By Shyamon Jayasinghe –

Shyamon Jayasinghe

“The Yahapaalana government must realise one thing, namely that freedom and liberty has a way of consuming itself”

Plainly, and demonstrably the Pāda Yātrā led by the so-called Joint Opposition (JO) had just one purpose. This was to frighten those who are entrusted with investigating the serious charges for murder, embezzlement and abuse against Mahinda Rajapaksa and his family and against the second line of leaders. Pāda Yātrā was a campaign of the accused and the impugned.This is evident from the fact that the campaign had ‘political witch hunting,’ as one of its vociferous slogans. This witch – hunting referred to the investigations ongoing and yet to come. Curiously, during the very first few months of the Yahapālana (YP) government these first rung and second rung leaders mocked and challenged the government to come out with the findings related to alleged corruption. JO told the nation that the government was conning. On the other hand,now, when the investigations are getting into shape and when arrests are being made the JO accuses the government of witch hunting. Not-doing is wrong and doing is also wrong!

True, there were other slogans, mainly relating to the rise in the cost of living and the proposed VAT increases. These slogans are merely being dragged in to provoke the people who now face the burden of the increase in cost of living. The economic slogans are mass -mobilisation – slogans. JO cannot be serious about these problems because they know only too well that their ten year long dispensation had created the crisis. Indiscriminate debt, wasteful profligacy, corruption, absurd White Elephant projects had all brought about a serious crisis at the time of the fall of the Rajapaksa government. Here is an extract of a report pertaining to the state of the economy after the YP government came to office. Obviously, the negative outcomes were products of the Rajapaksa government. The report is by Professor A.D.V. de S .Indraratna – independent and respected economist:

“We have been experiencing,” says professor Indraratna, “falling current revenue relative to current expenditure and bludgeoning budget deficits rising to unsustainable levels on the one hand, and a crippling public debt and unsustainable external debt burden on the other hand, in the face of sluggish inflow of FDI. There has been agreement among the enlightened economics analysts that every effort should be made to increase current revenue while containing current expenditure, and to decrease the debt burden so as to halve the 2015 Budget deficit before the end of this decade.

It was also advocated in my SLEA Presidential address, last year October titled ‘Living Beyond Means’ that direct tax revenue must be increased to narrow the resource gap and make  our tax system less regressive, while putting on hold for a couple  of years, some of the less essential construction expenditure which has been planned. In this context, It has been advocated that supplementary estimates should be avoided as far as possible, and a little austerity should be the hallmark all round.

More importantly, the purpose of this note is to draw attention to another significant announcement the PM has made a couple of days ago, that the forex market will be fully liberalised before the end of the year.  With the free flow of foreign exchange, this would allow, the PM thinks, Foreign Direct Investment to increase. The Minister of Finance wants this “to keep abreast with other countries” (Island, 13 June)! However, in my view, this is hardly the opportune time to do it.

Apart from the very adverse fiscal position at present, the country’s economic growth has declined from more than 8% in 2010-2012 to less than 5% during 2013-2015, and is estimated to grow not much higher than 5% this year. With the mega infrastructure investment on board, imports are likely to rise relative to exports against the backdrop of also a fragile global economy.  This would bring about an increase in the current account deficit of the balance of payments.

The movement of the exchange rate which may improve immediately due to the IMF bailout and associated multilateral and bilateral lending, may also reverse and decline with increased imports. Gross official reserves, which were at around $ 6.3 billion in March 2016 – adequate only for about 3.5 months of import coverage, are at low levels. Although tourist earnings are envisaged to increase, remittances are not likely to rise due to fiscal reforms in Gulf countries. Therefore, the country’s external situation at present is not at all favourable for relaxation of the forex market.

Nor will the FDI readily flow in as expected by the PM. If relaxation of the forex market was the only factor lacking for FDI to flow in readily, it should have come in amply, at least after the end of the terrorist war, because even then there was no barrier to remittance of profits and repatriation of capital by foreign investors.

FDI has not been coming in to the country for no other reason than the absence of an “enabling environment” comprising good governance marked with transparency and accountability but without waste, corruption (including nepotism and favouritism) and extravagance or ostentation, with the operation of the rule of law, efficient and independent public institutions, the right to information, simple rules and procedure of investment and business, etc.

Without first effecting fiscal reforms and creating an enabling environment with  good governance, etc.,  if forex market were liberalised, instead of capital and FDI flowing in on a  net basis , capital would flow out allowing also those earning undeclared big money in rupees converting them to foreign currency and sending abroad. This situation would aggravate our present exchange problems.

Therefore, it is necessary to first effect the necessary fiscal reforms and have in place the enabling environment with good governance and its attributes, which the present Government had promised the people at the last presidential and parliamentary elections. This will enable us to achieve both internal and external balance and eventual accumulation of official reserves sufficient for more than six months’ imports. Then the Prime Minister can think of full liberalisation of the forex market.”

That is the truth-the hard truth. This state of the economy will take at least three years to set right. It is so bad. The theory that Mahinda Rajapaksa called for early elections not due to the astrologer but to a fear of being unable to confront a deep crisis like this may well have some validity. President Sirisena put it beautifully when he sated that had the previous government run the country well they would not have had to walk the streets like this until their feet get blisters.

Besides, why protest against VAT increases? How else can government collect money to payback the massive Rajapaksa loans from China? Will the former leaders give back their ill-gotten money to bridge the gap?

One does not need any smartness to reckon what’s really going on. The idea is to orchestrate a campaign that creates public disgust in the government, that creates fear among crime investigators that they may be taken to task upon the return of the Rajapaksas, and that creates doubts among the MPs who crossed over to President Sirisena. The compound impact of all these fears and doubts is to ensure that investigations get sabotaged.

The YP government must realise one thing,namely that freedom and liberty has a way of consuming itself. The freedom given to all these ridiculous protests can have the effect of disrupting confidence in the government, depriving essential government services to the people and breaking down the law- enforcing apparatus. The process would be faster than white-anting. Just observe the number of times our key traffic junctions like Liptons and Hyde Park get blocked by all kinds of wild cat protests. Instead of permitting such a laissez-faire expression of freedom government should tighten some reins without resorting to the former regimes fascist tactics and white vans. One suggestion is for the government to designate a park outside the CBD for use by protestors-doctors, politicians, Port workers and so on. They can carry placards all day long there.