Responding to Shantha Jayaratne’s bogus claims

• Following is a response to an article written by Shantha Jayarathne under the title “From crisis architects to change makers: Rethinking Ranil Wickremesinghe’s economic policies” (https://www.ft.lk/columns/From-crisis-architects-to-change-makers-Rethinking-Ranil-Wickremesinghe-s-economic-policies/4-762858) which was published on 10 June 2024.

By A keen student of economics

Flawed assertions

The writer claims that Ranil Wickremesinghe’s (RW) tenure is marked with a steadfast commitment to neoliberal economic policies and interestingly he cites reliance on foreign loans as a component of neoliberalism. There are divergent views as to what exactly neoliberal economic policies are, but the ideology is fundamentally based on its belief in free markets as the most efficient allocation of resources as well as its emphasis on minimal State intervention in economic and social affairs. However, I have never come across any academic literature which associates neoliberalism with reliance on foreign loans. On the contrary, neoliberal policies favour fiscal austerity which reduces dependence on both foreign and local debt.

The economic policies implemented by Margaret Thatcher and Ronald Reagan in the 80s are cited as exemplifications of neoliberalism by some. Critics argue that such policies (particularly cutting income taxes and reducing social spending) tend to favour the rich, while exacerbating class and income disparities in the society. The increase in the rates of income and corporate taxes is a noteworthy feature of President Wickremesinghe’s economic program as part of addressing longstanding fiscal imbalances. Meanwhile, Aswasuma – the social safety net launched by the RW administration – extended financial assistance to 1.5 million family units in 2023.

The President’s policies implemented currently and during 2015-2019 when he was the Premier cannot be characterised as neoliberalism, although it is the practice of some ignorant commentators. The period between 2015 and 2019 saw considerable public spending towards education and health, in contrast to the massive investments in expressways and airports by the preceding Mahinda Rajapaksa regime. Suwaseriya – the nationwide, pre-hospital, emergency, ambulance service – which has immensely benefitted the less-affluent sections of the society, was launched in 2016 under the Premiership of RW and it was the brainchild of SJB MP Dr. Harsha de Silva. 

An in-depth observation would reveal that the President’s policies manifest the thinking of the Centrist-wing of the Democratic Party – which was put into action by the administrations of the two previous Democratic Presidents – Bill Clinton and Barack Obama. Some could even say RW’s policies have a resemblance to the ideas enunciated by Rockefeller Republicanism.

Nevertheless, certain measures initiated by RW like divesting SOEs are tenets of neoliberalism, but it is widely recognised that selling off State commercial enterprises is a dire necessity owing to the fiscal mess the country has got into. In the backdrop of the perilous economic circumstances we are experiencing, it is unwise to be engrossed with ideologies or various isms. Rather, we must embrace practicality instead of ideology like Singapore, as Lee Kuan Yew stated in an interview with the New York Times during 2007. That approach was successfully adopted by Den Xiaoping, who famously said “it doesn’t matter whether a cat is black or white, as long as it catches mice.”

Jayarathne proclaims the so called neoliberal policies of RW have resulted in increased inequality and poor public services. RW never had the opportunity to lead the country prior to 2022 and even his premiership stints did not last long except from 2015 to 2019. Even then, his authority was curtailed by an antagonistic Executive and lack of an outright majority for the UNP in the legislature. For the policies of any administration to cause a meaningful impact, they should be implemented ideally for more than five years without any interruption. RW has never had the opportunity to serve a tenure of more than five years either as PM or President so far. 

On the other hand, Mahinda Rajapaksa ruled the country for nine years without a break while his brother two served as President for two and a half years, which was characterised by serious blunders in terms of economic policy that paved the way for an Economic Armageddon. It is interesting that Jayarathne does not make any reference whatsoever to the obvious repercussions of policies executed by the Rajapaksa brothers, who held the Presidency for more than a decade, when commenting about the alleged increased inequality, poor public services and other structural weaknesses of the Sri Lankan State.

How did Jayarathne determine that the country’s inequality has increased? According to the Household Income and Expenditure Surveys conducted by the Department of Census and Statistics, Sri Lanka’s Gini Coefficient of household income (the most frequently used measure of income inequality, with 1 reflecting complete inequality and 0 representing perfect equality) has remained more or less at the same range – between 0.43 and 0.49 – during the survey periods between 1986 and 2019 (Pg no 21 of Sri Lanka Socio Economic Data 2022 – CBSL). Furthermore, in terms of the latest Human Development Index, Sri Lanka is ranked at 78 ahead of other South Asian nations and Cuba – the idealistic, utopian state of many NPP sympathisers.

Distortion of truth

Jayarathne indulges in intentional falsification with his declaration that many infrastructure projects (financed by not-so-cheap external borrowings) that did not produce tangible benefits were undertaken under the leadership of RW. It is universally known that almost the entirety of such so called development schemes were conceptualised and implemented under the Presidency of Mahinda Rajapaksa – the six-lane highway in Hambantota district, the world’s emptiest airport – MRIA, and the rarely used international convention centre among others – from 2005 to 2014 and RW had no association with any of those as he was Opposition Leader during that time.

Misrepresenting the failures of Argentina

Continuing his fairy tales, Jayarathne had completely misrepresented the reasons for the economic declines of Argentina. Argentina was once one of the world’s richest economies at the beginning of the 20th century. But like almost every rich nation in the world from 1914 to 1945, its economic fortunes nosedived with the occurrence of the two World Wars. Although other major nations moved towards normalcy and progressed after the World War-2, Argentina regressed with Juan Peron coming into power in 1946 as his political philosophy, which favoured large Government enterprises and an overbearing state regulation on the economy, took a heavy toll on its fate. This was very vividly described by Talal Rafi – a noted economist and an expert member of the World Economic Forum – in an excellent article to this newspaper under the title – “How Argentina’s once great economy was destroyed? Lessons for Sri Lanka”– on 8th June, 2024.

Argentina dominates the international news headlines frequently for hyperinflation due to unprecedented expansion of money supply by its Monetary Authority over and above the rate of growth in its production; leading to its poverty rate reaching 57% currently. It has got nothing to do with the IMF.

Out of sync with the evolution of the IMF

There has not been a significant reduction in social spending subsequent to the IMF-EFF program. The Fund has included the necessity for an effective financial safety net to be undertaken within the Island in order to safeguard the poor as a vital prerequisite for approving the economic bailout package. Accordingly, the Government has introduced the Aswasuma program to alleviate the financial burden on the poorest segments. The Washington-based lender has evolved as an institution and its current structural adjustment programs include measures that protect the most vulnerable sections of the society.

Those who lament about the IMF-mandated reforms ignore the sufferings masses underwent prior to the bailout from the global lender. Jayarathne argues that IMF agreements limit the ability to pursue independent economic policies. What do these independent economic policies mean? Do they include unprecedented money printing and irresponsible tax cuts similar to the one implemented by Gotabaya?

A narrative is driven by influential opinion makers in Sri Lanka that no country has emerged successful by following IMF policy recommendations. India’s experience with the IMF provides the strongest repudiation to such baseless arguments. During an economic crisis in 1991, India had limited options to secure its economic stability. With growing inflation and a balance of payments challenge, New Delhi turned to the IMF, deciding to implement a series of reforms liberalising the economy. Such reforms paved the way for India’s remarkable growth over the past three decades and its emergence as a global economic power.

Considering the awful plight of the country in 2022, all of us need to appreciate the sense of stability the IMF program has brought about. The IMF is like a doctor at an emergency ward who tries to cure the patient and bring him back to life. Our economy has now entered the General ward from the ICU, but it is still sick and requires further medication to function as a healthy individual. Patience is required until the disease is fully cured and returning to bad habits like reckless fiscal policy measures like politically motivated tax cuts would certainly spell disaster or even death.

What is a production-based economy?

Like all NPP sympathisers, Jayarathne too advocates for a so called production-based economy and he characterises this economic model as one which reduces dependence on imports and foreign loans in addition to various other attributes. I have never come across a term called production-based economy within the realm of economics. Production is a component which is present in every economic system in the world. An economy is composed of production, distribution, and consumption; that are all interrelated with each other.

Out of Sri Lanka’s import expenditure, only 18% of it is spent on consumption goods while the remaining 82% is incurred on intermediate goods and investment goods that are essential in terms of maintaining the production activities of the country. Hence, there is a limit to which imports can be curtailed. Restricting imports also causes supply chain constraints to export-oriented industries that depend on imported raw materials while impacting livelihoods in sectors such as construction. The NPP Economic Council must explain with details the exact modality of the production-based economy which they present as the panacea to turnaround the country. Is import substitution a fundamental component of this proposed production-based economic model?

Who are the real architects of the economic crisis?

Many blame the two main political parties for the economic woes the nation is suffering. Yet the historical evidence proves that the ideals of the JVP and Anura Kumara Dissanayake (AKD) and their actions contributed immensely, particularly to the fiscal mess the country has run into. In discussing the anatomy of Sri Lanka’s economic crisis, many observers overlook the marked shift that took place in the country’s economic policy in 2004 with the election of the JVP-inspired UPFA Government. 

Prior to the UPFA’s victory, RW as Premier was pursuing economic reforms as envisaged by the famous Regaining Sri Lanka blueprint. During the 2004 Parliamentary poll, the Marxist outfit, severely criticised the then Ranil Wickremesinghe government’s (from 2002 to 2004) efforts to rationalise public sector employment. The succeeding UPFA administration, in which AKD held a cabinet portfolio, went on a massive recruitment drive and thereby, granted jobs to thousands of graduates, mainly art degree holders, who could not secure jobs in the private sector. Today, most of those graduates languish in Divisional Secretariats without contributing anything meaningful to the society. 

Further, privatisation was completely stopped upon the UPFA’s victory and the expansion of the public sector workforce continued while public sector enterprises incurred losses year after year until 2014. Consequent to Mahinda Rajapaksa becoming President in 2005, for which the JVP/NPP as well as AKD played a pivotal role, even hitherto private entities like Sri Lankan Airlines were brought back to State control. We all know what happened thereafter. Stopping privatisation of loss-making SOEs and providing jobs to graduates on political grounds, began in 2004 on the insistence of the JVP. 

Everyone is complaining about high taxes but no one is interested to reveal why the Government has been compelled to increase the tax burden. The primary reason for the enormous tax burden is the necessity to find money to meet the salary bill of the bloated, inefficient public sector. The hardworking employees in the private sector have to sacrifice their earnings as PAYE to finance the wages of unproductive public sector workers.

Who is responsible for the massive public sector cadre? At the end of 2001, Sri Lanka’s public sector employment (excluding semi-government agencies) was 863,993 according to the Central Bank. After the conclusion of the two-year Ranil Wickremesinghe administration, it had declined to 785,756 (2003). During the 2004 Parliamentary Election campaign, the JVP-inspired, UPFA coalition lambasted Wickremesinghe for curtailing recruitments to the public sector, and they promised to the electorate that unemployed graduates would be given State-sector jobs upon assuming power. Graduates from State universities (particularly, unemployed) represent a core element of the JVP vote base.  

Over the decade until 2014, the UPFA administration recruited a number of graduates as Development Officers purely on political considerations. Consequently, the employment in the State sector had increased to 1,068,773 (2014) when the UPFA left office.

Contrary to the portrayal, AKD and many of the NPP leaders had been involved in forming governments in the past apart from holding cabinet portfolios.