{"id":233741,"date":"2023-08-28T16:20:38","date_gmt":"2023-08-28T10:50:38","guid":{"rendered":"https:\/\/www.colombotelegraph.com\/?p=233741"},"modified":"2023-09-06T14:01:40","modified_gmt":"2023-09-06T08:31:40","slug":"the-economy-politics-a-reality-check","status":"publish","type":"post","link":"https:\/\/www.colombotelegraph.com\/index.php\/the-economy-politics-a-reality-check\/","title":{"rendered":"The Economy & Politics: A Reality Check"},"content":{"rendered":"

By Ameer Ali<\/a> –<\/b><\/span><\/p>\n

\"\"

Dr. Ameer Ali<\/p><\/div>\n

\u201cThe past resembles the future more than one drop of water resembles another<\/i>\u201d ~ Ibn Khaldun<\/p>\n

When Covid-19 entered and paralyzed Sri Lanka in 2021, it only hastened the bankruptcy, which was bound to occur in any case even after decades of reckless mismanagement by a system built on a sectarian political paradigm. No political leader ever questioned the dangers inherent in that system, but accepted it as given and the country\u2019s destiny, and fought their political battles on the basis of mostly complementary but at times contradictory socio-economic models. It was only in 2022 that a new generation of youth realized the pernicious effects of that paradigm staged an Aragalaya<\/a><\/span> and demanded a change.\u00a0 <\/span>But after crushing that aragalaya and chasing out of the youth by force, and with one or two changes at the top of the political pyramid the new man chosen to be the captain of the team, Ranil Wickremesinghe (RW), once again accepted the old paradigm with its open economy model and sought assistance from that model\u2019s global director, IMF.\u00a0 <\/span>He had no other alternative and none of his opponents except NPP offered any.\u00a0 <\/span>RW believes that once the economy is rebuilt with IMF\u2019s advice and financial assistance the country would usher in in a new era of resplendence some time in 2048. And surprisingly, even respectable economists and political scientists seem to have accepted 2048 as the target year and offering advice how to reach it.\u00a0 <\/span>Disappointingly, even they are shamelessly accepting the existing paradigm.\u00a0 <\/span>But what is the reality? \u00a0<\/span><\/p>\n

On the eve of the arrival of IMF inspectors to review the progress made so far as per conditions agreed upon before releasing the first tranche of the $2.9b FFE, CBSL Governor has expressed confidence that the economy is on the right track and that it is proceeding smoothly except for the failure to reach government\u2019s revenue target. He hopes that following negotiations with foreign creditors, which are yet to begin, the burden of debt servicing would be halved from $6b a year to $3b or from 9.4% to 4.5% of GDP. Among other signs of recovery CBSL pointed out are the increase in foreign remittances and earnings from tourism. Inflation has come down to single digit although prices remain high, and in foreign trade, despite relaxation of import controls there had not been a surge in imports yet.\u00a0 <\/span>Based on these positive signs resulted mainly from measures taken by CBSL to stabilize the monetary sector, prospects look promising for IMF to release its second tranche. But there is also a political reason for doing so, which will be discussed later.\u00a0<\/span><\/p>\n

However, behind these monetary achievements is the stark reality of poverty of the masses, which almost doubled from 13.1% to 25% between 2021 and 2022, and according to World Bank estimates another 5.7% of the population lives within 10% above the poverty line, which amounts to around Rs. 6,000, and another 5.6% between 10 and 20% of it. But if one moves away from the narrow monetary approach and take a broader definition of poverty in terms of capability, social exclusion and participatory approaches the reality of Sri Lanka\u2019s poverty should sound alarming. On that basis the poverty alleviation program or aswesuma introduced by President RW at the behest of IMF, even after refining its selection criteria and delivery mechanism, would not even scratch the surface of the issue. What this means in reality is that there is one class of people, a minority, that is benefiting from the recovery program while there is another the majority, which is not. This is not surprising because IMF\u2019s main concern is not about the majority\u2019s welfare but sustainability of the open economy model based on the philosophy of economic neoliberalism. IMF reforms always concentrate on monetary stability and empowerment of the moneyed, and assumes that the poor would benefit from the crumbs falling from the masters\u2019 tables. When you feed the horse with oats, commented Galbraith once, something would drop from its hind to benefit the sparrows. \u00a0 \u00a0<\/span><\/p>\n

CBSL data shows that RW\u2019s 2022-23 budget has failed to reach its revenue target, which means there is a shortfall that has to be remedied by the next budget. The inefficiency in revenue collection and political influence of the taxable class of income earners are perennial problems in the country and RW is powerless to confront them. That means the 2023-24 budget would have to include even harsher revenue raising measures, which are bound to hit further the living conditions of lower and middle-income classes. Besides, the global outlook for an economic rebound also looks gloomy in view of the escalating war in Europe, supply constraints, climatic horror and high inflation. That is not good news for Sri Lankan exports and the stability of its currency. However, and by chance, even if the global environment happens to change for the better and becomes supportive of RW\u2019s efforts to revived the economy, domestic politics is taking a dangerous turn and could prove calamitous.\u00a0<\/span><\/p>\n

From the point of view of IMF and its shareholders, RW is the best man for the season.\u00a0<\/span>He is talking the talk and walking the walk, and steering the country away from the west\u2019s rival China towards its friend India.\u00a0 <\/span>Indo-Lanka connectivity has received a fresh boost after RW\u2019s visit to Delhi and is gaining momentum by the day. Yet, he is not an elected president. Therefore, a popular mandate is an absolute necessity for him and that is why a Presidential Election is around the corner. IMF realizes this and that is why the second tranche would be released to enable him offer more benefits to the voters. The second tranche should therefore be considered as IMF\u2019s vote buying exercise. \u00a0 <\/span>But what about RW\u2019s opponents?<\/p>\n

None of the parties in the opposition except NPP has an alternative to IMF\u2019s economic agenda and the open economy model.\u00a0 <\/span>But they too want to capture power.The only issue available to all of them except NPP is to fight not over the model but over the paradigm.NPP appears wanting to change both. RW\u2019s initiative to implement the controversial 13A has set the campaign platform. This is the political reality. The violence and unrest over Kurundoor in the north and organized protests in front of residences of Tamil politicians in Colombo are obvious sparks that would keep the riot police busy over the coming days and weeks.Is history going to repeat and prove Ibn Khaldun right? Or, is Sri Lanka\u2019s sovereignty going to be auctioned to the highest bidder for economic survival? It is heartening to hear a patriotic Bhikkhu calling all communities to unite in a fight to liberate the nation for the second time.<\/p>\n

*Dr. Ameer Ali, Murdoch Business School, Murdoch University, W. Australia<\/i><\/b><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

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