Features
The permeance of global debt
Lanka will subsist on a diet of perpetual debt
by Kumar David
The thesis of this essay, conveyed within my 1,700 word-mandate, is that the world economy has entered a phase of near universal debt. Lanka’s inexorable overload of domestic and foreign debt is part our own making part footnote of the global story. Everywhere, mighty USA and European Union included, the state is mired in debt that will not vanish so long as Finance Capital (FC) rules the world. The surpluses created by economic activity are amassed by a few institutions and individuals. Thomas Piketty drew attention to inequity of wealth and income. The market capitalisation of the world’s largest 2,000 companies is $100 trillion, but the value of all the property (land, houses, other fixed assets) of the poorer 50% of the world’s population is just $10 trillion. The heft of bank balance sheets, private-equity, mutual and hedge funds, pension & social welfare coffers, sovereign wealth funds and holdings of personal wealth, leave one dumb struck by their magnitude. FC rules the world.
Recently, post the 2009 recession, Central Banks including especially the Fed in the US expanded money supply not by billions but by trillions. Governments issued bonds, that is borrowed from FC’s (money-market) gigantic holdings to splurge on fiscal deficits or “sold” Treasury Bonds to Central Banks, which printed money (electronically) to “buy” on never-never terms. Debts to Central Banks will never be repaid, simply rolled over in perpetuity. Central Banks also ‘Quantitative-Eased’ hundreds of billions to banks and private funds to lubricate asset purchases (equities and property) which merely ballooned an asset price bubble and exacerbated wealth inequality. I don’t want to stud this piece with statistics which readers will find easily enough on the Internet and will limit myself to three numbers. The US national (government) debt of $26.5 trillion exceeded US GDP during 2020 and will not decline in the foreseeable future – in Japan it’s 230%. Second, global government debt is $60 trillion but global GDP in nominal (not PPP) terms is $75 trillion. The third point is that the total debt of non-financial corporations, globally, is about 95% of global GDP according to the IMF.
A nominal currency (not PPP) comparison
This essay is intended for my non-specialist readers and the data gives a broad idea of magnitudes and distributions. It is not easy to gauge indebtedness of financial institutions as reliable data is hard to come by. And it is meaningless to tot up household debt globally because $1,000 has a different meaning for say the denizens of the USA as against an Indian or an Indonesian. The idea I would like you to take away is not only that States and Corporations are deeply mired in debt, but more important things will get worse not better in the 2020s decade. This is commonplace in countries where productivity is low and which will never export enough to cover imports plus investment for capital projects plus surpluses to accommodate graft for the political classes. But I put basket cases to a side to deal with chronic diseases of the mighty. I cannot within the confines of this essay deal with the US, the EU and China, the big three whose capital shapes the world, and I have to limit this essay mainly to the US
Classical Keynesianism held that when demand and employment were low and economic activity in decline, the state should intervene and prime the pump with monetary and fiscal injections. ‘Monetary’ means to hold interest rates down and lend (print) to would-be investors; fiscal stimulus is big spending by governments to build infrastructure and create employment. Roosevelt’s New Deal helped but it was really WW2 (capitalism loves wars, armaments production and sales) that did the trick. In theory, economic revival should allow the government to recoup its outlay via higher taxes and duties. The “Keynesian multiplier” was said to be greater than one. It worked in the glorious boom from 1945-1970 when capitalism shone and socialist ideas were put away in a dog-box. But Keynes-Thought lost its shine after the oil-shocks of the 1970s and welfare capitalism slumped into Stagflation – economic growth was stuck in the mud; high inflation could not be reduced and high unemployment persisted. The world did not learn a lesson and turn against capitalism. On the contrary, there came neo-liberalism; Regan, Thatcher, Pinochet and JR slashing welfare, smashing trade unions, privatising and swinging political philosophy to the far right. Except Pinochet, mostly within the bounds of democracy unlike ultra-right populism today.
The gurus of neo-liberalism like Heinrich Hayek, Robert Barro and Robert Lucas, theorised that the Keynesian-multiplier was less than one. Barro father of the now discredited ‘rational expectations theory’ said that if the state spent more, people will realise that higher taxes were on the way and would spend less, erasing the hoped for increase in demand. Nothing of the sort is happening today; reality has stood ‘rational expectations’ on its head. The US housing market is rising because of low interest rates (interest rates are negative in Japan). Consumer spending remains undamped without engendering inflation because the US consumer is tapping into a global, mainly Asian, dirt cheap by US prices, one-billion worker labour-market churning out goodies for pampered North American and European consumers. Inflation in the Eurozone is negative; Japan is in perpetual deflation. Fifteen dollars per hour! An Asian or south of the US-border worker will be lucky to take home $15 (LKR 2800) a day. What Barro and his ilk failed to take into account was much-integrated global goods, services and labour markets. US inflation stays stubbornly low because producers for the US market de facto pay minimal wages to their producers (workers). In any case governments and Central Banks can’t stimulate the economy in perpetuity, you can’t defy gravity forever.
Demand is slack in advanced countries because the one percent rich can only splurge that much on consumer goods and prefer to invest in assets, and secondly production companies are risk-averse in the face of Asian competition hence domestic investment in manufacturing remains weak. The pre-COVID picture was bleak since state revenue was slack in the rich world due to slow growth, and it was falling in the US thanks to Trump’s tax handouts to the rich. Post-COVID expenditure has risen even further due to large expenses on medical and subsistence grants and unemployment payments. Hence pressure for trillion-dollar stimulus packages. The end point is that substantial fiscal deficits have become a permanent feature. In the US for example the fiscal deficit for 2020 and 2021 taken together will be three to five trillion dollars. There is no way out except to borrow-print-hold interest rates low or negative, and live with debt for eternity. Eurozone stimulus will be hundreds of billions per years for many more years. This nexus of extra-loose monetary policy and unescapable fiscal deficit blurs the divide between monetary and fiscal policy; they merge. Government borrowing without constraint has got a new name, Modern Monetary Theory (MMT). Adherents of MMT dismiss concerns that excess borrowing will induce inflation or will bring countries to the brink of an abyss. They have no fear that if interest rates go up governments will have to default or that the financial system will die in convulsions.
I need to repeat the thesis that underpins my essay before moving on: The world economy has entered a period of universal debt – government, corporate and household. I now need to say a few words about high-finance in China; I am avoiding the term finance-capital (FC) when dealing with China because how financial interactions will unfold in the context of a state-led economy cannot be foreseen yet.
High-finance is moving into China on a not insignificant scale. I am on tenuous ground, but I make a ball-park guess that about 10% of global high-finance is networked with China – add 5% to 10% if Hong Kong is included. True, New York, London, Tokyo and Frankfurt dominate bank, investment-fund and equity-market capital. High-finance however is on the move; asset managers (BlackRock and Vanguard), giant investment banks (JP Morgan Chase) and others are setting up shop in China (HSBC is already there), and Ant Group’s Hong Kong stock market launch later this year will be the largest ever IPO, eclipsing Saudi oil giant Aramco’s recent listing. Let us imagine that global high-finance has a quarter of its roots in the PRC by 2030. Remember that China took over as manufacturing workshop of the world in 20 years from 1980 to 2000; finance is a great deal more fluid than industry.
High-finance will be affected if the reach of China’s financial sector becomes even half as big as its global manufacturing. Some of the influences that will underpin change in the decade of the 2020s are easy to discern. The stranglehold of the US dollar as world reserve currency and mechanism of payment will need to be broken. Within five years an alternative global payments system and a currency based on two or three of the following, gold, yuan, yen, Euro and US$, will need to be initiated. (The US is the only country that can run eternal deficits, print mountains of money and export its economic problems because the world remains hungry for dollars till the value of the dollar declines). Second, the world needs other payments mechanism to overcome the US stranglehold known as sanctions – Cuba, Iran, Hong Kong, China, Venezuela, Turkey and Russia are among affected countries. Third, Belt & Road expenditure will be facilitated by an alternative global currency and banking and payments mechanisms.
A few words about Lanka before I sign off. The merging of monetary and fiscal policy is already advanced. Prof Lakshman’s task is to stay on the phone borrowing from whoever will lend and burning the midnight oil ensuring that the printing presses keep rolling. We are familiar with Lanka’s Central Bank borrowing billions again and again from China, India, the IMF or money-markets to repay China, India, the IMF or money-markets, again and again! Debt keeps growing as interest compounds while capital indebtedness persists. The balance of payments will remain in the red if not forever, for the foreseeable future. I don’t know it can be reversed both because governments need to survive politically and there is no big-enough feasible economic strategy. I am certain China, India, Japan and the US will not let us sink on the balance of payments issue since none of them wants a chaotic and anarchic country in this geographic location. For this reason I do not see sudden collapse but slow irreversible decline.
This essay has turned into heavy reading; I feel sorry for myself. No one pays attention to well researched stuff that is not simple to skim and digest. Anything on the Sinhala-Tamil brawl or derogatory of persons, regimes or regime-opponents draws stampeding crowds. Oh well, what to do!
by Dr Gotabhya Ranasinghe
Senior Consultant Cardiologist
National Hospital Sri Lanka
When we sought a meeting with Hon Dr. Ramesh Pathirana, Minister of Health, he graciously cleared his busy schedule to accommodate us. Renowned for his attentive listening and deep understanding, Minister Pathirana is dedicated to advancing the health sector. His openness and transparency exemplify the qualities of an exemplary politician and minister.
Dr. Palitha Mahipala, the current Health Secretary, demonstrates both commendable enthusiasm and unwavering support. This combination of attributes makes him a highly compatible colleague for the esteemed Minister of Health.
Our discussion centered on a project that has been in the works for the past 30 years, one that no other minister had managed to advance.
Minister Pathirana, however, recognized the project’s significance and its potential to revolutionize care for heart patients.
The project involves the construction of a state-of-the-art facility at the premises of the National Hospital Colombo. The project’s location within the premises of the National Hospital underscores its importance and relevance to the healthcare infrastructure of the nation.
This facility will include a cardiology building and a tertiary care center, equipped with the latest technology to handle and treat all types of heart-related conditions and surgeries.
Securing funding was a major milestone for this initiative. Minister Pathirana successfully obtained approval for a $40 billion loan from the Asian Development Bank. With the funding in place, the foundation stone is scheduled to be laid in September this year, and construction will begin in January 2025.
This project guarantees a consistent and uninterrupted supply of stents and related medications for heart patients. As a result, patients will have timely access to essential medical supplies during their treatment and recovery. By securing these critical resources, the project aims to enhance patient outcomes, minimize treatment delays, and maintain the highest standards of cardiac care.
Upon its fruition, this monumental building will serve as a beacon of hope and healing, symbolizing the unwavering dedication to improving patient outcomes and fostering a healthier society.We anticipate a future marked by significant progress and positive outcomes in Sri Lanka’s cardiovascular treatment landscape within the foreseeable timeframe.
by Fr. Emmanuel Fernando, OMI
Jesuit Fr. Aloysius Pieris (affectionately called Fr. Aloy) celebrated his 90th birthday on April 9, 2024 and I, as the editor of our Oblate Journal, THE MISSIONARY OBLATE had gone to press by that time. Immediately I decided to publish an article, appreciating the untiring selfless services he continues to offer for inter-Faith dialogue, the renewal of the Catholic Church, his concern for the poor and the suffering Sri Lankan masses and to me, the present writer.
It was in 1988, when I was appointed Director of the Oblate Scholastics at Ampitiya by the then Oblate Provincial Fr. Anselm Silva, that I came to know Fr. Aloy more closely. Knowing well his expertise in matters spiritual, theological, Indological and pastoral, and with the collaborative spirit of my companion-formators, our Oblate Scholastics were sent to Tulana, the Research and Encounter Centre, Kelaniya, of which he is the Founder-Director, for ‘exposure-programmes’ on matters spiritual, biblical, theological and pastoral. Some of these dimensions according to my view and that of my companion-formators, were not available at the National Seminary, Ampitiya.
Ever since that time, our Oblate formators/ accompaniers at the Oblate Scholasticate, Ampitiya , have continued to send our Oblate Scholastics to Tulana Centre for deepening their insights and convictions regarding matters needed to serve the people in today’s context. Fr. Aloy also had tried very enthusiastically with the Oblate team headed by Frs. Oswald Firth and Clement Waidyasekara to begin a Theologate, directed by the Religious Congregations in Sri Lanka, for the contextual formation/ accompaniment of their members. It should very well be a desired goal of the Leaders / Provincials of the Religious Congregations.
Besides being a formator/accompanier at the Oblate Scholasticate, I was entrusted also with the task of editing and publishing our Oblate journal, ‘The Missionary Oblate’. To maintain the quality of the journal I continue to depend on Fr. Aloy for his thought-provoking and stimulating articles on Biblical Spirituality, Biblical Theology and Ecclesiology. I am very grateful to him for his generous assistance. Of late, his writings on renewal of the Church, initiated by Pope St. John XX111 and continued by Pope Francis through the Synodal path, published in our Oblate journal, enable our readers to focus their attention also on the needed renewal in the Catholic Church in Sri Lanka. Fr. Aloy appreciated very much the Synodal path adopted by the Jesuit Pope Francis for the renewal of the Church, rooted very much on prayerful discernment. In my Religious and presbyteral life, Fr.Aloy continues to be my spiritual animator / guide and ongoing formator / acccompanier.
Fr. Aloysius Pieris, BA Hons (Lond), LPh (SHC, India), STL (PFT, Naples), PhD (SLU/VC), ThD (Tilburg), D.Ltt (KU), has been one of the eminent Asian theologians well recognized internationally and one who has lectured and held visiting chairs in many universities both in the West and in the East. Many members of Religious Congregations from Asian countries have benefited from his lectures and guidance in the East Asian Pastoral Institute (EAPI) in Manila, Philippines. He had been a Theologian consulted by the Federation of Asian Bishops’ Conferences for many years. During his professorship at the Gregorian University in Rome, he was called to be a member of a special group of advisers on other religions consulted by Pope Paul VI.
Fr. Aloy is the author of more than 30 books and well over 500 Research Papers. Some of his books and articles have been translated and published in several countries. Among those books, one can find the following: 1) The Genesis of an Asian Theology of Liberation (An Autobiographical Excursus on the Art of Theologising in Asia, 2) An Asian Theology of Liberation, 3) Providential Timeliness of Vatican 11 (a long-overdue halt to a scandalous millennium, 4) Give Vatican 11 a chance, 5) Leadership in the Church, 6) Relishing our faith in working for justice (Themes for study and discussion), 7) A Message meant mainly, not exclusively for Jesuits (Background information necessary for helping Francis renew the Church), 8) Lent in Lanka (Reflections and Resolutions, 9) Love meets wisdom (A Christian Experience of Buddhism, 10) Fire and Water 11) God’s Reign for God’s poor, 12) Our Unhiddden Agenda (How we Jesuits work, pray and form our men). He is also the Editor of two journals, Vagdevi, Journal of Religious Reflection and Dialogue, New Series.
Fr. Aloy has a BA in Pali and Sanskrit from the University of London and a Ph.D in Buddhist Philosophy from the University of Sri Lankan, Vidyodaya Campus. On Nov. 23, 2019, he was awarded the prestigious honorary Doctorate of Literature (D.Litt) by the Chancellor of the University of Kelaniya, the Most Venerable Welamitiyawe Dharmakirthi Sri Kusala Dhamma Thera.
Fr. Aloy continues to be a promoter of Gospel values and virtues. Justice as a constitutive dimension of love and social concern for the downtrodden masses are very much noted in his life and work. He had very much appreciated the commitment of the late Fr. Joseph (Joe) Fernando, the National Director of the Social and Economic Centre (SEDEC) for the poor.
In Sri Lanka, a few religious Congregations – the Good Shepherd Sisters, the Christian Brothers, the Marist Brothers and the Oblates – have invited him to animate their members especially during their Provincial Congresses, Chapters and International Conferences. The mainline Christian Churches also have sought his advice and followed his seminars. I, for one, regret very much, that the Sri Lankan authorities of the Catholic Church –today’s Hierarchy—- have not sought Fr.
Aloy’s expertise for the renewal of the Catholic Church in Sri Lanka and thus have not benefited from the immense store of wisdom and insight that he can offer to our local Church while the Sri Lankan bishops who governed the Catholic church in the immediate aftermath of the Second Vatican Council (Edmund Fernando OMI, Anthony de Saram, Leo Nanayakkara OSB, Frank Marcus Fernando, Paul Perera,) visited him and consulted him on many matters. Among the Tamil Bishops, Bishop Rayappu Joseph was keeping close contact with him and Bishop J. Deogupillai hosted him and his team visiting him after the horrible Black July massacre of Tamils.
Sri Lanka-Singapore Free Trade Agreement
By Gomi Senadhira
senadhiragomi@gmail.com
“You might tell fairy tales, but the progress of a country cannot be achieved through such narratives. A country cannot be developed by making false promises. The country moved backward because of the electoral promises made by political parties throughout time. We have witnessed that the ultimate result of this is the country becoming bankrupt. Unfortunately, many segments of the population have not come to realize this yet.” – President Ranil Wickremesinghe, 2024 Budget speech
Any Sri Lankan would agree with the above words of President Wickremesinghe on the false promises our politicians and officials make and the fairy tales they narrate which bankrupted this country. So, to understand this, let’s look at one such fairy tale with lots of false promises; Ranil Wickremesinghe’s greatest achievement in the area of international trade and investment promotion during the Yahapalana period, Sri Lanka-Singapore Free Trade Agreement (SLSFTA).
It is appropriate and timely to do it now as Finance Minister Wickremesinghe has just presented to parliament a bill on the National Policy on Economic Transformation which includes the establishment of an Office for International Trade and the Sri Lanka Institute of Economics and International Trade.
Was SLSFTA a “Cleverly negotiated Free Trade Agreement” as stated by the (former) Minister of Development Strategies and International Trade Malik Samarawickrama during the Parliamentary Debate on the SLSFTA in July 2018, or a colossal blunder covered up with lies, false promises, and fairy tales? After SLSFTA was signed there were a number of fairy tales published on this agreement by the Ministry of Development Strategies and International, Institute of Policy Studies, and others.
However, for this article, I would like to limit my comments to the speech by Minister Samarawickrama during the Parliamentary Debate, and the two most important areas in the agreement which were covered up with lies, fairy tales, and false promises, namely: revenue loss for Sri Lanka and Investment from Singapore. On the other important area, “Waste products dumping” I do not want to comment here as I have written extensively on the issue.
1. The revenue loss
During the Parliamentary Debate in July 2018, Minister Samarawickrama stated “…. let me reiterate that this FTA with Singapore has been very cleverly negotiated by us…. The liberalisation programme under this FTA has been carefully designed to have the least impact on domestic industry and revenue collection. We have included all revenue sensitive items in the negative list of items which will not be subject to removal of tariff. Therefore, 97.8% revenue from Customs duty is protected. Our tariff liberalisation will take place over a period of 12-15 years! In fact, the revenue earned through tariffs on goods imported from Singapore last year was Rs. 35 billion.
The revenue loss for over the next 15 years due to the FTA is only Rs. 733 million– which when annualised, on average, is just Rs. 51 million. That is just 0.14% per year! So anyone who claims the Singapore FTA causes revenue loss to the Government cannot do basic arithmetic! Mr. Speaker, in conclusion, I call on my fellow members of this House – don’t mislead the public with baseless criticism that is not grounded in facts. Don’t look at petty politics and use these issues for your own political survival.”
I was surprised to read the minister’s speech because an article published in January 2018 in “The Straits Times“, based on information released by the Singaporean Negotiators stated, “…. With the FTA, tariff savings for Singapore exports are estimated to hit $10 million annually“.
As the annual tariff savings (that is the revenue loss for Sri Lanka) calculated by the Singaporean Negotiators, Singaporean $ 10 million (Sri Lankan rupees 1,200 million in 2018) was way above the rupees’ 733 million revenue loss for 15 years estimated by the Sri Lankan negotiators, it was clear to any observer that one of the parties to the agreement had not done the basic arithmetic!
Six years later, according to a report published by “The Morning” newspaper, speaking at the Committee on Public Finance (COPF) on 7th May 2024, Mr Samarawickrama’s chief trade negotiator K.J. Weerasinghehad had admitted “…. that forecasted revenue loss for the Government of Sri Lanka through the Singapore FTA is Rs. 450 million in 2023 and Rs. 1.3 billion in 2024.”
If these numbers are correct, as tariff liberalisation under the SLSFTA has just started, we will pass Rs 2 billion very soon. Then, the question is how Sri Lanka’s trade negotiators made such a colossal blunder. Didn’t they do their basic arithmetic? If they didn’t know how to do basic arithmetic they should have at least done their basic readings. For example, the headline of the article published in The Straits Times in January 2018 was “Singapore, Sri Lanka sign FTA, annual savings of $10m expected”.
Anyway, as Sri Lanka’s chief negotiator reiterated at the COPF meeting that “…. since 99% of the tariffs in Singapore have zero rates of duty, Sri Lanka has agreed on 80% tariff liberalisation over a period of 15 years while expecting Singapore investments to address the imbalance in trade,” let’s turn towards investment.
Investment from Singapore
In July 2018, speaking during the Parliamentary Debate on the FTA this is what Minister Malik Samarawickrama stated on investment from Singapore, “Already, thanks to this FTA, in just the past two-and-a-half months since the agreement came into effect we have received a proposal from Singapore for investment amounting to $ 14.8 billion in an oil refinery for export of petroleum products. In addition, we have proposals for a steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million), sugar refinery ($ 200 million). This adds up to more than $ 16.05 billion in the pipeline on these projects alone.
And all of these projects will create thousands of more jobs for our people. In principle approval has already been granted by the BOI and the investors are awaiting the release of land the environmental approvals to commence the project.
I request the Opposition and those with vested interests to change their narrow-minded thinking and join us to develop our country. We must always look at what is best for the whole community, not just the few who may oppose. We owe it to our people to courageously take decisions that will change their lives for the better.”
According to the media report I quoted earlier, speaking at the Committee on Public Finance (COPF) Chief Negotiator Weerasinghe has admitted that Sri Lanka was not happy with overall Singapore investments that have come in the past few years in return for the trade liberalisation under the Singapore-Sri Lanka Free Trade Agreement. He has added that between 2021 and 2023 the total investment from Singapore had been around $162 million!
What happened to those projects worth $16 billion negotiated, thanks to the SLSFTA, in just the two-and-a-half months after the agreement came into effect and approved by the BOI? I do not know about the steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million) and sugar refinery ($ 200 million).
However, story of the multibillion-dollar investment in the Petroleum Refinery unfolded in a manner that would qualify it as the best fairy tale with false promises presented by our politicians and the officials, prior to 2019 elections.
Though many Sri Lankans got to know, through the media which repeatedly highlighted a plethora of issues surrounding the project and the questionable credentials of the Singaporean investor, the construction work on the Mirrijiwela Oil Refinery along with the cement factory began on the24th of March 2019 with a bang and Minister Ranil Wickremesinghe and his ministers along with the foreign and local dignitaries laid the foundation stones.
That was few months before the 2019 Presidential elections. Inaugurating the construction work Prime Minister Ranil Wickremesinghe said the projects will create thousands of job opportunities in the area and surrounding districts.
The oil refinery, which was to be built over 200 acres of land, with the capacity to refine 200,000 barrels of crude oil per day, was to generate US$7 billion of exports and create 1,500 direct and 3,000 indirect jobs. The construction of the refinery was to be completed in 44 months. Four years later, in August 2023 the Cabinet of Ministers approved the proposal presented by President Ranil Wickremesinghe to cancel the agreement with the investors of the refinery as the project has not been implemented! Can they explain to the country how much money was wasted to produce that fairy tale?
It is obvious that the President, ministers, and officials had made huge blunders and had deliberately misled the public and the parliament on the revenue loss and potential investment from SLSFTA with fairy tales and false promises.
As the president himself said, a country cannot be developed by making false promises or with fairy tales and these false promises and fairy tales had bankrupted the country. “Unfortunately, many segments of the population have not come to realize this yet”.
(The writer, a specialist and an activist on trade and development issues . )
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