Can India help?
Mercifully the post election razzmatazz of pandals, fire-crackers and orengen barley parties were markedly reduced this time and the new government is attempting to surmount problems caused by an entirely new situation of a president being from the different party to that of the government.
Following some initial probes into the finances of the government, the expected calamitous news is confirmed. The picture is bleak and as reported in The Island late edition yesterday and todays provincial editions, the government will be compelled to increase the price of flour by as much as Rs. 4 a kilogram. There is no other option available because the increase is being made in terms of an agreement signed this year by the Peoples Alliance government with the International Monetary Fund. Refusal to abide by the agreement may mean freezing of further tranches of assistance to be given under the agreement leaving the government in a near state of bankruptcy. Under the terms of the agreement with the IMF the government subsidy on flour should have been withdrawn months ago but the PA government continued with it, obviously because of the impending elections.
Prophets in economics or star class astrologers were not needed to predict this post election economic crisis. Even journalists made accurate predictions. The Island editorial of October 19, under the heading Santas early arrival, said: With the Central Bank announcing that the countrys economy was hovering around zero growth..... and economists saying that it was expected to sink below zero in the third quarter after the attacks on the Katunayake airports and the tourist industry virtually folding up, the thinking was that Santa might not appear at all this year. But this is Sri Lanka in election time. The Daily News announced that 40,000 temporary workers in state departments, corporations and statutory bodies are to be absorbed into the permanent cadre. The 40,000 workers being given permanency is peanuts compared with what was in Santas bag last week. He distributed goodies amounting to Rs. 11 billion, according to former Deputy Minister of Finance, Prof. G. L. Peiris calculations. The Rs. 11 billion seeni bola package - in the words of the professor - comprised Rs. 7,000 million brought about by the abolition of the diesel tax and the reduction of the national defence levy while Rs. 4000 million was distributed in the Rs. 1200 allowance to government servants and the Rs. 750 temporary allowance that is to be paid to pensioners. Before that the government decided to write off loans given to farmers from state banks. How would the government find this Rs. 11 billion without borrowing money? Prof. Peiris has asked. Prof. Peiris knows that the government will beg, borrow or print money till they last. After that who cares? If the other side wins it will be their problem and if the PA wins, it will re- impose bigger taxes to recover what was given out.
The other side has won and now it is their turn to find the funds.
In the post Cold War globalised economy there are no big brothers that go to the rescue of small nations due to ideological or other reasons. Besides there are indications are that a global recession is in the making.
For a newly elected government to jack up prices of basic commodities is indeed suicidal. It can resort to political chicanery such as bringing in temporary reductions like what the PA government did - reducing the price of a loaf of bread to Rs 3.50 and jacking it up even above pre-election prices - in a few months. But such moves do not help the people in the long run but erodes the economy.
In the long term there is no other option than to put the economy right. Till then Prime Minister Wickremasinghe has to find funds to tide over the crisis. Perhaps he should look to India in whom he appears to place much faith and hope. He is to visit New Delhi with a high powered delegation late this week and reports say that talks will be focused on the north-east conflict as well as bi-lateral economic co-operation.
In this regard there is a $(US) 100 million credit line which was offered by India last year when its Foreign Minister Jaswant Singh visited Sri Lanka immediately after the Elephant Pass debacle. According to reports, this $ 100 million facility could be used for import of commodities such as rice, wheat and sugar. This facility became operational two months ago.
It will be recalled that last year, with the fall of the Elephant Pass camp the LTTE cadres were almost on the outskirts of Jaffna. Sri Lanka made desperate appeals for assistance to India. But India could not help us due to its South Indian compulsions and only the quick dispatch of armaments from Pakistan such as multi-barrel rocket launchers helped to stave off the crisis. India could only offer to help evacuate our forces from the peninsula which was not the objective of the Sri Lanka government. It was following these events that this $ 100 million loan was offered as humanitarian aid.
Mr. Wickremasinghe, even in the opposition, was a strong advocate of friendship with India and should try to persuade Indian leaders to help him in his hour of need. India has an obligation to help Sri Lanka particularly because of the role it had been playing with regard to terrorism in the north and east of Sri Lanka.
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