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Mismatch between Sri Lanka’s potential and performance

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Sri Lanka’s unprecedented economic crisis in 2022 was not a sudden occurrence. It was in the making for decades and exploded when the contradictions could not be sustained any longer. The Governor of the Central Bank expects the economy to reach 2018/19 levels next year, meaning that we are sliding back by almost a decade.

The inability to have seen this earlier is a heavy indictment on the economists at the Central Bank and officials of the Ministry of Finance. Those same officials are now the main advisors to the government. They are not trained in development economics and most of them rely on econometrics and mathematics, which makes them vulnerable to neoliberal ‘mythematics’.

Sri Lanka’s true potential was not understood by local leaders and officials. Many outsiders did express the ‘great potential’ that the country possessed, particularly with regard to its strategic location. The major task the governments, past and present, face is to reduce the gap between the country’s real potential and its performance. To do so one has to know what the real potential is, which requires an expanded thinking process. Another way would be to observe others in the region and how they exceeded their own expectations in development.

Insanity of Repeating Neoliberal Mantras

The thinking of officials over the years has been to borrow now and expect the situation to improve later. After the 1950s in Sri Lanka, there were no more ‘Korean booms’ – only busts which led to seeking IMF support as well as other forms of borrowing for consumption rather than developing industry.

What is amazing is that many officials expect the same thinking that got Sri Lanka into its worst mess will help us get out of it. If the IMF programme were focused on export development and the balance of payments rather than the budget, perhaps the thinking would have shifted. Instead, the IMF is pushing the country towards more ‘debt financing’ to meet debt servicing obligations by 2028 – the cause of the crisis in the first place! Together with austerity, this model has pushed the majority of the population below the poverty line.

In the present situation, with the ongoing IMF programme, the maximum that the government can do is tinker a little bit here and there. Without a major development drive, which is desperately needed, not much change can be expected. The smallness of thinking, which has been the trend over the past four and a half decades, leads to low and unambitious targets. Few realise how far Sri Lanka’s economy has lagged behind.

The Scale of Sri Lanka’s Lag

The only way to indicate the scale of Sri Lanka’s economic lag is by drawing comparison with other countries in our region, some of them well below Sri Lanka at independence in 1948. Except for three countries – Myanmar, Cambodia and Laos – all the others have a GDP of close to or above $500 billion, while Sri Lanka is struggling to reach $100 billion. Therefore, one could see that our lag is around $400 billion, with many missed opportunities over the period.

What has to be understood is that reaching that level of GDP was not an impossible task, if handled wisely. What Sri Lanka lacks is a proper plan and thought process.

One of Sri Lanka’s biggest missed opportunities was the failure to make Trincomalee the ‘oil hub of Asia’ long before Singapore. This alone could have sustained our economy for a hundred years or more. Making best use of Trincomalee would have included the establishment of an integrated steel mill for export and opening the door for a shipbuilding industry.

At independence, there were funds available for both these due to the Sterling Balances Agreement of 1948. However, what was not available was the innovative thinking. By contrast, South Korea established the state-owned POSCO (formerly Pohang Iron and Steel Company) steel mill with the reparations it received from Japan – this brought in billions in export revenue and laid the foundation for industrial development.

One of our biggest mistakes was to depend on economists for development ideas. Development strategy should come from people with common sense and their feet on the ground. For example, throughout Asia it was engineers more than economists who led the development process.

Despite half the population living below the poverty line, preventing them from participating in productive economic activity, few to no rural production programmes were thought of except perhaps the 200-garment factory programme in the early 1990s. While vast sums have been spent on developing domestic agriculture, the farmer who was poor in 1948 remains poor seventy years later.

These are some of the mistakes that have contributed to Sri Lanka’s huge lag and failure to achieve and what many saw as the country’s great potential at independence. Though many opportunities have been missed, there are still many things that can be achievable with a proper programme.

The Problem of Industrial Development

Any developing country that hopes to advance would look towards industrial development. Countries that place great faith in orthodox economic theory wait for market forces to direct investment into industry. However, others who realise that the market is not developed enough to play this role would use the state to directly intervene in the economy to set up strategic industries.

In the state-led process, the first industries that are set up are import-substitution industries. These are also called ‘infant industries’ as they are new and have to be developed in stages. After establishing these industries, the developmental state has to perform many functions, including bringing more participants into the manufacturing process. The logical end would be the export stage which brings in export revenue and exposes companies to competition – this is seen in the East Asian experience.

In Sri Lanka, the industries that were established hardly moved beyond the first stage. Ministers were happy with merely creating some employment and did not push beyond to develop technology, production capacity, and export potential. On the other hand, orthodox thinkers called for a jump into export-oriented industries without realising the staged process required to ensure domestic value-addition.

Some economists used distinctions phrases such as ‘inward’ and ‘outward’ looking orientations. However, this misses the fact that these are two tactics of the same strategy. You can’t have one without the other except in a few special areas. When policy becomes focused on only one tactic, without considering the overarching strategic goal, it damages the idea of industrial development.

Both Hands Tied Behind the Back

No country has developed along neoliberal lines. Even the industrialised countries of the West used very different methods from what they preach now. The only countries to have successfully developed their economies, within our lifetime, did so by the very opposite of the neoliberal ideas. The government should keep an open mind to alternatives. It should seriously consider joining Global South initiatives towards more just and effective international development organisations.

The Central Bank should be fully be involved in the development effort. In the United States, when the economy was down, it was the ‘New Economics’ of the Kennedy administration that got the economy up and going, with monetary and fiscal policy working together towards a common objective. Manipulated by the West, Sri Lanka has tied both its hands behind its back with the new Central Bank Act. The door to development has now been shut for Sri Lanka. Therefore, one wonders how the government hopes to bring about development on the required scale.

The power and purpose of ‘money’ should be understood. If money is the fuel that runs the economic engine, is it not important to consider who creates that money, for what purpose, and in whose interests? Neoliberalism does not permit Central Banks to assume the role of money creation, preferring to delegate that power to the private sector.

The economic history since independence should teach us to be careful with advice given by the IMF and World Bank. We need to develop our own confidence and broaden our thinking to craft a path forward. Ultimately, the objective should be to reach the country’s full potential. That requires a very different thinking from what has been used up to the present.

(Sunil Abhayawardhana was CEO of Sri Lanka’s largest heavy construction company. He has a master’s degree from the University of Wales and is working on a PhD in economics. He is a member of the Asia Progress Forum, which can be contacted at asiaprogressforum@gmail.com)

by Sunil Abhayawardhana



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Opinion

SL CRICKET SAVED BY THE PRESIDENT

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The President has taken the bold decision to get rid of the office bearers of Sri Lanka Cricket (SLC) and appoint an interim committee till such time suitable persons are elected to run the SLC. All Sri Lankan cricket lovers will applaud and endorse President Anura Kumara Dissanayake’s action as the SLC was one of the most corrupt sports organizations in Sri Lanka for a long time.

The office bearers had organized it in such a manner that no other persons could get elected to this den of thieves. They increased the number of clubs as members to collect their votes. Large amounts of funds were doled out to the clubs to which the office bearers belonged.

All cricket lovers would remember how when a previous Minister holding the Cabinet portfolio pertaining to sports tried to get rid of the corrupt officials which the then Parliament endorsed unanimously and how they manipulated to remain in power and get the President at that time to get rid of the Minister instead of the corrupt officials of the SLC.

They were able to get round the ICC too to get what they wanted. The Minister who was appointed in place of the ousted Minister fell into the pockets of the SLC officials and they continued happily thereafter. The Minister was happy and the corrupt officials were happy!

It is not only the elected officials who have to be removed. There are executive employees and other permanent employees who have to be relieved of their duties as otherwise they could get round the incoming officials, and the activities of the bandwagon could go on.

We would appreciate if the President and the Minister in charge would go the whole hog and relieve the SLC of all corrupt personnel so that Sri Lanka’s cricket could get back to its halcyon days again.

HM NISSANKA WARAKAULLE

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Has Malimawa govt. become Yahapalanaya II ?

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Malimawa government and Yahapalanaya are dissimilar in many respects, the most important being whilst Yahapalanaya had to manage with a balancing act in the parliament, Malimawa has the luxury of a massive parliamentary majority. However, they share one thing in common; the main plank for the election of both presidents Dissanayake and Sirisena was their solemn pledge for the eradication of corruption. It looks as if both have failed miserably, on that count!

It did not take very long for Yahapalanaya’s first act of corruption; the bond scam. COPE, headed by the veteran politician D E W Gunasekara, picked on this but to prevent the presentation of the report, Sirisena dissolved the parliament which was done at the request of the Prime Minister Ranil, to whom Sirisena was obliged for the unexpected bonanza of becoming president. This enabled the second bond scam to take place, also masterminded by Ranil’s friend Mahendran, imported from Singapore!

Malimawa convinced the voters that they are the only group that could get rid of the 76-year curse of corruption and made a multitude of promises, most of which are already broken! What is inexcusable is that, in a short space of time, they seem to have become as corrupt as any previous government and they seem to excel their predecessors in doling out excuses. Of course, they have a band of devoted social media influencers who are very adept at throwing mud at their opponents which they hope would help to cover up their sins. How long this strategy is going to work is anybody’s guess!

Some of these issues were addressed in an article, “Squeaky clean image of JVP in tatters” by Shamindra Ferdinando (The Island, 22 April). I hasten to add that, though some of his supporters are still trying to paint an honest image of AKD, he should be held responsible for many of these misdeeds and irresponsible acts.

One of the first acts of the newly elected president AKD was to appoint two retired police officers, who openly worked for the NPP through the Retired Police Collective, to top posts; Ravi Seneviratne as Secretary to the Ministry of Public Security and Shani Abeysekara as the Director of CID. Both of them held top jobs in the CID when the Easter Sunday attack took place and were blamed, by some, that they too failed to prevent this horrendous act of terrorism. In addition, there was a case against Seneviratne for causing accidents whilst under the influence and Abeysekara was exposed as a ’fixer’ by the infamous Ranjan Ramanayaka tapes. No one would have objected had they been appointed after their names were cleared but AKD’s rash decision to appoint them, disregarding all norms, clearly showed what his long-term strategy was. Was this not political corruption?

Now these two tainted officers are heading the search for the mastermind of the Easter Sunday attacks! Are they being used to divert attention away from Ibrahim’s family that was supposed to have funded the project? After all, Mohamed Ibrahim, the father, was on the national list of the JVP, and the two sons were the leading suicide bombers. It is a matter of great surprise that the Catholic church led by Cardinal Ranjith is not demanding the removal of these two officers from the investigation, who obviously have a conflict of interest. It becomes even more surprising when the demand is made for the Deputy Minister of Defence Aruna Jayasekara to resign, for the same reason; as well stated in the editorial, “Of masterminds” (The Island, 21 April).

The first act of the new parliament was to elect ‘Dr’ Ranwala as the speaker and pretty soon his doctorate was challenged. He stepped down to look for the certificate, which he is still looking for! Though some of the ministers too have admitted that Ranwala may not have a PhD, AKD seems silent. When Ranwala was involved in an RTA, police had run out of breathalyser tubes and blood was taken after a safe period had elapsed. Why has AKD no guts to sack him?

Episode of the release of 323 containers, without the mandatory inspections, seems to be receding to the past and the long-awaited report may be gathering dust in the president’s office! It is very likely due to political intervention and we probably will never know who benefitted.

A minister, who claimed that he is living on his wife’s salary and on the generosity of the party faithfuls, seems to have been able to build a three-storey house in a suburb of Colombo. He claims that when he made that statement, his father was alive but has since died and he has inherited everything as he is the only son! What a shame that Marxists do not believe in sharing the family wealth with sisters? Though the opposite may be true, his explanation that he was able to build a house in Colombo by selling the land in Anuradhapura rings hollow!

The worst of all was the coal scam which would have long lasting consequences on our economy. I do not have to go into details as much has been written about this but wish to point out AKD’s role. In spite of ex-minister Kumara Jayakody being indicted by CIABOC, AKD continued to give unstinted support till it became pretty obvious that he had to go. In fact, he is being charged with an offence which was committed whilst he was serving the Ceylon Fertilizer Company which was under the purview of, guess who? AKD when he was the Minister of Agriculture.

Devastating report from the Auditor General,before Jayakody’s resignation, would not have happened if AKD had his way. He attempted a number of times to get one of his henchmen appointed to this coveted post, overlooking those experienced officers in the department. AKD’s political machinations were thwarted thanks to the integrity of some members of the Constitution Council. If not for them, AKD’s nominee would have been in post and, perhaps, his friend Jayakody would still be the minister.

Malimawa seems to have beaten Yahapalanaya rather than being the second!

By Dr Upul Wijayawardhana

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Opinion

Pot calling the kettle black?

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Doctor Upul Wijayawardhana (eminent physician), posed a riddle for us. He wrote about that island Sri Lanka as ‘ this little dot in the ocean’ when deriding the remark of President Dissanayake who had said that Sri Lanka was a hunduva , a term that indicated a small volume: me hunduve inna puluvan da? (Can you live in this restricted space?) Most sensible people, even uneducated, judge that the volume of a little drop (of whatever) is smaller than that of a hunduva; so is weight. When the learned doctor emphatically maintains ‘….we are not a hunduva’ but ‘… a little dot in the ocean…’, is the pot calling the kettle black or worse?

Physically and population wise, Sri Lanka is neither ‘a little dot’ nor ‘a hunduva. This is all in the rich imaginations of Dissanayake and Wijayawardhana. I once counted that there were more than 50 members of the UN who were smaller than Sri Lanka in physical and population size. England was a sizeable island with a small population in the northwest corner of Europe in late 18th century when it began to become what China, with 1.3 billion people and jutting out to the Pacific, is now. From about 1850, when the population of Great Britain was about 20 million, less than that of Sri Lanka in 2026, it ruled more than half the world. Besides, do not forget Vanuatu, Kiribati, Cook Islands, Antigua and Barbuda, Barbados, Lesotho and New Zealand (who habitually beats us at cricket). New Zealand with 5 million population played against 1.5 billion population India (1:300) for the T20 cricket championship a few weeks ago. I quietly wished New Zealand would win; so much for crap about dots in the Indian Ocean or the south Pacific.

Dr. Wijayawardhana also wrote about history and about ‘The achievements of Hunduwa’. The massive reservoirs and extensive irrigation systems in rajarata and ruhuna as well as the stupa are indeed tremendous works of irrigation and bear witness to superior ingenuity and organising ability, for the time they were built. They compare very well among structures elsewhere in the ancient world. Terms like ‘granary of the East’ must be taken with more than a grain of salt. Facile use of such terms does not take account of whatever shreds of evidence there is of adversity in those times. Monsoon Asia over the ages has more or less regularly suffered from floods, droughts and consequent famines. The last dire famine was in Bengal in 1944. The irrigation works in Lanka were a magnificent response to those phenomena. The modern response has been scientific agriculture making India a major grain exporter, from near famine conditions in 1973-74. Recall Indira Gandhi’s garibi hatao (eliminate poverty) speech to the General Assembly of the UN, that year.

The bhikkhu who wrote down the tripitaka in aluvihara did so because there was the threat of a severe famine in the course of which learned bhikkhu might have come to harm. Buddhist thought over centuries had been passed from generation to generation vocally (saamici patipanno bhagavato savaka (listener) sangho) and the departure from that tradition must have required a major threat of famine. There are stories of bhikkhu from Lanka fleeing from dire straits. In the same vein, while the mahavamsa speaks of kings and their valiant deeds, there is little account of the large mass of little people who lived then. Sensible teaching of the history of a people must include the history of as much of the people as possible and some idea of the history of other peoples in comparable times to avoid feeling dangerously smug and arrogant, which we have seen many times over.

Usvatte-aratchi

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