Mahinda Chintanaya or Neo Liberal Chinthanaya

7 March 2012 07:16 pm - 0 - {{hitsCtrl.values.hits}}

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The emergence of the Neo liberal school of thought can be attributed to the Washington Consensus (WC) which was set up in the late 1980’s (1989) and the WC had a set of 10 economic policy prescriptions tailor made for crisis affected developing countries. The WC was developed by the IMF, World Bank and the US Treasury Department. Its policy prescriptions included opening out the economy to trade and investment and expanding market forces within the local or domestic economy. The WC which had a strong tendency towards market mechanism, was also described or termed as Neo liberalism. The consensus included 10 broad sets of relatively specific policy recommendations:
    Minimizing or maintaining low fiscal deficits as a proportion of the budget
    Redirection of public spending from subsidies to infrastructure investment
    Tax reforms leading to broadening of the tax base
    Market determined Interest Rates
    Competitive exchange rates / devaluation policy as a tool
    Trade liberalization
    Liberalization of inward foreign direct investments
    Privatization of state enterprises
    Deregulation – free market environment
Legal security for property rights
When one observes these policy prescriptions that the WC or the Neo Liberal school (NLS) has proposed, it is more than amply clear that the Mahinda Chinthanaya (MC) is applying those same policy prescriptions in today’s Sri Lanka. If you observe the Governments policy actions in the last few years this becomes abundantly clear. Take the first policy prescription of the NLS which says to minimize or lower fiscal deficits as a percentage of the budget. The MC government has been focused on reducing budget deficits even at the cost of putting hardships on the people who have been constantly electing them. Targeting budget deficits is a policy of the MC as much as it is a policy prescription of the Neo liberal school of thought.
Then take the second policy prescription which says there should be a redirection of spending from subsidies to infrastructure investments. In the last few years welfare expenditure has been reducing whilst ambitious infrastructure programmes have taken priority. Some of these projects are purely white elephants which are being implemented on foreign commercial loans. Human Development has been put on the back burner under this Government and money earned and money borrowed is invested in huge projects such as airports, harbours, flyovers, towers and the likes. Meanwhile the Human Development Index for Sri Lanka has been declining. Typically Neo liberalist!
Another policy prescription, “Tax reforms and broadening of the tax base” is also keenly pursued by the Government but in a manner that fits the Neo liberal policy prescription. Whilst VAT and other indirect taxes are being increased and burdens being piled on the common man, the MC reduced the corporate tax rate last year from 36% to 25% clearly following the rules of Neo Liberal economic policy while increasing taxes on the ordinary masses. The Government imposed many taxes on food items, essential commodities etc, whilst giving tax breaks to the corporate sector and big investors.
The rupee devaluation, trade liberalization and making market forces powerful are some more commonalities of the MC and the WC. The Government takes all steps to hide its real Neo liberal soul in a Nationalist garb, but except for the totally naïve, anyone can see the truth. This is a government with no permanent principles or policies. Look at the anti privatization stand the MC took. Whilst bringing in the expropriation bill which empowered the government to take over state ventures that had been sold to the private sector, the Ministry of State Resources and Enterprise Development has earmarked a number of State Owned Enterprises to be sold to the private sector. One of it was the Embilipitiya Paper Factory into which the Treasury had pumped in over Rs 900 million. It was to be sold to a Sri Lankan owned Australian company called Perth Engineering whose credentials are questionable and the whole process is questionable. The selling price was just Rupees 600 million. The government had also earmarked the Block Rubber Manufacturing Plant in Mawanella for privatization, a factory which had been set up with assistance of the United Nations in the 1960’s under the late Sirimavo Bandaranaike. This factory services over 10,000 rubber small holder families in the Kegalle district and selling it would put all of their livelihoods at risk. This institute in fact was pivotal in training almost all rubber manufacturing experts in Sri Lanka. Under the United National Party government of 1977 to 1994, this factory not only serviced the poor rubber farmers of the district but also ran very profitably. In fact in 1994, there was a credit balance of over Rupees fifty million in the factory’s savings account. After the UPFA government was elected, this factory has been running at a colossal loss and since 2005 after MC the losses have increased due to utter corruption and weak management. The government has willfully run down an asset of the Nation and is now trying to sell it off for a song. On the one hand, the Government is threatening political opponents and taking over profitable businesses whilst selling off National Assets to political stooges. This type of ad hoc policy is damaging our country’s investment climate and its reputation in the global sphere.
Another glaring case of inconsistency in policy can be seen in the budget proposals. In the 2009 budget speech, H.E the president as finance minister said that as local industries in the area of manufacture of refrigerators, electric fans and electrical accessories have become competitive; he would be increasing the cess on imported electrical items to 50%. In the 2010 budget statement the government said that as Sri Lanka is becoming a tourist hub and a shopping centre, import duties on electrical and electronic items will be reduced to make imported products cheaper. The local manufacturers were in a quandary. So much for consistency of policy. How can a sector develop in such an environment? Can local investors, let alone foreign investors trust in this government’s policies?
This is the second part in a two part series by the writer who is a United National Party (UNP) parliamentarian

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Mahinda Chintanaya or Neo Liberal Chinthanaya

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