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The economic crisis and the crisis of economic thinking



Dr. Dayan Jayatilleka

Who says the economic crisis cannot be dented? The prerequisite is that the austerity approaches of both the militarist-ultranationalist GR regime and the ‘IMF plus debt consortium’ option of the neoliberals, are rejected. An out-of-the box, but hardly unique approach is needed.

The present economic epidemic can be dented by a ‘double-vaccination’ alternative policy:

(A) Cut the ‘bloat’ of the Defence budget. There is hypertrophy, if not metastasis, of defence spending. Bring defence expenditure to the level of sufficiency in peacetime. Reassess and right-size it.

(B) Increase appropriately the direct taxes (not transferrable to the consumer) on the biggest corporates and wealthiest citizens. If anyone thinks that’s my residual radicalism rising, they’ve not read US President Joe Biden and more especially, US Treasury Secretary Janet Yellen.

Rural Resistance

Sri Lanka’s agrarian crisis was not caused by the Covid-19 pandemic. It was the result of deliberate presidential policy which could have been abandoned at any point, but has not.

Unlike India, Sri Lanka after Independence never had a rebellious peasant movement, though it has a long history of peasant associations. The sole exception was when a peasants struggle was led (in Anuradhapura, I think) by the All-Lanka Peasants Congress (‘Samastha Lanka Govi Sammelanaya’) led by Ariyawansa Gunasekara of the Communist Party.

That struggle ended in a very Ceylonese way. The highly literate, brilliantly articulate (and witty) young cadre sent fresh from the university by the Communist Party to ideologically guide the struggle, Tissa Wijeratne, and the daughter of the rapacious large landowner the peasants were rebelling against, fell in love and married– and that was that.

All that’s ended, gone with the wind, thanks to President Gotabaya Rajapaksa’s incredible agrarian policy of a shock ban, nationwide, on chemical fertilizer, weedicide and pesticide.

His stand on this flies in the face of scientific evidence as well as of political good sense.

The smartest and toughest-minded of rulers, Lenin, reversed his agrarian policy twice. The first-time round was when, just before the Revolution, the Bolshevik party abandoned its peasant program of collectivization and literally stole the far more moderate peasant program, sensitive to the needs of the individual peasants, of its political rival the Socialist-Revolutionaries (the ‘SRs’).

The second time is better known. When the tight economic policy of War Communism which included forced requisitioning of grain by the Red Army to feed the citizens of the cities, exploded in the Kronstadt rebellion (which was suppressed by Trotsky), Lenin swiftly adopted the New Economic Policy (NEP) which liberalized the economy and enabled peasant prosperity.

Vietnam’s Ho Chi Minh, a strong and sagacious leader also reversed the harsh agrarian policy of his comrade Truong Chinh, and won back the peasantry. Then of course there is Deng Xiaoping, who kicked-off China’s economic miracle by liberalizing the rural economy and facilitating prosperity in the countryside.

The lesson is that the toughest leaders who were also the smartest, never went against the peasantry and when they found they had done so, unhesitatingly reversed course and beat a retreat.

The fact that Sri Lanka’s rulers think they know better, and don’t have to do likewise, tells us, the peasants and the world, a great deal about them. What makes them think they are immune to the political and socioeconomic fate that even Lenin wished to avoid, sure beats me.

The answer may lie in a specialized field of medical knowledge in which I have neither training nor experience and therefore will not venture into.

Gamani Corea-Godfrey Gunatilleke-Lal Jayawardena Tradition

It is not only the discourse of the regime’s policy elite in all domains that are embarrassingly outdated in translation into any universal language. The anti-regime neoliberals, writing in English, are no less embarrassing by international standards.

The latest issue of The New Yorker (October 8th 2021) carries in the Annals of Inquiry column, essay entitled ‘Is it time for a New Economics Curriculum?’ and introduces “‘The Economy’ a new textbook, is designed for a post-neoliberal age”.

Sri Lanka’s neoliberals, most conspicuously but not only the economists, just do not know that it is a “post-neoliberal age”. Their writings and pronouncements show that they still live in a time-warp of a unipolar post-Cold War world of free-market neoliberal globalism. For them the Great Recession of 2008 never happened and even if it did, it may no difference to their theoretical and policy constructs.

During the Great Recession of 2008, I was the elected Chairman of the ILO in Geneva, and had the privilege of working with ILO Director-General Juan Somavia, in launching the Decent Work agenda globally, starting with an event in Portugal hosted by the Socialist Prime Minister. As Chilean ambassador/Permanent Representative to the UN in New York, Somavia had organized the 1995 UN Social Summit in Copenhagen which already intellectually upended the neoliberal-globalist ideological construct that most Sri Lankan economists continue to adhere to and advocate.

In 2008 we worked closely with UN General Assembly President Miguel D’Escoto, former foreign minister of Sandinista Nicaragua, who came over to Geneva. He had appointed a Commission to report on globalization and the crisis, chaired by Nobel prize winner Joe Stiglitz, former chief economist of the World Bank.

Geneva was a town in which Dr Gamani Corea, former Secretary-General of UNCTAD and later, head of the South Center was remembered with great respect. Whether it was in my work as ILO Chairman, or a Vice-President of a UN Human Rights Council or Ambassador to the Conference on Disarmament, a cluster of Sri Lankan names kept cropping up: Gamani Corea, Godfrey Gunatilleke, CG Weeramantry and Lal Jayawardena. Miguel D’Escoto, a former Catholic priest of the Maryknoll order (during and after the 1979 revolution even as Foreign Minister, he was “Padre Miguel”), held Fr. Tissa Balasuriya in high esteem. Prof Emeritus of International Law at Princeton, Richard Falk asked me for Godfrey Gunatilleke’s email address to renew his old acquaintance.

Which is why I am amused at those rightwing economists who mention Gamani Corea without mentioning Godfrey Gunatilleke, which is rather like mentioning Karl Marx and associating his name with someone other than his co-thinker Fredrick Engels. Certainly, in Geneva and Paris, the Sri Lankan economist mentioned with the most respect together with Gamani Corea and Godfrey Gunatilleke, is the late Dr Lal Jayewardena, student of Eric Hobsbawm and Director of the World Institute of Development Economic Research (WIDER) in Finland.

It is also ridiculously illogical for those who detest and revile the Raul Prebisch-Gamini Corea tradition and sanctify Dr. Corea’s antipode in Sri Lanka’s economic policy-making, BR Shenoy, to take it upon themselves to classify one of their free-market/free-trade co-thinkers and academic heroes in the same category as Gamani Corea, while ignoring both Godfrey Gunatilleke and Lal Jayawardena.

Devaluing Premadasa

Contrary to Colombo’s rightwing economists, President Premadasa’s most noteworthy developmental contribution was NOT a deepening or ‘second wave’ of liberalization. Non-sequential fusion of rapid growth with social upliftment and equity was.

Janasaviya, the housing programme, redistribution of state lands free to the landless, free schools uniforms, free mid-day meals for schoolchildren, strict conditionalities on labor conditions (air-conditioning, free meals including buns at teatime, etc.) imposed on the 300 garment factories program in exchange for state bank loans, and the 15,000 projects program, provide empirical evidence.

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Economic crisis: SLPP MPs who endorsed tax concessions also responsible -Kiriella



By Saman Indrajith

The SLPP MPs who did not oppose President Gotabaya Rajapaksa granting a 681-billion-rupee tax concession to big companies were also responsible for bankrupting the country, Chief Opposition Whip and Kandy District MP Lakshman Kiriella told Parliament yesterday.

Kiriella said that Gotabaya Rajapaksa had granted tax concessions to big companies that funded his election campaign and that had contributed to the country’s bankruptcy. “The Supreme Court determination has pointed out that the decision to please mega companies resulted in a loss of Rs 681 billion to the national economy. The MPs who were in the SLPP then should have opposed it.

They did not do so. As such they too are responsible for this crisis.

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Godahewa says President by his erratic behavior has become misfit to run country



Dr. Nalaka Godahewa

Member of Parliament Dr. Nalaka Godahewa says that even in this budget, the President’s plan to break a part of the opposition has failed. He said so at a recent press conference held at the Nawala office of the Freedom Janata Sabha on the budget and the current political situation.

“We are in temporary relief like a debtor who hides until the police catch him for not paying back the debt to the creditors. To tell the truth, we are on top of a volcano. Even if the future is not planned properly, even if it happens in early 2022, this crisis is going to explode in a more terrifying way.

Therefore, basically, what we expected from the budget was:

* How can the government reactivate the economy and push for growth?

* How can the government bail us out of the debt trap?

Here are the answers to these problems.

But instead of a budget that will reduce the debt burden of the country and reactivate our economy, the President presented a budget that will increase the country’s expenses further. Instead of reducing the debt burden of the country, which consists of some kind of election gundu (handout) to please the people, it will greatly increase the debt burden. In short, this was presented not as a budget but as a series of loans.

The estimated expenditure of next year is 6978 billion rupees. Let’s say roughly Rs 7000 billion.

It was during the last year before we faced the crisis that is 2021. The actual annual expenditure was 3851 billion rupees. Let’s say approximately 4000 billion rupees.

So, the government is waiting to spend 3000 billion more than before the crisis. The cost increases by 75%.

But the country’s economy has not developed during this time. It has continuously contracted in these three years. We said that we increased taxes and increased government revenue, but we got that tax revenue by robbing the people and businesses of the country.

According to the government’s estimates, the income that can be earned this year is only 4000 billion. In that case, another 3000 billion will be added to our debt burden.

So in such a situation, can the government’s economic differentiation be justified?

That is why we voted against the budget.

During the presentation of the budget and afterwards, the President said several times that 2024 is an election year. He hinted that not only the presidential election but also the general election is likely to be held. I believe that when Chanda Gundu prepared the budget, he might have been waiting to do so. But the final result of the budget was not what the President was waiting for.

He waited and waited to see if a certain group of the opposition would be able to join the government during the budget poll. He also hoped that a large number of the opposition would be abstain from the vote. We have heard that some members of the opposition had discussed this with his agents. But in the end, the government received fewer votes than it received during the previous domestic debt restructuring. Many MPs from the opposition who did not participate at earlier votes came that day and voted against the budget.

This is a kind of personal defeat for the President. He hoped that this time SJB would split. In order to go to the polls without the Rajapakses in the future, it is essential for him to gather a certain group of MPs from opposition. But this final vote proved that it is still just a dream.

Now he cannot bear this. He can see that the SJB team is very strongly with the opposition leader today. He thinks that is because of the influence of the independent groups in the opposition. He thinks that the main opposition, which abstained from voting against the IMF agreement when it was first brought to parliament, is now continuously voting against his economic program because of our influence. That is why yesterday he insulted me and Mr. G.L. Peiris by name in the Parliament. As the opposition leader said, we understand the President’s mental discomfort. He is in a difficult situation. But we have nothing to do with it. We continue to advocate for the economic philosophy we believe in. Fortunately, it seems that the leader of the opposition also stands for the social democratic economy that we believe in. That is why his group has taken a strong stand against the budget without falling into the trap set by the President.

Recently, the President came and spoke twice in Parliament. The first time he got into an argument with the leader of the opposition and left the debate midway. He came to Parliament again yesterday and got into a long argument with the leader of the opposition. In my opinion, the President suffered a defeat on both occasions. So I wonder why this President comes to the parliament in this way and gets involved in debates demeaning his position.

Perhaps as the person who has continuously represented the Parliament for the longest time, he is bored without coming to the House. But I think that he misses a lot of work that needs his attention. As the President is also the Finance Minister and Defense Minister of the country, he has a lot of work to do on a daily basis. But what he is doing is enjoying himself like the retired presidents of America by giving lectures on all necessary and unnecessary topics inside and outside the parliament, traveling all over the world. If this is what he wants to do, then he must appoint a full-time finance minister.

The problem of this government is its inability to implement the policies, more than the fault of the policies.

On the one hand, the government is talking about the need to develop industries, while on the other hand, by increasing the electricity bills, it is making it difficult for industries to function.

On the one hand, the government is talking about the development of small and medium enterprises, while importing even eggs from abroad.

The people are not able to bear the cost of health, and at some time they are preparing to introduce the 18% VAT which will affect the health sector as well.

The left hand does not know what the right hand is doing. Look at the cricket board dispute. The minister says one thing, the president says another.

Now, this country needs an honest agenda.

What we need now is an integrated economic development plan. This country cannot be rebuilt with unrelated proposals like throwing stones at the mango tree, thinking that a mango will fall by some luck.

This country needs proper leadership. It is not a government that depends on a single person, but a unity of a group of skilled leaders is needed. We need an honest, skilled, and experienced group dedicated to rebuilding the country.

We need a team with an understanding of economics. We need a team that understands the ground reality. We need a team that understands the strengths and weaknesses of the government as well as the private sector.

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MR blames economic crisis on Yahapalana leaders



Mahinda Rajapaksa

SLPP leader Mahinda Rajapaksa yesterday (28) hit back at critics, claiming that a robust economy had been built under his presidency. He said the UNP-SLFP government which ruled the country during the 2015-2019 period should be held responsible for the current economic crisis.

The following is the text of a statement, titled ‘the origins of Sri Lanka’s economic crisis’ issued by former President Rajapaksa: “A heated discussion is now taking place about those responsible for the present economic crisis. The Central Bank reports will show that during my nine years as President, economic growth averaged 6% a year during the four war years, from 2006 to 2009, and it increased to 6.8% in the five post-war years, from 2010 to 2014. Hence Sri Lanka’s per capita GDP increased threefold from USD 1,242, at the end of 2005, to USD 3,819 by the end of 2014. The contribution that my government made to Sri Lanka’s per capita GDP was well over twice that of all other post-independence governments, from 1948 to 2005, put together. Though the per capita GDP came down to USD 3,474 in 2022 as the pandemic caused the economy to contract, that statement remains valid to this day.

The debt to GDP ratio was a very healthy 69% at the end of 2014 having being brought down from 90% at the end of 2005. The All Share Price Index rose from 1,922, at the end of 2005, to 7,299 by the end of 2014. This economic boom was achieved despite the war, the global food crisis of 2007, the global financial crisis of 2008-2009 and the highest crude oil prices in world history. Crude oil cost an average of USD 74 per barrel throughout the entire period from 2006 to 2009 and an average of USD 103 from 2010 to 2014. The IMF Country Report No. 14/285 of September 2014 stated firstly that Sri Lanka’s “Macroeconomic performance has generally exceeded expectations”. Secondly that “Sri Lanka has made notable advances in recent years, and appears to be on its way to joining the ranks of upper middle income countries”. Thirdly that “Sri Lanka’s economic growth has been among the fastest in Asia’s frontier and developing economies in recent years”.

Hence the fact that I left behind a very robust economy in January 2015 is well documented. After I was voted out, the economic growth rate dropped to 4.2% in 2015 and ended up in the negative range at 0.2% below zero by 2019. Sri Lanka’s total outstanding external debt had increased by nearly 28% from USD 42,914 million at the end of 2014, to USD 54,811 million by the end of 2019. The debt to GDP ratio which had been brought down to 69% by the end of 2014, had increased to nearly 82% by the end of 2019. The All Share Price Index declined from 7,299 at the end of 2014 to 5,990 by the end of October 2019. Yet during the entire five-year period from 2015 to 2019 the average price of crude oil was USD 60 per barrel – the lowest in recent history.

There were no external reasons for Sri Lanka’s economic decline between 2015 and 2019. India and Bangladesh experienced average growth rates in excess of 7% and the Maldives over 6% during this period. Even developed countries like the USA and Germany experienced robust economic performance during those years. However, Sri Lanka’s average growth rate between 2015 and 2019 was just 3.5%, equal to the growth rate recorded in 2021 at the height of the pandemic. The accumulation of foreign commercial debt between 2015 and 2019 particularly in the form of International Sovereign Bonds (ISBs) was by far the worst disaster to befall us during that period.

When I was defeated in January 2015, outstanding ISBs amounted to USD 5,000 million and it was amply covered by our foreign reserves of USD 8,208 million. However, between 2015 and 2019 outstanding ISBs increased threefold to USD 15,050 with borrowings of USD 2,150 million in 2015, USD 1,500 million in 2016, USD 1,500 million in 2017, 2,500 million USD in 2018 and USD 4,400 million in 2019. Of this, USD 2,000 million was used to rollover ISB’s taken during my tenure, thus the total amount in new ISB’s issued between 2015 and 2019 is USD 10,050 million. Despite the build-up of the stock of outstanding ISBs to USD 15,050, Sri Lanka’s total foreign reserves was just USD 7,642 million at the end of 2019.

Thus, when I became Prime Minister again in November 2019, our government inherited an economy that was already on its last legs. It was in this weak and vulnerable situation that the Covid-19 pandemic hit Sri Lanka in early 2020 – the consequences of which needs further discussion. In any discussion of the economy, it is vital to note that the per capita GDP is the most fundamental economic indicator used to judge the economic situation of a country and the contribution of my 2006-2014 government to increasing Sri Lanka’s per capita GDP is more than double that of all other post- independence governments put together. The people of this country should base their decisions on proper data and facts and not on noise, lies and propaganda. Sri Lanka cannot afford another political mistake like that of January 2015. “

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