NM’s versus PBJ-Cabraal’s economics
You don’t have to be a leftist or agree with Dr. N.M. Perera’s (NM) philosophy to appreciate that the man was a giant in comparison with Sri Lankan alternatives, then and now. I offer an analogy to those who want another perspective on this remark: Personally, I don’t like Winston Churchill, but I do recognize in him a world historical figure of colossal proportions.
The point of this short essay is not to compare midget minds (Cabraal) or cleverer ones (they say PBJ is brighter) with the likes of NM who belongs in a different realm, but to discuss how under difficult external and local circumstances, and facing severe difficulties, NM and the present Administration adopted sharply different orientations. This is important, if like me, you are of the view that the Government of Sri Lanka’s (GoSL) rightward economic drift is excessive and unacceptable, but you still remain inquisitive about options.
In 1970, NM discovered that the country’s external finances were in even worse straits than the self-inflicted mess that Cabraal and the Central Bank have got us into now by mismanagement. He too came up against a set of conditions amounting to capitulation that the IMF had placed before the country, the alternative being a disastrous default on debt. The situation was not dissimilar to today. The previous Dudley Senanayake government had capitulated to IMF “conditionalities” and signed letters of intent. If the country defaulted on foreign debts, falling due soon, Lanka would become a financial pariah nation; but still NM wanted to steer a different direction. NM, the supreme pragmatist, for the first time took the people into his confidence and tabled the hitherto confidential IMF letters in parliament; he agreed to honour payments and asked the people to tighten their belts. Then he cut loose from the IMF and struck out on a different economic path.
A challenging environment
The pressure to capitulate to neo-liberalism was considerable already in the early 1970s. The Pinochet military dictatorship grabbed power in 1973 and set out as the first full throttle example of neo-liberalism. By 1975, neo-liberalism, theorized by Friedman and Hayek, was the creed of the IMF radiating from Washington and London. Mrs. Bandaranaike capitulated and broke her coalition with the left in 1975. Reagan and Thatcher were in power before the end of the decade. This was the political philosophy of the decade. The oil-shock of 1973 drove prices up by a factor of five before NM left the Finance Ministry and the value of Sri Lanka’s exports in comparison with import prices declined by nearly 50% between 1970 and 1975. Global currencies were in turmoil at the time since the fixed exchange rate mechanism was abandoned by the advanced economies complicating life for small countries. (See Prof. Hewavitharana’s book on NM’s financial policies, or Dr. Saman Kelegama’s review of the book – Daily News, January 6, 2007 – for more details).
At that time and now, not only the global economic environment but also the local economy was in poor shape. The problem again was government deficits. There was inadequate mobilization of resources to steer growth, the banking sector was not organized to support development, a huge amount of money was leaking out through currency manipulation and an illicit gem trade and taxation were not yielding adequate revenue. In a broad-brush manner one can say those were the worst of times for the economy as too are the present times. NM set about fixing these failings.
What is stunning is the entirely different methodologies adopted by NM and the present Administration to meet the economic challenges of the day. The PBJ-Amunugama-Cabraal team with Mahinda Rajapaksa standing behind as finance minister (PACAR) has taken a diametrically opposite approach to what NM adopted. PACAR has adopted a course that even Tissa Vitharana calls neo-liberal (www.colombotelegraph.com March 17). To be specific, the main elements of this approach are sovereign debt and reserve depletion as though there is no tomorrow, reliance on tourism and foreign investment, infrastructure expansion (some of it good, most of it white elephants) and foolish notions of turning Colombo into a financial centre to outshine Singapore and Hong Kong. The crass reality is that the government is borrowing heavily to finance Lanka’s external trade deficit and repay debt. This has pushed the country into a vicious debt cycle. The crisis in external finances and rising inflation in the local economy will have a knock-on effect on growth, savings mobilization and intensifying confrontations with the middle and working classes. NM pulled Lanka out of a yawning debt abyss; PACAR is digging us into an ever deeper hole.
PACAR’s strategy is business friendly and it asks the people to tighten their belts to facilitate capitalist growth. NM too advocated austerity but for an entirely different objective. His approach was to generate adequate domestic resources and lay down structures for the sustained development of the domestic economy. He put in place financial systems to support growth of the local economy since he was convinced that building resilience through sound long-term management, not undue dependence on foreign capital, was a more secure route. In contrast to NM’s approach the striking feature of the PACAR approach is that the latter lacks a programme for long term development of industry and agriculture. Its eggs are all in a very volatile seeni-bola basket of tourism, FDI illusions, the Colombo stock market, and fiddling with the EPF.
Sound economic foundations
It can be argued that NM’s demands that people accept austerity for a period to pay back accumulated debts and generate future prosperity were too severe. However he was motivated by the need to lay sound economic foundations in the public interest. Unlike cheap SLFP populism, and unlike PACAR austerity for the poor and riches for the business classes, neither of these were his motives. Still, it can be said that the electoral rout of the left and the SLFP in 1977 was a public statement that the people were not willing to exchange present consumption for future development.
However this is too harsh a verdict against the people because the failure was compounded by bad luck and certain mistakes – that is political mistakes of the coalition. NM was unlucky in that he took the reigns of financial leadership just as global capitalism was powering up for neo-liberalism and grinding leftwing programmes into dust all over the world; Mrs. B took this cue and broke the coalition. The mistakes that the left made were more in the political than economic domain; compromising on the national question, turning a blind eye to SLFP corruption, not taking a sufficiently firm stand when Sirima-Felix made excessive use of state power to put down the 1971 insurrection, and not leaving the Cabinet and sitting in the government ranks in parliament at an early stage; actually NM wanted to by mid-1974 but the rest of the party said NO.