President Ranil Wickremesinghe’s mission to achieve economic recovery, reconstruction and development is a massive tough task.It is difficult not only due to the gravity and severity of the problems, but the unpopularity and opposition to the needed reforms. The easing of economic hardships in the last two weeks may have given the impression that the [...]

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Tough task of economic recovery reconstruction and development

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President Ranil Wickremesinghe’s mission to achieve economic recovery, reconstruction and development is a massive tough task.It is difficult not only due to the gravity and severity of the problems, but the unpopularity and opposition to the needed reforms.

The easing of economic hardships in the last two weeks may have given the impression that the country’s economic difficulties are over and a process of economic recovery has begun. This is far from the reality of the economic situation. The economic conditions are as grave as before. Only a few policy reforms have been implemented.

Although the Government may have succeeded in relieving some of the severe hardships, such as the unavailability of gas, petrol and diesel, the fundamental economic crisis continues. The coming months would be a tough period of economic readjustment. The hardships that people would have to encounter would undoubtedly increase as the fiscal and monetary reforms are implemented.

All-party government

It is for this reason that the President appealed for the formation of an all-party government that would share the responsibility for the tough and unpopular decisions that the government must inevitably take for an economic recovery.

A few of the needed policies, such as the hike in prices of gas, diesel, petrol and kerosene, are a forerunner of the difficulties that people would have to undergo to retrieve the country from the economic abyss it has fallen into.

The corrective measures that have to be taken are hugely unpopular and fodder for an opposition seeking to discredit the government to gain power.As is often the case, good economics is bad politics. However, good economic policies are good politics in the long-run.

Knowing this, President Wickremesinghe sought to obtain a consensus on economic policies. He invited all parties to join his government. His appeal for such a government failed due to many reasons.

The political milieu of the country and party politics are not conducive to such a united government, even in this severe national crisis. One of the important reasons for this, is that several political parties would consider the unpopularity of the economic decisions that have to be taken of disadvantage to them were they to be a party to them.

On the other hand, it is, an opportunity to criticise the government for heaping hardships on the people. Being in opposition and having an eye on the next election, they can promise they would ease these burdens when they come into power. Political opportunism has been a dominant feature of the country’s politics for decades.

Moreover, the country has a political culture of entitlements. People expect the governments to provide benefits rather than impose   hardships. They are not aware that there is no such thing as a “free lunch” (Milton Friedman).

As Joan Robinson, the eminent Cambridge economist, observed in the latter part of the 1950s, we are a people who want to eat the fruit before the tree is planted and nurtured.

The country’s electoral politics is one of “truckling to the multitude” (Sir Ivor Jennings). Li Kwan Yu characterised our elections, as “an auction of unavailable resources.”

Furthermore, several opposition parties are committed to obsolete ideologies. They are still committed to inward-looking, import substituting autarchic policies.They have neither learnt from the experience of the failed 1970-77 regime, nor the reforms of erstwhile communist countries like Vietnam, nor the success of the South East Asian and East Asian countries or the NICs.The most convincing experience should be the fast growing outward-oriented erstwhile communist Vietnamese economy.

The leadership of several opposition parties should be aware of this, but their commitment to the outdated and impractical ideology remains. Indeed, political ideology is the opium of these parties.Unfortunately a significant proportion of the country’s population too shares this ideological stance. This makes the adoption of pragmatic economic policies unpopular and leads to trade union protests. Itis advantageous to oppose the government’s economic reforms.

Several opposition parties, including the JVP, have no concrete proposals, programmes or policies that could rescue the economy from its parlous state of bankruptcy. While they oppose the government seeking International Monetary Fund (IMF) assistance, they have no other policy option.

Foreign assistance

It is patently clear that Sri Lanka’s perilous state of the economy cannot be rescued by our own efforts. It is imperative that we obtain substantial foreign financial assistance to meet our debt obligations and have adequate foreign currency reserves for the functioning of the economy.

Foreign assistance, especially the support of the IMF, is mandatory. However, such assistance cannot be obtained without evidence of the Sri Lankan government adopting economic reforms and pragmatic policies to revive the economy. These invariably require economic discipline and reversal and adjustment of hitherto pursued bad economic policies.

The government has to take immediate measures to reverse the current economic conditions. One of the most important measures would be fiscal consolidation or the reduction of the country’s fiscal deficit to a minimal proportion.

For many years, the country has spent more than its income and those deficits had to be financed by domestic and foreign debt. The fiscal deficit is currently estimated to be as high as about 13 percent of GDP. This has to be drastically reduced to about five percent of GDP.This is no easy task. There are immense difficulties and drastic changes have to be undertaken to reduce expenditure and increase revenue.

The conditions that would be laid down for obtaining both bridging finance to overcome the current difficulties, as well as an Extended Fund Facility would lead to severe hardships.Needed pricing policies have already caused both increases in many commodity prices and increased the escalation of prices that have been witnessed recently.

One of the areas of expenditure curtailment would be the reform or privatisation of a large number of state owned enterprises. This is one of the most unpopular decisions the government would have to take.

As expected, already several parties have said they are strongly opposed to the privatisation of public enterprise. This is a politically ideological position that many parties have taken over a number of years.

By far the strongest component of Ranil Wickremesinghe’s government is the SLPP that has been strongly opposed to privatisation. In fact, they reversed some of the privatisations undertaken by the SLFP government of Chandrika Bandaranaike Kumaratunga and vowed that they will take over more private enterprises.

Overcoming opposition

It is intriguing to know how this political hurdle could be overcome by the government. The main opposition party the SJB however is likely to support this due to their more realistic economic policies.

The recent repression of protests and arrests under the Prevention of Terrorism Act (PTA) has been condemned by Human rights organisations and Western countries. They have condemned the use of the PTA and may withhold financial assistance till more democratic conditions prevail. This is a serious threat to economic recovery.

There are immense difficulties in undertaking realistic and pragmatic policy changes without which the country’s economic recovery, revival and reconstruction cannot be achieved. However, such reform will result in severe hardships on the people and lead to social unrest and political upheavals.

Furthermore, political parties within the government and in the opposition will continuously oppose the required economic reforms. In addition, the government’s violations of human rights may cause difficulties and obstacles in obtaining international assistance so vital for economic recovery.In this socio-political scenario the country’s economic recovery, reconstruction and development is extremely difficult.

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