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Idiot’s guide to global and domestic debt

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Immortal invisible god only wise

by Kumar David

“In light inaccessible hid from our eyes”, is a line from an 1867 hymn set to the tune of a Welsh ballad: it is not a quip about the mystery of global debt but it could well be. Economists don’t enlighten you on the nature and ubiquity of debt because they are muddled themselves. The eclectic hither and thither is recounted in The Economist’s ‘A new era of economics’ – 25 July 2020. There is no shared paradigm, laymen have to cogitate and pick up as best they can. Scientists, finicky about cause and effect cannot suppress the need to frame things in intelligible terms; see if you can pick up anything useful from this idiot’s guide to the ubiquity and explosion of global and domestic public and private indebtedness. Public or national refers to central and local governments. Private is corporate, non-central-bank, bank and household borrowing; the last includes mortgages, personal overdrafts and credit-card indebtedness.

There have been four stages in economic theology since the 1930s. The Keynesian gambit, the neoliberal (Friedman-monetarist) nightmare and the two post-2009 phases. Yes, two phases, the first till about 2018 and the second thereafter which accelerated with Covid-19. I say little on Keynesian macroeconomics or neo-liberalism; the former reigned from the Great Depression till the 1970s when it was invalidated by stagflation, and the latter, that is the neo-liberalism of Pinochet-Regan-Thatcher-IMF, gripped the world by the throat till the 1990s. The last nail in the coffin of dying neo-liberalism was the Great Recession (GR) of 2009-10; the last captain of that sinking ship, Tony Blair, earning himself the epithet Blatcherist. GR proved that unchecked free-market capitalism contained the germs of its destruction in its own DNA, collapsing under its own rationale.

The ratios vary from country to country. In the US Public Debt is about 100% of GDP but semi-Public Debt is small while Corporate and Private Debt are roughly 50% and 70% of GDP. In China Public Debt is not large (48% oh GDP) but Provincial Governments have run wild with infrastructure and waste, which summing up with household debt to over 200% of GDP. In Japan government, debt is 230% of GDP but corporate debt is below 10% and household debt is minimal. For Sri Lanka the big item is Public Debt; nearly 90% of GDP. It doesn’t sound bad, comparatively, but we don’t have the resources to service it.

A feature of the global economy since the 1990s is mounting debt, now astronomical public plus corporate debt, and in the run up to GR acute household mortgages. Strangely, no one asks: “If-all the world is in debt, who is the creditor? Who owns the loot? What the source?” Leaving aside the printing press, a substantive topic of this essay, there are two tangible sources; the enormous wealth accumulated in the hands of the ultra-rich (the “One-Percent”) and public savings in provident funds, social-security coffers and in Japan Post Office Savings accounts. The former is the surplus created by social labour appropriated by capital or siphoned into institutions called private equity, mutual and hedge funds and into mighty investment banks. Maybe half Lanka’s foreign debt is owned to these money-market funds, the other portion to multi-lateral agencies IMF, ADB and World Bank and foreign governments, mainly China and its state banking arms. The point I am driving is that the people of the poor half of the world are deeply in hock to the moguls of international finance capital, including the mighty One-Percent.

The first period of the post-GR phase which lasted for a little less than a decade was characterised in metropolitan centres by measures intended to revive economic growth. Credit was created by central banks (US Fed, EU’s ECB, Japan’s BoJ and limping along, the Bank of England) by the shipload and pumped out to Treasuries, or by purchases of corporate bonds, or shoved into bank vaults. The hope was that there would be investment, growth and employment. It fell flat on its face. Though employment did pick up a bit for reasons too long to detail here, production-capital did not take the ball and run. Instead finance took the money and put it into shares (equities), commercial property and Treasury Bonds, creating an asset bubble.

Central bank money did not go into economic activity; it was siphoned through the ultra-rich into the asset bubble, that is the rich got richer. For this reason, demand for goods and services did not grow (how many bottles of Premier Cru can a millionaire imbibe?). Sans demand, economic growth did not take off in the US, Europe or Japan, hence inflation was stuck below 2% and the economy did not fire up (if inflation escalates, the economy exudes full employment and output is near capacity-output they call it “heating up”). Economic misery in the lower orders created anger and populism (Occupy Movements and radical fundamentalisms). Outrage at the rich getting richer and everyone else getting poorer also triggered the Trump Base, the grip of Marine Le Penn, the popularity of Nigel French, Brexit, near fascists Hungary’s Victor Oban and Poland’s Andrzej Duda, and Hindutva’s Muslim-hating Amit Shah and Narendra Modi. In sum the first phase of post-GR intervention was neither an economic success nor was it politically soothing, it was a failure.

Enter the second post-GR stage starting in 2018 but fouled up and drowned by covid-19. The world’s ruling powers had to take note that growth was not picking up, political resentment was swelling, inflation doggedly low and interest rates peering into the moat of negativity. Then corona hit! It summoned gigantic “stimulus” packages; in the domain of economic theory four schools of were jostling for space.

 

MMT (Modern Monetary Theory)

MMT is really odd in the eyes of regular economists; I too find it difficult to digest. Were I to exaggerate but only a bit, the theory says print money, print as much as you like, it won’t and it can’t do harm. Governments should not break their heads about deficits, central banks should not let inflation fears hold them back, they should create stimulus money by the bathtub and pour it into investment markets; household should party late into the night. The argument is that by turbo charging the economy with cash, productive activity will take off and rising output will defeat the demon of galloping inflation. The more serious-minded supporters of this school want to keep it going only till inflation and growth pick up and unemployment falls sufficiently, then slacken. But I am not persuaded. When inflation hits it hits fast and hard. Governments and the unwary, soaked in debt, will be overwhelmed by rapidly rising interest rates which will drive them to bankruptcy. Going in search of a free lunch is never unproblematic.

 

Fiscal splurge driven  strategies (FS)

The more conventional last-ditch efforts are Fiscal Splurge (FS) and Monetary Control (MC). The former is the de facto method employed, whether consciously named FS or not, in broke, crisis driven, debt wracked or plain basket economies. While these pejoratives do not all apply to Lanka, some do. The bottom line is that in poor countries with high populist expectations, or enjoying electoral democracy that can oust politicians, governments if they wish to survive, have no option but to resort to fiscal deficits. That is spend more than their revenues to keep the masses stoned, an alternative opiate to religion. In a debt-intoxicated country this means monetary policy and fiscal policy have to merge, the former becomes a service provider to the latter; Prof Laxman transmutes into front office receptionist for President and PM.

In the long-term fiscal profligacy has disastrous consequences that are so well-known that I don’t need to dwell on the it here.

 

Monetary control and manipulation (MC)

This is typical of the EU; the US is a mix of FS and MC. With MC power rests in the hands of the central bank not government, finance ministry or treasury – FS is the other way round. The prime example of MC is the European Central Bank, I dare say with the Bundesbank breathing down its neck, which drives a chariot whose lowly drays are individual EU governments. BoJ too is not a sub-contractor of the Japanese government. The Reserve Bank of India tried to talk big in the era of Raghuram Rajan but Governors and the Bank have since been cut down to size. Central banks in dominance use interest rates and money supply to manage inflation with an eye on the side turned towards employment and growth.

 

Restructuring (social concern or state-led)

This is an outlier in a discussion of how capitalist economies (including Scandinavian version) are struggling to cope with explosive debt, income and wealth gaps, and retain social instability. The two key concepts in understanding this fourth option are restructuring and involvement of the state. State-led, but market sensitive and capitalism-accommodative, one party China seems an obvious prototype but it is not an exemplar because this essay is focussed on capitalist (the majority) nations of the world. An imagined President Bernie Sanders Administration in the US is a hypothetical example of this option. I don’t need to explain how this will be different from the US we know, but the point of this essay is that US national debt is large and will be larger in the hypothetical case. At the moment in the debate about coping with a belly-up economy, staggering stimulus packages are on Congress’ table – the Republicans want to cap it at $2 trillion, Democrats to push it up to $3 trillion. Hypothetical Bernie and his Squad will make it larger.

Whatever the version, stimulus money will be part channelled to government (Treasury Bond purchase) and a comparable sum will be siphoned into corporate bonds and private assets. Soaring debt will undermine faith in America’s ability to measure up to its commitments and will damage faith in the dollar as the world’s reserve currency. Debt has come to stay in every corner, an unwelcome guest determined to hang on till there is a global transformation. Sri Lanka is a footnote to the story.



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Solidarity and Aragalaya: A few thoughts from an educationist’s perspective

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by Harshana Rambukwella

Very little in Sri Lanka at the moment inspires hope. We are facing an existential crisis that was inconceivable just six months ago. Sri Lanka is also, ironically, just a year away from marking the 75th year of its independence. As we reflect on these seven decades of postcolonial nation building, and as we confront a future of extreme precarity, our scorecard as a country is not a proud one. Much blood has been spilt in the name of postcolonial nation building and the ethno-nationalist conflict that shaped almost three decades of that history and two youth rebellions against the state speak to a history of division and enmity. While our current predicament cannot be entirely attributed to this conflictual history alone, it surely played more than a small role in shaping our present misery. It is within this context that I want to offer this brief set of reflections on what I feel is an unprecedented form of solidarity that has emerged in Sri Lanka as the aragalaya took shape. While I do not want to romanticize this solidarity because it is a highly contingent phenomenon and is shaped by the extreme nature of the current political and economic conditions, it offers us as a society, but more specifically as educators, something to reflect on as we try to imagine our role in a society that faces a painful process of rebuilding and recovery (though my hope is that such rebuilding and recovery does not mean the repetition of the tired old neo-liberal script we have followed for decades).

Before I explore what I mean by solidarity within the aragalaya, let me briefly reflect on solidarity as a concept. Solidarity is a term sometimes deployed in geopolitics. Particularly in this time of global turmoil where not just Sri Lanka, but many other countries are experiencing serious economic challenges, we see nations expressing solidarity with or towards other nations. However, such solidarity is almost always shaped by instrumental motives. This is what we might call a form of ‘vertical’ solidarity where more powerful and wealthy nations extend a ‘helping hand’ to their more unfortunate counterparts. Therefore, when India says ‘neighbourhood first’ and expresses solidarity with Sri Lanka in this time of trouble one can easily discern this as a hierarchical gesture shaped by instrumental motives. It is in reality, India’s strategic geopolitical interests that largely dominate this narrative of solidarity though one cannot disregard the critical importance of the assistance extended by India and other such ‘powerful’ nations in this time of national distress.

Another form in which solidarity manifests is through what some scholars have termed ‘enchanted’ solidarities. This is literally and metaphorically a distant form of solidarity where intellectuals, activists and others extend solidarity towards a struggle they perceive as deserving their support but without truly understanding the context in which they are intervening. This has often happened with ‘first world’ academics and intellectuals expressing solidarity towards ‘third world’ struggles which they felt were ideologically aligned with their beliefs. One example is how many liberal and leftist intellectuals supported the rise of the Khmer Rouge in Cambodia, believing it to be an anti-imperial liberation movement, only to become disillusioned with the movement as they began to see the full horror of the repression and violence unleashed by the Khmer regime. I think if we reflect on Sri Lanka’s postcolonial history, we can also find many such moments where enchanted solidarities were expressed towards various movements from people in the ‘metropolitan’ center with little understanding of the nuances of the politics on the ground.

Premised against both vertical and enchanted solidarities, scholars have also proposed what is called ‘disenchanted solidarity’. By this they mean a situation where diverse groups, sometimes with very different political and ideological agendas, come together to fight for a common cause. They are often critically conscious of their differences but face a common precarity that pushes them together to struggle and align in ways that were not possible before. Often such moments are also underwritten by anger, though the sources of anger or the objects towards which the anger is directed could be different. I would like to read the aragalaya through this lens of disenchanted solidarity. Particularly at the height of the Galle Face ‘Gota go gama’ protests – before the brutish May 9th attack symbolically ‘killed’ something of the ‘innocence’ of the struggle – there was a sense in which the different groups represented in that space were expressing solidarity towards a singular goal – getting rid of the Rajapakasas and a political system they saw as deeply corrupt – there was anger and a gathering of disenchanted solidarities. For many middle-class people, the aragalaya was a way in which to express their frustration at the lack of the basic necessities of life – be it gas, electricity and fuel – and how a corrupt political class had robbed them of their future. For those with longer histories of political activism such as the IUSF (the Inter University Students Federation) or youth activists from the Frontline Socialist Party or the JVPs youth wing or the many trade unions that supported the aragalaya, this moment in some ways represented the culmination, and perhaps even a vindication, of their longstanding struggles against a political, social and economic order that they consider fundamentally unfair and exploitative. Of course, within this larger narrative, there were and continue to be pragmatic political calculations, particularly from groups affiliated with political parties. At the same time, we also witnessed ethnic and religious minorities, often historically marginalized in Sri Lanka’s social and political mainstream finding a rare space to express their anger at the ways in which they have been discriminated against. However, the argalaya gave them a rare space to do so by channeling their anger as a form of solidarity towards the common goal of getting rid of the Rajapaksa dynasty and the corrupt political system as a whole.

But at the same time, we also saw the tenuous nature of these disenchanted solidarities in the aftermath of the 9th May attack on ‘Gota go gama’. Initially we saw another spectacular display of organic and spontaneous solidarity when health workers and office workers abandoned their workstations and rushed to ‘Gota go gama’ when news of the attack broke. But by the evening of that day the story had turned more insidious with a wave of attacks against the properties of politicians and others thought to have been involved in the attack against the peaceful aragayala participants. While we may understand and even empathize with this backlash, its violent nature and what appeared to be other instrumental motives driving it, such as the looting and revenge attacks, made it difficult to associate it with the moral principles that had animated the aragalaya thus far.

Thereafter, at the current moment I am writing, the aragalaya also appears to have lost some of its vital energy as the political configuration has shifted and the tragi-comedy of Sri Lanka’s realpolitik with its underhand deals and political mechanizations seems to have regained the upper hand.

However, what does this mean? Does it mean post May 9th the aragalaya has lost its meaning and purpose or can we push our analysis a little deeper. At this point I would like to introduce one final way in which scholars have discussed solidarity which I feel is appropriate to understand the aragalaya and the spirit that underwrote it and continues to underwrite it. This is what some scholars have called ‘deep solidarity’ – a situation where in today’s neo-liberal context where the vast majority of the population come to a realization of their common social and economic predicament and realize their common enemy is the symbolic ‘one percent’ or an insidious nexus between crony capital and political power that disempowers them. This is of course an idealistic conception but one which I feel holds true at least partially to this moment in Sri Lanka. People from widely varying social and economic strata, from different religious persuasions and people with wildly different ideological and political beliefs have been suddenly pushed together. They are all standing in the never-ending petrol and diesel queues, they are desperately hunting for the next cylinder of gas and increasingly many of them are going hungry. The privileges and the divisions that once defined them, no longer seem to be so ‘real’ and the one stark reality confronting them is a form of existential annihilation. I believe within the aragalaya we can glimpse traces of this deep solidarity and as an educationist I think it is our vital task to think of creative ways in which we might sustain this solidarity, grow it and nurture it, so that we can at least ‘imagine’ a better future. These are idealistic sentiments, but at least for me, such hope, is a political and pedagogical necessity of the current moment.

Harshana Rambukwella is attached to the Postgraduate Institute of English at the Open University of Sri Lanka

Kuppi is a politics and pedagogy happening on the margins of the lecture hall that parodies, subverts, and simultaneously reaffirms social hierarchies

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No solutions to nation’s problems from draft constitutional amendment

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by jehan perera

The three-wheel taxi driver did not need much encouragement to talk about the hardships in his life, starting with spending two days in the petrol queue to get his quota. He said that he had a practice of giving his three children a small packet of biscuits and a small carton of milk every morning. But now with the cost tripling, he could only buy one packet of biscuits and his three children had to share it. This is because their beloved country is facing one debacle after another for no fault of those kids or the larger nation. The latest is the failure of the government to make headway in accessing either IMF funding or other funding on any significant scale. Several countries have made donations, but these are in the millions whereas Sri Lanka requires billions if it is to come out of its vicious cycle of a dollar shortage.

There was much anticipation that the appointment of Prime Minister Ranil Wickremesinghe would bring in the billions that are desperately needed by the country if it is to obtain the fuel, food and medicines to keep the people healthy and the economy moving. But things have not worked out in this manner. The pickings have been slim and sparse. The IMF has given the reasons after the ten day visit by its staff to Sri Lanka. They have specifically referred to “reducing corruption vulnerabilities” in their concluding statement at the end of their visit. The international community in the form of multilateral donors and Western governments have prioritized political stability and a corruption-free administration prior to providing Sri Lanka with the financial assistance it requires.

The pressing need in the country is for the government to show there is political stability and zero tolerance for corruption in dealing with the prevailing crisis. It is not enough for government leaders to give verbal assurances on these matters. There needs to be political arrangements that convince the international community, and the people of Sri Lanka, that the government is committed to this cause. Several foreign governments have said that they will consider larger scale assistance to Sri Lanka, once the IMF agreement is operational. So far the government has not been successful in convincing the international community that its own accountability systems are reliable. This is the main reason why the country is only obtaining millions in aid and not billions.

INDEPENDENT COMMISSIONS

The draft 22nd Amendment that is now before the parliament (which will become the 21st Amendment should it be passed) would be a good place for the government to show its commitment. The cabinet has approved the draft which has three main sections, impacting upon the establishment of the constitutional council, the powers of the president and dual citizenship. However, the cabinet-approved draft is a far cry from what is proposed by the opposition political parties and civil society groups. It is watered down to the point of being ineffective. Indeed, it appears to be designed to fail as it is unlikely to gain the support of different political parties and factions within those parties whose support is necessary if the 2/3 majority is to be obtained.

In the first place, the draft constitutional amendment does not reduce the president’s power in any significant manner. The amendment is drafted in a way that the reduction of presidential powers will only occur with the next president. The president now in office, who has publicly admitted failure on his part, continues to be empowered to appoint and sack the prime minister and cabinet ministers at his arbitrary discretion. He is also empowered to appoint and dismiss the secretaries to ministries, who are the highest-ranking public service officials. In short, the executive arms of the government are obliged to do the president’s bidding or risk their jobs. This indicates the Prime Minister Ranil Wickremesinghe, whose party has only a single seat in parliament, has no independent strength, but is there at the will and pleasure of the president.

In the second instance, the draft amendment was expected to set up a system of checks and balances for accountability and anti-corruption purposes. The pioneering effort in this regard was the 17th Amendment of 2001 that made provisions for a constitutional council and independent commissions. According to it, the members of all state bodies tasked with accountability and anti-corruption functions, such as the Bribery and Corruption Commission, the Human Rights Commission, the Police Commission, the Public Service Commission and the appointees to the higher judiciary were to be appointed through the constitutional council. The 17th Amendment made provision for seven of the ten members of the constitutional council to be from civil society.

DEATH BLOW

Unfortunately, in a manner designed to deal a death blow to the concept of checks and balances, the draft amendment sets up a constitutional council with the proportions in reverse to that of the 17th Amendment. It reveals a mindset in the political leadership that fears de-politicisation of decision making. Seven of the ten members will be appointed by the political parties and the president in a way in which the majority of members will be government appointees. Only three will be from civil society. This ensures a majority representation in the Council for government politicians, and the ensures government dominance over the political members. The composition of the constitutional council proposed in the Bill undermines the independence of the institutions to which appointments are made through the Council who will be unable to stem the wildly growing tide of corruption in the country.

It is no wonder that the furious people in the endless queues for petrol and diesel should believe that there is corruption at play in the continuing shortage of basic commodities. The government promised that ships would come in laden with fuel a week ago. Then, inexplicably, the information was disseminated that no ships were on the horizon. In any other country, except in a country like no other, the concerned leaders would have resigned. Due to the lack of fuel, perishable farm produce rots in rural farmhouses and markets in urban centres are empty and prices are rocketing up. In the meantime, the media has exposed rackets where the privileged, politically powerful and super rich, are given special access to fuel. It is patently clear that the government has failed to deliver on the results that were expected. The situation is getting worse in terms of corrupt practices.

To the credit of the Sri Lankan people, they are being patient. The bonds of social solidarity still prevail. But the anger at the self-seeking and incompetent political leaders is reaching the boiling point, as it did on 09 May. President Gotabaya Rajapaksa pledged to set up an interim government in consultation with party leaders in parliament. However, he did not do so but appointed UNP leader Ranil Wickremesinghe as Prime Minister and thereby ended efforts of other parliamentarians to form a national unity government. The president’s pledge, made in the aftermath of the cataclysmic and unexpected violence that took place that day, was to reduce his presidential powers, transfer those powers to parliament and to appoint an all-party and interim government of no more than 15 ministers. These pledges remain unfulfilled and need to be implemented to be followed by elections as soon as the situation stabilises.

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Kehelgamuwa’s football skills and President Premadasa’s political sagacity

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By Hema Arachi

T.B. Kehelgamuwa, the cricketer who needs no plaudits from anyone, is well known. He represented then Ceylon and, later, Sri Lanka as a fearsome fast bowler during the pre-Test era. His contemporaries still talk about Kehel with great respect. Once S Skanda Kumar, the well-known cricketer, cricket commentator and former High Commissioner for Sri Lanka to Australia, proudly told me about his playing cricket with Kehelgamuwa. Bandu Samarasinghe, a Sri Lanka film star, on a TV programme vividly demonstrated how he faced Kehelgamuwa in a Sara Trophy game. That was the top-level tournament in the country.

This note is to share my watching Kehelgamuwa playing soccer when he was not so young. Then, though his grey hair was visible, he ran fast and played hard like a teenager. This was during President Ranasinghe Premadasa’s tenure. Returning from The Netherlands, after my postgraduate studies, I lived in Pelawatta, near the Sri Lanka Parliament and my workplace – International Irrigation Management Institute headquarters. I used to enjoy walking on Parliament grounds. That day was unique because the game between the President’s soccer team, comprising parliamentarians, and the Sri Lanka Police team, was played there.

President Premadasa was well known for his political sagacity, especially in manipulating any situation in his favour. For instance, the day Anura Bandaranayake became the Opposition Leader, Premadasa, praised Anura stating, “Anura is the best Opposition Leader we have.” He further requested that Anura join the ruling party and become a minister and also marry a girl from a prominent ruling party family. But within weeks, he was critical of Anura. One day an Opposition member asked him, “You said Anura was our best Opposition leader a few weeks ago but now criticise.” His reply was this: “Yes, I said so because Anura is the best Opposition leader for us, the ruling party, not for the Opposition. For the Opposition, the best leader is Sarath Muththetuwegama!”

A few weeks before the scheduled encounter between the Parliamentarians and the Police football team, there was a game between the Parliamentarians and the Colombo Municipality team. Premadasa captained the Parliamentarians and kicked the winning goal. I remember a cartoon in a newspaper where the Municipality team goalkeeper withdrew so that Premadasa could score the goal at his will.

During the game against the Police, Premadasa did not play but visibly played the role of the coach of the Parliamentarian team. Unlike the Municipality players, the Police played the game seriously. Kehelgamuwa represented the Police team that scored five goals by halftime, and the Parliamentarian team was nil. At halftime, Premadasa replaced the Parliamentarian goalkeeper with Jayawickerama Perera. Yet, the Police team recorded a sound victory.

I thought Premadasa was upset due to this defeat for his team. But no. Premadasa claimed victory: “I am happy that my team won the game by beating the Parliamentarians today! Being the Executive President, I do not belong to the Parliament. However, as the Commander-in-Chief, the Police come under my purview, so my team won today!”

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