Dysfunctional politics, dysfunctional economics

By Tisaranee Gunasekara

"Here we all fail together dwarfed and poor....."
Robert Frost (A Masque of Mercy)
It is obviously a season of conditionalities - when Sri Lanka, with her precarious political and economic situation could have done with a few concessions. There is the LTTE with its "unconditional conditions" for the commencement of peace talks. If granted these would worsen the existing security vacuum, while strengthening the LTTE’s position both politically and militarily. In other words the LTTE’s conditions can be granted only at the risk of undermining the security of the country and the people.

Things are no better on the economic front. The Sri Lanka Development Forum had plenty of advice to offer but no money. As the Vice President of World Bank, South Asia Region, Ms Mieko Nishimizu stated: "The focus of the forum will not be on aid levels. I’m afraid we might disappoint the press by robbing them of attractive headlines on billion dollars and pledges. There will indeed be no talk of money at this forum. (Emphasis mine). And there wasn’t; Sri Lanka was merely exhorted to carry out the prescribed economic reforms faster: "implementation, implementation, implementation.... Simply put, do it" as Ms Nishimizu phrased it memorably.

The "implementation, implementation, implementation" of the IMF package involving higher prices, retrenchment, loss of job security and pension rights is likely to destabilize the system by exacerbating the existing socio-economic divisions/contradictions. But then, why bother since the political crisis is merely an excuse made up by tardy politicians to delay necessary but painful reforms, as the IMF representative in Sri Lanka, Dr. Nadeem Ul Haq stated once.

The approach of the international financial institutions to economic policy making under post-socialist capitalism is rather similar to the approach of a segment of the international community to Lanka’s North- Eastern problem. No matter how many times the LTTE has used a peace process to strengthen itself and to launch an even more destructive war; no matter how many acts of terrorism the Tigers engage in and how many democratic Sinhala and Tamil leaders they assassinate. We would always be told that the only solution to the war and the ethnic problem is to negotiate with the LTTE.

As Ms Nishimizu’s one time colleague, the former Chief Economist of the World Bank, Joe Stiglitz recently stated: "In its failure as an institution clearly the IMF is the worst of the organizations" (The New York Review of Books - 23.5.2002). But the Third World is expected to regard the IMF as a fount of economic wisdom, whose slightest command should be implemented in full, irrespective of social, political and even systemic consequences.

Going nowhere

No wonder the Wickremesinghe administration is in a state of rut, just six months after being voted into office, having staked everything on the LTTE’s willingness to shift from waging war to making peace and the IMF’s ability to help us develop the economy. Unlike all previous UNP regimes this one has no development agenda. And just as the regime left the drafting of the critically important MoU with the Tigers to the Norwegians, it is content to leave economic policy making to the IFIs. Since the war was seen as the prime reason for the Lankan economic crisis, peace was axiomatically held to be the panacea for all economic evils. Consequently the regime is postponing development activities until the dawn of a lasting peace while implementing as many of the IMF recommended reforms as possible in the interregnum.

But peace is beginning to seem increasingly like a mirage, as the LTTE makes clear that it is not interested in going to Thailand anytime soon. "The time is not yet ripe for finalising the agenda for talks, as the ceasefire agreement is yet to be implemented in full," Tamil daily "Sudar Oli" quoted sources close to the LTTE as saying, in a dispatch from London. "It will be one of the wonders of the world," the sources said, when asked if the talks would begin, "at least by the end of July, if not late in June" (Deccan Herald - 19.6.2002). Obviously peace with the LTTE is becoming as unattainable as rapid economic recovery. But having staked everything on a negotiated peace with the LTTE the regime seems to be having the inclination to do little else except wait for the Tigers to agree to a date for negotiations and grant as many of their demands as possible, irrespective of the impact on the country’s capacity to defend itself.

In his speech on the occasion of the 9th anniversary of the assassination of President Premadasa by a LTTE suicide bomber, PM Wickremesinghe said that he is following the Premadasa policy of working towards a peace with the LTTE. Premadasa launched the first peace process between a Sri Lankan government and the Tigers; therefore he did not have the opportunity of learning from the fatal mistakes of his predecessors.

This partly explains the political and security related mistakes made in that first peace process. But Premadasa did not stake everything on the success of the peace process; he never made the mistake of waiting for peace to dawn to begin the task of developing the country.

He commenced his development programmes even as the JVP insurgency was raging in the South; after all his ambitious poverty alleviation programme, Janasaviya, was launched during the dark days of 1989 when the country was in the throes of a bloody civil war and the economy was teetering on the brink of total collapse. Consequently when the LTTE launched the Second Eelam War, it was possible for the Premadasa regime to contain the economic fallout, continue with the development programmes and in fact implement new ones without imposing the burden of escalating defence expenditure on the ordinary people. In fact Premadasa took his development offensive into the North East; concerted efforts were made to provide the people in the liberated areas with basic facilities to ensure a livable life - such as houses, infrastructure and jobs. It is likely that the success of this endeavour made the LTTE expedite its decision to assassinate Premadasa.

The Premadasa development strategy focused on improving the living standards of the people and fostering economic growth by increasing employment, income and consumption levels of the poor and the middle classes. The Premadasa development effort from Janasaviya to the 200 Garment Factories Programme was specifically focused on increasing the consumption levels of the poor - enabling those who wore slippers to wear shoes and those who went barefoot to wear slippers as he stated in one of his Presidential election speeches. And Premadasa did not want the IFIs to help introduce "changes in policies and institutions within a hard budget constraint" as Ms. Nishmizu put it. He merely wanted them to reduce the "budget constraints" to enable him to implement his own development agenda: "we should tell all those who give us aid to give that aid immediately, so that we would be able to get over our difficulties and poverty" (14.7.1987).

The exact opposite is happening today. The Wickremesinghe administration is continuing with the PAs policy of imposing burdens on the people, based on the neo-liberal logic that growth can be achieved only by reducing the money and real incomes, the purchasing power and the consumption levels of those at the middle and bottom of the economic ladder. The IFI advice is simple - remove subsidies, increase indirect taxation, sell state assets, scrap employee rights and wait for local and international capital to invest, especially in the stock market. And "communicate, communicate, communicate, as implementation proceeds..... Even though benefits that touch their lives may take time to materialize, the people need to know that work is being done, that they are not forgotten, that their interest is valued and that they are invited to support and participate" as Ms. Nishimizu put it.

Obviously the IFIs are as incapable of learning from the upheavals from East Asia to Argentina, as the "peaceniks" are incapable of learning from the bloody past and the recalcitrant present of the LTTE. No wonder Joe Stiglitz said that "arrogance and overbearing self confidence characterize economic policy discussion by IMF" (quoted in the New York Review of Books - 23.5.2002).