Conquest of bread and the sin of borrowing

Peter Kropotkin is a Russian revolutionist who has commented in his book ‘The Conquest of Bread’ what he considers to be the weaknesses of the economic systems of capitalism and how poverty and scarcity thrives on. However, Kropotkin did not believe in the theory of state and is known as an anarchist.

The issue of economic survival in Sri Lanka has become a great struggle with the ever-increasing prices of essential commodities. The Government has failed to provide relief to the poor and burden of maintaining the public sector white elephants have fallen on the poor people and they never asked for such white elephants.

Sri Lanka is a small country with no petroleum resources and has to rely on fuel imports from overseas. The cost of fuel is a determinant of the cost of prices. Any surge in cost of fuel would have a direct impact on the essential commodities. Even LPG production which is a by-product of processing crude oil is not sufficient to cover the market demand.

The cost of living has been a bane in our society since the 1970s and there do not appear to be any cohesive plans to resolve these problems. At every election monstrous promises and hopes are given to people and then forgotten. Bread prices have shot up sharply and the general populous finds it hard to survive

The cost of living has been a bane in our society since the 1970s and there do not appear to be any cohesive plans to resolve these problems. At every election monstrous promises and hopes are given to people and then forgotten. Bread prices have shot up sharply and the general populous finds it hard to survive.

Is there a moral issue now because the Government keeps on spending and wasting public money without any regard for the sentiments of the people? How will the Government address the cost of living issues? Does the Government have the political vision to wriggle the country out of its economic mess?

The longer the situation stays, the worse is to be expected and the Government will find it hard to coax the populace to vote for it even though it has a feather in its cap – the war victory. The level of the heat of the stomach would determine the outcome of future elections.

Debt burden and crime of binding future generations

The main economic sectors of our country are tourism, tea export, apparel, textile, rice production and other agricultural products. Income from overseas employment contributes highly in foreign exchange, and the major part of this money comes from expatriates from the Arabian peninsula.

The Central Bank paints a very bright future for Sri Lankans and the future is determined by the projects to be executed or the infrastructure projects that have been completed and displayed on the TV screen. Real development is measured by a country with a lower debt ratio, whereas almost all the infrastructure projects have been implemented through foreign debts and the debt levels have reached alarming proportions and still the borrowing is continuing at a mad pace.

Does the Government have the right to borrow money and bind future generations for repayments? This is a constitutional, economical, moral and sociological question and experts must review the burden of debt that has bound the country under international law for repayment.

Has the economy been well-managed to repay this debt burden? Do we really need these infrastructure projects? Could we not have improved the existing facilities, thus saving the money for other pressing needs such as education, health and social benefits? What have we done to improve our exports? Would foreign countries boycott our exports for mismanaging the foreign policy and the image of our country?

The image of the country has taken a deep dive and it is high time Sri Lanka’s image was resurrected. The pro-separatist lobby is making massive inroads in Western capitals and mounting a very destructive campaign against our country.

Has the Government been able to withstand the onslaught of criticism overseas? Does Sri Lanka have the means to confront the worldwide media giving a very adverse picture of Sri Lanka? Can the Government initiate a dialogue with the EU to avoid GSP+ being withdrawn? Can the Government trim the jumbo cabinet of ministers to a minimum?

Argentinean debt crisis

Argentina went through an economic crisis in 1990s and defaulted on foreign loan repayments and this resulted in foreign investors fleeing the country and capital flow towards Argentina ceased almost completely. The currency peso devalued quickly resulting in producing higher-than-average inflation. The situation demanded the large-scale debt restructuring since the debt had become un-payable.

However, the Argentinean Government met severe challenges trying to refinance its debt. Creditors, many of whom private citizens of other countries who had invested their savings and retirement pensions in debt bonds, denounced the default. The Italian Government lobbied against Argentina in international forums.

Vulture funds had a bigger slice in sovereign bonds during the critical phase and demanded that they be repaid immediately. The State had no spare money at the time and the Central Bank's foreign currency reserves were almost depleted. For four years Argentina was a pariah state, effectively shut out of the international financial markets.

Credit ratings fell sharply. Even as the economic situation improved, the amount of the debt was still the largest defaulted debt in history (about US$ 93 billion), and Argentina was in no position to pay without sacrificing essential parts of its budget. Even now Argentina is still far from being harmless of its international obligations.

One US Congress report says: “Many Argentines are at a loss to explain how their country, blessed with rich natural resources, fertile land and low population density, fell so far short of its potential and seems destined to repeat mini boom and bust economic and political cycles, as it has done for so long. Some blame the military dictatorships and a lack of strong democratic institutions which predominated between 1930 and 1983; others blame corruption and a series of populist measures taken since 1944; and a significant number of Argentines blame external factors, particularly the International Monetary Fund (IMF).”

Lessons for Sri Lanka

When we borrow money, we must ensure that the money is well spent and economic benefits are derived from such projects to repay the loan. Proper economic analysis and transparency in our public spending is also required before the Government commits itself to foreign loans. There should be zero tolerance for economic exploitation and corruption through such loans.

If Argentineans believe theirs was a rich country, what would be the situation for Sri Lanka? Sri Lanka’s debt/GDP ratios stands at 81.9/% of GDP in 2010 and further borrowings would tend to increase the ratio. We can certainly survive with debts only if we can improve our export revenues.

(The writer is a freelance journalist and a political lobbying and government relations consultant.)