be addressed preventing exploitation 

When a country become indebted, and unable to service loans, Lender has the bargaining power to negotiate and restructure the terms to maximise their share of the assets at a very lesser pricing than investment. This is in the form of debt to equity swap, joint ventures or acquire assets and business. 

Economic theory advocates that if a country produces at a lesser price than locally manufactured, to buy from that country rather than producing locally. The resultant is destroying the local industries and depend on third party. We have witnessed the impacts, especially, in food supply chains where a third country controls the food supply. Although, there are financial instruments to overcome against such fluctuation, namely, Futures Markets, they have their own risks. 

COVID-19 has shown the danger of dependant on others for supply good and services. In Australia, the scarcity and control essential items, e.g. toilet tissues have led to brawls between two customers. Have also witnessed collapsing of capital markets worldwide. Reports published over this period have highlighted negative sentiments, such as jobless figures, revenue losses have exacerbated the effects and create panic.

Investing in capital markets is very popular and accepted worldwide. However, it should be done in good faith and not with the intention of destroying other economies while maximising their profits on investment. Recently, we have witnessed unethical practices in the event of disagreement between two countries as a result, the investor(s) pulling out from the market unexpectedly thus creating havoc. To my knowledge there are no international regulations or law governing such transactions. I understand, China has invested in many strong capital markets, I may say, not totally in good intention but to keep control over other economies and pulling levers to cause maximum damage. 

Finally, COVID-19 pandemic, has exposed us to many worthy lessons during this short period of time and direction to look back and assess the resiliency and vulnerability our economies as a result of such destructions. As a conservative, the message that I want to deliver through these examples is not to be depended on third country or other nations for the wellbeing of its people and re-access in flight deals and be cautious of stepping into new deals. The neo open economy encourages to grow economy showing strength through key parameters such GDP, Per capita, Size of the capital markets to become a superpower, however, I see this is an endless chase of an illusion and a mirage.

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    Mr Jayawardena

    Do we need a pandemic to ”…assess the resiliency and vulnerability our economies…”? I thought the vulnerability of SL’s economy was already known.

    SL’s current foreign policy has alienated most countries & the Rajapakse regime has always been dependent on the Chinese, so much so, that the country has been in a stranglehold long before the pandemic. You say ”… not to be depended on third country or other nations for the well being of its people…” but can SL survive on it’s own? Catastrophes, natural or man made, happen from time to time but Germany, & even Vietnam, have risen from the ashes in the wake of disasters, whereas countries ruled by despots have failed to bring prosperity to its citizens. Mrs. B closed economy took the country backwards because protectionism prevents competitiveness. A small country like SL needs all the aid & expertise, cooperation & transfer of technology through collaboration & direct foreign investment to develop its own industries to be competitive in a global market. SL cannot be self sufficient in every way & needs to trade in a global market.

    God may have spared SL & a few countries like Nepal & Vietnam in the spreading of COVID19 but it certainly strengthened the support base of GR & if you are implying that this group believes SL becoming a superpower under GR’s leadership, it is certainly an illusion but what exactly is your message to post pandemic SL?

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