By Charith Gamage
Cryptocurrencies together with Decentralised Finance (DeFi), the finance ecosystem that extends cryptocurrencies into banking territory, can positively impact developing countries. But it is not quite so straightforward and is still a double-edged sword for developing markets like Sri Lanka. So, how should the country position itself to face the key challenges ahead?
Since its inception following the Global Financial Crisis in 2007-2008, as an alternate digital asset, cryptocurrency has always been a two-edged sword, abundantly subjected to scepticism.
Some of this scepticism has a rationale behind it. Cryptocurrencies do not have an underlying cash flow, such as that for stocks of firms, nor do they have an inherent material value, such as for assets like gold. Being located inches away from the regulatory radar, they can also be equally prone to criminal activities. If that is not enough, bitcoin mining, the process by which new transactions are validated on the network, consumes a lot of energy. So, despite being a crypto enthusiast, even billionaire Elon Musk once stated, it has an environmental impact, too .
In the face of these challenges, the recent cryptocurrency price surge with the Covid-19 Pandemic has taken many by surprise. What caused the market to embrace them, spearheaded by its most popular type, Bitcoin’s spiralling 600%+ rally? According to crypto proponents, the value stems primarily from its design that can self-sustain as an alternative decentralised system to the traditional systems. In other words, the market is ready to pay the price for its ability to function as an asset over which no centralised person or authority has control. So, the claim, as the pandemic engulfed global economies, is that investors may have lost faith in central bank policies and their pursuit for an alternate asset that has resulted in this price movement.
DeFi, on the other hand, extends this concept and allows cryptocurrencies to function in a decentralised banking environment that may even have immense benefits to developing countries. As the debate continues, it is worth finding out more on the recent emergence of DeFi; how could it unlock the potential of Emerging/Frontier markets, and at what cost? What are the key hurdles to pull the meat from the bone moving forward?
What is DeFi, and how does it work?
The idea of DeFi is more broad-based than one of its workhorses, cryptocurrencies, which most are familiar with as a medium of exchange or store of value, and it builds on a fundamental structure known as the blockchain. The system allows it to operate without the need for intermediaries, such as traditional financial institutions like conventional commercial banks, brokerages, and of course, authorities such as central banks. However, it has its own ecosystem that recreates the traditional financial system. So, it is logical to say that DeFi refers to the decentralised banking and financial system that the technology is based on and includes components such as lending and borrowing services for cryptocurrencies (and many more). To put it simply, it is an alternative banking system in the digital space with digital currencies that has no middlemen (such as commercial or central banks who have controlling power) and with rules that are already written into it. Today, it mostly runs on the Ethereum blockchain, the second most popular currency after Bitcoin. DeFi has rapidly evolved in recent years, and, for example, Aave, Marker, and Curve Finance are the biggest lending systems in this space, with the sum of all assets deposited in DeFi closer to 45 billion USD .
Without banks or lawyers, as in the traditional financial system, DeFi is built with smart contracts, a self-executing contract built on the blockchain when predetermined conditions are met, and allows economic agents such as the general public and firms to engage in banking activities.
Because this architecture differs fundamentally from bringing the same traditional banking into the digital space, as happens in online banking, many can see that it will benefit developing countries when traditional financial systems fall apart. Nevertheless, it comes at a cost, where the country needs to overcome challenges to harness its potential.
Why exploring DeFi is pronounced in emerging and developing markets
It is not a secret that the lack of financial intermediation in the developing world under the conventional system hinders their economic potential. Although Sri Lanka’s unbanked population (26%) is somewhat lower than the global average (31%), it is unclear how certain groups’ failure to conform to formal regulations and paperwork around these institutions distances them from the entire expected services they desire (Data Source Findex 2017). On the other hand, economic agents have fewer investment opportunities to invest their wealth for a better return in economies with underdeveloped markets. DeFi seems to have better answers to those questions.
For example, a UNICEF project shows that DeFi can uplift those lives . The project, Satchel, a Blockchain-based DeFi service created by a research group from Berkeley, helps fulfil the financial needs of those underprivileged communities by allowing them to pool their funds together and earn interest. The concept could be extended to pool their money and lend it out to small businesses; in this way, the community can use the interest earned for their purposes while the local small businesses fulfil their funding needs. So, DeFi can thus give an alternative, if not more than that, to regular banking, for small businesses and communities in rural regions, even if they are unable to satisfy the criteria of traditional banking.
Apart from improving financial inclusion among rural communities, DeFi clearly has other benefits with proper education, such as an efficient cross-border fund transfer for businesses and remittances. Sending remittance through cryptocurrency can gain more attention in the future as a low-cost solution for ordinary remittance transfers and currency conversions that can eat up as much as 7% of those flows. Also, DeFi can be easily integrated with the Universal Basic Income (UBI) programmes discussed in a previous article that empower low-income communities to lead the economy.
Most importantly, decentralisation allows the market to gain alternative power over the ability of traditional institutions to control the market by devaluing or increasing the money supply or by imposing unhealthy regulations on certain sectors. This balance could be healthy for the economy as it brings competition to the market over the conventional institutions.
What are the key challenges to be solved?
Although DeFi has the potential to boost economic activities, proper integration with society needs much more effort, including the development of digital infrastructure and literacy. A recent Daily FT editorial highlighted this challenge, citing that digitisation efforts will not be fruitful unless the underlying foundation is strengthened .
In addition, the emergence of an alternate banking system via DeFi can cause unprecedented challenges to economies. Of course, it can create “systemic risks” and propagate instabilities in conventional financial systems, depending on how interlaced they are. Having dominated the conventional monetary system, they can also lessen the effectiveness of the monetary tools and power of the institutions such as central banks. Although these discussions are still rudimentary, given that economics related to DeFi have not been tested at scale, they will be more hot topics as the technology grows.
On the other hand, DeFi regulation is one of the most daunting tasks, as exemplified by the experiences of many countries that are currently trying to combat it. At the moment, bringing capital gain income from crypto assets under the tax net, regulating crypto exchanges to avoid the misuse of technology, and curbing phoney cryptocurrency schemes, are the most popular topics in this space. Meanwhile, a Forbes article, citing an expert report by Chainalysis, shows that crypto in criminal activities is not as large as commonly believed . While this fraction was deficient, 2.1% in 2019 and 0.34% in 2020 out of the total transaction volume, the article shows that the traditional non-crypto methods may still facilitate illicit activities much more frequently than these methods. Although this is a positive indication for authorities to welcome the technology, there is no guarantee that they would be exacerbated in the developing nations with relatively weaker institutions once popularised. With that being said, the overregulation approach may not be the best answer, but the easiest and costliest approach that wipes out complete benefits in the dash for DeFi.
The Way Forward
Despite the debate around cryptocurrency, the decentralised currency together with DeFi, the alternate decentralised financial system, undoubtedly can cause a significant impact on the developing world to increase the productivity of those economies. In particular, it is more pronounced to allow financial intermediation for those who found refuge under the conventional system for various reasons. It has gone mainstream now on Wall Street while top-level universities and researchers are involved in the development, despite all chaos surrounding cryptocurrency. More importantly, the underlying technology, blockchain, is considered one of the most promising emerging technologies at the moment.
From the Sri Lankan perspective, now it seems the government insists on looking deeply at the crypto and blockchain space. This initiative is a positive sign and, if successful, will be a good foundation for exploring the ecosystem, DeFi, more broadly and carefully for better policies.
Not to mention, diving down the rabbit hole of DeFi requires a cohesive approach strengthening the digital infrastructure, facilitating a healthy Conventional-DeFi integrated ecosystem, hunting for policy instruments to combat the knock-on effects, and establishing a healthy and supportive regulatory framework. So, it will help the country shape the landscape to stay on par with the peer trading partners trying to reap the full potential of the technology under a controlled environment, and, of course, without blindly embracing it nor throwing out the baby with the bathwater.
The writer, a former Senior Assistant Director of the Central Bank of Sri Lanka, is a PhD candidate attached to the Monash University, Australia. He pursued his undergraduate studies in Engineering from the University of Moratuwa and graduate studies in Finance/Economics from the University of California, Berkeley, USA and the University of New Mexico, USA. He would like to thank Abigayle Goldstein (Lobo Friends Program at UNM) for commenting on the article and helpful suggestions. The views and opinions expressed in this article are those of the writer, and he could be reached via firstname.lastname@example.org
Match against Djokovic; Partying PM; Prince turned Mr Nobody, and no hope
Slightly old hat but arguments for or against Novak Djokovic being allowed to stay in Melbourne for the Australian Open will swirl around and then die down, sadly, but inevitably. The sports world will go on; Australian might will continue; and people will soon forget and go about their business. May even be that when the winners of AO are announced only a couple of persons will remember him who was such a wonderful player who hardly ever lost his cool and seemed so steady and even relaxed when on tennis courts. Remember Robert Frost in his poem, Out, Out succinctly mentioning this fact at the end when the boy whose arm was cut by an electric saw breathed his last.
“And they, since they Were not the one dead, turned to their affairs.”
So very tragically true of all persons; all who brag, rant and pound their feet will die and not many will remember them.
The Editor of this paper commented on it and seemed to stand for ‘the Law holds for all’. He made no mention of the health waiver the world’s Number One tennis wizard got which he traded on to go to Melbourne in the first place.
Dr Upul Wijayawardhana in his piece printed beside the editorial on Tuesday 18 – “Australian antics and Djokovic’s disgrace” mentioned this. “It is surprising that Djokovic was given a medical exemption to enter Australia by … Tennis Australia and the State Government of Victoria after testing positive for coronavirus.” He got the permission to enter the AO, so he did, though there were controversial issues.
So, Cass in her emotional and yes, unreasonable, sense, sides with the tennis player. He should have been segregated and allowed participation in the tournament. We do not ask they consider his attempt at being the tennis world’s first to win 21 grand slams, but that here was an outstanding sportsman who got clearance to enter and was even permitted release from segregation in a hotel and allowed to resume preparing for the tournament to start on the 17th. It seemed to be a tussle between a state government and that of Australia and poor Novak was A pawn, as it were.
Now, the Aussie Open has lost its glamour and even interest to this ole soul – Cassandra. She hoped Nadal and others would withdraw from the OA. But since it was not their deportation, they go along. Hopefully they will publicly comment in support of their co-sportsman. Nadal already spoke out.
Ordinary citizen of UK
Poor Prince Andrew: his carnal desire has got him in a dirty soup! Will he, now be stripped of all titles and even won military honours, go forth to court to battle his case as Mr Andrew Windsor with perhaps Mountbatten added as a middle surname? What a downfall and comedown!
Cass has been having an emailed argument about whether Virginia G is a gold digger or not, and whether it can be accepted Andrew raped, as is accused, a teenager way back around two to three decades ago.
Cass’ arguing friend seems to see the issue in the light of what Virginia G wants to crush: – power, money and connections used against the underprivileged. She has spelled out her legal pursuit of Andrew thus. Noble aim but why select only this former prince? Surely there were others earlier – Epstein himself. To Cass she has schemed her way adroitly, seeing Epstein imprisoned and committing suicide (it is said, though belief is he was done in, with all the secrets of the rich and powerful within him), and his aide and abettor in the crime of trafficking underage girls – Ghislaine Maxwell – convicted to prison for 50 odd years. Virginia would surely have banked on raking in a great amount of lucre and of course publicity, fat and middle aged as she now is. True, Andrew (we dare call him that) was accepting what Epstein offered him, but to Cass and her incisive eye, it would definitely not have been rape.
What came across sharply to Cass was the difference between her much younger correspondent’s opinion and Cass’. To the younger one Andrew was all black and Virginia a sweet little kid pounced upon and sullied against her wishes. Cass emerged rather old fashioned, believing in the adage that boys will be boys and men are allowed much more than girls/women who are censured more. Yes, that was the attitude of Sri Lankan society or what Cass knew of in her Kandy upbringing. We do not know whether a negotiation has been worked out or whether the ex-Prince faces the pretending Innocent in an American court of law with #metoo etc very strong over in the USA. The gracious duty-bound Queen is the greatest loser in this randy, rapacious business.
No storm in a teacup
The previous Cassandra Cry, referred to the bring-your-own-alcohol and observe- Covid-restrictions party in June 2019 in the garden of No 10 Downing Street. She classified it as a storm in the Brit’s cuppa. Not so, not so many means. This party has resulted in a loud call to the PM to resign, perhaps not only the premiership but his Parliament seat too, which means being thrown out of the Conservative Party leadership. Boris Johnson is a bird of the Andrew feather – loves fun and partying. But he marries his girlfriends, one by one! The storm is brewing and it’s getting hotter for the PM as ex employers throw in their tuppenny worth – all damning!
Us in Paradise?
We continue in Fool’s Paradise with fireplaces in gardens; fear of lack of medicines; rising costs and sharing the anger of helpless farmers shedding tears. “Half of USD 6.7 mn paid to China would have helped save Maha yield.” So pronounced SJB’s MP Rohini Kaviratna. Inexplicable, unbelievable, the pinnacle of absurdity not to import chemical fertiliser, weedicides and pesticides now that it has been realised the move to organic farming was too precipitous and cost the country and its people so very much. And to add fuel to the fire an announcement is made that a fresh order for organic manure has been sent to that seaweed company in China. We never learn. It’s corruption at whatever cost. And with no money to import fertiliser much is spent on food like beetroot and rice.
Chandra Jayaratne in The Island of Tuesday January 18 lists all our country and people’s travails in his article ‘People’s wishes.’ Cass painfully counted the words in one line of his article and computed that his very long first paragraph of 42 lines had approx 300 words – all of our country troubles. Him being the excellent writer with keen brain and good sense to match, writes very precisely. The list of woes was that long! So, you can imagine what dire straits we are in. His second paragraph lists origins of these maladies: “unprofessional, arrogant, egoistic, even childish … heading towards a failed state.”
Please, please wake up, those in power and do what needs to be done to brake the speeding to bankruptcy. We really do not want ‘splenour and prosperity’. We only want to live fairly decent lives, and that is not stymied by the pandemic. The ‘gloom and despondency and poverty’ are man-made.
On that note Cass says bye bye with no hope in her.
Patriotic surgeon who volunteered to work on battlefield
By Admiral Ravindra C Wijegunaratne
(Retired from Sri Lanka Navy) Former Chief of Defence Staff
In 1991, I was selected to one of the prestigious sea appointments in the Sri Lanka Navy. After a short familiarisation course, I was appointed to P 467 (old pennant numbers), Fast Attack Craft (FAC) Super Dovra Mk ll, one of the fastest FAC of the Navy at that time. Built in Israel at a cost of US $ 30 million, it was the vanguard of our Navy throughout our conflict with LTTE Sea Tiger terrorists.
P467 was commanded by LT Cdr Ariyadasa, an officer senior to me, who has intercepted the highest number of smuggling boats in SLN in Western Naval Command. So, my sole intention was to work hard and capture more smuggling boats than LT Cdr Ariyadasa.
Two days after my appointment, my FAC was attached to Eastern Naval Command to patrol the Northern waters. It may have been done by someone in the Naval Headquarters who didn’t want to see me in Colombo?
We had to deal with not smugglers but LTTE Sea Tigers operating in the northern waters at the time. The LTTE had some camps on the Southern Indian coast; it was their main logistics route to the Northern peninsula. They had boats moving at an excess of 30 knots (30 nautical miles per hour – approx 40mph ) and our FAC had a slight speed advantage over terrorist speed boats.
The distance between India and Sri Lanka is approximately 24 nautical miles. Indo- Sri Lanka International Maritime Boundary Line (IMBL) has been marked at equidistance, approximately 12 nautical miles. So, terrorist boats moving at 30 knots could cross our waters in 24 minutes ! That’s the time the Navy had to detect, chase and to destroy them. If you had got too close to land, which was held by my enemy at that time, you would have been fired upon with enemy’s shore gun batteries. The FAC would have become a “sitting duck” in such an eventuality. The enemy always kept their tractors with the trailers in the water ready for their boat arrivals.
As soon as their boats hit the shore, they were loaded into tractor trailers and moved to safety. This was done in reverse order when the boats were launched. It was more difficult for us to detect the boat launching pads as they were done at night. However, those days when LTTE Sea Tigers saw an Israeli built Dovra, they used to run away at maximum speed. Most of our chases of sea tiger boats ended up in a “stern chase” and with slight speed advantage, we destroyed the enemy boat with 20mm Oerlicon cannon we had as the main weapon.
The FAC had a crew of two officers and 12 sailors at that time. It was a very close “family”. My Second-In-Command was LT SHU Dushmantha, fearless and an excellent officer. He was an outstanding tennis player, an old Anandian and from the KDU Intake 4. Sadly, he died in action out at sea on 30/10/1998. He was a recipient of three gallantry medals for his bravery and valour out at sea namely, Weera Wickrama Vibushanaya (WWV), Rana Wickrama Paddakkama (RWP) and Rana Soora Paddakkama (RSP). I had Leading Seaman Newton as my coxswain (later rose to Master Chief Petty Officer rank and excellent photographer), and Leading Marine Engineering Mechanic Premaratne (also rose to MCPO rank later and excellent cook) looked after the
engines. Our FAC during her first patrol to Northern Naval Area was able to destroy a enemy boat, which was a great achievement to me personally and to my crew.
The FAC was a time-tested craft in the SLN. From time to time, we upgraded our weapons and sensors on board FACs. When we were onboard an FAC, we had only a radar to detect enemy boats at night. Later, we had MSIS (Multi Sensor Integrated Systems) and better forward main guns such as US-made 30mm Bush master chain gun, but the platform, the FAC hull remained the same.
When we fought with Sea Tigers, there were no suicide boats. The enemy fled at their maximum speed when they saw an FAC, Then enemy developed their suicide cadres and speed boats later loaded with explosives and started to steer towards us at excessive speed on suicidal missions.
We had to rewrite and develop our fighting tactics and manoeuvres against the new threat. We lost some of our best FAC Commanders and crews due to those deadly attacks. I salute them and all those who worked tirelessly during this period and special thanks to our gunners, electrical/electronic engineers and marine engineers for keeping FACs operational and battle-prepared.
There is a unique difference in fighting at sea that on land. There are no covers in sea battle. Whoever fired effectively first won. Sea battles are very short and decisive.
There is a special bond between your shipmates (FAC mates), whether you are an officer or a sailor. You go to battle together in Fast Attack Craft and come home victorious ,or perish at sea together. OIC take decisions and he had to be brave and knowledgeable.
My FAC command period was eventful and enjoyable. I was married and my wife Yamuna was expecting our son. We lived in married quarters at the Naval Base Trincomalee. Those Royal Navy time officers quarters are specious and beautiful.
Our patrols to Northern waters lasted seven days. If everything went well, you got a seven-day break for maintenance, repairs to get ready for next patrol. Before heading for the North, I would leave my wife with my brother officer’s family living at the Naval Base, Trincomalee, where she would stay until my return. She preferred to be with LCdr (L) Sarath Silva’s family. Sarath is from my junior batch and his wife Chandrani looked after Yamuna very well. They were very close friends. Such is the camaraderie among Naval families !
When your FAC is non operational, you have to take some other Operational FACs on patrol. This is not a good arrangement as you are going out to sea with an unknown crew. However, in September 1991, I had to take P468 (my batchmate Shirantha’s FAC) as mine was under repairs on slipway. Further, my 2IC, Dushmamtha was also on leave. I decided to go to sea on board P468 without a 2IC, on a six-day patrol to Northern waters.
Fast Attack Craft have two very powerful inboard engines. They required large amounts of low sulphur diesel (LSD). One engine consumed approximately 100 litres of LSD per hour. Two engines running, its 200 litres per hour. It takes four hours for us to sail from Trincomalee to KKS. About 800 litres consumed per one run to Northern waters from Trincomalee. If Rs 100 a litre of LSD, FAC consumes approximately Rs 80,000 worth of LSD per one run. Then we do seven days patrolling and returning back to Trincomalee. Navy has 36 Fast Attack Craft. So you can imagine the fuel costs.
Navies are very expensive!
So, two days of my patrol onboard P468 was uneventful. On 13 June 1991 around 10AM, we were returning to KKS for rest and refuelling from the Mulativu sea area. Sea was calm and I was keeping about two nautical miles from the land and moving North at approximately 20 knots speed. I was on the flying bridge and enjoying bright sunlight and very clear weather. My lookout sentry on Port side (land side) reported two open jeeps moving on Manakkadiu road, one fitted with a gun. The area was held by enemy. I sounded action stations and told the crew that I would turn towards the jeeps and increase speed.
I told them when I was turning away from land they had to engage the targets with our 20mm cannon. The sea was deep enough for the FAC to go up to 400m from shore. Forward gunner was very good. His third shot hit a jeep and it started burning. Other jeep took cover behind a sand dune.
We saw some movements on the beach with enemy cadres getting into boats on land. When we were breaking away from targets and headed towards deep sea, our boat was hit by enemy fire from boats. Crack and thump of 50 calibre machine gun fire was very clearly heard.
Do you know how to identify someone is firing at you? You hear two noises (in military terminology known as a crack and thump. Every shot fired at you makes two noises for one shot. As bullet velocity is faster than the speed of sound, you first hear sound “tuck’ (or crack) when bullet goes through air closer to you. Then you hear sound “Dum” ( or thump) after some time. That is the sound made by bullets leaving the gun barrel. A well trained Special Forces person will be able to say the approximate distance of firer by the interval between crack and thump.
Enemy gun fire rained on the FAC, but we were almost beyond enemy’s effective gun range. Suddenly, one enemy gun shot hit the guard rail of the FAC. It’s splinters hit my left shoulder and upper arm . A sailor who was standing next to me at Open bridge was also hit in the leg. Blood soaked my left arm and multiple injuries were visible.
I knew I was hit badly. Sailors onboard panicked. I steered the FAC to a safe distance from land and informed my colleague Rohan, who was on another FAC on patrol and steered towards KKS.
After bleeding was controlled by a sailor trained on combat medicine, I found no major damage to my bones. I felt a bit dizzy, but able to walk into a waiting ambulance at KKS harbour to be taken to Army hospital at Palaly for immediate medical treatment.
On arrival at the Palaly Army Hospital, I saw a tall figure in a surgical gown waiting for me. He was non other than Dr Maiya Gunasekara, Consultant Surgeon. Dr Maiya took a few hours to remove whatever shrapnel he detected. He said others would remain inside the bones as they posed no threat. They are still inside my left shoulders and upper arm.
I consider them as gifts from the LTTE but they prevent me from through any Magnetic Resonance Imaging (MRI) machines!
I invited Dr Maiya on board to my FAC that evening and took him to sea and showed him Point Pedro and VVT (home town of LTTE leader Prabhakaran) from sea.
Dr Maiya volunteered services as a surgeon at the battle front and saved a number of officers and men who were severely injured.
Dr Indrajith Maithri (‘Maiya’) De Zoysa Gunasekara, FRCS, FICS, Consultant Surgeon was born on 22nd August 1951 and educated at Royal College, Colombo 7. He was a College coloursman in Basketball and Rugby Football and represented Royal College in Athletics as well. He represented the Royal College rugby team for a number of years and later entered the Medical Faculty of Colombo University. He was the recipient of Leslie Handunge trophy awarded to the best sportsman at both
Colombo and Peradeniya Universities in 1974. He excelled in both studies and sports, graduated from both Royal College of Surgeons of England and Royal College of Surgeons of Edinburgh and captained CR and FC rugger team and represented the National Rugby team and the National Rugby sevens team for a number of years . He was President of the Sri Lanka Rugby Football Union and Chairman of National Sports Council.
Now, he is the Consultant Surgeon at the Nawaloka Hospital, Colombo. He will sits in his consultation room (Room 55) at Navaloka Hospital daily.
However his dedicated service to the Nation in treating our Armed Forces personnel at the Battle front in Palaly Army hospital is not known to many.
Former South African President Nelson Mandela once said “There will be no greater gift than that of giving one’s time and energy to help others without expecting anything in return”
Thank you Dr Maiya – we salute you !
South’s development debacle compounded by SAARC’s inner paralysis
From a development point of view, it’s ‘the worst of times’ for the global South. The view of some of the most renowned development organizations is that the woes brought upon the hemisphere by the Covid-19 pandemic have probably stalled its development by decades. The inference is inescapable that the South would need to start from scratch as it were in its efforts to ease its material burdens, once the present health crisis shows signs of lifting.
A recent Jakarta Post/ANN news feature published in this newspaper on January 14th, detailing some of the dire economic fallout from the pandemic on the South said: ‘Between March and December 2020, the equivalent of 147 million full time jobs were lost in the Asia Pacific region. In 2020, the World Bank estimated that between 140 million people in Asia were pushed into poverty and in 2021 another 8 million became poor…..Vulnerable groups such as women, ethnic and religious minorities and migrant workers were worst affected. Across Asia, informal and migrant workers suffered an estimated 21.6 percent fall in their income in the first four months of the pandemic.’
Needless to say, being one of the least developed regions of the South and its most populous one, it is South Asia that is likely to be worst affected in the current global crunch. A phenomenon that should not go unnoticed in this connection, is the rising number of the ‘new poor’ in the South. This refers in the main to those sections of the middle class that are sliding into the lower middle class and the ranks of the poverty-stricken as a result of the ill-effects of the present crisis. Job loss and decreasing income are some of the causes behind this rising tide of pauperization.
Referring to this and connected processes the Institute of Policy Studies of Sri Lanka states in its ‘Sri Lanka State of the Economy 2021’report: ‘Estimates at the USD 3.20 poverty line are forecasted to be at least 228 million, with a larger share of the population emerging from South Asia yet again. Initial projections for 2021 estimate the number of individuals in extreme poverty to be between 143 and 163 million.’ The stark and widespread poverty emerging in Afghanistan since mid-August 2021, ought to push up these figures quite a bit.
Considering that the South is way behind the North in developmental terms, the unfolding global economic crisis could be expected to widen the chasm in material wellbeing between the hemispheres in the days ahead. However, ‘the overwhelming question’ for the South would be how it could fend for itself in the absence of those Southern-centred organizations that could take up its cause in the forums of the world and bring the region together in an effort to work towards its collective wellbeing. The importance of this question is strongly underscored by the fact that SAARC is more or less dysfunctional or paralyzed at present.
The immense magnitude of the poverty question is yet to be realized by the ruling elites of the South. It is as if the chimerical growth spurt in some sections of the South over the past 30 or so years has rendered them numb and insensitive to poverty-related issues, including the ever-yawning gulf within their countries between the obscenely wealthy and the desperately poor. As is known, while the so-called ordinary people of the South have been wilting in dire want over the past two years, the hemisphere has been producing billionaires in disconcertingly high numbers. This could be true of Sri Lanka as well and the Pandora Papers gave us the cue a few months back.
By burying their heads in the sands as it were in this manner, Southern political elites could very well be setting the stage for bloody upheavals within their states. The need for substantial ‘bread’ has always been a driver of socio-political change over the centuries. They are bound to find their problems compounded by the accentuation of ethnicity and religion related questions, considering that such issues are taking a turn for the worse amid the current economic debacle. Vulnerable groups would need to be cared for and looked after by rulers and these include women and ethnic minorities. An aggravation of their lot could compound the worries of Southern rulers.
The phenomenal increase of billionaires ought to be researched more intently and thoroughly by Southern think tanks, R and D organizations and the like. Among other things, does not this disquieting emergence of billionaires prove that classical economics was wrong in assuming that wealth would easily ‘trickle-down’ to the masses from wealth creators, such as businessmen and other owners of capital? After all, we now have clear evidence that mountainous wealth could exist amid vast wastes of poverty and powerlessness.
However, the view of some commentators that ‘neoliberal policies of privatization’ and connected issues should now be reassessed and even eschewed ought to strike the observer as worthy of consideration. These policies that enthrone free market economics should be viewed as badly in need of revision and correction in view of the inherently unstable economic systems that they have given rise to over the past three decades. Their serious flaws are thrown into strong relief by the present Southern economic crisis which has resulted in some isolated, formidable towers of wealth and opulence sprouting in a sea of hardship and economic want.
Hopefully, we would see a renewed wide-ranging discussion on development models from now on. Ideally, growth needs to go hand-in-hand with equity if development is to be achieved to a degree. There is no getting away from the need for central planning to some extent in our efforts to reach these ends. Capital and Labour would need to come together in a meeting of minds in these endeavours. Development thrusts would need to be launched on pragmatic considerations as well.
However, a regional approach to resolving these issues facing South Asia needs to be renewed and persisted with as well. As long as SAARC remains paralyzed such efforts are unlikely to bear full fruit. Accordingly, India and Pakistan, the regional heavyweights, need to negotiate an end to their differences and help rejuvenate SAARC; South Asia’s key collective body that could usher in a measure of regional development.
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