Mangala,Indrajit Returning Empty-Handed?
Posted on February 6th, 2019

By sumanasiri liyanage Courtesy Ceylon Today

This time they might have thought it was imperative to meet the boss in order to find a relief for the economy that was in a real crisis. The crisis has surfaced in the form of a crisis of debt repayment. How do we characterise it?

Sometime back, when I was teaching at the University of Peradeniya, a group of young medical practitioners invited me to initiate a discussion on economic crisis. I began my talk posing them a question: What is meant by crisis/critical condition with reference to your practice?” The answer was almost unanimous. I was informed that the critical condition could be defined when the patient was very sick or injured and likely to die.

This is very closer to Wikipedia definition that says: Vital signs are unstable and not within normal limits. Patient may be unconscious. Indicators are unfavourable.” It was my turn. My response was something like this: If we use a similar definition in economic analysis, I would say the Sri Lankan economy is not in a crisis.” Those young doctors were not happy about my answer. Changing the track, I asked: Suppose you have a patient with a terminal cancer. How do you in this case characterize her/his condition? Is he/she in a critical condition?” It took time and one doctor broke the silence: Well, she/he is not in a critical condition but is experiencing a slow death. At some point she/he may fall into a critical condition.” I told them that Sri Lanka was in a similar situation as it was not a crisis like a ‘thunder storm’ that Marx had talked about, but a structural crisis. This was six or seven years ago. The nature of the crisis has gone through a complete metamorphosis and has reached a real crisis situation.

In 2018 rate of growth 3.8 %

According to Economist, Intelligence Unit (EIU), the rate of growth of the economy in 2018 was 3.8 per cent. Although EIU forecasts slight increase in growth rate this year, it may be forced eventually to lower the figure because of the reduction of agricultural production as a result of the Sena attack. Inflation has slightly shot up and the rate of unemployment has increased. The trade balance has widened. In 2019, it has been estimated that the country has to pay back debt worth around US$ 5 billion. The EIU said an unstable political environment would keep investor sentiment towards Sri Lanka negative in 2019. Risks to political stability will remain high throughout 2019.”

The Minister of Finance and the UNF Government is in paradoxical situation. As three elections are around the corner, the UNF Government has to table a Budget with a reasonable amount of goodies to please the voters. On the other hand, debt repayment of US$ 5 billion and the promise made to maintain the fiscal deficit at 3.5 per cent of the GDP would introduce a severe constraint on fiscal management. Hence, Minister of Finance Mangala Samaraweera and Dr. Indrajit Coomaraswamy, the Governor of the Central Bank flew to Washington to meet Ms. Christine Lagarde, the Managing Director of the IMF, to plead for a new extended fund facility. According to Dr. Harsha de Silva, the bad weather led to a postponement of the meeting but when whether was back to normal the Sri Lankan two member team was able to meet Ms. Lagarde. The following is the statement issued by Ms. Lagarde on 15 January 2019.

Lagarde’s statement

I was pleased to meet with Minister Samaraweera and Governor Coomaraswamy this afternoon. We discussed the challenging economic environment and the policy priorities for the country. The authorities stressed Sri Lanka’s continued commitment to their economic reform agenda under the IMF-supported programme.

We agreed that a strong policy mix, with effective implementation of that agenda, is key to strengthening confidence, while putting Sri Lanka on a sustainable, high-quality growth path that would benefit its people.
The IMF remains ready to support the Sri Lankan authorities in these endeavours and an IMF team is scheduled to visit Colombo in
mid-February to resume programme discussions.”

A strong policy mix

No money until the IMF team visits Sri Lanka. And Sri Lanka has to agree to ‘a strong policy mix with effective implementation of that agenda’. What will be included in the ‘policy mix’ is clear. It may propose further depreciation of the Sri Lanka Rupee, flexibilisation of the labour market, further reduction of Custom duties and signing of comprehensive trade agreements, increase in taxation in order to raise government revenue, scraping Government expenditure, price formulas for electricity and water and the divestiture of public enterprises. These are the key elements of neo-liberal policy package that has been at work since 1978. And I am certain that the Ranil Wickremesinghe Government would show its readiness to continue with neo-liberal policies, accepting the conditionalities of the IMF.

Until the mid-February visit of the IMF team, the Government has to borrow money from other sources, especially by selling sovereign bonds for the value of US$ 2 billion at a higher rate of interest. The country is in a vicious circle of indebtedness. The Government borrows in order to pay back existing loans. As a result, Sri Lanka’s foreign debt has increased by about US$ 3 billion in the last 3 ½ years. This may pose a serious question:

Is this a path to development? Will it introduce severe constraints over the country’s economic sovereignty? Will it make the Finance Minister and the Governor of the Central Bank mere puppets of international finance capital? These are the issues that need serious and careful analysis.

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