|
|
 |
 |
| Sunday, 17 February 2002 |
 |
|
 |
Features |  |
| News Business Features Editorial
|
The gathering storm Part 1 by Neville Jayaweera "There is a tide in the affairs of men which, taken at the flood leads on to fortune; but omitted, all the voyage of their life is bound in shallows and miseries. On such a full sea we are now afloat..." - Shakespeare "I should say to the House, as I said to those who have joined the Government, I have nothing to offer but blood, toil, tears and sweat" - Winston Churchill There comes a moment in the history of a nation, as indeed it comes in the life's of men and women, when they are called upon to bear burdens, suffer traumas and make exertions such as they have never experienced before. While these moments are often fraught with pain and tragedy, they are also great launching-pads, presenting opportunities for self criticism, for correcting past errors and for breaking through to a new life. Not for the first time, such a moment has arrived again in the life of our nation. One hopes that, Prime Minster Wickremesinghe's government will not let this opportunity for a new beginning pass by, as all previous governments did in their day. Quite paradoxically, if Mr. Wickremesinghe sets out seriously to correct the accumulated errors of the past, the times immediately ahead, rather than generate prosperity, will in fact produce turbulence and pain that will exceed anything the country has known before. However, if he can harness the widest possible political consensus and support, and at the same time mobilise the people by taking them into confidence, the years following can also see this nation transformed into a haven of prosperity and harmony such as it have never known. First however, there will be the mountains to climb, the wilderness to traverse and the blood, the toil, the sweat and the tears, not just for an year or two, but for five years or more perhaps. The euphoria There was much euphoria when the UNF government was elected, that Sri Lanka was about to launch on good and prosperous times. Sadly, that euphoria, like all euphoria before it, has evaporated. Already one hears complaining across the land, in the streets and in the press, among university students and within the business community that the UNF government seems paralysed. The simple explanation for the UNF's seeming paralysis may be that the problems it has inherited are so daunting, that it is inconceivable that any single leader or any single party can ever solve them and it is probably because it is taking stock, and not for incompetence, that it seems to be moving sluggishly and to be even paralysed. On the other hand, in order that we may come to a correct understanding of the UNF's predicament, it is also important, that we must not, as many do, fix the sole responsibility for the UNF's inheritance on President Kumaratunga and her PA government either. The truth is also that the UNF's inheritance has also been accumulating steadily since Independence and every successive government, without exception, had added to it. It is irrelevant who added more or who less. They are all guilty of bringing the country to its present impasse. The Prime Minister's "crown of thorns" Now it is Mr Wickremesinghe's unenviable task finally to undo the errors that have been accumulating over five decades. He has not only to unscramble the egg that others scrambled but at the same time to square the circle also. Everyone knows that Prime Minister Wickremesinghe's "crown of thorns" as he calls it, consists of two interconnected components, the economy and the ethnic conflict. Many think that the ethnic conflict must be resolved first and thereafter the economy, using the ensuing "peace dividend" as a resource. This thinking is fraught with danger. First, assuming that the negotiations will proceed without a hiccough, the peace dividend will not be available for at least two years and setting the economy right cannot wait that long. Second, if the so called peace dividend actually becomes available, the fundamental and long standing structural flaws of the economy may be temporarily papered over again and the day of reckoning merely postponed. Furthermore, to be effective at the negotiating table, the option to walk away from it must always be available to Mr Wickremesinghe. If the government's economy is so debilitated that he does not have that option, his capacity to bargain will be proportionately curtailed. Therefore, before Wickremesinghe can deal with the ethnic conflict effectively he has at least to initiate measures to upgrade his economic capability. Or, at least, both problems have to be tackled as a single package, in tandem, rather than one waiting for the other. In this paper I shall confine myself to reflecting only on the economic crisis. What then is the grim truth about the economy? The kota uda economy The claim that the economy is bankrupt and is in crisis has been bleated out ad nauseam since the UNF came to power. On the other hand, when Mrs Kumaratunga came to power in 1994 she also screamed " bankrupt" and claimed the Treasury was empty and that the economy was kota uda. Surprisingly however, that did not prevent the PA from carrying on regardless, with ministers and officials junketing across the world and helping themselves to lavish perks, partying incessantly and giving free rein to extravagance and corruption. So what's new! Does not the incumbent government see that the bankruptcy cry, like "wolf! wolf!", has lost credibility and that the people treat it merely as a ploy by a new government to escape from its obligation to deliver? However, this is not to say that the economy is not bankrupt! Yes, indeed it is, but the truth is also that the economy has been bankrupt for decades, not just now, or back in 1994, but from the time that successive governments started disbursing welfare without investing for growth. Sri Lanka has been bankrupt from the time that it started borrowing to bridge its budget deficits and kept on bank rolling in order to get by. What is peculiar in the current situation is simply that rising war expenditure has made even that strategy impractical. Now the true crisis before the UNF government is that of having to undertake those fundamental adjustments in the economy which while making it unnecessary for Sri Lanka to continue borrowing in order just to get by, will also lay the foundation for a true prosperity and a sustainable equity. Successive governments, wanting somehow to carry on in office, backed off from undertaking those painful adjustments, and opted instead to paper over the cracks and pass on to their successors the unsolved problems. The dilemma before Mr Wickremesinghe's government is whether to follow the beaten track and somehow get by with band aid and plaster or resort to radical surgery and set the country on course for a sustainable prosperity. Choksy, Bandula Gunawardena and Moragoda have already more than hinted at the real problem. Let us discard jargon and try to understand in lay terms what the real problem is. The real problem The real problem is that the country has been living beyond its means for most of the past five decades and now it is pay back time. In other words we have been financially profligate, taking on responsibilities we could not sustain and spending money we did not have. True, during those five decades we also chalked up what economists call significant economic indicators so much so that in the annual index that the UN compiles to measure the rate of development of its member countries, among some 198 something countries, Sri Lanka ranks in the mid seventies, far ahead of our neighbours and ahead of most countries of Asia and Africa. Admittedly this is an enormous achievement. However this is only half the truth. The truth is also that we achieved those indicators fraudulently, that is, by consuming the surpluses and savings that we should have invested and when that ran out, by borrowing. We ate a cake which we did not bake and failed to put another in the oven, we consumed the fruits of a tree that we did not plant and omitted to put some seeds in the ground. In jargon, by consuming much of our limited capital and by borrowing, we achieved a hollow equity while failing at the same time to invest enough to sustain it. Although for decades our economists kept saying that we must "get the mix right", meaning that we must not only go after equity but ensure growth as well, we consistently opted for the former and neglected the latter. Politicians disbursed welfare because that won them votes and neglected the unpopular task of investing for growth. The proof that we have always got the mix wrong throughout the past five decades, is the mess the economy is in today. The "twin track" approach Even today, Minister Moragoda keeps repeating "we must get the mix right". That is entirely true but unless the rational economist in Moragoda can override the budding politician in him, his "we must get the mix right" can turn out again to have been merely a ritual mantra and for the umpteenth time the lasting interests of the poor sacrificed to ensure the survival of politicians. One recalls that Premadasa also talked of "getting the mix right" and his answer was what he called " the twin track approach", which meant exactly what Moragoda intends today, a delicate balancing of equity and growth. However, though Premadasa gave growth a new impetus he too, for a variety of reasons, did not rein in welfare and the imbalance continued. Regrettably, during the last two years of the Kumaratunga regime, "growth" actually fell asleep on the track and was run over, as it had done for seven years under her mother, with a similar tragic outcome. Wickremesinghe has now to move much faster on the growth track than on equity and actually rein in the latter, so as to redress the accumulated imbalances of the past many decades, and no one says that that is going to be easy for any elected government . That constitutes the crisis. A parable of Sri Lanka For illustrating Sri Lanka's predicament let us take a hypothetical couple, Mr and Mrs Somapala, who used up their inheritance, their savings and all their earnings, living it up. They inherited this wonderful ancestral home and equipped it with all the latest gadgets. They ate well, sent their children to private schools and abroad for higher education, threw lavish parties and took regular holidays in exotic places. They rode around in a Merc whereas their neighbours rode in three wheelers. All this was very impressive except that the time came when the bank manager said that there was no money in their account, that they had also borrowed far beyond their capacity to pay and that unless they got some income flowing into their account, he would foreclose on them. The Somapala couple had now to sell off their ancestral home and the family silver, make a dramatic shift in their lifestyle, and start saving. It proved a dreadfully harrowing experience, involving a lot of pain and gruelling hard work but they had to go through with it and virtually start life anew. However, being intelligent people the Somapala couple stepped down from their high perch, started living modestly, took jobs and started working fourteen hours a day. They got away from the jet set, started saving and began investing wisely. In a few years, a much wiser Somapala couple had saved enough to redeem their ancestral home, had started a new life and lived reasonably well thereafter. Their domestic economy was now based on a simple but sound principle, which is to try always to live within their means, and should they have to take out loans as they inevitably will in times of crises, they must ensure that the loans are not taken to finance daily consumption needs, and that they are kept severely under rein. The story of the Somapalas in merely a parable of Sri Lanka, except that we have yet to make those radical adjustments in our nation's life that the couple in our parable, made in theirs. The central problem In practical terms, what this means is that we have now to make deep inroads into our long established welfare structures, particularly education and health, which to begin with, we never could afford. We have to cut back on our elaborate subsidy schemes, in food items as well as in fuels. We have to off load from our public services and public sector corporations hundreds and thousands of employees whom they should not have employed in the first place and at the same time, tell those corporations that they have to step up productivity and earn their way because they can no longer be subsidised. Trade unions will have to be asked to corporate and impose on their members the severest standards of self-discipline as an alternative to having discipline imposed from outside. Very importantly, if the nation as whole is to be motivated to absorb all these strains, every vestige of corruption, particularly at the highest levels, will have to be eradicated ruthlessly and not least, the privileged classes, particularly the political elite, will first have to set an example, by themselves radically changing their ostentatious lifestyles, which while boosting their egos have served only to de-motivate and antagonise the poor. We tend to attribute the economic crisis primarily to the ethnic conflict. That is only half the truth. War expenditure merely brought the fundamental contradictions of the economy into the open and to that extent we may look on war expenditure as a catalyst. The central problem of the economy is not war expenditure but that we have sacrificed growth for a spurious and unsustainable equity and we have been consuming the capital we should have been investing. That is the problem. Even if the war goes away tomorrow, unless we carry out a fundamental restructuring of the economy and switch from consumption to investment, Sri Lanka will never obtain for its people those standards of living they have long craved. The longer we delay making this switch, the price we will eventually have to pay, will far exceed what we have to pay now, making "growth" even more "ruthless" when it comes, than it would be now. Now, let us look more closely at the strains that the country will have to absorb as our team of economic surgeons, Choksy, Gunawardena and Moragoda, perform radical surgery and what prophylactic measures they must put in place before they even attempt it. To be continued next week |
|
News | Business | Features
| Editorial | Security Produced by Lake House |
