Rupee crisis mainly due to internal problems – DEW

General Secretary of the Communist Party Dew Gunasekara at a Seminar on ‘the Economic Crisis in Sri Lanka’ held at the Sujeewa Hall in Matara last weekend flayed the government for trying to shirk the responsibility for the current economic crisis.

The veteran leftist said the country was facing an unprecedented crisis in the post-war neo-liberal era. Even though the Prime Minister sought to make light of the crisis as an adverse effect of Donald Trump’s decision to increase the US interest rates, it was a deeper structural crisis. It was reflected both in the society and culture. In brief, the neo-liberalism introduced by J. R. Jayewardene had led to a crisis, he added. “This has to be viewed in the context of the global development and the changing global order.”

As for the debt crisis it is necessary go back to 1978, to trace the origin of the debt crisis, when J. R. Jayewardene abolished all direct taxes, and other sources of government revenue. Even the direct income tax was reduced to the minimum. All these now fiscal measures were taken, in anticipation of a faster and accelerated growth though accumulation of capital. It only resulted in drop of govt revenue from 24% of the GDP to 11% by 2014. All administrations thereafter sought to bridge the budget deficits through debt. In short, the new concept of substituting the direct tax with debt was conceived. Another feature introduced by neo-liberalism was the indirect tax, replacing the direct tax which is today 85% of the govt. revenue, thereby passing the burdens of tax to the masses (or consumers).

“As regards foreign exchange, too, there was a structural change replacing the exports revenue with foreign remittance. Sri Lanka has continued to depend on the West for its exports with no attempt to diversify, ignoring the changes in the global order of trade.

“Today, our imports are twice the exports, thereby creating a deficit in the balance of payments, resulting in a depleted foreign exchange reserve. The foreign exchange reserve is made of foreign borrowings and not earnings.

“There has been no industrialisation over the last 40 years, despite the existence of a glorified Board of Investment, which is eternally in crisis. It has become a haven for tax dodgers and foreign exchange racketeers.

“With the collapse of the agricultural sector, Sri Lanka has lost its productive capacity. Our National Savings have been stagnant at 22% (one of the lowest) despite the existence of the National Savings Bank. All our State Development Banks have virtually become Commercial Banks.

“Thanks to Philip Gunawardena, Dr. N.M. Perera, Felix Dias Bandaranaike and T. B. Illangaratne, Sri Lanka was blessed with a galaxy of State Banks and State Funds like EPF. Under the yahapalana Government, they all became fortunes for the Finance Capital Speculators, as revealed in the Central Bank Bond Scam.

“Our rate of investment including state investments was a mere 28%. We need in the minimum 40% in order to achieve a growth rate of 7-8%. We are now between 3-4%.

“So, Sri Lanka is reduced to an import economy and with no domestic production and more imports, a consumer economy. Consumption has exceeded 70% under the present government.

“Our import of cars and gold amount to 10% of the total imports which is equal to the value of food imports.

“There has been no inflow of foreign direct investment; an outflow of foreign investments is the order of the day.

“So, we are reduced to an economy with no state revenue, no exports, no foreign development investment, no national savings, with inadequate imports and consumption. So, we have been surviving with domestic and foreign borrowings.”

Referring to the devaluation of Rupee, Gunasekera said since 1977, the rupee had depreciated during the last 40 years of neo-liberalism from Rs. 8 (1977) to (2018) under all administrations.

This situation is inevitable due to balance of payment and budget deficits.

“The government was well aware that since 2015, the US has been gradually increased interest rates seven times from zero to 2%.

“The government should have taken precautionary measures to counter the adverse effects the US interest rate increase, threats of trade was and economic sanctions affecting oil prices were well known to the world. Where were the precautionary measures?

“In my view, though these factors may have had an impact on our rupee, the real cause of the fall of the rupee is due to internal factors.

“The PM is trying to fool the people with cock and bull stories.

“Alternative policy framework and alternative alignment of social forces are called for.

Blaming China for the debt crisis was baselss, Gunasekera said, adding that Chinese loans amounted to only 10% of debts and the IMF, the World Bank, the ADB, the JICA of Japan, India and international capital markets account for the balance.

“China is today a global reality and decisive factor in the world economy whether one likes it or not. China contributes 30% to the World’s Economic Growth. Had there been no China, as the second economic power, how would Donald Trump have faced the on-going global economic crisis? Even the European conservatives accept the reality. Some of over Sri Lankan conservative and bourgeois economists cannot see it.

“Why blame the lenders for your lack of vision, strategies in same economic policies and inefficient economic management other self-inflicted factors?”