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Finance Capital after COVID-19



Kumar David

Hyman Minsky (1919-1996) is celebrated for his thesis that economic recessions seemed to be triggered by shocks to the financial system. Downturns in the last 70 years were prompted by stock-market crashes, financial defaults and in 2008–09 a shock in the banking system. Though the underlying cause may lie in declines in the rate of profit, disruptions in production, surplus value extraction bottlenecks or supply-demand dislocations, the actual breakdown manifests itself in the financial system not in the production systems – the oil crises of the 1970s was an example of an exception. Marx was well aware that the crisis first manifests itself in the “circuit of capital”, vide Kapital Volume II, but it was Minsky who spelt it out most clearly.

The actual instant of free fall inauguration has even earned the name Minsky Moment. The current (2020) recession is different: it was triggered by a global pandemic although the conditions for a recession had been maturing in the womb of global finance capital for several years. Covid was the catalyst, imbalances in global finance capital the cause. I do not need to expand on this remark since it is recognised. Recall the reckless expansion of money-supply as otherwise capital would have gone under the bus globally (quantitative expansion); exploding debt (for example US Federal Debt will reach 100% of GDP at end 2020); income and wealth inequality at grotesque levels; and QUAD a US led group including Japan, India an Australia has commenced, de facto, a strategic and economic cold-war against China which will fracture already dislocated global supply chains.

Nevertheless, the pregnancy remained under wraps until Covid tore off the cover and exposed a wobbly global economy. Covid proved to be more than a catalyst; it has turned into a calamity. Let me quote a few simply unbelievable events. The Australian government has announced that international travel won’t resume until the very end of 2021. “International travel by tourists and foreign students will remain closed until late next year”, said Finance Minister Josh Frydenberg in a statement after the federal budget last week. “Citizens are banned from leaving the country and no international travellers are allowed in except for those on a short list of exemptions”.

The Country has gone into lockdown, literally. What will happen to Australia’s economy? Where are India and Brazil going? It seems that the Modi and Bolsonaro governments have given up; they are unable to cope. With seven and five million cases respectively, they have neither the hospital facilities nor quarantine accommodation. In country after country, the better the less said about the USA and UK, a despondent message is coming through: “It’ll never be the same again; there will be, there has to be transformative change in the global economic and political order”. This short essay will make some comments on the future of global finance capital with brief asides about Sri Lanka.

Livelihood and employment will be the imperatives driving any government and any economic arrangement that hopes to survive. I don’t know if the revolution, anarchy or psychological depression is around the corner, but look down the road a few years and surely it cannot continue like business in the past. The World Bank predicts that the pandemic will force 150 million into extreme poverty globally (less than $1.90 per person per day); and how many more into not so extreme poverty? You have to dig it out of the report but it seems more than a quarter of the world’s population will have to survive well below the $3.20 line. Nope, it’s impossible to prevent that drastic restructuring. Even if capitalism, with finance capital at the helm survives, how will it be transformed by international pressures, domestic class warfare (make no mistakes it’s on the way) and by government actions?

At a minimum a tough new regulatory environment will slot into place in all countries. These will include new health & occupational safety requirements, income protection and environmental regulations. Income protection will be a major concern in the coming years because Covid related disruptions will not go way tomorrow. My guess is that economic disruptions related to Covid are unlikely to abate for three to five years. (Sri Lanka can kiss goodbye to bikini and beach tourism for the next three years but culture and nature related tourism may revive sooner). Income protection is an idea that is catching on. In some places including some Indian states the government will pick up two-thirds of the salary bill when factories are closed due to Covid induced shutdowns. This can be recommended to our two-thirds besotted regime but the problem is that it is of no help to self-employed (think three-wheeler wallahs) and the informal sector (think itinerant journeymen and kerb-side hawkers).

My topic today however is not these small potatoes abut finance capital. Research in the US has shown that contrary to expectations lockdown did not have a much different impact on the three sectors, services & retail, manufacturing and finance. All three sectors, given their heterogeneous exposures to demand and supply factors, suffered similarly, but for different reasons of course. Banks due to curbs on interest rates and limited borrowing, manufacturing due to factory shut down and itinerant workers and the informal sector were killed by curfew. Both the manufacturing and banking sectors witnessed reduced net portfolio inflows. Fiscal and monetary stimulus – that is exertion by the state to save capitalism – played an important role in attenuating the negative impact of the global shock.

A curious factor in the US is that yield on the Treasury Bond has plunged; the ten-year bond for example it is trading at well below 1% and this underpins interest rates in general. The bond yield falls when folks rush into bonds because they have lost confidence in the future of the investment economy and seek a safe haven. When bond prices rise interest rates fall, driving savers, pensioners and banks into difficulty; it should be attractive for investors but in the prevailing post-2010, and now worse, gloomy scenario the well-heeled borrow to invest in stocks (for asset price inflation) and property (a safe haven) exacerbating wealth inequity. Companies in the US and the UK are not investing in manufacturing or the production economy

Finance capital is typified by the big banks, hedge and other funds and investment houses and billion-dollar investors. Banks have felt massive effects from the crisis and are not able to play their usual role in getting the economy back on track— they are fearful of providing loans to businesses that have buckled. Banks are taking massive provisions, and offering negative guidance for coming quarters. If the next three years go badly bank capital will fall below CET1, a capital benchmark used as a precautionary means to protect banks from buckling. If the financial system’s plunges liquidity and assets can evaporate quickly in a plunging market.

Hence a major expectation in the coming period is the introduction of stringent new controls on banks and investment houses, that is on finance capital which is playing Ludo with other people’s, money; viz. market money. But in the wake of these changes will also come politically and socially driven adjustments. Demands for the protection of livelihood, that is provision of decent food and adequate housing even when the virus disrupts employment will soon become a mass demand. No government or economic system that is unable to satisfy these needs is likely to survive. True food riots and civil disobedience are not on the horizon, the infection itself makes collective action of this nature very difficult but there are limits to patience and the example of the USA where mass disregard of sensible protection, beginning with an asinine President Trump, could catch on. But governments all over the world are becoming unpopular; Gotabaya backed out of a referendum on certain clauses of 20A because he knows as sure as night follows day that he will lose. The pendulum has swung halfway back and Covid gets much of the credit.

Deeper and stronger government regulation will curb the freedoms of finance capital and the run of market forces. The writing is on the wall. Even the IMF in its 2020 Global Financial Stability Report praises China for its financial stability during the pandemic and ascribes it to “limited external financial linkages, a strong role of government-owned financial institutions, and proactive efforts by the authorities that helped stabilize market conditions.” Indeed, China’s commercial banks remained healthy and posted profit in the first quarter of 2020, however the banking sector is under challenge. China’s financial opening and reform, would undermine banks though the government remains committed. Majority foreign ownership in securities, futures, insurance and currency brokerage will be allowed. It is possible that some of these trends will now be reversed.

In Sri Lanka traditional economists constantly repeat a call on the government to reduce expenditure and increase revenue. Both may prove impossible; it is untenable for political reasons to cut welfare or raise prices of essentials if the government wants to survive A second wave of Covid will make it utterly impossible. Increasing revenue can only be done by raising taxes on the rich and the super-rich; the government is quite unwilling to do this as it will anger its class and business base and those who financed its election campaigns. Even the Brandix fracas has put the current Administration in a bind because the multimillionaire Brandix is said to have financed its election campaigns.

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Deteriorating rural economy, and food security



Photo credit: Nefelibata travels

By Dr. C. S. Weeraratna

Sri Lanka is a land of villages. There are around 14,000 of them. According to the Dept. of Census and Statistics, around 80% of the Sri Lankan population live in villages and estates. Most of them are farmers who are supposed to be suitable to be kings if the mud on their bodies are washed out. According to recent estimates, about 30 percent of the total households, in therural districts of Sri Lanka, live below the poverty line. A socio-economic survey, conducted in the recent past, indicates that although the rural sector has the ability to engage in productive activities, there are many constraints.

Wild elephants:

Wild elephants roaming in some of the dry zone villages,causing death to many and destroying property, aggravate the socio-economic hardships the rural sector has to face, affecting their health, education and many other aspects of the lives.

Chronic Kidney Disease:

Around 70,000 people of the country are affected by a chronic kidney disease (CKDu) . They are mostly in the rural areas of the country and are affected socially and economically. The patients in the final stages of CKDu have to go for dialysis which again affects the economy of rural people . In some families both parents have died and their children are helpless.

Water shortage:

In spite of the country receiving around 100 billion cubic meters of water, annually, there are frequent water shortages, mostly in the rural areas where there are around 12,000 tanks. Most of them are silted, reducing the water holding capacity of these tanks, causing rural communities to face shortage of water which seriously affects crop production and various domestic activities.


Lack of reasonable transport facilities, in the rural areas, is one of the main setback to Sri Lanka’s overall prosperity. People living in some rural areas have to cross rivers, using inflated rubber tubes, as there are no bridges. A large number of rural roads remain in a dilapidated condition but, the authorities were more interested in constructing highways.


Fertilisers are a major input in crop production. During the last two cropping seasons, inorganic fertilisers, and pesticides, were not available due to the utterly foolish decision of the former government. Currently, fertilisers are available but they were not available at correct times.

Farmers are forced to obtain seeds at a high cost. For example, a kg of chilli seeds is around Rs. 170,000 and a kg of cabbage seed is sold at Rs 400,000 in the market.

Pest attacks cause considerable problems to farmers. Last year there was the sena caterpillar called “Fall Armyworm” (Spodopteria Frugipedera) which destroyed large extents of cultivated crops. According to press reports, the same pest destroyed thousands of hectares of maize in Ampara causing severe difficulties to the farmers. Brown Plant Hopper tends to destroy paddy.


Those farmers who manage to harvest the crop of rice/vegetables are unable to sell it for a reasonable price. Currently, paddy farmers are unable to sell their Yala paddy crop to cover the costs. Often vegetable farmers are forced to destroy their produce due to inability to market their produce at reasonable prices. Marketing of agricultural products, at a profit to the farmer, is an issue which the authorities need to take cognizance of.


Unemployment is rampant in the country. As a result of government-imposed restrictions on imports, commercial activities of thousands of companies are slowing down, seriously affecting the private sector in the aftermath of the COVID-19 pandemic. Most of those companies have been compelled to reduce employment, non-renewal of employment contracts, and halting new recruitments, resulting in an increase in unemployment. Thousands of workers, in the construction sector, have already lost their jobs. These business enterprises are currently facing liquidity issues due to a loss of revenue and difficulties in the importation of raw material. Thousands of SMEs have closed down mainly due to lack of inputs, resulting in an increase in unemployment.

As a result of these limiting factors, rural economy is deteriorating. For the success of any development programme to improve the rural economy, it is essential to address the problems of the rural communities. However, the previous governments did not give priority to these critical issues, faced by farmers, who continue to live in abject poverty as a result. Most of them have to pawn their jewellery, or resort to some other ways ,to obtain finances to obtain agricultural inputs, such as seeds, fertilisers, pesticides and labour. Some of them have become prey to micro-credit companies.

All these issues cause untold hardships to thousands of farmers and have a negative impact on the rural economy. No effective actions appear to have been taken, by the relevant authorities, to implement appropriate solutions to these problems, except appointing committees. Those representing the farming community, in the Parliament, appear to be not concerned about the plight of our farming population who have voted them to power.

There is no centralized planning in farming in the country which, sometimes, leads farmers to cultivating the same crop/s, ultimately resulting in gluts. Previous governments attempted to solve this problem by implementing programmes, such as Api Wawamu-Rata Nagamu and Divineguma. But we continue to spend nearly Rs.300 billion, annually to import food. If the authorities are genuinely keen to improve the rural economy, they need to address these issues.

Food Security:

Food Security is closely related to rural economy. According to the United Nation’s Committee on World Food Security, food security is at maximum level when all people, at all times, have physical, social and economic access to sufficient, safe and nutritious food, to meet their dietary needs and food preferences for an active and healthy life. According to World Food Programme’ s latest food security assessment, about three in 10 households (6.26 million people) in Sri Lanka are food insecure. Cost of essential foods has increased during the last few months hindering the population’s ability to consume nutritious food in sufficient amounts. The food security situation is worst among people living in the estate sector.

Nutritious food to meet the dietary requirements of people need to contain mainly carbohydrates, proteins, vitamins and minerals. The local production of carbohydrates (mainly rice and sugar), and proteins (fish and milk) is inadequate to meet the demand. Hence, these food items are imported. During the last few years, we have spent nearly Rs. 300 billion, annually, on food imports, although it has decreased during the last few months, mainly due to restrictions on import of some food.

Availability of rice locally has decreased mainly because of inadequate availability of plant nutrients (nitrogen, phosphorus and potassium) through inorganic fertilisers. This has caused large amounts of rice to be imported. There appears to be no effective programmes to increase sugar production in the country. About two decades ago, in the1990s, sugarcane was cultivated in about 25, 000 hectares. At present, only about 12,000 ha are under sugarcane. The sugar factory, in Kantale, remains out of production, for nearly 15 years.

Availability of fish and milk has reduced due to a number of factors which the government appears to be not taking appropriate measures to increase the production of these items. According to press reports, the government is planning to import cattle from India and Pakistan to increase local milk production. It is foolish to import cattle to enhance milk production in the country without implementing an integrated programme to upgrade local cattle, making available cattle feed and improving veterinary practices in the country.

In Sri Lanka, during the last two decades, perhaps a few thousands of research studies, related to food security, involving billions of rupees worth of scarce resources, have been conducted. It is important that we utilize these research findings to find solutions to the pressing problems of the country. But there appears to be no effective system to make use of the research findings. Lack of an integrated plan is a factor responsible for the decline in food security. There has been rhetoric on rural economic development during the last few years. It is meaningful and effective actions that are necessary.

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A first indication of readiness to go on a new path



By Jehan Perera

None too soon, President Ranil Wickremesinghe appears to be putting the brakes on the government’s policy of repression in dealing with public protests. His decision to initially sign the Gazette notification declaring key areas of Colombo to be High Security Zones was roundly criticised by human rights organisations including the Human Rights Commission of Sri Lanka. The business sector also complained that this decision which appears to have been made by the security establishment would be injurious to business. Revoking the High Security Zones made practical sense in view of the dubious legal basis of the declaration. The High Security Zones were to be set up under the Official Secrets Act which has hardly anything in common with the purpose of the new regulations.

The High Security Zone concept, which was practiced in the North and East of the country during the time of war, would have made it difficult for vehicles to even park on the roads without first obtaining special permission. There were also legal cases filed in the Supreme Court alleging violation of constitutional rights. The president would also have been aware of the resolution on Sri Lanka that is about to be presented for a vote at the UN Human Rights Council in Geneva. As many as 26 countries have agreed to co-sponsor the resolution, of which 10 are current members of the UNHRC. Sri Lanka is finding itself isolated in terms of human rights in the eyes of the international community which can have costly consequences in terms of reducing the international sympathy and support that the country needs at this time.

The president’s early resort to the security forces to clamp down on the protest movement came as a surprise as his prior track record would have suggested a more nuanced approach to dealing with public agitation. As a follow up to the revocation of the High Security Zones, the president needs to consider revamping government policy on addressing the protest movement. So far the government approach has focused on suppressing the protest movement, on the justification that it will destabilise the economy through strike actions and by chaos on the streets. However, in Sri Lanka’s democratic system a policy of repression is unlikely to be workable. A government that is reluctant to go to the polls must not use the security forces as its prop. The president’s withdrawal of the High Security Zones in Colombo may be understood as an acknowledgement of this reality.


There is general acknowledgement that the President is the most suitable for the task of negotiating with, and making the political case, for more international aid to come to Sri Lanka. During his recent visits to foreign countries he met with top world leaders and would have made his mark. However, it is also important that the president should make his mark on the Sri Lankan people. He needs to win the trust of the people who did not vote for him. Having consolidated himself following his election by parliament to be president, he needs to take a more pro-active role in addressing the roots of the protest movement and not simply quashing its manifestations. There is a need to inform the people what the government will be doing to directly address the terrible impact of the economic crisis on the poorer sections of the population.

There is a widespread sense that those arrested for being members of the protest movement ought not to be subjected to the heavy hand of the law. At the present time, both in Geneva and in Sri Lanka, government spokespersons are denying the severity of the problems that exists. Successive governments denied the excesses that occurred during the war period, both in Geneva and at home. In Sri Lanka the majority of the population were prepared to go along with the denials of war time excesses due to the nature of the ethnic conflict that pitted the ethnic communities against one another. However, a policy of denying the impact of the economic crisis on the poor will not be able to garner similar support from any community in Sri Lanka and will end up pitting the majority of people against the government, just as happened during the height of the Aragalaya.

A declaration of an amnesty for all those accused and arrested for being part of the protest movement would be an act of follow-up statesmanship considering the controversy these arrests are causing both internationally and nationally with the human rights groups and the general public. The ongoing arrests of some who have been part of the protest movement have been justified on the basis that they engaged in violence or supported it. Others are accused of having burnt down the houses of government ministers, including the president’s own ancestral house which contained his family library and valuable works of art. Some have been arrested without being charged before the courts.

Magnanimity, empathy and fairness are very powerful in binding the community together. This is an opportunity for the president to show his empathy with all those others who down the years have lost their own homes to violence, during the two JVP insurrections and during the long period of the ethnic war. The government plans to compensate its members who lost their houses. It needs to also compensate those who lost their lives due to government failure, the most recent being those who died standing in long lines, or when their substandard gas cylinders exploded.


At present, the government is denying the veracity of studies done by international organisations, including UN organisations, on the extent of the malnutrition and stunting that affects children. They are also denying the veracity of claims of corruption in the procurement of fuel and other large contracts, even in the midst of economic crisis. It is also doing little to ameliorate these problems. The government points to the restoration of reasonable supplies of petrol, diesel, cooking gas and electricity which can create an impression of normalcy, but only for those who can afford the much higher prices at which these commodities are available. The government denials of the unequal distribution of the burden will ring hollow with the masses of people, whose support is needed if the government is to govern in a stable political environment.

Instead of denying the existence of problems, the government needs to accept their existence and take measures to address them. This applies to both the problems within the country and that are being discussed internationally. It needs to recognise that its denials have got no traction in Geneva, which is why Sri Lanka has had to face nine resolutions, each one getting more difficult to respond to. The resolution that will be voted on in the UN Human Rights Council later this week will call for greater support for the UN’s evidence gathering mechanism that has already been set up and to provide more support to those countries that pursue universal jurisprudence for crimes committed by Sri Lankan political and military leaders anywhere in the world.

The government needs to use every opportunity it can to seek the support of the international community. With the draft resolution now presented, the eyes of the international community are upon Sri Lanka. While it is too late to change the draft resolution, which will be soon voted on, the government can still seek to restore goodwill among those that are pursuing the resolution on Sri Lanka at the UN Human Rights Council session in Geneva. An amnesty for those who participated in the protest movement could send a positive signal that the government is willing to heed the concerns of the international community regarding human rights and democratic freedoms. The possibility of amnesty to be part of a Truth and Reconciliation Commission in which there is acknowledgment of past violations, expression of regret and accountability for them can also be explored.

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Treaty for a Lost City – inconvenient facts or legal myths?



By Andrew Sheng
Asia News Netowrk

Is Hong Kong a lost city or being re-born after its baptism of fire? Hong Kong was always a “borrowed place, borrowed time”, to quote the legendary journalist Richard Hughes (1906-1984), immortalised in John Le Carre’s novels on the intersection of media and espionage in cities like Berlin or Istanbul located at the borderlands of great power conflicts. Having returned the city on 1 July 1997, can Britain hold China to the terms and conditions of the 1984 Joint Declaration with China?

Chinese University of Hong Kong Law Professor CL Lim’s book, ” The Sino-British Joint Declaration” is a meticulously researched legal history of how the Joint Declaration came into being and whether it still has the force of law on both parties. There is a presumption that the Joint Declaration granted democratic rights to Hong Kong. The legal story is much more complex. This book draws on the British National Archives and study of the Basic Law of the Hong Kong Special Administrative Region (1990), the International Covenant on Civil and Political Rights (1966) [ICCPR], United Nations Charter, etc., to lay out the facts and opinions for the reader to judge who is right or wrong.

Cities and states are defined by their Constitutions, communal values, geography, cultures and histories. Prior to 1841, Hong Kong was a barren rock that was indisputably part of China. Hong was ceded under the Treaty of Nanjing after the First Opium War (1839-42); but the expiry of the 99 year New Territories lease meant that Britain could not hold onto Hong Kong after 1997. The People’s Republic of China (PRC), following earlier Chinese governments, has never recognised any “unequal treaty” with the Western Powers, but adopted the face-saving principle that “a sovereign may delegate under international law such control or authority to another for a limited period.” Once that sovereignty is resumed, the PRC will not brook any interference in its internal sovereign matters.

This book reads like a series of Queen’s Counsel briefs, densely argued on complex and subtle points presenting different opinions and perspectives. In normal legal disputes, the arbiter would be an independent court, but there is no final decision between China and United Kingdom, which are the five members of the UN Security Council that can veto any rulings at the United Nations level. The only appeal left is to the court of global public opinion, which is today dominated by the English-speaking media. As media today becomes more and more ideologically driven, it is unlikely that deeply held views will be changed by legal or rational arguments.

The genesis of the Joint Declaration was the need to ensure a smooth return of Hong Kong to China. In 1983, when the New Territories lease (covering 92% of Hong Kong) was running out, Britain initially sought to renew the lease, but found that China under Deng Xiaoping was adamant that China would resume sovereignty over Hong Kong. With confidence slipping, the Hong Kong currency was under attack, only to be restored by a peg against the US dollar. This gave impetus to settle the terms and conditions of return. As the book painstakingly pointed out, British negotiators were operating from a weak hand, wanting to retain as much influence and economic benefits as possible post-1997.

As described in Chapter 3, democracy under colonialism was never part of the negotiations. Hong Kong representatives played no part in the discussions between two sovereign powers. The Joint Declaration itself did not mention the word “democracy”. It basically stated that the Hong Kong SAR “will enjoy a high degree of autonomy, except in foreign and defence affairs” (Article 2) and that rights and freedoms will be ensured by Hong Kong SAR law (Article 5). Since the Basic Law, HKSAR’s constitution, is PRC law, the final interpretation falls to the Standing Committee of the National People’s Congress, not necessarily by the Hong Kong Court of Final Appeals.

The real point of dispute lies in the National Security Law, which was passed by the National People’s Congress in 2020, after the Hong Kong legislature was unable to enact Article 23 of the Basic Law. As public disorder arose with violent protests, the practical issue was whether HKSAR government could handle them without a National Security Law. Hong Kong was uniquely handicapped because in every other international financial centre, there exists very draconian national security laws that protect the integrity and security of the financial system, economy and sovereignty. Hong Kong was deeply polarised. No compromise seemed possible, and continued protests and violence would have destroyed Hong Kong. Between a rock and a hard place, the National Security Law was the least painful alternative barring more physical violence.

Treaty on a Lost Place highlighted the absurd situation of two sovereigns signing one piece of paper having different points of view. Such constructive ambiguity papered over destructive alternatives. The last British Governor Chris Patten was successful in persuading some Hongkongers that one man-one vote was what they deserve. Whether that is a cure all for Hong Kong’s ill is another matter. That his Conservative Party leadership was elected opaquely by of British people shows that different systems may not always practice what they preach. Hong Kong elites failed to correct the injustices that many young faced in not providing them affordable homes with meaningful, well paid jobs. Beijing’s mistake perhaps was to trust that Hong Kong could on her own resolve these contradictions within the larger struggle between China and the West on many fronts.

A Treaty is only a piece of paper. A city is not lost to Britain or China, but lost in its own direction, which must be re-found. The answers will not be found in international law, because that is itself being rediscovered in a new age of multipolar contestation. This book is a major contribution to our understanding of how international law is only one of many guides to the future. Hong Kong has to rediscover her own identity inside a larger identity. That is the tragedy and opportunity facing all islands within the grand ocean of mankind.

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