Need for Parallel Political and Economic Reforms

Photo courtesy of New Indian Express

HARIM PEIRIS-06/08/2022

There is a fallacy being promoted by the reconstituted Rajapaksa regime that political reforms such as the proposed 21^stAmendment are not really necessary or at least have already occurred through the change of prime minister and a reconstitution of the regime and the need of the hour is urgent measures to resuscitate the economy because people are suffering economic hardship and their misery must be alleviated. Undoubtedly the people are suffering and their misery must be alleviated but political reforms are required for economic reforms. Both political and economic reforms need to move in tandem and, in fact, political reforms are a necessary precursor for sustainable economic reforms.

Ranil as Rajapaksa nominee

The Gotabaya Rajapaksa administration destroyed the economy. With a combination of the foolhardiness of the naïve, the arrogance of absolute political power and corruption through unaccountability, they delivered not the vistas of prosperity and splendour they promised and were mandated to do, but instead they destroyed of the national economy that was resilient even in the face of a 30 year civil war. It is ironic that the leaders who claimed credit for ending our war managed to bring about a destruction that the war never could.

After the crash landing and the resultant political outcry by the populace, the initial response of the Rajapaksas was to fire (request the resignation) of their cabinet of ministers who obliged. When that did not assuage public anger, the response was a combination of trying to shoot protestors (Rambukkana) and beat up the protestors (GotaGoGama) and then reconstituting the regime with a UNP prime minister with a full parliamentary group of himself. The rationale for this move was that the government was resigning and someone must take over the reins. What now exists in government is Mahinda Rajapaksa giving up the trappings of a ceremonial prime minister, a single seat MP as prime minister who is dependent on the core SLPP parliamentary group for the government’s survival, Basil Rajapaksa reverting to his customary role of SLPP party boss calling the shots sans ministerial office and President Gotabaya Rajapaksa continuing with full executive powers.

The Samagi Jana Balawegaya (SJB) of opposition leader Sajith Premadasa was correct to have adopted the principled position as well as align with the sentiment of the vast majority of the public who have been seeking to have the president take responsibility for the economic collapse he engineered and to abdicate power. The opposition leader has correctly stated that Sri Lanka had an executive president and a ceremonial prime minister and either the executive president must go and/or his powers transferred to the prime minister and parliament for a prime minister led administration to work. (It was Sajith’s father President Ranasinghe Premadasa who was famously quoted as stating that under the 1978 constitution, the prime minister does not even have a peon’s powers). It is in the light of that reality as well as the constitutional reform discourse since the presidency of Chandrika Bandaranaike Kumaratunga that the SJB, through its general secretary Ranjith Madduma Bandara, tabled a proposed 21^stAmendment to the constitution that changes the executive presidency to a ceremonial one.

The Ranil Wickremasinghe proposed 21^st Amendment is a significant compromise from the reform proposals of the SJB and is instead a reversal to the status quo ante of the pre 20^th Amendment period, albeit a 19^th amendment minus situation. With some degree of consensus reached on many issues of the 21^st Amendment, it is now the (still) ruling SLPP which is seeking to renege on the 21^st Amendment and keep Ranil as a puppet on a string. Economic reforms come through policy changes that only a government with public political legitimacy can deliver. But the even the truncated 21^st Amendment must be passed.

The economic reforms

Sri Lankans face a catastrophe that even thirty years of civil law never perpetuated on a hapless general public. The response of Ranil Wickremasinghe’s economic team has been to reverse the lunacy of the Viyath Maga, Eliya and SLPP policy framework of slashing taxes, defending an artificially low exchange rate with all available foreign reserves, printing money to fund a fiscal deficit, being utterly corrupt, tone deaf to expert advice and banning fertilizer. Now interest rates have been raised, the exchange rate has been floated somewhat and the disastrous tax cuts of 2020 are sought to be reversed. Again, a reversal to the status quo ante of 2020. However, what was sufficient before the economic collapse will not suffice to pull us out of it. That would require a restructure of loss making state monopolies and other structural reforms of the economy, especially measures to ensure that our national debt burden is sustainable. Reforms that require public and political legitimacy, which the Rajapaksas have totally lost.

The IMF and the World Bank have made clear that no new funding facilities can be made available until Sri Lanka demonstrates a policy programme that basically makes our national debt, especially its foreign currency component, sustainable, i.e., repayable over time. The global financial system requires that sovereign nations honor their debts just like a national financial system require it domestically.

Contrary to popular belief, the reversal of the 2020-22 policies have made no material impact on our national finances and we only have fuel to provide mobility and ease our foreign currency situation because the Indians supply us with fuel on credit. Foreign policy wise, India is very kindly doing for Sri Lanka what in years past Germany tried to do for a while for Greece, which is bail us out of trouble. With over $600 billion in foreign reserves, it has decided that about one or two billion dollars could be used to fill the space vacated by the Chinese, who seeing the writing on the wall, made their cheque book scarce. The middle kingdom is quite hardnosed about its finances; just check the rates at which it lent money for the Rajapaksa white elephant projects.

Ranil’s interim government has perhaps done as much as it could, which is clearly not enough. A clear timeline for early elections, perhaps sometime early next year, will be required for real reforms to rebuild our devastated nation.