A mendicant nation

by Usvatte-aratchi

Ediriweera Sarachchandra, the most celebrated man of letters in our country in the 20th century, wrote the prescient novel ‘With the begging bowl’. I have not read it but learnt that it was, in part, a reaction to his experience in Paris, where he was our ambassador and where Sri Lanka Aid Group annually met in those years. Why aid? Because our economy was crippled and we needed crutches to make the least move. The cause of the disease was our profligacy with so little effort to earn the income that we spent. I have written on these pages about this consistently undisciplined behaviour of ours, which we cover under the cloak of bad government. It is salutary to remember that in this country, unlike in dictatorships, government is us and the agents who activate our wishes are government. If our government acts irresponsibly, foolishly and as knaves, we must turn them out of office forthwith. The reserve of rights rests with the people and it is indeed our responsibility to throw out governments that behave as thieves, knaves and criminals – more easily said than done. Our governments are run by such knaves that a high dignitary in a church has been rightly able to publicly call a former President of the Republic to account and has gone unchallenged. They have been and are so common in our governments that it is not unreasonable to question our being able to govern ourselves responsibly. However, what is manifest is that we the people don’t realise that government acting in our name may lead us to ruin. One of the most admirable features of governments that ruled Germany after Hitler’s war, in which such unspeakable horrors were visited upon their own citizens and those peoples whom they conquered, is their acceptance of responsibility for those crimes. The reaction of the Ambassador of Germany here to a dangerous statement of a minister in this government is symptomatic of that behaviour. The ready acceptance of 1.2 million refugees in 2015-16, mostly Moslem, about 1.5 percent of its population by the people of Germany, I suspect, lies in the collective memory of the people of Germany that they poisoned to death, enslaved and chased away, among them so many of both ordinary and extraordinary achievements in their society. The recurring feature of our society is its inability to remember that year after year in the last 60 years or so, the rest of the world does not owe us a living and that we must live within our means, taking a few years moving one way or another. Those who governs us, whom we elect, have been more than willing to spend freely, if the expenditure included a packet of a few million dollars that would go into their bank accounts, maintained offshore secretly. We refuse to recognise the need for austerity, when bankruptcy stares in our face. We turn from one set of lenders to another and willingly accept conditions laid down by new lenders, our governments hiding behind a façade of blaming previous lenders. It may look smart, but in reality it is we the people who are forced to go a begging. We go abegging while those who run government wallow in wealth. A more blatant failure of principal failing to hold agent to account is hard to imagine.

It is not true that an economic entity, including a nation, cannot borrow and grow to be prosperous and strong. Experience does not support such contention. Young enterprises and well-established corporations borrow in the market and grow out of debt because with new resources they grow to be larger, stronger and more profitable. The huge market in debt in capital markets bears evidence of this. Lehman Brothers in New York City used to advertise ‘We were built of bonds.’ Enterprises borrow because the present owners do not want to dilute ownership and open themselves to the risks of changes in policy including those of merger and acquisition by allies of new owners. The fast dismantling of TWA airline is a case in point. A country that borrows and fails to grow out of debt runs the same risks, that creditors will determine its policies and even come to own parts of that country – that is in other words, a debt trap. Several countries in Africa run the risks of assets vital to it, running into the ownership of lenders. The government of Mahinda Rajapaksa undertook a policy of growing out of debt in 2010. That policy, in itself, was not unwise. Government investments grew rapidly, financed with debt. GDP at constant prices grew at rates above 7 percent in each of the years 2010 to 2014, if you believe their figures. That growth was built on higher government investment. The investments were in infrastructure. Those projects failed to give returns soon enough. The other constructions in Colombo were of a similar nature. In fact, they, including the Hambantota Port and the Beira Column, have failed to yield adequate returns yet, even now in 2021. The problem lay not in the strategy of growing out of growing out of debt but in the unwise choice of projects. That choice was perfect for China which was a savings surplus economy. At that time domestic savings in China was around 50 percent of its GDP. And foreign savings poured in steadily as investment. That part of domestic savings that did not go into domestic investment went into foreign investment, giving China a massive stock of foreign investments now totaling in excess of $ 4 trillion. That is sufficient information for one to see prima facie a case for long term investments: a far flung network of railways, aqueducts underground carrying water several thousand kilometers from Guangdong to Beijing, the three gorges dam and developing cities like Chongqing. That pattern did not fit Sri Lanka with domestic savings below 10 percent, little foreign investment and the balance of payments persistently in deficit, adding to indebtedness abroad: entirely the opposite of China. The problem lay not in the strategy of borrowing to grow out of debt but in the foolish choice of investments, which after nearly decade do not give a surplus to service those debts. We keep on borrowing to pay debt, not different from the Ponzi Game that Bernie Madoff went to jail for 150 years, where he died a few days ago. A Ponzi Game is one where debts due for repayment are repaid with new debt. It collapses when new debt does not come forth.

The Minister of Finance in 1965, U. B.Wanninayake, presented the Budget for1965-66 and observed that the country was living far beyond its means; the government was getting deeper and deeper into debt, and the foreign exchange reserves of the country were falling at an alarming rate.

“As at the end of June, 1965, the country’s net external assets amounted to Rs. 303 million … the outstanding short term liabilities of Ceylon payable in foreign exchange amounted to 292 million at the end of June 1965 ….

Ceylon’s external assets are now at a precariously low level…”

Deputy Minister of Finance G. L. Peiris presented the budget for 1997 said: ‘We are heirs to over 17 years of haphazard, lackadaisical economic set up, that had no consistent perspective and was merely content to exist from hand to mouth….

Concessional assistance in the form of project loans from multilateral and bilateral sources are estimated to increase… to SDR 321 million in 1996. …. gross international reserves of the country are likely to further strengthen to SDR 1,747 million in 1996 ….”

It reads like a comment on the present government. In 2020, Mahinda Rajapaksa, the Minister of Finance presented the budget for 2021. He showed little concern about the foreign exchange problem, devoting that subject a paragraph at the end of that part of the budget speech. Perhaps, he and his advisors considered it a problem manageable in the normal course of business. So have they shown so far in the year. However, those that see their way kilometers away rather than ‘viyath’, understand that the problem requires much more serious attention.

A few days ago, China graciously offered to us 600,000 vaccines produced in that country, and the President of the Republic himself went to the airport to receive them. A few months ago, WHO gave us some vaccines for which we did not have to pay. Several weeks earlier, India was very generous to offer us several hundred thousand vaccines, produced in their facilities. So, do we go begging for medications, that we need to keep the pandemic at bay. It is symbolic of our mendicity. In a way it has to be accepted. Those whom we respect most in our society are bhikkhu who beg for their food.

They depend on others to sustain them, (pindapatha) to give them clothing (chievara), to give them lodging (senasana) and to cure them when sick (gilanapratya) and perhaps in the back of our minds we expect other peoples to do that for us. Pie in the sky.

When I was young in the 1950s, every prominent building in Colombo had been designed and built by the British, when they ruled us. Parliament met in one such building and the most important departments of government were housed there. The current President has his offices in that building. It took more than 30 years to move to Kotte and Battaramulla. The first imposing building in Colombo that was built anew was the Central Bank building. Outside the western province, the only major project for which the government of Sri Lanka paid from its own funds was the Gal Oya Valley Project. It is now home to a thriving community. Buildings in the Peradeniya University – The Senate Building, the Arts Building, buildings for the faculty of engineering, the magnificent halls of residence (Hilda Obeysekera, Sanghamitta, Arunachalam, Jayatilleke, Marrs, James Pieris and Ramanathan) were put up by local construction companies. I recall the name Samuel & Sons, who in 1955, were giving final touches to the Arts Theatre (Room A) on Galaha Road. Why weren’t they and their successors given opportunities to construct? Late in the 1960s, I had some association with the Irrigation Department. Some of brightest engineers of the department were working on the preliminary plans and designs of the Mahaweli Project. There was incessant talk about the importance of local construction companies working with foreigners in all aspects of the projects, including designing and construction. We seem to have thrown aside that wholesome practice and now even unskilled labour is imported. Perhaps, that practice is an integral part of the contract to lend as is the practice of bribing local politicians.

When I step out of my house in Colombo all I see are structures put up by Chinese, some of them gifts from the Chinese. The massive structures of Jetavanarama, Ranmali (Sonnamali is the Pali term; it has nothing to do with ruvan veli, gems and sands) seya and other structures leaves anyone, who can imagine the marvels of those constructions, in awe. Now we cannot build our own National Hospital. Those achievements make it sharply painful to step out of one’s house in Colombo now only to see foreigners build the simplest constructions for us. It takes a particular kind of folly to laugh at foreigners that were nowhere near us in their achievements, 700 years ago, and now go begging to the same barbarians for help to survive.

I have rambled on a bit. Therefore, let me sum up what I said. We are and have been indebted to the rest of the world, for many decades. That is fundamentally because we have used more resources than we produced. To live at standards that we have enjoyed so far and to pay back the accumulated debt, we must either temporarily go into austerity or grow fast enough to spend as we have done so far and at the same time earn a surplus to pay back debt. There seems little desire for belt tightening. It is foolish to expect that the rest of the world owes us a living, as the bhikkhu sangha does from the laity. To grow fast, we must not invest in projects with long gestation periods. The change in patterns of demands in external markets and new technology for production has made it feasible to for economies to invest and obtain results in a few years. Those products are usually for export. To do that we do not need infrastructure development so much as good policies. That seems too far for our leaders either to grasp or to reach.