Saturday 24th of February 2024

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System Change Happening In Wrong Direction


2023-09-13 1918

 

(Dr Jehan Perera)
 

The system change the protest movement sought was focused on ending corruption seen as the main cause of the economic collapse that took place a year and a half ago. Those who joined the protest movement from all parts of the country and who came in improvised transport including tractor trailers and lorries used for the transport of agricultural produce came from a tradition in which the state was the benefactor of the people. What they were experiencing was suddenly the opposite. The shortage of dollars to purchase fuel, food and medicine, among other necessities was believed to have been caused by the theft of the dollars in the country and those dollars being shipped to other countries by corrupt leaders. The feeling that the leaders had left nothing for the people but had taken all the dollars to themselves caused outrage.

The founding fathers of independent Sri Lanka who set the stage for the benevolent state that provided for its people was led by the first prime minister DS Senanayake had a vision of a self-reliant farming community which he wanted sustained through the big and small irrigation projects he launched. Accompanying him on this journey that sought the development of the people at all levels, especially those who were poor and marginalized was CWW Kannangara, who as minister of education pushed for universal free education that would benefit all children whether rich or poor, urban or rural. Due to the foundations laid in that time, and which were sustained by other leaders who followed, by the 1970s Sri Lankans had a quality of life that surpassed that of people in other countries where the national income was much higher.

The hundreds of thousands who took part in the Aragalaya protests, both rich and poor, urban and rural, had the vision of a system change that would benefit the entire society that was born of the ideals of the past, where the fruits of development would be available for all and not be siphoned off by a corrupt group of leaders to bank accounts in foreign countries. However, the system change that is taking place at the present time is one that is creating a huge gap between those who live as if in different worlds, though within one geographical and political space. The government’s efforts to meet the requirements of the IMF put most of the burden of sacrifice on those who are not represented at the negotiating table and powerless to resist. Prof Sumanasiri Liyanage has estimated that in the next 12 years, the pension funds will lose over a third of their capital due to the restructuring they are being forced to undergo.

 

Unfair Burden

 

Foreign Minister Ali Sabry, citing a Central Bank assessment report, said the impact of the new income tax law passed last week could reduce the annual EPF return to 9.72 percent from the current 10.99 percent which is given with a 14 percent corporate tax. The question is why such low rates when both state and private banks charge very much more as interest and why should the pension funds be taxed like corporate entities. By virtue of their size alone the pension funds ought to be getting premium interest rates, not downgraded ones. As social funds, they ought not to be taxed at the level of profit making companies. As the pension funds are controlled by the government, there seems to be no one within the government system to argue their case. The workers whose salaries are automatically deducted and transferred to these pension funds did have their representatives at the negotiating table to make their case. As a result, there was no way to stop the government doing what other countries restructured their debt have not done.

According to the Oxford and Harvard trained economist Dr Nishan de Mel of Verite Research, Sri Lanka is the only country in the world (based on published data) that is putting the entire burden of local currency bond restructuring exclusively on the social security funds of workers. Out of 14 countries that carried out domestic debt restructuring in the last 25 years, Sri Lanka stands alone in targeting social security funds while excluding banks and private creditors. IMF data shows that all 14 other countries restructured their banking sectors. Nine of them also restructured private financial institutions. Only two of them restructured social security funds. But none of them only restructured the pension (social security) funds and let the other sectors off scot free.

The government has targeted the EPF/ETF pension funds that would directly impact on the benefits to workers after they retire. But it is sparing the banks and big companies of this burden of debt restructuring. This happened in the United States, which Sri Lanka cannot emulate as it is an economic giant whereas Sri Lanka’s economy is comparatively tiny and much poorer per capita. In 2008 under the far right government of President George Bush there was a financial crisis in the United States, where the government bailed out the big banks. But even there it led to huge problems. The notion that “fat-cat bankers,” as the successor President Barack Obama once called them, should be rescued by the government even as everyday Americans lost their jobs, their homes and their life savings led to the Occupy Wall Street movement that took months to disperse.

 

Ensuring Sustainability

 

In the case of debt restructuring, not only have the representatives of the workers who contribute to the EPF/ETF been left out, even the opposition parliamentarians have been disregarded. Opposition spokespersons have declared that they will correct the injustice of debt restructuring that focuses only on the EPF/ETF pension funds. The problem with the government’s approach will be to ensure sustainability. Those who are not included in a decision and feel it is unfair will be unlikely to want to support it. Instead they will be oriented to believe that an injustice has been done to them and work to undermine the decision made. On the other hand, if they are included in the decision making process they may be able to point out areas of compromise so that there could be a give and take which would ensure longer term sustainability.

The government needs to heed the voice of the opposition in order to ensure the sustainability of the economic reform programme. This could mitigate the danger that a change of government could lead to a reversal of government policies with regard to the economy that may even lead to a greater economic crisis in the future. Former central bank governor Indrajit Coomaraswamy has said in a speech at a forum organized by an investment banking group that if the country allows elections to distract from the path of recovery, stabilization and growth, the country will be hit by a fresh crisis far worse than any before because it has a lower income and resilience at the present time. He pointed out that Sri Lanka’s election calendar has historically resulted in the reversal of progress made under the  IMF programmes that the country had undertaken.

In this speech in which he covered wide ground, the former governor said that “Every single time there has been an election, Sri Lanka’s macroeconomic policies have become indisciplined. We’ve had 16 IMF programs before the current one. On many of them we did make progress in stabilization as we have done on this one. But as soon as an election approached, the progress that was made was reversed.”  In a democracy, the answer is not for the government to suspend elections as the supporters of the present economic programme may argue. This would be a negation of democracy that will be unacceptable to the people as well as to the international community on whose goodwill the country depends. It is for the government to practice inclusion, ensure accountability, take action against those who bankrupted the country by their corruption and heed the sentiments of the people so that the vision of the founding fathers regarding the wellbeing of all, especially the currently poor and marginalized, is met.

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