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The social cost of economic reform

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by Uditha Devapriya

“Their morals, their code; it’s a bad joke. Dropped at the first sign of trouble. They’re only as good as the world allows them to be. You’ll see. I’ll show you. When the chips are down these, uh, civilised people? They’ll eat each other.” ― The Joker, “The Dark Knight”

It’s a sign of the times that Sri Lankans are less worried about the pandemic than the economic fallout. While news outlets were full of reports on COVID-19 measures this time last year, now they are busy making predictions about the economy.

In this they are reflecting the concerns of the people. Back then the call of the hour was to enforce lockdowns; now the prospect of a virus frightens them, not so much over the risk of contracting it as the knock-on effects on their jobs, businesses, and lives.

Certainly, much has happened in these last six months which pales almost everything that have taken place over the previous nine. It is not a coincidence that we’ve fared the worst during the third quarter, with the economy contracting by 1.5 percent. What with inflation, food and fuel shortages, and power cuts, we’ve got too much to worry about.

Perhaps that is why news of the Omicron variant did not seem to worry people as much as news of the Kent and Delta variants did. How can it, when gas shortages have given way to the prospect of exploding gas cylinders? How can it, when fertiliser bans have opened the country to the possibility of a food crisis? How can it, when Fitch keeps to its time-honoured tradition of rating us down, bringing us closer to bankruptcy?

Arguably the most interesting development to come out of all this is the fiery debates that have ensued about what the State should do now. These are split between those who think that it is not doing as much as it should and those who believe its role must be reduced. For the latter the State remains ineffective, and it should thus play a smaller role.

That the pandemic and the crisis point at the ineffective nature of the government confirms liberal narratives about the dangers of political power and the need to strap in the Executive Presidency. And yet, there is a contradiction here. While many economic liberals urging the government to let the proverbial free market decide, argue that the pandemic weakened the State, many political liberals contend that it actually strengthened it.

However, while some may see a contradiction here, I do not. Under the strain of a systemic crisis, it is possible for an authoritarian regime to also be fragile. Thus, while the government gives the impression of being strong, behind the facade the unity that once underpinned it is fast unravelling. That its cracks took a little over two years to show should confirm that even the 20th Amendment hasn’t pacified the regime’s security complex.

The pressures of the pandemic, therefore, have weakened the State while also reinforcing a false sense of security. We are seeing these developments more in the government’s foreign policy volte-faces than in domestic politics: from snubbing Japan and India, it is now turning to them, no doubt to get much needed dollars wherever it can. Such reversals of fortune are ironic, and would be amusing if they weren’t so tragicomic.

What is more intriguing is that a regime that came to power promising to never sell assets, lease lands, or go to the IMF, has owing to external conditions gone back on what it pledged and imposed austerity measures. Though far from the neoliberal paradigms recommended by SJB MPs, the SLPP has enforced austerity and made it a part of life. This explains Mr Basil Rajapaksa’s declaration that no one will be hired to the public sector the next year, and that further restrictions will have to be imposed on imports, especially of luxuries.

These have already generated much unrest, though Sri Lankans are a resilient lot and they are, to borrow a Sinhala saying, “biting their teeth” (dath miti kanawa). Elsewhere we have seen full-scale riots rather than the peaceful protests we have been seeing here until now. To be sure, the latter have far exceeded in strength and size what we saw in the yahapalana era, given that even those generally opposed to strikes and protests have throw in their lot with demonstrators: the suburban middle-class, no less than the rural peasantry.

And yet, despite the time-bomb that’s ticking louder and louder, these campaigns have been relatively peaceful. What explains this contradiction, between the crisis and the nature of the protests it has unleashed? I am no social scientist, but I suggest that the reason has to do with our public services: in particular, our schools and our hospitals.

Despite the severe constraints the pandemic has imposed on them, our public services continue to function as they were meant to, keeping the less well off content, particularly through the provision of education and healthcare. One cannot discount the armed forces here: as an economic analyst pointed out to me, though it attracts much censure Sri Lanka’s military plays an unappreciated role in cushioning unemployment in villages, unemployment that may otherwise have spiralled out of control and fuelled disenchantment.

That is as much a tribute to Sri Lankans as to the welfare system in place from the later days of colonial rule. Far from yielding to systemic pressures, our public services are coping well. It is true that government hospitals are nowhere near the state-of-the-art institutions you get in the private sector. But public hospitals are run on the basis of equity, not profit. One can say the same of our schools and universities: while much needs to be reformed, these have ensured access for everyone. This is a point that gets lost in political debates, but one which Sri Lanka’s much maligned student activists underscore frequently.

In Christopher Nolan’s The Dark Night, the Joker likens madness to “a little gravity… all it takes is a little push.” Dayan Jayatilleka has related the story of Dudley Senanayake telling the UNP’s rank-and-file that he did not wish to reduce spending on welfare today only to increase spending on defence tomorrow. Senanayake would have learnt his lesson during the hartal of 1953, a lesson learnt more gravely by J. R. Jayewardene, whose regime didn’t just smash workers’ strikes but also deployed firepower against rights activists, a point the likes of Ratnajeevan Hoole have noted in their accounts of that period.

The UNP’s sense of hubris did not survive for long. Over the next decade, the Jayewardene regime realised that liberalisation had to be accompanied by a cushioning of the social and political costs of dismantling the welfare state. It also came to realise that all it took to pitch the country down an abyss was just “a little push.” Under Ranasinghe Premadasa, the UNP implemented policies that were more aware of the need for equity, though the UNP which came to power after his assassination eventually abandoned them.

The point I am trying to make here is that the thin line dividing Sri Lankan society from anarchy is its public services. It is these services that keep Sri Lankans connected to the State, that have so far prevented the State from losing control. Any party that tinkers with them will not just lose the confidence of the people, but also turn them away from more democratic forms of dissent, perhaps towards a third insurrection.

Political parties can ignore the costs of “letting go” of the public sector only at the risk of electoral marginalisation, which may be why the SJB, certain MPs of which are known for their advocacy of public sector pruning, has not gained the popular support the JVP has gained. We are seeing a seething wave of discontent from public sector workers, including teachers, nurses, railway workers, and CEB employees. Can a party strategising or banking on such discontent really afford to cut their numbers down?

I really don’t know whether advocates of reform are aware of this. But the line they and their allies draw, between economic reform and the social repercussions of such reform, is to me a patently artificial one, which does not stand up to reality. Like ostriches basking in the sand, they seem to think politics and economics occupy separate domains. They do not, as even a cursory evaluation of the 1980s should make clear.

2021 was a year to forget, more than 2020. I do not look forward to 2022, but if I do, it is because of my hope that, come what may, our public services and welfare state will not be pruned radically in the interests of “economic restructuring.” Sri Lanka being Asia’s oldest democracy has much to do with these services, in particular healthcare and education. To reduce them today in the hopes of more growth tomorrow would be inadvisable.

To be sure, the country’s political class deserves as much censure as they are going to get for putting us through this quagmire. But that does not mean ordinary people have to pay the price for the sins of others. I hope we won’t see them being forced to, because I do not want to live through the convulsions which are sure to follow such a policy.

The writer can be reached at udakdev1@gmail.com



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Politics

President’s Dinner for his Old Comrades

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The President and Commander in Chief HE Gotabaya Rajapakse invited 186 of his old military comrades and their ladies for dinner at President’s House on Dec. 22, 2021. For a media that lives on gossip, this was manna.

A Sunday paper (not the Island) on 26 Dec reported the invitees numbered 1,050.The figure was specific. Many readers were, as expected, duped to believe it. Added on was that ‘drinks’ too were served as though that was news. No detailed description of the menu was given as has happened before for reasons that will be a revelation. Was it to show profligacy which was news? The Sunday Island of Dec. 2, 2021 had a news item by Dayan Jayatilleka that went one better. He increased the figure to a smarter 1,090. Those made a lie look like the truth. It was meant to be so. No questions were asked as to sources.

The Dec. 26 Sunday paper also had a dig at the organizers. Apparently a few had turned down the invitation. That was curious as the invitations were sent only to those who confirmed verbal enquiries as to their attendance. It may have been that after accepting the invitation a few old sweats, officers and gentlemen it is said they had been, were churlish enough to avoid attendance at the C in C’s dinner. Were they the same fellows, who being absent from the scene, did the counting of heads too?

Jayatilleka went further. He thought there was something odd if not sinister in the exercise. He believed 1,090 ‘senior military men, serving and retired’ attended. He asked readers not to continue reading if they did not believe that the invitations had been sent with some ulterior motive. The suggestion was that the dinner was not a ‘sociable, benign gesture of a year-end party’. It obviously worried him that good and normal men in SL would have thought differently and questioned the assumption.

To begin with his facts were absolutely cock eyed. The cooked figures he had been served (1,090) by someone who was possibly not at the dinner, clearly supported his fertile imagination. He probably thought a mere 186 officers at dinner would not be enough to invent a rollicking fairy tale.

The only serving officers present were the tri services commanders. With their spouses a round figure of 400 invitees could have been closer to the truth. All the others were veterans aged 70 years and above, some disabled. A few were 90 years old and were in wheel chairs.

Now what did Jayatilleka a former minister in the EPRLF that was a IPKF stooge that made a Unilateral Declaration of Independence in the late1990s, think the doddering old and but still bold 186 could have been up to? It certainly helped to propel his latest onslaughts on the fanciful ‘militarization’ of the nation. Was it also to mark up points with the West, just in case?

So how did the ‘gala’ dinner go? First of all male guests in smart casual (tie), and their ladies in sarees, arrived well in time as is the norm among servicemen. They were given antigen tests by a team of medics before gathering in the manicured garden where the military bands played some lively music.

Old comrades reminisced with their friends, many after decades and two years of Covid. Everyone was refreshingly relaxed. Many recalled long forgotten incidents, hilarious mishaps mostly, and extraordinary characters they served with. Many heroes were present but stories of daring and battle were not recounted here. The missing was not forgotten.

As at any military social function, not a word of politics was heard. No one pulled rank. When the C in C came and graciously mixed with his guests, all older than him, no one in the best of service traditions and etiquette forgot who he, the C in C, was. He knew and called all of them by their first names. He seemed as happy as his guests were, to meet simply as old comrades, exchange greetings and enjoy themselves. There were no speeches.

A splendid buffet dinner followed.

Here was the first old soldier who had become the elected President and C in C of SL. He was now among old friends. They all thanked and wished him and his lady the very best in the challenging year to come.

People who will never know what military comradeship is should not waste their time trying to question the motives of a C in C in inviting his old comrades to dinner. It was the first ever in SL history. There was nothing ‘gala’ either, as anyone who was inveigled by his ‘informant’ may have believed. Such people should try not to judge others by their standards, be mean and gullible and should not to circulate worn out tales or have recurring nightmares about ‘militarization’.

Old soldiers never die; they only fade away, even from the President’s House. God only knows what happens to mercenaries and tale carriers.

Dinner guest

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Politics

DE-CODING THE AKD-JVP-NPP RELATIONSHIP

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DR. DAYAN JAYATILLEKA

The JVP-NPP is prominent in the struggle against the presidential system–while permitting speculation that Anura Kumara Dissanayake will be the presidential candidate—and in the vanguard in the struggle against corruption.

Whether it realizes it or not, it is being hypocritical—not because of that duality–and so too are those who support them on those grounds.

The reason is simple and self-evident. Whether one is against the presidential system as such, or whether one is against the 20th amendment while being for the Presidential system, the reason is the same: the critique of over-centralization. To spell it out, the objection is too much power and too many functions in the hands of a single person and the remedy is seen as the separation of powers, which makes for check and balances.

In its practice, the JVP-NPP runs completely against that principle.

The next ‘signature issue’ is corruption. There too, the principle is the same: if one person holds more than one post and there is a possible conflict of interest, that is the potential source of corruption. Here too, the crux of the matter is that one person should not head several institutional or organization spaces. Interlocking directorates are the conduit of corruption. I am not accusing the JVP-NPP of corruption, but of violating the principle of safeguards or guardrails against overlapping and over-concentration.

The NPP was not founded by non-party activists or those of many political parties. Still less was it formed by academics. It was founded by Anura Kumara Dissanayake in 2015.

The NPP is not led by a non-party personality. It is led by Anura Kumara Dissanayake who founded it.

Anura Kumara Dissanayake is the leader of the JVP. He was the leader of the JVP when he established the NPP, and remains the leader of the JVP.

It is reasonable to assume that as the JVP’s leader, rather than merely a JVP member or second-level leader, Mr. Dissanayake would have founded the NPP as part of the JVP’s strategic vision.

Insofar as the NPP is the creation of the JVP’s leader, the NPP is the child of the JVP.

Latin American Left

The JVP has almost always had phases in which it had personalities and mass organization to which it gave a long leash. Indika Gunawardena and Sunila Abeysekara are two examples but not the only ones. Perhaps a more important one is HN Fernando the politically highly literate leader of the Ceylon Teachers Union which he had built up into a 30,000 strong organization. All of them were purged from the party when views that dissented from the changing party line, were voiced. (HN Fernando, who was Wijeweera’s brother-in-law was physically assaulted).

These seem to me the earlier prototypes of what is now manifested as the NPP. The NPP seems to me to be a new model of the same old template: a front organization of fellow-travelers.

If the NPP were to be an autonomous civic or mass organization or more ambitiously the formation which should be recognized as a contender to lead the country, the Latin American Left provides the architecture.

Uruguay’s Tupamaros and its Communist Party founded the Frente Amplio, the Broad Front, which lasted from the early 1970s through the decades of military dictatorship, to this day. The first leader of the Frente Amplio who remained so for many years, was General Liber Seregni, not the MLN-Tupamaro leader Raul Sendic nor the Uruguayan CP’s leader Rodney Arismendi.

In El Salvador, the revolutionary vanguard unified as the FMLN, with its politico-diplomatic partner being the Frente Democratico Revolutionario, the FDR. None of the FMLN’s leaders headed the FDR.

That is the model by which the autonomy of the civic front is ensured. In the case of the NPP, it is headed, not even by a JVP personality like Nalinda Jayatissa or Bimal Ratnayake, still less a respected progressive activist, intellectual or cultural-artistic figure but precisely by the top leader of the JVP.

As a disciplined leader who is committed to the strategy and decisions of the JVP, there is hardly a structural possibility of genuine autonomy for and on the part of the NPP.

Political Culture: Falsification & Opacity

A great many of us watched as Anura Kumara Dissanayake repeatedly emphasized on national TV that Kumara Gunaratnam was never a member of the JVP. Quiet apart from the insult to the memory of Ranjithan Gunaratnam, a real hero and martyr of the JVP leadership, it was a plain lie because it was widely known that Kumara Gunaratnam played the major role in rebuilding the JVP clandestinely after the repression was over.

The post 1994 JVP was built upon the foundation laid by Kumara Gunaratnam whom Anura Kumara Dissanayake told the nation was never a member of the party.

A few years ago, after Kumara Gunaratnam had been ‘disappeared’ and tortured in 2011, and was released only due to external lobbying and the intervention of Mahinda Rajapaksa, Gotabaya Rajapaksa made a throw-away public remark in response to Anura Kumara’s criticism of him on an entirely different matter, that the crackdown on Gunaratnam and his emerging new outfit (it wasn’t called Peratugamee at the time) was made on an alert from the same quarter that was now criticizing him. There was no answer from AKD.

If anything, a left alternative must occupy the moral high ground, and not only in its own eyes. The historical truth is the only path to the moral high ground.

None of this is meant as an indictment of or attack on Anura Kumara as a person. It speaks to the discourse, the political culture of the JVP and its opacity. The denial of Kumara Gunaratnam, his removal from the annals of the JVP, the sheer falsification of history, tells us what the JVP still is. This travesty is not something that has occurred, would occur or could occur in any other political party in Sri Lanka. The JVP was and is a party which is the most opaque in Sri Lanka.

It is the same Anura Kumara who leads the same JVP who also founded and leads the NPP.

Therefore, any influence that the NPP has on the JVP will be secondary, episodic and tactical, while the JVP’s influence over the NPP will be strategic and structural. The tail won’t be wagging the dog.

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Politics

Foreign exchange, foreign policy, and economic roundtables

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by Uditha Devapriya

Sri Lanka’s Central Bank will be settling a USD 500 million bond the day after tomorrow. Earlier this month, Ajith Nivard Cabraal tweeted that the Bank had set aside the required amount from its foreign reserves, reiterating the country’s commitment to honouring its debt obligations. Perhaps in response to this development, bondholders appear to have regained confidence about our prospects: latest figures show that bond market prices are converging with face value, though this may well be a temporary gain.

The January 18 settlement is the first of two that will have to be made to our International Sovereign Bond (ISB) holders this year. The second, amounting to USD one billion, is due on July 25. The Central Bank’s strategy is one of doubling down on these debt obligations while renegotiating loans from other governments. This strategy isn’t as muddled up as it is made to be by its critics: unlike governments, ISB holders don’t negotiate, and if they are asked to, it’s usually on the eve of a default or severe economic crisis.

In strategising a way out, then, the Central Bank has identified its priorities: it will pay up on its ISB commitments and devote foreign exchange to little else.

It’s difficult to predict how that will affect our foreign relations in the longer term. The country is presently governed by a party that promised never to sell or lease out its assets. Yet, today, officials are travelling everywhere, negotiating with this government and that, hoping for more lifelines. We have clearly exhausted other options: we can’t raise anything from bond auctions, and we are rejecting the IMF line. Since governments are easier to talk with, we are hence talking with as many of them as possible. It’s doubtful whether this is the only option available, but it’s probably the best shot we can give.

In giving that shot, however, are we exposing ourselves to the pressures of regional and extra-regional power pressures? Consider the countries we have gone to so far: Oman, China, and India. Negotiations with India have been successful, with Foreign Minister S. Jaishankar stating that Delhi is ready to stand with Sri Lanka. Though his government has remained quiet over requests for credit lines, these may well come our way.

On the other hand, Beijing has responded to Gotabaya Rajapaksa’s call to Foreign Minister Wang Yi to restructure its debts, with Cabraal declaring that a new loan is on the blocks. As for Oman, though negotiations have stalled over requests to explore the Mannar Oil Basin in return for interest-free credit, this too is a window that remains open.

These developments are, all things considered, intriguing. In the face of the worst global health crisis in over a century, our foreign policy has taken a massive beating. The fertiliser imbroglio with China and the withdrawal of Chinese projects from the North over alleged Indian pressure, as well as the visit of the Chinese Ambassador to the North, are cases in point here. All these point to an increasingly complicated foreign policy front. The question is, will the country’s foreign exchange problems complicate it even more?

Perhaps more so than the 1970s, when it faced a severe balance of payments crisis, Sri Lanka is gradually giving way to a foreign policy dictated by depleting foreign reserves. The administration’s dismissal of W. D. Lakshman and appointment of Cabraal, in that regard, accompanied a shift of focus, during the fourth quarter of last year, to the country’s foreign exchange situation. This has spilled over to our external relations.

Here the Central Bank has had to reckon with a contradiction: between its insistence on not going to the IMF and its assurances about meeting ISB obligations. Though it’s debatable whether the Bank has addressed, let alone resolved, that contradiction, it’s clearly making use of Sri Lanka’s foreign policy to pay bondholders their due.

For their part, economic experts have shifted in their response to what the government is doing. While earlier they warned about impending defaults, now many of them have turned to questioning the current policy of repaying bondholders no matter what.

Nishan de Mel of Verité Research, for instance, points out correctly that defaulting is not the same thing as declaring bankruptcy. Suggesting that the former is preferable, he contends that the government should do what it can to renegotiate its debts. On the other hand, as Dushni Weerakoon of the IPS rightly observes, restructuring debt may be easy for a country with a reputation for defaults, like Ecuador, but it is unviable, lengthy, and costly, at least in the short and medium term, for a country like Sri Lanka.

What of the IMF line? It’s obvious that Sri Lanka can no longer negotiate for more breathing space from the IMF without conditionalities being imposed on it. The only way it can obtain such space, in other words, is by succumbing to those conditionalities.

Now, defenders of the IMF line may argue, justifiably, that there’s no give without take, and that if we go to that body we will have to eat humble pie, gratefully. But the question to ask here is, who are we asking to take on these burdens? Who are we asking to endure more of the same? Have IMF advocates considered these problems?

The IMF is not a charity: it has provided financial assistance to almost 90 countries on condition that fiscal discipline be enforced in the long term. If we go down that road, we will need to give back something, like public sector retrenchment and fuel price formulas. These have generated enough backlashes elsewhere. Are we ready to risk them here?

So long as the government fears an uprising from the people, it will not choose the IMF line. To say this is not to defend the powers that be. They have contributed to the mess we are in. But to admit to that is not to deny that, whatever that mess may be, to opt for structural adjustment, when social pressures are peaking, would be politically inadvisable.

That is why Basil Rajapaksa’s billion rupee economic relief package, tabled earlier this month despite much criticism, is intriguing: among other things, it promises a LKR 5,000 allowance to 1.5 million government workers, pensioners, and disabled soldiers. Its underlying thrust is not less money, but more: not spending cuts, but spending hikes.

The urban and suburban middle-classes have responded to the package with characteristic ambivalence. While demanding for relief from the government, they are also questioning the efficacy of printing money. What they have failed to realise is that that printing money is the only resort the government has to grant the kind of relief being demanded. It’s a classic either/or scenario: you get the relief with printed money, or you don’t.

Though economists don’t spell it out exactly in these terms, they do observe that printing money can only lead to greater inflation, implying that the only alternative is to stop doing so. But what are the socio-political costs of such measures? What are the knock-on effects they will have on economic relief for the masses? To ask these questions is not to split hairs, but to raise valid concerns that have not been addressed by the other side.

That is not to say that the government’s measures have been farsighted. They have not. Though Modern Monetary Theory (MMT) policies, which the regime is advocating, may get us space in the short term, it is not the type of reform we should be enacting in the longer term. The policies we need require radical reform and radical action. However viable it may be, printing money should not be considered a substitute for such reform.

To suggest one option, one of Sri Lanka’s most brilliant economists, Howard Nicholas, has advised that we industrialise, noting that the historical record has been better for countries which opted to do so. The example of Vietnam shows how even a sector like textiles can be used to propel industrialisation. That is an example Sri Lanka under Ranasinghe Premadasa followed, at least according to Dr Nicholas, but it is one we have since abandoned, in favour of orthodox prescriptions of fiscal consolidation and untrammelled privatisation.

Sri Lanka needs to consider these options without caving into stopgap measures and orthodox alternatives. How do we do that? As Dayan Jayatilleka suggested some time ago, we should convene an economic roundtable. Such a roundtable will likely prevent economic discussions from becoming a monopoly of elites, thereby helping the government, and the opposition, to align the interests of the economy with the interests of the masses.

This has been a long time coming. Both the government and the opposition have tended to view economic priorities as distinct from other socio-political concerns. Yet the two remain very much interlinked. In that sense, caving into economic orthodoxy while ignoring social reality would be detrimental to the future of the country and the plight of its people. To this end, we need to think of alternatives, and fast. But have we, and are we?

The writer can be reached at udakdev1@gmail.com

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