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Towards a false dawn

Saturday, 15 July 2023 00:04 –      – 43

 Without changing the system and its political culture, economic reparation alone is not going to usher in an era of sustainable growth and development

This post-independence democratic design has an unwritten philosophy according to which so long as the Government is wrested with leaders from the majority community, those leaders have a social license to manage/mismanage FMOE. Accountability is not part of the vocabulary of Sri Lankan democracy. It is that philosophy, which opened the doors to corruption, nepotism, cronyism and market manipulation that bankrupted the economy and created the multiple crises. Therefore, without abandoning that religious and ethnonational majoritarian political culture with its associated evils, economic reparation alone cannot guarantee a new dawn

The economic model that was put in place with vengeance by the then President JR in 1978, and which crashed and made the economy bankrupt after nearly four decades, is the same one that his nephew and president Ranil Wickremesinghe (RW) and his SLPP partners are trying to resurrect with IMF assistance. RW had already stated in no uncertain terms that he would transform Sri Lanka into a high-tech and renewable energy powered competitive free market wonder and place it among the family of First World nations by 2048. IMF from the outside and CBSL from inside the country are partners in this mega venture.

They have plucked the economy out of its socio-political and cultural complex and treating it in isolation to produce that wonder. The Governor of CBSL has warned his countrymen that there is no “second chance” and that if the experiment fails there would be no redemption. These are strong words and demonstrate his commitment, but would they be sufficient to pull the nation out of its multiple crises, and without a fundamental break from the country’s post-independence bloody and corrupt past?

All economic theories and solutions are subject to one important assumption, ceteris paribus, which means “other things remain unchanged”, and among those other things are the political culture and governance of a country and society. In the case of the current IMF engineered experiment if the political culture and governance are going to remain untouched the experiment would fail to provide a permanent solution to the economic crisis. The idea of system change originated by Aragalaya underlines this fact.

With IMF’s EFF funding, with an ambitious and iniquitous fiscal consolidation budget, with tight monetary policy regime associated with capital controls and disinflationary measures by CBSL, and with an unfair debt optimisation exercise as part of an overall national debt restructuring strategy, hopes are raised that the economy is on the mend at least for the short term. CBSL’s second bout of interest rate reduction by 200 basis points from 12% to 11% following an earlier one of slightly larger magnitude, and Governor Dr. N. Weerasinghe’s warning to commercial banks either they pass on those reductions to the private sector or face administrative consequences, are measures intended to strengthen those hopes.

And, as if to demonstrate the positive economic fall out to the public, prices of certain commodities are brought down artificially and spasmodically, and the long queues in front of fuel and gas outlets that once crowded the streets are becoming a distant memory, although some rationing is still there. Even those recurrent street protests organised by unionised labour, undergrads and civil society groups had died down for the time being. Does all this mean that a new dawn is about to break?

To those who are familiar with macroeconomics and its complexity, it should be clear that these achievements, however little or great they might be, have been made under a stringent disinflationary policy. “The ongoing disinflation process”, says CBSL’s latest Monetary Board Report, “is supported by the lagged impact of tight monetary and fiscal policies, the expected softening of energy and food prices and their spillover effects, and possible repricing of goods and services due to exchange rate appreciation alongside the favourable impact of the statistical base effect”. The policy covered by these facts demonstrates that the economy is now kept alive with artificial respiration. It is semi-open and not fully open as IMF and RW would want it to be eventually.

In other words, the economy is carefully shelved from international influences for the time being. When that protection is finally removed, when debt servicing resumes under altered terms and conditions after restructuring, and when the economy becomes fully open, CBSL’s disinflationary policy would have to come to an end, import restrictions and capital controls need be relaxed, and the rupee has to be floated to reflect its true market value. It is then that the economy would be forced to battle against international challenges. The question therefore is whether the monetary stability built by CBSL on one side and fiscal measures introduced by RW as Minister of Finance on the other, both at the insistence of IMF, would be sufficient to withstand those challenges and lead to a new era.

The free market open economy (FMOE) as advocated by its founders, theoreticians and guardians, is a one-size-fit-all model and does not take account of the uniqueness and idiosyncrasies of each society in which it is introduced. The uniqueness of Sri Lanka is its multi-ethnic and multi-cultural makeup with a Sinhala-Buddhist majoritarian democratic polity.

This post-independence democratic design has an unwritten philosophy according to which so long as the Government is wrested with leaders from the majority community, those leaders have a social license to manage/mismanage FMOE. Accountability is not part of the vocabulary of Sri Lankan democracy. It is that philosophy, which opened the doors to corruption, nepotism, cronyism and market manipulation that bankrupted the economy and created the multiple crises. Therefore, without abandoning that religious and ethnonational majoritarian political culture with its associated evils, economic reparation alone cannot guarantee a new dawn.

The political culture that has kept this nation uncompromisingly divided on caste, ethnic and religious lines, allows the unscrupulous and the corrupt to remain in power, endangers human rights and impedes democratic freedom, and makes justice a mockery, is not going to leave the repaired economy unmolested. Neither the IMF instructor nor its CBSL functionary has any control over this culture, and RW, the man who wants to maximise his chances of getting elected as president is not going to topple the apple cart.

His recent soundings on ethnic reconciliation and ending corruption lack seriousness. His manoeuvres to postpone indefinitely Local Government Elections, his behind the scene support for a private member bill to recall all local bodies that were previously dissolved, and his blessing to the appointment of a 14-member Parliamentary Select Committee from the same corrupt mob that created the bankruptcy in the first place, to investigate the reasons for that calamity, are all evidence that RW wants the system to remain as it is, perhaps with some cosmetic changes to satisfy the critiques.

But without changing the system and its political culture, economic reparation alone is not going to usher in an era of sustainable growth and development. The irony is that none of the political parties in the opposition except NPP seem to even contemplate such a radical change. It was the Aragalaya youth to their credit who originated the demands for “Gota Go Home” and “System Change” almost a year ago. They achieved the first of the two, but could not proceed with the second, because RW, having benefited from the first realised the danger to his political aspirations in the second and brutally suppressed Aragalaya itself.

It appears that NPP alone is determined to bring about that fundamental break from the past without jeopardising whatever economic achievements that would be made temporarily under IMF tutelage. The post-debt restructured economy will be disproportionately harsh towards the working poor and low-income classes. RW’s so-called income support scheme under the problematic aswesuma is not going to be sufficient to compensate what these classes have lost. That should act to the advantage of NPP.

(The writer is attached to Murdoch Business School, Murdoch University, Western Australia.)

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