Address ‘Supply’ Constraints
‘Economics’ is ‘demand’ and ‘supply.’In a functional economy, ‘demand’ and ‘supply’ works in tandem, fuelling growth. If either fails or perceived to have had failed, that makes the economy dysfunctional.
Recently, Sri Lanka, ‘beginning’ with the lowly turmeric and ‘ending’ with fuel suffered a plethora of economic malfunctions due to supply constraints, real or imaginary. Such economic malaise was last seen 44 years ago, during the seven-year period from 1970 to 1977 when Sri Lanka suffered a serious foreign exchange (fx) crisis, leading to shortages of essentials, which were far from being imaginary.
In the 1970-77 era, the political philosophy that Sri Lanka pursued was Socialist-Marxist oriented, looking towards the then Soviet Union and Mao’s China, the leading practitioners of such a philosophy, for aid.
But the economic doctrine followed by the 1970-77 regime didn’t grow the country’s fx reserves, neither did it generate gainful employment, other than expanding an already unproductive, bloated public sector, causing further burdens on the national budget.
The similitudes vis-à-vis the 1970-1977 economy in the present context are hitherto restricted to shortages of essential items, real or imaginary, leading to queues and the public virtually going to every nook and cranny in search of essentials.
The root cause of the crisis of 1970-77 and the present has a common denominator, the dearth of fx, which in the present context has resulted in stringent fx controls effective since 28 April, a total of 205 calendar days to yesterday, to protect the country’s Spartan fx reserves.
The dearth of fx of the 1970-77 regime led to its humiliating defeat at the 1977 Parliamentary Poll as all measures adopted by it to boost the country’s fx reserves such as by import substitution and increased merchandise and services exports failed.
Though Sri Lanka has the right agronomic climate to grow sugarcane, it was able to meet only 15 per cent of the island’s sugar requirement then, similarly, only 15 per cent of Sri Lanka’s dairy milk supply was met domestically, though since it has improved to 40 per cent. Yet, at least those twin deficits of milk and sugar have to be currently met by imports, with sugar production since falling to be able to meet only 10 per cent of demand.
Local production of such items to meet domestic needs is possible, but at a tremendous cost, both in terms of capital and production. That will naturally dry up demand, therewith neutralising supply constraints, but with deleterious effects to health, especially caused by the lack of milk, a key building block and nutrient of mankind.
It’s tragicomic that milk in the world’s richest economy the USA is far cheaper than in developing Sri Lanka. It may therefore be hypothesised if Sri Lanka can reduce its current milk prices, it can mitigate malnutrition currently plaguing its population.
It may also be interpreted that the current high domestic milk prices, have kept demand artificially low, to the detriment of the health and wellbeing of Sri Lankans.
Therefore, it may be summarised, the solution to the current fx crisis that is threatening the health and wellbeing of the people of this country is to first protect the same as a first step, not to threaten its further erosion by following a self seeking, insular foreign policy for the good of a few, but at the expense of the majority.
When Sri Lanka was almost at the point of defeating LTTE terrorism on 4 June 1987, i.e. before they were ultimately decimated 22 years later on 18 May 2009, the Indian Air Force at the behest of Delhi infiltrated Sri Lanka’s airspace, with a warning by then Indian Premier Rajiv Gandhi to President J.R. Jayewardene to stop his military offensive against LTTE terrorism.
If Jayewardene had not listened to India but continued with his offensive, Sri Lanka would have been militarily annihilated by India then. Therefore, however painful, economically and socially, not forgetting politically to Sri Lanka it was, Jayewardene, statesman like, who halted the offensive. But he couldn’t hide his seething rage when he told Gandhi at the signing of the infamous Indo-Lanka Peace Accord on 29 July 1987 in Colombo, “I’ll forgive India, but I cannot forget what it did to my country.”
Likewise, as a first step to mitigate the further depletion of the country’s foreign reserves which have fallen to a dismal 12-year low, all external concerns, political or otherwise need to be first addressed, as a clear demonstration of ‘I love my country’ not only in word, but also in deed.
‘Protect what there is of the country’s fx reserves and thereafter grow it’ should be Sri Lanka’s policy, not by controls, but by adhering to external political concerns.
Such an adoption will be the start or the restart of foreign inflows once more into the country, similar to that which transpired with the change of Government in 1977 and even after, till now.
Certainty that such an action will create in the minds of the public by the consequential positive external reaction to these measures underlined by inflows will dissipate the fears and anxieties, real or imaginary that currently beset the masses, marked by queues, shortages, protests and all the attendant evils that go with such.