Features
Can SL benefit from a recession?
by Kumar David
It is perverse to extract benefits for ourselves from the misery of others – the advanced (rich) economies; but actually, the suggestions I make in today’s column do no harm to anyone. They are passive benefits. The first question though is, will there be a global recession? The World Bank in a recent (15 Sept) press release entitled “Risk of Global Recession in 2023 Rises Amid Simultaneous Rate Hikes” says: “As central banks across the world simultaneously hike interest rates in response to inflation, the world is edging toward a global recession in 2023 and a string of financial crises in emerging and developing economies that will do lasting harm. Central banks are raising interest rates with a synchronicity not seen for five decades—a trend that will continue next year. But this and other policy actions are insufficient to bring global inflation down. Investors expect 4% interest rate increases; 2% over 2021. Unless supply disruptions and labour-market pressures subside, this leaves global core inflation (excluding energy) at 5% in 2023— double the five-year average before the pandemic. To cut global inflation to a rate consistent with their targets, central banks need to raise interest rates by an additional 2%. If this is accompanied by financial-market stress, global GDP growth will slow to 0.5% in 2023 — a 0.4% contraction per capita which meets the technical definition of a global recession.
“Global growth is slowing sharply, with further slowing likely as more countries fall into recession. These trends will persist, with long-lasting consequences that are devastating for developing economies. To achieve low inflation, currency stability and faster growth, policymakers should shift their focus from reducing consumption to boosting production. Policies should generate more investment, improve productivity and raise capital allocation, which are all critical for growth and poverty reduction.
“The United States, China, and the Euro Area have been slowing sharply. Even a moderate hit could tip the global economy into recession. Experience of the 1970s, responses to the 1975 recession, subsequent stagflation, and the global recession of 1982 illustrate the risk of allowing inflation to remain elevated. Fiscal authorities need to calibrate the withdrawal of fiscal support measures while ensuring consistency with monetary-policy, but policymakers should put in place medium-term fiscal plans to provide targeted relief to vulnerable households”.
These extracts from the World Bank (WB) press-release are heavily abbreviated. Many other studies and reports too suggest that a recession is likely in 2023-24. Since I cannot quote a large number, I have limited myself to this WB source that carries credibility. For the purposes of this essay take it that interest rates and inflation will remain high, stock markets depressed, bond yields high and growth retarded for say five years. After that? Hard to say; the options are many.
What I have said so far is not new to those who track economic trends. It is background data for today’s column. A significant point however is that the strategy that is being adopted across the rich world to handle the problems that it creates are contradictory; it is a Janus-Faced strategy of loose fiscal policy side by side with tight monetary policy. A mutually contradictory problematic but unavoidable in the present global political, financial-economic, strategic and paradoxical energy related circumstances. Let me elaborate in a few words.
It’s easiest to use the US as a focal point. The Biden Administration finds it a matter of existential necessity to take stand against extremism (a lurch to racism, “election deniers”, reinvigorated Trumpism, electoral gerrymandering, a fundamentalist abortion surge in Republican controlled states and feminist outrage elsewhere, and a primitivist majority in the Supreme Court). Biden is seeking to survive by enhancing feel-good among the population. So the Administration is pumping money into pockets; fiscal stimulation a $1.9 trillion “American Rescue Plan” () and $370 billion “The Inflation Reduction Act” including tax credits and rebates for energy-efficient appliances, plug-in vehicles and renewable electricity. (Another part of this measure for Climate Change initiatives is bogged down for now by reactionary Democrats in Congress).
These Biden initiatives are inflationary and blatant fiscal stimulus. Fiscal stimulus is starkly in conflict with the tight monetary policy (high interest rates) that the FED is bent on in its attempt to bring US inflation down from a feared 8% to nearer the target rate of 2% per annum. The US dollar is rising across the world because of high FED rates and for other reasons such as the Ukraine war and political uncertainties, e.g. victory of neo-fascists in the Italian elections and strengthening of the far-right in France, Poland Hungary, Denmark and elsewhere in Europe. Both the FED’s actions and the said political factors should motivate tighter financial discipline. Instead we observe a crucial conflict between the fiscal and the monetary, further aggravated by West Germany’s imperative to pour money into consumer pockets to cope with energy bills during winter 2022 and 2023. Other EU countries will have to follow suit.
I have expended a few paragraphs on the trends circumscribing the global economy as it is essential background. The recent fashion in the writings of Lanka’s old left, broad left, Maoist and Fidel-loyalist left is to pour scorn on Ranil’s inadequacies which are legion. But Ranil is small change; what is needed is to understand the processes maturing in the innards of global capitalism and flesh it with analytical and empirical content. For example, the likelihood or otherwise of a decade of global capitalist durability, or alternatively, recession, deep-depression or depression. My few paragraphs are intended to alert readers to important issues in fiscal, monetary, financial and equity markets. (I have not even touched on one important issue, Lanka’s indebtedness to international capital markets). It is inattention to empirical data and detail among leftists that is undesirable. If empirical detail is disregarded and objectivity lost, all is lost. I will come back to these concerns again and again in future columns.
What is directly relevant to my topic today is how Sri Lanka can find spaces, crevices and loop-holes that it can to exploit to its benefit in midst of these stresses force upon the rich world. Since there will be money in the pockets of rich country middle, upper class and older consumers (a few hundred billion dollars) an obvious beneficiary can be our tourism sector. Ecotourism, cultural tourism and climate change related tourists are the sectors to watch for. The downside of reckless tourism – drugs and harmful sex tourism -are dangers to be alert to. We are familiar with employment generated remittances but SL expatriates too are (were) keen to inject funds into families to upgrade homes and open small businesses. A rush was visible in Jaffna soon after 2009 but choked on unbridled political corruption and rampant government racism.
These earnings have to be supplemented with a drive to expand the use of English in education. One has to be careful to encourage only UK English, not the American dialect to avoid snarl ups and to exploit the benefits of Lanka’s membership of the Commonwealth, one of the largest, and a still expanding association of nations. Other options such as permitting small property purchases by non-citizen individuals and non-resident expatriate families has also got to be examined.
Let me now comment on the big-capital picture. The world is awash with excess capital and now is a crucial opportunity to exploit access to large investment. It would be wise to channel investment into avenues that will be amenable to compliance with the role of the state in long term economic directions. This is tricky and a separate topic best left to another day. The point is that rising interest rates in the rich countries encourages money to move out of stocks, and there is some reluctance in the rich-world to invest in sovereign bonds and private equity, so there is a pool of big capital searching for investment openings overseas. To attract some of this as FDI requires tinkering with the exchange control mechanism and the exchange rate. Both the SL Central Bank and the government are well aware of the opportunities and perils; I mention it here only to slake the curiosity of my laymen readers. Everybody, government and CBSL are very cagey about flexibility in the exchange rate or reducing foreign currency restrictions!
Turning to the corruption theme, to attract large manufacturing investors and moderate sized investment in commercial farming (orchards for example) the biggest single disincentive is state protected corruption. Now allow me a politically incorrect remark: Retroactive capital punishment for the biggest crooks, the billion-dollar types, will be salutary. But sigh! It will never happen; who will touch the Rajapaksas or rogue Ministers and MPs? A minimum that can be done is to cultivate Lee Kwan Yew type morality in the public service – ruthless punishment of corrupt officials – and to install a Hong Kong style Independent Commission Against Corruption (ICAC) which in its best days prosecuted and imprisoned a Chief Executive the moment he stepped out of office and lost immunity.
One last point before I sign off is a briefing in the Economist of October 15 entitled ‘Mothering Invention’ about the role of the state in directing long-term economic policy. Dirigisme is a doctrine where the state plays a key policy role in setting long term economic policy. It is canvassed by the left internationally and in Sri Lanka. This Economist article provides considerable insight.
For access to the quoted World Bank text, Google (verb): “Will there be global economic crisis?” And click on the ‘Risk of Global Recession’ site that appears]. The compete
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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