Belt-tightening must start at the top

It was just the other day that the Minister of Economic Development, the second-most powerful member of the Cabinet, announced that in a world gripped with economic slowdowns, Sri Lanka's growth rate was second only to China, which we all know has a booming economy. The Central Bank Governor, not to be outdone, kept assuring and re-assuring the country that all was well with the economy, and that foreign reserves accounted for four months of imports, in economic jargon, a healthy sign.

Then, all of a sudden all hell broke loose. Not only did fuel prices skyrocket while the President was in Pakistan, but electricity rates were jacked up massively while the President was in Singapore. Cabinet ministers in charge, like the Transport Minister were not even told. The Petroleum Minister mumbled things to the media unable to explain what relief packages, if any, are to be given, and then quickly took wing to Dubai to avoid the fallout. The Power Minister is not to be seen and the Treasury Secretary and the Central Bank Governor are not to be heard. Only the Army, STF and the Police are called out to quell increasing public anger that has spilled over onto the beaches, railroads and streets countrywide eventually leading to the shooting of live bullets on the angry citizenry.

The lack of a conventional opposition displayed two things. One, that the Government believes it can get away with anything. Second, that the people will get on the streets, like in the Arab world and the Maldives recently, to vent their feelings.
So why did the Government keep misleading the public with a 'feel-good' message all along? It seems the recent International Monetary Fund (IMF) delegation to the country put matters in perspective. The delegation referred to the country's positive growth rate and predicted its continuation. At least Sri Lanka's is not a stagnant economy. But the IMF team had a subtle qualification. "The country needs to make a qualitative shift in policy directions," the IMF mission head said, adding, "we like to see monetary, fiscal and exchange rate policies supporting the country going forward with right economic fundamentals."

Our Economic Analyst, Dr. Nimal Sanderatne, a former Deputy Governor of the Central Bank and Chairman of Bank of Ceylon said in his column last week, "The policy prescriptions indicate the prognosis," and likened the IMF advice to the good bedside manner of a doctor not telling his patient the seriousness of the problem, yet insisting he follow the prescribed prescription.

The signs, however, were looming. In November last year, the Treasury upstaged the Central Bank by having the President announce a three per cent devaluation of the rupee as our trade deficit and balance of payments crisis kept mounting. The Central Bank was artificially propping up the rupee all through 2011 leading to friction between the Treasury and the Bank.
Come 2012, the Central Bank had to cave in. One almost feels that the President left the country not so much as to avoid the people's wrath, but rather the clash between the Treasury Secretary and the Central Bank Governor.

The unwillingness to recognise the problems, in the hope that monies from foreign remittances of our West Asian labour, tourism and other capital inflows such as long term debts from China, India and foreign commercial banks would offset the trade deficit (also justified on the grounds that it was brought about by development expenditure) was the root cause for the delay in responding to the problem at hand.

The result is what we saw in the public outcry on the streets and muttering resignation in homes and buses. The trade deficit is expected to rise to a phenomenal US$ 13 billion this year largely because of the country's import bill. There has been a definitive shift in exchange rate management, monetary policies and pricing policies post IMF visit. One could expect more stringent measures to come especially to curb import expenditure. The rupee could go up to Rs. 125-130, predict analysts, making imported items, including oil, dearer.

Basically, the Government has been forced to cut the subsidies provided to the people. And the people have the right to ask if all this is only because of world market prices, and the trade deficit or because of home grown reasons ranging from corruption, waste, mismanagement and even foreign policy directions. They have a right to ask if it is not the Government's duty to eliminate or in the least, show some eagerness to put these matters right so as to cushion the blows.

The Parliamentary report of the Committee on Public Enterprises (COPE) is gathering dust at the President's Office and the Treasury doesn't seem to care two hoots about implementing its recommendations. It might think that probes to take corrective measures and punish those responsible might end up on its own doorstep. So too is the case with the Auditor General's report given earlier. That must be under the COPE report on the same shelf, lost in time.

No action has been taken by those responsible for the oil hedging deal that cost the country millions of dollars. The culprits continue to hold public office. The country lost as much as US$ 464 million which is Rs. 54.9 billion. The kerosene subsidy given to Samurdhi households by the Treasury is only Rs. 128 million a month in comparison. How much longer could the subsidy have lasted? For several years more. No one seems to care about the wastage of huge amounts of public funds in tamashas for Bollywood stars with accounts still not settled, cricket stadiums unused most of the time or foolhardy bids for Commonwealth Games on the pretext that the country needs to get on track after a debilitating 30-year virtual 'civil war'.

It is not that the discerning public doesn't see the crony capitalism that has emerged with this Government. It is clear who the beneficiaries are when they see the expensive sports cars and motorbikes air-freighted to the country on national airlines that are running at colossal losses at the public's expense. A Freedom of Information Act is being deliberately blocked by this Government preventing access to public information, like Government tenders to the ordinary citizen. In the vacuum of such official information, it would be useful for Government politicians to listen to the rumours afloat in the fish market at Chilaw this week, for instance, on the reasons for the price hikes.

The situation is further aggravated by the country's misdirected foreign policy, running unnecessarily into a wall with our main trading partners over issues that could have been better handled. Even the private banks that 'held the fort' during those 30 tough years have been infiltrated by Government nominees forcing boardroom decisions to be taken on the diktats of the Government, jeopardising prudent banking judgement.

Indeed, the world economy is in turmoil. Linked as we are to it, there is no way we can escape its currents and undercurrents. But for the Government, it would appear, if one were to paraphrase an old saying, 'the dogs may bark but the carnival goes on'. Example and belt tightening must start at the top, not with the already emaciated lower income people of this country.

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Editorial Archive 2012 
01st January 2012 - The hopes and fears of 2012
08th January 2012 - Education fails
15th January 2012 - Ties with India vital but not at any price
22nd January 2012 - Handling India the President's way
29th January 2012 - Political stability - not autocracy
05th February 2012 - Freedom struggle continues overseas
12th February 2012 - Lesson from the Maldives: Listen to the people
19th February 2012 - Belt-tightening must start at the top
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