Features
Beyond debts and defaults
by Uditha Devapriya
Initially advocated by the neoliberal right, the argument to default on the country’s debts is now being promoted by sections of the Left. The government has indicated that it will not listen to either camp – it transferred funds for the repayment of a USD 500 million bond, the first of two that need to be settled this year, earlier in the week – but that has not muted calls to abandon its policy of doing well by our creditors.
The neoliberal right’s arguments are predictable enough. Whereas earlier they demanded that the government go for debt restructuring to make it easier to repay bondholders and regain lost credit ratings, now they advocate the same so as to shift focus to other priorities, such as importing essential goods. To be sure, the neoliberal right is not alone in saying this: Colombo’s economic think-tanks, in general, recommend that the government exercise that option. They frequently draw a line between defaulting and going bankrupt, contending that the former is preferable and urging the government to think so as well.
Like the liberal and neoliberal right, Sri Lanka’s Left has not been uniform in its response to these issues. The Old Left, the LSSP and the Communist Party included, vehemently oppose any restructuring, a stance the Frontline Socialist Party also adheres to. On the other hand, the JVP or the NPP has failed to come up with a coherent response: while Bimal Ratnayake and Sunil Handunhetti have opposed going to the IMF, Harini Amarasuriya has argued that we need to abide by international rating agencies. It is a testament to the JVP-NPP’s want of vision that it may be one of the few parties identifying themselves with the Left which have openly, and publicly, described these agencies as independent. In this it is as confused as its attitude to China, a point I have noted before in this paper.
Not surprisingly, then, the Left’s argument to default is largely ideological. In an intriguing piece, Professor Sumanasiri Liyanage suggests that we don’t repay and that we “cut down the bigger portion of imports of consumer goods that is close to one billion dollars“, thereby saving USD five billion. Professor Liyanage warns against opting for neoliberal debt reforms, namely rescheduling, restructuring, and moratorium, noting that they are “not the answer.” Though he doesn’t specify his preferred approach, he argues that it will entail a “necessary and unavoidable” paradigm shift that will lead to a “permanent solution.”
Professor Liyanage calls all this a matter of “simple arithmetic.” As always, the truth is far more complex. Given the state of the global financial system, a default would invariably be followed by calls for restructuring. Should we opt for restructuring, economists recommend reaching a compromise between the country’s citizens and its creditors. Yet the experience of most countries that have undergone such reforms should tell us that this will entail more hardships for the people than for the debt holders.
That is why, regardless of the exploitative nature of the global financial system, we need to realise that the repercussions of a default will be felt most by the lower classes. We need to understand that they will be the first to come out to the streets. With a diminishing space for their aspirations, the middle-class will most likely follow them.
This is already happening here: the fertiliser crisis, import restrictions, and rising costs of living have heightened popular opposition to the government, and they have brought these groups together. Fuel, food, and gas shortages, not to mention the prospect of power cuts and the possibility of further downgrades by credit rating agencies, are burdening an already overburdened population. Any default-and-restructuring policy can only contribute to a further rise in protests and demonstrations.
The fundamental problem here is how mainstream economists are addressing these concerns. As Professor Liyanage, quoting Jerome Roos’s Why Not Default?, observes, neoliberal ideologues keep making two assumptions about international sovereign debt: one, that a government is a “representative” and free agent which negotiates on behalf of its people, and two, that a country constitutes a single entity.
Such assumptions gloss over the fact that societies are made up of various classes, that these classes mingle and clash with one another, and that in the event of austerity it is those who have the least resources who end up losing the most. Neoliberal economists leave out these points from their discussions, perhaps because that they believe that economics can be insulated from politics; that would explain why the more doctrinaire among them advise revisiting and re-implementing the policies of the J. R. Jayewardene regime.
What, then, would a viable Left strategy entail? Firstly, we need to acknowledge that debt restructuring would be painful, especially for those who have already been hit hard by the pandemic. Not all of us are in the same boat: a recent Oxfam report notes that two years of the pandemic have resulted in a doubling of wealth among the world’s top 10 billionaires, yet another sign of how obscenely unequal the system is. To ignore these realities and call for a default would, in the long run, be to give into a “reform programme” that brings more suffering and widens inequalities. This should be avoided at all costs.
Secondly, the State needs to prioritise relief to the masses. The Oxfam report debunks the myth that governments can’t offer such relief by printing money. The US Federal Reserve, for instance, has been printing trillions of dollars since the pandemic began, to revive the economy, and countries elsewhere have followed suit. This has had a significant impact on the poorer masses, though the record in some countries has been mixed.
To be sure, Sri Lanka’s upward-aspiring middle class may think that only Sri Lanka engages in distributing financial relief by printing money, and bemoan it even as they indirectly benefit from it. But the potential of money printing to help the masses tide over – an objective Basil Rajapaksa’s relief package seems to be zeroing in on – should not be lost sight of. Modern Monetary Theory is by no means a long term solution, less so a sustainable one, but insofar as it facilitates relief, it should not be dispensed with.
Thirdly, the government should negotiate credit lines from as many countries as it can go to. As I noted in an earlier piece, the pandemic, and the depletions of the country’s foreign reserves, has become the primary determinant of our foreign policy. From snubbing India and Japan, for instance, we are now trying to obtain credit from them. While China has kept a low profile lately, it may extend further credit as well, renegotiating what’s already due to her. We need to take advantage of these openings.
Printing money and fine-tuning foreign policy, though, are temporary solutions. They should be phased out in the long run, in favour of more radical reforms. This is the fourth step we should be taking, though it is one that is yet to be discussed and debated.
Take a very simple but radical proposition: printing money to build up local industries and promote exports. Critics of Modern Monetary Theory contend that more money leads to more inflation. They are not wrong: prices of essential goods have been escalating wildly over the last few months. Yet the real issue isn’t whether money should be printed at all, but for whom and for what it should be printed: a question neither advocates nor critics of money printing seem to be asking.
The fact of the matter is that money needs to be directed to productive investments, and the only way to do that is to prop up local industries and spur industrialisation. This is a policy few economists, from the Left or the Right, have prescribed, but it is one that one of the more brilliant among them, Howard Nicholas, has.
Howard Nicholas’s advice is simple enough. Countries that industrialised faster than others have managed to reduce trade deficits and achieve export-led growth. Vietnam is a case in point here. Though mainstream economists contend that it was its decision to liberalise trade which facilitated faster growth, it was actually its industrial policy, combined with the phased out opening up of its sectors, which did so in the long run.
Dr Nicholas’s argument is a rejoinder to advocates of free markets and of mere import substitution, which may be why he has come in for criticism from both sides. But as Dushni Weerakoon of the IPS has noted, industrialisation can and indeed should form a crucial part of the solution, provided it’s buttressed with an enlightened tariff regime.
The bottom line to all this is that defaulting is not the answer to our problems. Defaulting may be the preferred way out for market fundamentalists and even certain leftists, but it’s definitely not the way out for the country. Opting for such a strategy would mean imposing greater austerity on the masses, which this government, mindful of its electoral prospects, will want to avoid at all costs. Dushni Weerakoon’s point, in that sense, is spot on: the debt restructuring option suits countries with a reputation for defaults, like Ecuador, but not so countries like Sri Lanka. Any “permanent solution”, then, would necessarily have to focus on the longer term. Industrialisation may well point us in that direction.
The writer can be reached at udakdev1@gmail.com
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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