{"id":225523,"date":"2022-02-20T00:00:34","date_gmt":"2022-02-19T18:30:34","guid":{"rendered":"https:\/\/www.colombotelegraph.com\/?p=225523"},"modified":"2022-02-28T14:01:58","modified_gmt":"2022-02-28T08:31:58","slug":"the-economy-has-collapsed","status":"publish","type":"post","link":"https:\/\/www.colombotelegraph.com\/index.php\/the-economy-has-collapsed\/","title":{"rendered":"The Economy Has Collapsed"},"content":{"rendered":"

By Kumar David<\/a> –<\/strong><\/span><\/p>\n

\"\"<\/a>

Prof. Kumar David<\/p><\/div>\n

Polite commentators are bashful and write in the future tense. They avoid the present and prefer \u201con edge\u201d, \u201ccritical\u201d and \u201creeling\u201d, but this is asinine. It has already happened; all that is pending are food riots. \u201cThe president (of Sri Lanka) appealed to visiting Chinese foreign minister Wang Yi that it would be a great relief if debt payments could be rescheduled in view of the economic crisis\u201d reported the Guardian (UK) on 10 January 2022. When a country begs for debt rescheduling it means that it is up the gum-tree, broke, can\u2019t pay up; rescheduling is defaulting, politely. A few in the opposition have appealed for default. The Island <\/em>of 31 January said \u201cSumanthiran leads an MPs\u2019 call: Postpone debt repayment\u201d. Well Abraham wake up; it has happened. The government has affirmed all but officially that it has declared bankruptcy; there is no other interpretation of a plea for rescheduling addressed to the creditor holding 10% ($3.4 billion) of our foreign debt. Nearly half (47%) of Lanka\u2019s foreign debt is to commercial markets and default cum restructuring will entail increase in interest rates on the amounts outstanding and it will pile on future pain. Interest rates the world over are on the up, Central Banks are tightening money supply in response to inflation concerns. Therefore, restructuring equals higher interest rates; Sri Lanka is sinking into a financial quagmire; that\u2019s the bitter pill the JVP-NPP, Sajith\u2019s outfit and Champika\u2019s 43-Brigade cannot get away from \u2013 more on that later.\"\"<\/a><\/p>\n

Debt, default, shortages, inflation, power-cuts, exploding gas cylinders, fertiliser lunacy, who doesn\u2019t know all this? It will be a waste of your time and mine to recapitulate. A reasonable summary inference is that president and government will be ousted in the next election cycle, provided elections are not annulled by an illegal or an illegitimate artifice. I have often made a song and dance about such illegitimate possibilities and complained that the main opposition JVP-NPP and SJB and lesser outfits with a presence in parliament like the TNA were sleepwalking, oblivious to dangers. I will give that grumble a rest today and limit myself to what may happen during the remainder of this president and government\u2019s term if they stay on to the end (three-plus years) and I will talk about election manifestoes.<\/p>\n

\"\"<\/a>

Foreign Borrowing ($ million)<\/strong><\/span>
Total $52 billion (80% of GDP at end 2017)<\/strong><\/span>
(Source: Ministry of Finance)<\/strong><\/span><\/p><\/div>\n

If president and government serve out their terms it is easier to prognosticate economic trends than to predict the fallout from unavoidable socio-political conflicts if the government is brought to its knees before its fated expiry dates. Some things seem unavoidable in 2022 or 2023; the government will throw itself at the feet of commercial lenders and China and eventually the IMF, imploring mercy. Fresh monies and swap deals will entail higher costs, eventually the IMF will have its way and impose substantial structural reforms. Let\u2019s stop fooling ourselves, price rises, and cuts in subsidies and welfare are unavoidable. You don\u2019t believe me? Listen to the Finance Minister and government ministers and MPs. Citizens who have big money are moving it out and owners of properties are selling and finding ways of doing the same at inflated market exchange rates – others argue that these are the prevalent real-rates. In simple words the net effect will more economic hardship. This remark applies not only to fungible goods, commodities and fuel but also to services like electricity supply-reliability and healthcare.<\/p>\n

What about the trade balance, remittances and tourism earnings? A sharp decrease in the LKR value will increase exports and discourage imports but the political costs will be high. Can a regime facing an electoral guillotine do it? But how otherwise can it circumvent the hangman\u2019s noose? The IMF is sitting back and waiting for the beggar to come to the door on his knees; time is on its side and there is only that much alms that China and India will dole out. A fall of the LKR will strengthen remittance inflow; it will attract more tourists since a declining rupee is equivalent to reducing wages and making services cheaper. So-called fiscal reform (raising direct and indirect taxes), rebutting wage hikes and reducing expenditure on health, education and welfare will invite direct populist conflict and social tension. The government\u2019s choice: \u201cTo be or not to be\u201d.<\/p>\n

Where, for example, will the strike in the health sector which started last week (temporarily paused) end? It dragged on in defiance of a court order and presidential emergency decrees. There will be other strikes, more defiance. Will the regime resort to direct action, will people defy it and will the multi-party governing alliance survive confrontation between the working class and the state? While one by one answers to these questions are not possible, collectively one can see that the regime is snowballing into an existential crisis. I am not using words carelessly; it\u2019s not debt, fiscal crises or shortage conditions that are deteriorating, it is an overall existential crisis. I would have preferred it the other way where we could simply have voted the president and government out of office. Instead the way things are moving we have a threat of protest movements and the state responding with extra-legal machinations hanging over our head.<\/p>\n

This is the background as the election cycle moves to centre stage in three-plus years. In the normal order of things, the presidential election comes first in mid-2024 and this may be one reason why three candidates are already on offer \u2013 Anura Kumara (AKD), Sajith Premadasa (SP) and Patali Champika Ranawaka (PCR). There is another reason why presidential aspirants are popping up first. Apart from the NPP\u2019s Rapid Response Manifesto the other two hopefuls are committed to retaining the presidential system; let\u2019s be frank, both SP and PCR want to be president, both want the powers and the pomp of the presidency, neither will abolish it. The public too is fixated on presidency not parliament. Though it understands and rejects the evils the JR Jayewardene instituted presidency has brought to the country, it is fixated on the devilish drama of electing a president. Much newsprint and electronic quanta are devoted to kowda raja <\/em>(who\u2019s the king) drama. Tubby SP is well set on the inside track while long limbed PCR is making a run on the outside track. It is hard to see how PCR can displace SP as anointed favourite of the SJB, its only grit and greed that keeps him going. The JVP-NPP strategy is to lay long-term groundwork for the future.<\/p>\n

The dark and dirty horse is the SLPP-Rajapaksa offering. The natural choice would be to re-nominate Gotabaya but his half-time record is so soiled that that seems suicidal. Mahinda is ineligible and Namal hilarious. The next best is Basil, but that would be a bacillus to some, in particular the Dead-Left. In Vasu\u2019s party Basil was spoken of as a pox inflicted by crooked businesses in cahoots with imperialism. \u201cTen-percent a day will keep development away\u201d will become the nursery rhyme of the next generation. It will be difficult for the government therefore to avoid offering soiled-goods-Gota re-nomination. (Will he accept?). This strengthens my guess that president and government will be sent packing in the 2024-25 election cycle. Is there time enough for a turn around and recovery? Well stranger things have happened . . . but! There are two interesting recent changes in government tactics. Under Basil\u2019s influence there has been a shift in foreign policy from a god-speaks-in-Mandarin orientation to a middle position between China and the Quad. This is most noticeable in economic decision making. China\u2019s response to this disloyalty is as yet unknown. The other change is that the government seems to have swapped its cloak and dagger appearance for an electoral strategy. Maybe it could no longer ignore allegations all around that a military move was the concealed spanner in its tool-kit.<\/p>\n

The hurdles that the next government will encounter are herculean. No regime whatever its ideological complexion can avoid the imperative of both pruning the fiscal deficit by cutting expenditure and raising revenue; both unpleasant. The former entails reducing subsidies and welfare, the latter necessitates more taxes on the wealthy and increased indirect taxation such as VAT and sales-tax. This medicine will be as bitter for the JVP as it was for NM in the 1970s, but the comrades will have to partake of the poisoned chalice as did the Double Doctor. Whichever team goes out to bat it will find itself on a sticky wicket for the first innings; the second innings will permit discretionary policy choice. Development comes only after that; growth is predicated on economic and social stability. I am formalising by sequencing but the concept remains correct. Economic intervention by emphasising state sponsored or capitalist-market options, industrialisation strategy, how to mobilise labour and resources, all this follows economic stabilisation. This is true whether the perspective emphasises the responsibility of the state (Vietnam-China style), Champika\u2019s reimaging of JR in his oddly named 43-Brigade (they are not highflyers, or it would have been 43-Squadron) or Sajith\u2019s presumed eclectic mish-mash.<\/p>\n

The 43-Platoon says it will increase revenue and prune expenditure. The current balance sheet looks like this: If next year government revenue is one unit (1.0), then gross government commitment amounts to 3.2 units, of which a little more than half (say 1.7 units) will be actual budgeted expenditure and a little less than half (say 1.5 units) will be debt servicing unless there is substantial foreign debt forgiveness. As I said any team that goes out to bat cannot run away from this dilemma in its first innings. The second innings is discretionary; Champika intends to strengthen market forces, expand the role of private entrepreneurship, call in the IMF, emphasise productivity enhancement and launch a tech-based economy. His plan includes homilies about renewing democracy, eliminating corruption, improving governance etc. but it retains the presidential system by implication. Nor is he famous for enhancing devolution to minorities and nothing like that should be expected. The 43 (Ali Baba managed with 40!) is JR-economics and ideology in Twenty-first Century garb.<\/p>\n

And you may have noticed that the TNA and the Catholic Church seem to be in vanguard of the campaign to repeal the Prevention of Terrorism Act and to stop the resurgence of state-led white-van abductions. Where are the JVP and the SJB? Maybe they are too busy preparing for elections in a reversal of roles. Hmm, what a topsy-turvy world! While we await the Sajith and Rajapaksa Brigade manifestoes in the coming weeks there is a lot on our plates already to think over.<\/p>\n","protected":false},"excerpt":{"rendered":"

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