ECONOMYNEXT – Three key policy pillars articulated by the Janatha Vimukthi Peramuna from 2001-2004 and embraced by mainstreame
ECONOMYNEXT – Three key policy pillars articulated by the Janatha Vimukthi Peramuna from 2001-2004 and embraced by mainstreamed by the 2005 Mahinda Rajapaksa administration are being questioned as the country runs out of forex reserves amid money printing.
From 2005 Sri Lanka halted privatization, started recruiting tens of thousands of unemployed graduates into the public service every year with lifetime pensions, bloating an already bloated public sector and denying any benefit of a peace dividend to the country.
Sri Lanka also abandoned a price formula for fuel that had helped keep the rupee stable and inflation low from 2001 to 2003 even as global commodity prices went up from the ‘mother of all liquidity bubbles’ fired by the Federal Reserve from 2001.
From 2001 to 2003, state workers fell from 1.164 million to 1.043 million. But 2020, the public sector cadre was 1.58 million with another batch of 53,000 unemployed graduates being shovelled tax money.
Privatization
Privatization, which was carried out by then President R Premadasa administration as ‘peoplisation’ with 10 percent of the stock given free to employees and also by the Sri Lanka Freedom Party administration of Chandrika Kumaratunga, was abandoned.
Under the pro-state ideology which was hailed as ‘anti-neoliberal’, an agenda of state interventions, import protection that gave billions to so-called cronies engaging in import substitution at the expense of less affluent classes, emerged, which was also topped with periodic expropriations.
Under anti-privatization not only were state firms expanded with despite mounting losses, but SriLankan Airlines and Shell Gas, both privatized under Sri Lanka Freedom Party administrations were taken back to the state by then President Mahinda Rajapaksa.
The JVP and statist-nationalists mainstreamed the ideology by describing privatization as ‘selling national assets’ and as the public became more aware of SOE and corruption of political appointees and consultants running them, ‘selling to foreigners’.
The idea was also embraced by a United National Party led administration from 2015 which failed to privatize SriLankan Airlines, which the JVP did not actively oppose, attempted to de-list Property Development Ltd a unit of state-run Bank of Ceylon, and also failed to attract investors to port or power sectors through build operate transfer deals.
It however sold part of a Hambantota port to Chinese state firm.
The current administration is also trying to engage in public private partnerships and land sales to bring in private investment.
National Liabilities
State enterprises are a burden to the people, Finance Minister Basil Rajapaksa boldly said in the 2022 budget speech.
“There are approximately 300 state owned enterprises in our country,” Minister Rajapaksa said.
“These enterprises are engaged in the provision of various products and services. The government has invested over Rs. 670 billion in these state owned enterprises.
“In addition, annually about Rs. 75 billion is spent to maintain these entities. Most of these institutions do not provide returns on the investments made by the government.”
Every year about 30,000 persons retire from the public sector. However under a strategy pushed by the Janatha Vimukthi Peramuna, unemployed graduates, having learnt at public expense, are given jobs and lifetime pensions at the expense of society.
It was also part of the Rata Perata economic framework of 2005.
“Those detractors who failed to see the wisdom of our policies, will one day thank the UPFA Government for having the foresight to invest in training for the recently recruited 42,000 young graduates,” then Finance Minister Sarath Amunugama said in presenting the 2005 budget.
In 2020, 86 cents of every tax rupee collected went to pay state workers. Despite a pandemic hitting tax payers, 50,000 unemployed graduates were recruited who would be paid 20 billion rupees in 2021 alone.
But soon after the budget Minister Rajapaksa said the public service was also difficult for the people to bear.
“The public sector has expanded so rapidly that they have become an unbearable (uhu-lun-ner barry) burden,” Finance Minister Rajapaksa said told reporters soon after the budget.
“There is no need to give them lozenges. We must honestly accept, that this public sector is a burden (ba-ruck) to the country. To give benefits to the public sector we have to take money from the public.”
He said there was one public servant for 113 citizens at the time of Sri Lanka gaining independence from Britain in 1948, but the civil service has expanded and the ratio was now 1 state worker for 13 citizens.
Opposition Samagi Jana Balawegaya jumped on Finance Minister for admitting the truth claiming he was insulting the public servants.
The World Bank Plug
A key policy plank of the JVP was the opposition to formula based pricing of fuel.
Minister Wimal Weerawansa then in the JVP said it was World Bank plug when the UNP was formula pricing fuel every month up to 2004.
Unlike food, energy use goes up with income with higher income brackets consuming more.
On November 23, energy Minister Udaya Gammanpila, said Sri Lanka should have a fuel price formula if there was no ‘fuel price stabilization fund’ as promised in President Gotabaya Rajapksa’s manifesto.
“The super rich of this country own vehicles that do only 3 or 4 kilometres per litre,”he told parliament.
“The weight of this is borne by the value added tax (VAT) paid by villagers in remote areas who might not have even seen such vehicles. This isn’t fair.”
Sri Lanka Justice Minister Ali Sabri also made similar comments backing a price formula.
Prime Minister Ranil Wickremesinghe’s Regain Sri Lanka strategy in 2001-2004 recovery program came after a massive currency crisis in 2000/2001, which pushed up national debt to 100 percent of gross domestic product.
Subsdies
At the JVP also called for chemical fertilizer subsidies.
Wickremesinghe had complained in 2004 September that he had to rescue an economy which was hit by policies of the so-called ‘pariwasa administration’ in which JVP was also a partner.
“While we were engaged in this arduous task, the JVP went around the country saying that had they been in the government they would have given more benefits to the people,” Wickremesinghe was quoted as saying by Infolanka, a news portal in September 2004.
“They said that the UNP was dancing to the tune of the World Bank and promised to remove the ‘World Bank’ plug to reduce prices of goods in lightning speed. They pledged salary increase of 70% for public servants.
“Farmers were promised all kinds of fertilizers at a flat rate of Rs. 350. Not only graduates even the Ordinary Level and Advanced Level qualified youths were promised with permanent government jobs.
“They categorically said that petroleum prices would not be increased under any circumstances.”
The rupee appreciated to 95 to the US dollar by November 2004 from 98 in March with prudent central bank policy and low inflation. At the time the JVP said people did not feel it (angater danennay na).
Wickremesinghe in a 2015 administration in a so-called 100 day program gave sweeping subsidies.
Critics have said the administration suffered from policy fright and continued illiberal economic policies including price controls, money printing and currency depreciation with predictable results.
Sri Lanka has now come a full circle. The fertilizer subsidy has also been taken off and the country is in the midst of another currency crisis.
The rupee was about 100 to the US dollar at the time and under pressure mostly with money printed for fuel subsidies. About 60 billion rupees was printed in 2004 until the tsunami led to a private credit collapse.
Now the rupee is 200 and counting and in November alone 113 billion rupees were printed mostly to sterilize interventions and maintain a 6.0 percent policy rate. The rupee was 4.70 to the US dollar when a money printing central bank was set up, creating forex shortages. (Colombo/Jan03/2022)
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