Dr. N.M. Perera Memorial Lecture: Crisis Has to be Faced, Not Dodged
By Prof. Tissa Vitarana
Sri Lanka is facing a major crisis, being a part of the general global situation. The economic downturn in the more developed countries, is having a bigger impact on smaller economies like that of Sri Lanka. Due to the adverse foreign trade balance and the shortage of forex the successive governments in Sri Lanka has resorted to massive foreign loans to maintain the foreign reserves. The LSSP welcomes the decision by the present SLPP-led Alliance Government to severely restrict imports, especially luxury goods. The decision to encourage agriculture, specially to achieve food self-sufficiency, is also very welcome. The promotion of home gardens has drawn all the people into the food drive. The return to a policy of encouraging local value added industry however needs to be further strengthened.
The magnitude of the economic crisis demands firm action to tighten belts at all levels in a fair manner so that we can emerge from this crisis. Unfortunately the government is not taking the people into its confidence, and it is giving the impression that there is a situation of normalcy. The tendency is to carry on with the consumer economy. This is encouraged by the wrong tax policy of reducing the upper limit of direct taxation to as low as 18%. The rich continue to enjoy a luxurious lifestyle which has a bad demonstrative effect on the rest of society. When the average upper limit of tax in Europe is around 45% and in some Scandinavian countries 60%, Sri Lanka should have an upper limit of at least 70% to face the present crisis.
The following data will give some idea of the magnitude of the crisis facing our country. According to Central Bank data the national debt has grown from Rs 12,030 billion in 2018 to Rs 13,031 billion in 2019, an increase of Rs 1 billion in one year. The GDP growth which was 3.3% in 2018 dropped to 2.3% in 2019. The foreign debt for this year is expected to be about US $ 4.5 billion. Within the country there is a drop in the agricultural production - tea by 1.3%, rubber by 7%, vegetables by 11.8%, and fish by 4%. There has been some increase in the rate of industrial development, though this, too, has dropped. The increase of manufacture which was 3.9% in 2018 has dropped to 1.9% in 2019.
Foreign direct investment has dropped by 50%. The cost of living is soaring, while people are losing jobs and facing salary cuts. For example the economic downturn in the USA and Europe has reduced the demand for our garments leading to salary cuts, dismissals and even closure of garment factories. Together with the Covid-19 crisis the tourist industry has been adversely affected. Repatriation of those employed abroad has cut that source of foreign income as well. The claim that unemployment is at single digit level is far from the true figure, which is 0.2% of the total labour force. Poverty too has increased with low income poverty at 10% and debt related poverty at 50%. Studies done by the Medical Research Institute indicate a malnutrition level of 20% among children under 5 years and 30% among school children.
Drastic action need of the hour
This calls for drastic action. When Dr. N.M. Perera was the Minister of Finance in the SLFP/LSSP/CP Coalition government of 1970 the country was faced with a triple crisis.
Besides the economic crisis the global drought had led to a severe food crisis and the creation of OPEC led to the fuel price going up by sevenfold. Instead of a policy of taking more foreign loans to meet the crisis, He sharply reduced the level of imports, while also promoting exports, and reduced the adverse foreign trade gap. The taking of foreign loans was reduced to the lowest level in our history.
He erased the government debt and produced a surplus budget. He obtained the required funds by increasing the upper limit of direct taxation to 75%. When people were starving abroad, no one starved in Sri Lanka due to the strengthening of the cooperative movement. He was able to give a free measure of rice and essentials through coupons at a low price, Thereby giving relief to the poor and placing the burden on those who had sufficient wealth to take on the burden. The Government Revenue was further increased by a policy of nationalizing the key sectors of the economy. Thereby the impact of the economic crisis was solved by local measures without passing the burden on to our children.
The fear that taxing the rich would reduce local investment is without any foundation, because complete tax relief was given to all investments made by local capitalists. In fact during the time Dr. N.M. Perera was the Finance Minister, due to the economic stability that prevailed, the level of foreign investments increased and many foreign companies including multinationals invested here. In contrast despite the selling of our country that took place during the last five years of UNP-led rule as indicated above, the FDI dropped by over half its original level. The LSSP urges the Government to take these points into consideration and act firmly so as to effectively help Sri Lanka to recover economically. False complacency about the state of the economy is just as undesirable as fake complacency over the Covid-19 pandemic, the adverse effects of which are now emerging. The process of economic development which would strengthen the national economy could be sustained with the support of the people so long as the welfare state is maintained and the economic burden is placed on the super-rich. If this is not done, and the burden falls on the ordinary people then the outcome would be mass protests.
This can lead to repression of the workers and the people, dismissal of strikers (as in 1980 by the UNP Government) and the emergence of racism and even fascism. This is the divide and rule policy that led to events like that of Black July in 1983, which are grim reminders of earlier UNP policies. These can be avoided if the above policies proposed by the LSSP are carried out by the Government. It is these policies that were carried out by Dr. N.M. Perera during the 1972/73 period of severe economic crisis that saved the nation. They still have validity even today.