January 13, 2016
Sri Lanka has just stepped into what could be a make-or-break year for the country. How it crafts its political and economic vision now will profoundly impact its future
Exactly a year after his election, President Maithripala
Sirisena has initiated a welcome process to rewrite the country’s
Constitution. The government is also moving ahead on transitional
justice processes to address the UN Human Rights Council resolution
unanimously adopted in September last year. However, progress on both
the constitutional and transitional justice fronts, which seem to have
the consensus of both the President and Prime Minister Ranil
Wickremesinghe coming from historically opposing parties, depends to a
large extent on the country’s economic future. Given the President’s
affinity to the rural economy and the Prime Minister’s championing of
economic liberalisation, the new economic reform agenda is likely to
shape the path of regime consolidation and influence the stability of
the government.
The prevailing economic conditions
characterised by the rising cost of living, lack of job opportunities
and income inequalities were central to the electorate voting out the
previous regime. And it is to address this troubling economic situation
that global financier and philanthropist George Soros was invited to
host the Sri Lanka Economic Forum during the first week of January. The
economic forum, a brainchild of the Prime Minister, aims at an economic
transformation by bringing in global finance capital and putting Sri
Lanka on the global financial map. The event was framed by Harvard
University’s Center for International Development which brought its
network of international experts.
The new economic
reform agenda is not very different from the financialised urban
development policies of the Rajapaksa regime. Increased borrowings in
the global financial markets, beautified urbanisation of Colombo and
tremendous infrastructure buildout over the post-war years leading to
high growth are the foundations on which the new economic policy package
is being constructed. However, the new policies are far more aggressive
in attempting to transform land, labour and capital in line with
dictates of the International Monetary Fund (IMF) and World Bank.
The
Harvard show in Sri Lanka was disappointing to say the least. With
little understanding of the country’s political-economic challenges and
outright ignorance of its history, a team of experts led by Ricardo
Hausmann of Harvard along with economic reformers such as Montek Singh
Ahluwalia, among a number of international panellists, did little more
than provide ideas from comparative situations; mere ideas found in
textbooks of economics and popular economic magazines with little
relevance for the path of development in Sri Lanka. The global economic
situation and the challenges for a developing post-war country after the
global economic crisis of 2008 and the continuing challenges were
hardly discussed. Instead, the aspirations of becoming a Singapore,
which is the tea party talk of the reminiscing elite in Colombo while
structural problems mount, was this time peddled by the experts from
Harvard.
Here, it is the interventions of Dr. Soros
and veteran economist Joseph Stiglitz alone that stood out in their
warnings about the global economic conditions and the tremendous
challenges facing the Sri Lankan economy. They raised concerns of the
economic downturn in China, the reversal of flows of capital with the
U.S. Federal Reserve increasing interest rates and the macroeconomic
policy challenges in the context of the short-term inflow and flight of
capital. Dr. Stiglitz in particular suggested the need to consider a
progressive land tax, a luxury consumption tax and the importance of the
role of the development state.
The macroeconomic
challenge facing Sri Lanka is no secret. It is an issue of extremely low
government revenues amounting to 12 per cent of GDP and that too with a
regressive tax regime with over 80 per cent of revenues coming from
indirect taxes. It is also about the low level of exports — limited to
garments, tea and rubber — which are only compensated by the remittances
of cheap labour working in West Asia. Moreover, the lack of jobs and
decent employment are aggravated by rising inequalities and uneven
development centred on Colombo. It does not take a rocket scientist from
Harvard to understand these problems.
It is the
solutions repeatedly prescribed, including by many international
agencies and think tanks, to these problems that are the subject of
debates and struggles in Sri Lanka. The government’s strategy is one of
increasing external financial flows and financialisation of the economy,
including through the promotion of a market in land and real estate.
The government is proposing further trade liberalisation despite imports
amounting to double of Sri Lanka’s exports, perhaps to please the IMF
and other international actors. Indeed, a possible IMF Stand-By
Arrangement and a new trade agreement with India are both expected in
the months ahead, and are likely to accelerate integration with the
global markets in capital and goods.
While the Sri
Lanka Economic Forum agenda claimed to address a policy of creating one
million jobs, there was not one concrete statement on how that was to be
achieved. However, there was much discussion of the government’s
flagship Megapolis project; the urban expansion of Colombo to cover much
of the Western Province, crucial to absorb the inflow of capital that
it desires. The doubling and in some places tripling of land prices in
parts of Colombo is seen to be conducive in contributing towards
building the massive urban infrastructure. The possibility of a land
bubble that may in the short term lead to speculative investment in real
estate, including through the proposed introduction of Real Estate
Investment Trusts, but eventually leading to crisis and dispossession —
characteristic of the many financial crises from East Asia in the late
1990s to the global downturn a decade later — was conveniently not
discussed.
Sri Lanka’s
problematic high-growth economic vision, even as its economy is falling
apart with indebtedness at all levels from its national finances down to
its rural households, requires the involvement and engagement of a
variety of actors both within the country and outside. Given the dearth
of development economists in the country, the support of progressive
economists in the region might also be necessary. Revitalising its
agricultural and fisheries rural economy, creating viable manufacturing
and industrial jobs, and revamping the coffers of the state require
critical political economic thinking particularly given the fragile
political moment in Sri Lanka. To draw from a historical lesson, one of
the most extensive progressive visions to reform taxation in Sri Lanka
came from the efforts of economist Nicholas Kaldor of Cambridge, who
spent months researching the problems of taxation in India and Sri Lanka
in the 1950s. The failure of the Kaldor scheme, in part due to the lack
of understanding of the political economy of Sri Lanka, should be a
grim reminder about the engagement of Harvard and its economist Prof.
Hausmann.
The Colombo elite gravitate at all costs
towards the West. Fourteen years ago, during the previous stint of Mr.
Wickremesinghe, Norwegian expertise and funds — backed by American power
— were invited to mediate the ethnic conflict. That Norwegian peace
effort coupled with neo-liberal economic reforms ended in a disaster:
internationalisation while disregarding the political and economic
realities on the ground contributed to the hardening of both armed
actors, a catastrophic end to the war, the consolidation of an
authoritarian militarised regime and further ethnic polarisation. The
writing is on the wall as far as the current round of international
engagement with the sorrows of the Lankan economy goes. It is not just
the credibility of economic policies and legitimacy of the government
that are at stake. The constitutional political solution and addressing
the political and social legacy of the war are also at risk with the
crisis-prone new economic policy package in the making.
(Ahilan
Kadirgamar is a political economist and member of the Collective for
Economic Democratisation based in Jaffna, Sri Lanka.)
By courtesy : The Hindu
http://www.thehindu.com/opinion/op-ed/time-to-look-within-not-westwards/article8098726.ece
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