Same Problem, Different Approaches

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Year 2022 is similar to 1980 when crude oil prices increased by 80 per cent, in the wake of the Iranian Revolution, according to the Central Bank of Sri Lanka’s (CBSL’s) 1980 Annual Report (AR).

 “Total crude oil expenditure increased by over 133 per cent in 1980 over 1979. Expenditure on fertiliser also increased due to price increases as well as on import volumes,” CBSL’s 1980 AR said. Currently, crude oil prices have increased by a similar percentage due to Russia’s invasion of Ukraine.

But there was no appeal by the J.R. Jayewardene Government of 1980, unlike the Gotabaya Rajapaksa-Ranil Wickremesinghe Government of 2022, to public servants not to report for work on Fridays and for the masses to restrict “unessential” travel in order to conserve fuel.

In fact, CBSL’s 1980 AR said there was an increase in vehicle imports in 1980 in contrast to a vehicle import ban currently in force. To further quote CBSL’s 1980 AR, “There has been a high level of investment in transport equipment in the last few years and particularly in 1980. The Registrar of Motor Vehicles reports the number of lorries registered in 1980 to have increased by 9,323 and passenger vans and coaches used for excursions and passenger transport to have increased by 2,702 in 1980.”

Nonetheless, there were also other negative similarities in the economy in 1980 like now such as high inflation; though a subtle difference then was the ongoing foreign funded multibillion rupee Accelerated Mahaweli Development Project with a positive impact on the country, while currently there is no similar ongoing infrastructure development project.

CBSL’s 1980 AR said, “The sharp increase in prices in 1980 was the result of the combined effect of several factors. These include ‘cost push’ factors such as the price movement resulting from the depreciation of the rupee, increase in some tax rates, upward adjustment of utility and service charges, the increase in prices of petroleum products, price hikes in overseas markets and the upward revision of prices of major consumer items.

In addition, demand pressures arose from the continuous expansion of Government expenditures and continued domestic monetary expansion. The rise in the price level at a rate around 30 per cent in a single year is a matter for grave concern as a price increase of this order could well make project costing an impossible task.

Expectations of further price increases could feed themselves on a cumulative basis to bring about an extremely inappropriate environment for undertaking capital projects. Unless appropriate price stabilisation policies are pursued to stem the rising trend in prices, a situation of high and self-sustaining price increases could be set in motion jeopardising the very efforts of development.

Official transfers or outright grants received from foreign donor Governments and institutions amounted to Rs 2,281 million (SDR 106 million) in 1980. Of this amount, grants under commodity and food aid amounted to Rs 540 million (SDR 25 million) consisting mainly of flour and fertiliser and grants under project aid amounted to Rs 1,636 million (SDR 76 million). Other official aid receipts consisting of profits from sales of gold by the IMF amounted to Rs 105 million (SDR five million).

Official aid flows also financed a sizeable part of the current account deficit in 1980. Gross disbursements under official capital flows, consisting mainly of receipts of loans under commodity, food and project aid, and Trust Fund loans, together with the drawing of the first Euro-dollar loan of USD 50 million (SL Rs 897 million), amounted to Rs 4,325 million (SDR 201 million). A noteworthy feature of official aid receipts was that the aid commitments for 1980 at USD 643 million were the highest for any calendar year.”

Therein lies the difference between 1980 and 2022, there was foreign aid then, unlike now. Fix external relations, if not, expect another ‘9 May’, despite all of Wickremesinghe’s posturing.