• SL needs stabilisation programme followed by reforms
• Massive inequality needs addressing; BR or MR style won’t work
• SJB model based on economic and political liberalism
• Whatever happened to Viyathmaga?

By Marianne David While some measures have been taken by the Government in the recent weeks to address economic challenges, the ongoing crises certainly won’t end overnight, asserts Samagi Jana Balawegaya (SJB) MP Dr. Harsha de Silva, noting that it all depends on how long the Government takes to appreciate the problem and start acting on it meaningfully.  “Say you start today and you say, ‘look we accept that we are insolvent’ – which is a very tough thing to do, it hurts our national pride – once you come to that point and honestly accept where we are, then we have to engage international funds which have the capability to speak to the different creditors and then come up with a game plan,” he points out. However, the President is yet to understand the problem the country is facing, he charges, adding that the Head of State is focusing on repaying annual loan instalments, when solvency is the far more pressing issue: “We have a liquidity issue in a massive debt overhang problem so we need to resolve the debt issue. The debt issue is a solvency problem, which was not understood by these people and still isn’t understood.” In the course of a wide-ranging interview with The Sunday Morning, he also speaks on the Government’s irresponsible monetary policy, what the SJB would do differently, and the importance of discarding the notion of import substitution and self-sufficiency and becoming an export-driven economy. Following are excerpts of the interview: The Government has floated the rupee and gone to the IMF, as the Opposition has been calling for in Parliament. What is the SJB’s take on these moves by the Government? A day late and a dollar short – they should have done this a long time back. If they did so when they realised they were having not just a liquidity problem, but a solvency problem – a toxic combination of the two – they should have been advised appropriately. [Central Bank Governor] Nivard Cabraal kept saying ‘this is a liquidity issue, once tourism comes back it will be okay’. All nonsense. Absolute bunkum. Obviously P.B. [Jayasundera] didn’t advise properly either, because here we have a liquidity issue in a massive debt overhang problem so we need to resolve the debt issue. The liquidity issue is something that needs to be resolved anyway, but the debt issue is a solvency problem which was not understood by these people and still isn’t understood. How do you think the Government can solve the current issues Sri Lanka is facing? What are the SJB’s proposals to address the current economic challenges, what would the party do differently? First of all we would never have gone for that ridiculous tax cut. Dr. Roshan Perera wrote in your newspaper of the Rs. 500 billion per year loss, that is a Rs. 1 trillion loss in revenue over two years. It is inconceivable how you can lose that much money and still continue to have fiscal discipline. Obviously they thought that this Modern Monetary Theory (MMT) business would work.  First of all, it was misinterpreted. If you read the book by Stephanie Kelton, she restricts the possibility even in the short-term for countries with hard currencies, not countries that don’t have currency that is not accepted globally. That caused a huge issue. They tried to fill the tax void with printed money and that created absolute havoc. Prices went up, inflation is galloping. Since Gotabaya Rajapaksa came, now maybe it is around 40% at least on food. If you take out food and fuel and look at what is called core inflation, it is probably around 15% now, which just goes to show how irresponsible monetary policy has been. The money supply has gone up by 40% since the arrival of the Rajapaksas.  Obviously we need to put this right, so there are two things we need to do. One is, we have to have a stabilisation programme, one which would entail not just adjusting one variable – this is a connected ecosystem, so we have to look at the exchange rate, monetary policy, and fiscal policy together. Then you have to look at unshackling the economy so that the benefits of prudent exchange rate management and monetary policy can translate into real activity in the economy. Hopefully you can run what is called an undervalued real exchange rate which gives exporters a leg up or an additional incentive in competitiveness to increase exports. That is a short- to medium-term game plan on a stabilisation programme. Reform has to start thereafter, which really means to direct the country from this silly notion of import substitution and self-sufficiency to an export-driven economy.  This is what I have been talking about for a long time – break down the walls, build bridges, let us get into global production networks and make sure that institutional reforms are done so that there is a platform that exporters can actually benefit from. Currently, producing for the domestic market, according to a paper by Prof. Prema-Chandra Athukorala I read the other day, is about 70% more profitable than getting into the export market, so why would anybody go there? Approaching the IMF is only one component; economists are saying much more needs to be done. In your view, what more needs to be done right now? The President has still not understood the problem, the way I see it. He suggested he is going to talk to our lenders to find ways to repay annual loan instalments. That is a very simplistic understanding of the problem. Solvency is a much bigger issue. We have a massive debt overhang and we are unable to meet our debt obligation over a period of time. We have to restructure our debt. Come out and say it if you understand it. That would be good for the markets to reset their thinking so that they would start building confidence. Ultimately it is the confidence that investors have in Sri Lanka’s ability to continue as a solvent country that will bring in investment. Also, the President didn’t indicate to viewers [in the President’s address to the nation on 17 March] that he realised that the IMF cannot lend to Sri Lanka under these given circumstances unless it agrees with the bond holders and other bilateral lenders on a debt restructuring programme, which would mean either (a) a re-profiling or putting back the dues or (b) having a haircut in cutting off some of what is due, or (a) and (b) together have to happen in parallel. It’s a chicken and egg situation. If Sri Lanka promises the IMF that it will live responsibly and stop printing money, stop spending hundreds of billions of rupees on Local Government Elections and that type of thing, and if the IMF agrees and then if the bond holders are comfortable with that game plan and say they are willing to restructure, then the IMF can give money to Sri Lanka. Both have to happen together.  Despite some measures being taken by the Government, the ongoing crises won’t end overnight. How long do you think this situation will continue? It depends on how long these people take to really appreciate the problem and start acting on it meaningfully. Say you start today and you say, ‘look, we accept that we are insolvent,’ which is a very tough thing to do – it hurts our national pride. For 73 years this has never happened to us and it is very unfortunate that the Rajapaksas and Cabraals and Jayasunderas and all these people were not able to figure out the problem and take appropriate steps at the time. They put people into such misery. Once you come to that point and sort of honestly accept where we are, which we haven’t yet done, then we have to engage international funds which have the capability to speak to the different creditors and then come up with a game plan going forward.  Having spoken with some people who have actually done this in other countries, my understanding is, first you need to get a consent solicitation done, which would probably take two months or so, maybe less depending on how proactive a nation is. Then you can start suspending payments and then, depending on the willingness of the country to be transparent and accept the gravity of the situation, you are probably looking at another five to six months. In my view, if the country is willing to cooperate with all stakeholders, you are looking at about seven or eight months.  With Sri Lanka’s foreign reserves dwindling and given our debt burden, whoever assumes power after this Government is going to face a very challenging period. What are the guarantees that the SJB or anyone else who comes in will do better than this Government? Sri Lanka is a small country. At the end of the day it’s only 22 million people – less than the major cities in India. If you look at South India, in particular Tamil Nadu, and see how its Chief Minister M.K. Stalin is running that State, and if you look at the number of factories opening up, jobs getting created, and foreign investors coming in, from high tech to manufacturing to everyone else, you will see that if you have a good plan and credibility, people will come and invest and they will start producing for consumption beyond the borders of that state or country. So it is possible, it is absolutely possible.  I have drafted a blueprint which I am working on with Eran [Wickramaratne] and Kabir [Hashim] and after finalising it with Sajith [Premadasa], we will start engaging various groups of people from top to bottom. On one hand, we are basing our model on what is called a social market economy, which means that we believe 100% in markets, competition, and creating competitiveness. On the other hand, we believe in social justice – 20% of this country’s people enjoy over 50% of the wealth that is created and the bottom 20% only has about 5% left for them. It’s a massive discrepancy here, massive inequality. That needs to be addressed. We believe that addressing it in Basil Rajapaksa style or in previous Mahinda Rajapaksa style is not going to work. It hasn’t worked. So that is why we are thinking anew and we have some innovative ideas that deal with social justice at the bottom, which we will start discussing with the people. It’s economic liberalism on the one hand and political liberalism on the other; that’s what we are planning to do. The SJB is demanding a Presidential Election, has asked the President to resign, and has called for the Government to leave. If your party is in power, what is the guarantee you can give the people that there won’t be shortages and that the cost of living will be brought down? The reason for asking the President to resign is that the theme of the SJB protest was #GoHomeGota, so if that is the theme, you have to ask Gota to go home – it is a natural ending for the tens of thousands of people who came out. The thing is, with the 20th Amendment, he has concentrated power in his office and Parliament has become a mere rubberstamp. Who made the decision on fertiliser? Who made the decision on cutting taxes? Who made the decision on holding the currency at Rs. 200 and creating this absolute havoc? Not Parliament. He made the decision. It’s a long shot asking him to leave, he is not going to leave. We need to create a situation where we have the office of the president if this system continues, assuming this system continues; if not we must have a powerful government within a Westminster system.  Since the time of the Yahapalana Government in 2019, ever since the Easter attacks, the economy has been on a downward spiral. Are these economic issues a continuation of that deterioration that commenced after the attacks or are they man-made, as the SJB keeps accusing? There are two issues that one needs to accept at a professional level. One is that, after the war, the country’s growth galloped. By 2012 it was at 9.2%. Even at the time we were critical that this was debt-fuelled growth – borrowing from China, building this, that, and the other. Cement, construction, steel, everything. Then suddenly they couldn’t borrow anymore and boom, in 2013, growth fell to 3.5%. From 2013 it has hovered around 3%, 4%, 5%, 2.5%, minus 3.5%, etc. We need to have a structural shift in the growth path, at least five percentage points up. In order to do that, you have to do all these reforms I mentioned.  We were not in the best place to be because we had a large debt problem, dwindling government revenues and expanding deficits, and the balance of payments was on shaky ground. I must credit Mangala [Samaraweera], he’s the guy who took the bull by the horns and said ‘look, we have to make some difficult adjustments’. After 50 years he showed that you can have a surplus in the primary account, meaning the government’s revenue minus expenditure except for interest payment, which is not something a sitting government can have any control over as it’s a legacy coming from the past. Then it was on the upwards trend.  Why this is man-made is actually due to three things. One is the absurd tax cut. The second is trying to hold the currency at Rs. 200 and destroying everything – from Rs. 200 it has gone to Rs. 280 now. The third is the unimaginable overnight banning of fertiliser. Those are all man-made. Anyone who had the foresight to have wide consultations before these three things were done would have saved the country from this misery. An alternative being pushed is restructuring debt and the Government is seeking credit lines and so on, but this adds to the existing debt repayment. At some point we have to pay. When it comes to time for repayment, how sure are you that through your policies Sri Lanka will be in a position to meet those commitments? Like I said, it’s a short-, medium-, and long-term plan. I’ll give you two examples. One is Bangladesh. See how that country is growing. Once I was asked to give a talk with Prime Minister Sheikh Hasina. The meeting was supposed to be at four. I was there, the state minister from India was there, and I think the state minister from Pakistan was there. She came there right on time at four o’clock. No lighting lamps, no singing songs, no bera karayas and nattuk karayas, no frills, just the regular chairs and tables; came, delivered the speech, got it done, and went away. That is the efficiency at which that country is operating. Without a single deep-water port, look at how much they are exporting? It is embarrassing actually and kind of saddening to see how they are doing as opposed to us.  The other is Vietnam. In 1995, both Sri Lanka and Vietnam exported $ 3.5 million worth of goods. Now the President says he is going to export I think $ 12 or 13 billion for this year. Vietnam last year exported $ 336 billion. Why? Because they opened the country to the world, they entered into so many trade agreements, they unilaterally brought down their restrictive trade and investment policies, they brought down their border tariffs, they became part of global manufacturing networks. They are looking outwards. That is what the SJB wants to do and that is where we are going. They don’t have any foreign exchange problems, they don’t have any problems of insolvency. For crying out loud, we went and borrowed $ 200 million from Bangladesh. We have a plan and we will do it. What’s your view on the appointments to the Advisory Committee [to advise the National Economic Council] the President made over the last week?  These are professionals who are well respected and they have been asked to join. Several people spoke to me and said, ‘Look Harsha, this has nothing to do with politics – the President has asked us and we are going to join and this is what we are going to do,’ but then what Milinda Rajapaksha is trying to do with #WeAreWithGota and putting those faces there, I don’t think is prudent. I don’t think it is ethical.  This is not a political setup. This is not the Viyathmaga that promoted President Gotabaya Rajapaksa, even though some of them are there. For the sake of the country I hope President Rajapaksa and his Cabinet and subcommittee will listen to these people. Look at the names – they are all excellent people. The question is, whatever happened to Viyathmaga? Where are they? These are the guys who are supposed to give advice. Does it mean that Viyathmaga is no more?