The Rajapakse Presidency (Part V)

"We are back to an old truth, a truth the government seems unaware of, despite its vaunted economic populism. Though necessary, economic growth by itself cannot improve the living conditions of a majority of the people; the state must put in place means of disseminating the benefits of growth among those who occupy the lower half of the economic totem pole. Quite apart from the moral-ethical factors, neglecting the living conditions of the have-nots is counterproductive from a systemic point of view. Deprivation causes political and social conflict. It also endangers the economic health and national security – the ones most affected by poverty would be the soldiers needed for the war and the workers needed to staff our factories and fields and to bring us foreign exchange as migrant employees."
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Click to part IV

by Tisaranee Gunasekara

"…going forward boldly into the future in search of an imaginary past"
Michael Burleigh (The Third Reich: A New History)

V – Economic Insanity

(June 13, Colombo, Sri Lanka Guardian) In his 2006 Budget Speech President Mahinda Rajapakse mentioned an encounter he had with some members of the public. ‘Do not worry about the economy; we will put up with any hardship; finish the war’ – that was the message the citizens conveyed to him, claimed Rajapakse. The sentiments certainly reflected the dominant public mood in the South; hopes of a quick victory and a genuine willingness to make sacrifices for the sake of that victory ran high in those early months of the war.

The first discordant note in this ‘patriotic symphony’ was struck barely three months after the commencement of the unofficial Fourth Eelam War. In November 2006, the government hastily passed two resolutions giving the President and all parliamentarians a huge pay hike, with arrears. This move, unintelligent and unconscionable, was to be symbolic of the economic-financial path of the regime. No expense would be spared in the prosecution of the war but that cost would be borne entirely by the public; the regime would continue to spend on itself lavishly. Instead of equality or even fairness in sacrifice, there would be extreme unfairness and injustice. This disparity will be blatant and will be defended by the administration, often crudely; one minister claimed that the high government expenditure was inevitable because ministers are ‘men who eat and drink’ (kana, bona minissu).

The economy has ever been the weakest link of SLFP led governments and the Rajapakse rule is no exception. And the Rajapakse economic policy cannot be understood without understanding the ongoing Mihin Air fiasco. A budget airline was a campaign promise of Rajapakse. After the election a favourite aid, Sachin Vaas Gunawardana was tasked with setting up the airline. No expenses were spared, rules were bent and the airline was named after the President. According to revelations made in parliament a staggering Rs. 3.2 billion has been spent so far on the airline which currently does not have a single plane to show for it; only a host of highly paid staff and a lot of expensive ground handling equipment. According to media reports Mihin Air has asked the Treasury for a loan of US$ 800,000 (Rs.80 million) to lease two aircrafts; since the aircrafts are older than the period stipulated by Lankan law, a request has been made to change the law. There is little doubt that both requests will be granted despite the obvious risks involved in terms of finances and safety of passengers and crew.

A budget airline is hardly a national priority; nor is it the kind of measure needed to win votes. Mihin Air is thus a non-necessity both economically and politico-electorally; in fact it is a burden on both counts. So why do it? Is it because the airline bares the President’s name or because it is a gift granted to a Presidential favourite? Does it enable some highly placed people to make a killing, at national expense? What stands out in the entire episode is not its sordidness or its recklessness but its sheer irrationality, that the regime is pumping billions of rupees into a project which is not bringing it any political benefit or the country any economic benefits. This approach is symbolic of the Rajapakse mode of governance in general and the handling of the economy in particular.

The outcome of this irrational economics is manifest and inescapable. Staggering inflationary rates, growing national indebtedness, a slowing down of economic activity, a decline in living standards and a yawning gap between the rich and the poor are evident across the country. According to latest Health Ministry figures 13.5% of children under five years of age suffer from chronic malnutrition and at least 30% under five years of age suffer from anaemia; 19.6% of school children suffer from chronic malnutrition and 21% suffer from anaemia; 33.3% of adolescents suffer from acute malnutrition and of this almost 23% suffer from anaemia as well. Over 30% of pregnant mothers also suffer from anaemia. These figures were reportedly compiled last year and it is reasonable to assume that the figures for this year will be much worse given the higher rate of inflation. If these trends continue an unhealthy and weak populace will be the most overwhelming and permanent Rajapakse legacy to Sri Lanka.

Emil Coue, the French psychologist who pioneered the concept of optimistic autosuggestion believed, ‘when the imagination and will are in conflict imagination always wins’. This seems to be the favoured Rajapakse approach to the economy (and not just the economy). If the existence of an unbridgeable chasm between objective reality and its subjective perception is what makes and marks the insane, the label of economic insanity would not be inappropriate for the Rajapakse administration.

The signs of this economic insanity came early. Subsequent to the Sri Lanka Development Forum’s meeting in Galle in 2006, the government announced that it managed to obtain US$ 4.5 billion as new development assistance to Sri Lanka for the years 2006-7. Ajith Nivad Cabral, the first politician to be appointed as the Governor of the Central Bank, publicly exulted that this massive aid package came with no pre-conditions. The truth was the exact opposite. Galle was not a pledging conference and, contrary to the government’s claim, Sri Lanka did not receive a cent of new aid. This episode was a forewarning of the manner in which the administration would handle the economy, basing itself not on facts as they are but on facts as it wanted them to be.

This unreal way of dealing with the economy and the dangers it portended was highlighted by none other than the Auditor General in his 2006 report to parliament. The AG warned that tax and export income statistics of the government are misleading, placing in jeopardy both the budget and the future economic plans of the country. Though he had pointed out these errors on many occasions, it was of no avail the AG stated. If income statistics are unreliable then the budget will be devoid of reality which cannot but lead to a crippling financial crisis. But instead of taking note of the danger and implementing remedial measures, the Finance Ministry took the AG to task: “Sri Lanka's Finance Ministry has disputed a report by the auditor-general that weak collections led to a revenue loss of 360 billion rupees. The loss, it said in its annual report for 2006, was not more than 6.2 billion rupees of which half related to the VAT refund fraud which occurred during 2002-04. It also rejected the auditor-general's assessment of 22 billion rupees in tax arrears, saying that the figure needs to be 'revisited'…. The auditor-general's report said the revenue losses had occurred due to weaknesses in the tax administration, negligence on the part of revenue agencies and lack of supervision by the Ministry of Finance and Planning” (LBO – 6.6.2007 – emphasis mine). When the inevitable financial crisis occurred the government resorted to the practice of obtaining massive short term loans at exorbitant interest rates from the international money market, thereby creating the possibility of a future debt crisis.

As inflation sky rocketed and the living standards of the masses took a nosedive, the government sought solace in the satisfactory growth rates and in the steady increase in per capita income. Indeed in the increasingly hermetically sealed world of the powerful and the rich life was good and getting better. Upmarket stores are filled with expensive luxuries, the world’s most costly vehicles have a niche market in Sri Lanka and conspicuous consumption is the norm. But side by side with these signs of First-world like prosperity, are portents which cannot but be deemed ominous. Students are doing less well in national examinations, teachers are discontented and the government has not been able to deliver text books to most schools, even though six months have elapsed since the school year began in January. The health of the nation is undermined by a vicious cycle of malnourished mothers and malnourished children. At the lower end of the socio-economic totem pole families are sicker and children are less likely to gain the education and skills necessary for gainful employment in the future. And as the economic crisis worsens, these symptoms of socio-economic devastation are likely to creep upwards, affecting even the middle classes (especially wage earners).

We are back to an old truth, a truth the government seems unaware of, despite its vaunted economic populism. Though necessary, economic growth by itself cannot improve the living conditions of a majority of the people; the state must put in place means of disseminating the benefits of growth among those who occupy the lower half of the economic totem pole. Quite apart from the moral-ethical factors, neglecting the living conditions of the have-nots is counterproductive from a systemic point of view. Deprivation causes political and social conflict. It also endangers the economic health and national security – the ones most affected by poverty would be the soldiers needed for the war and the workers needed to staff our factories and fields and to bring us foreign exchange as migrant employees.

As Ranasinghe Premadasa repeatedly warned “everyone big and everything big is supported from the base provided by everyone small and everything small” (23.6.1987). Neglect the small and the big cannot survive; neglect the poor and the rich endanger themselves. Enlightened self-interest demands that the rulers adopt a more sensitive and sensible attitude towards the economic woes of the masses. But this is impossible given the regime’s persistent unwillingness to cut down waste and corruption to manageable levels. For example one of the main reasons for the recent massive hikes in petroleum prices is the huge import tax. And a large component of the nation’s fuel bill is caused by fuel consumption of ministers and their hangers on. This is hardly surprising given the number of vehicles and the number of ministers, deputy ministers and project ministers. But for the government any reduction in this massive wastage is unthinkable partly because it (correctly) fears the political fallout and partly because the Rajapakses seem to believe that they are entitled to treat public funds as their private property. So staff members of ministers are to be given more subsidised fuel, Sri Lanka sent a 22 member delegation to the recent ILO summit, excessive security measures imposed for the SAARC summit will deal a death blow to the ailing tourist industry and money will continued to be pumped into Mihin Air. Unreason will govern economic policy and chaos will be the outcome.

Instead of taking sensible and logical remedial measures the government tends to respond to the worsening economic-financial crisis in ways which vary from the surreal to the downright dangerous. Inflation index has been changed in order to show a low level of inflation rate. Anti-national elements are being accused of conspiring to ratchet up inflation in order to undermine the patriotic war and the patriotic government. For example Minister Bandula Gunawardane blamed traders of Indian origin (nattamis) for price hikes and then said that prices are going up because ‘some unscrupulous traders had imported essentials in 20 containers and dumped them’ (dumping drives down prices by causing a market glut except in the economic cloud cuckoo land inhabited by the regime). Underlying this absurdist Ministerial pronouncement is one of the fundamental tenets of the Rajapakse vision, a proclivity to see in the minorities potential enemies of the ‘nation’.

The economic insanity of the government is set to continue, with war as the pretext and patriotism as the justification. The regime will not change its ways. The only question is for how long the public will continue to bear their economic cross in silence and a spirit of resignation.

To be continued.
- Sri Lanka Guardian