By Harsha Gunasena –
Harsha Gunasena
It is claimed in Sri Lanka that the International Monetary Fund (IMF) when releasing loans, recommends the recipient member states to follow neo liberal economic policies and President Ranil Wickremesinghe adopts neo liberal economic policies.
Classical or laissez-faire (leave alone) economists advocated the simple system of economic liberty and opposed the excessive government intervention. John Maynard Keynes (1883-1946), a British economist criticized laissez-faire as a do-nothing policy.
In the 1930s when there was a world recession there were arguments between the right and the left economists. Keynes presented a middle path economic theory emphasizing the intervention of the state where necessary. Thereafter this was followed by many countries. With more democratic states emerging, it was developed to a level of welfare liberalism. Introduction of liberal economic policies once again against these policies with state intervention was identified as neo liberalism.
Margaret Thatcher who became the Prime Minister of Britain in 1979 and Ronald Regan who became the President of United States in 1981 gave more emphasis on laissez-faire economics and it was identified as practical implementation of neo liberalism. This is same old policies but in order to execute the reforms the state should be stronger. Therefore, neo liberalism differs from liberalism to that extent. One of the reasons for the introduction of new constitution with the strong center by J.R. Jayewardene was to achieve that objective.
The main ingredients of neo liberalism are minimizing state control of economy by privatization of the state entities, promoting international trade by reducing trade barriers, eliminating price controls of goods and services, deregulation of capital markets, lowering of income and corporate taxes and reduction of welfare expenses. The opposite of neo liberalist economic model is to promote maximizing of state participation to the economy, control imports to the country by imposing trade barriers, introduce price controls so that people can get goods and services at reasonable prices, control capital markets, and introduce comparatively higher taxes and promoting welfare expenses.
The IMF under its former Managing Director Christine Lagarde promoted concessions to the economically vulnerable groups to the countries to which the IMF lend. In fact, the IMF opposed from the beginning the general concessions in Sri Lanka which were equally enjoyed by the poor as well as the rich. Concessions on fuel and electricity were such reliefs. However, the IMF now under its Managing Director Kristalina Georgieva has given special attention to economically vulnerable groups. Recently she alarmed that if the governments do not look after them the entire system may collapse. Accordingly, the IMF in respect of Sri Lanka has emphasized the social security net for the economically vulnerable people. This is against the neo liberal thinking.
A recent example of neo liberal economic policy applied in Britain was that of cutting taxes to a great extent facilitating the rich by Prime Minister Liz Truss. Market reacted immediately by allowing the Pound to depreciate and IMF also responded by issuing a statement on September 27 against the policy. This act of the IMF is not in line with the neo liberal thinking.
Neo liberalism started operating in Sri Lanka when J.R.Jayewardene liberalized the economy in 1977. It was a relief for the people suffered from a closed economy. He came into power prior to Margaret Thatcher and Ronald Regan in UK and US respectively and prior to Deng Xiaoping reformed the Chinese economy. The privatization at that time was flawed due to the transfer of state-owned assets to cronies without any transparency.
When Ranil Wickremesinghe became the Prime Minister in 2001 he implemented the policies of privatization of state assets. The programme of Regaining Sri Lanka which was presented by him in 2002 was opposed by the socialists and the people also have not approved it. The main components of that programme were accelerating economic growth by removing the barriers to productivity and to take steps for reduction of poverty in the country. The main item of productivity increase was privatization of commercial entities of the government and make inefficient government departments efficient. There was a critique of politicization of poverty alleviation through Janasaviya and Samrudhi.
Ranil Wickremesinghe did not present Regaining Sri Lanka in 2015. After he became the Prime Minister in December 2016 Bank of Ceylon (BOC) sold shares of Seylan Bank held by them through Colombo Stock Exchange (CSE). After the sale took place, he intervened and asked BOC to reverse the sale saying that it was not the policy of the government to sell the state assets and BOC did not take approval of the government to sell the shares. He also met the buyer of the shares to explain his position. However, it was a big blow to the reputation of CSE. He took steps to transfer government assets on long leases. Hambantota port was such an entity. During this period, he has increased the income and corporate taxes which was contrary to the neo liberal thinking.
In this sense Chandrika Kumaratunga and Mahinda Rajapaksa were neo liberalists since they took steps to privatize the shares of Sri Lanka Telecom and sell the land outright where the headquarters of Sri Lanka Army was, respectively. During Mahinda Rajapaksa era there were tax reductions and Gotabaya Rajapaksa in 2019 had a drastic cut which were in line with neo liberalism.
We are compelled to adopt certain elements of neo liberal policies to overcome the current economic crisis. Accordingly, fuel subsidy was removed, and price formula is in operation. The inefficiencies of the Petroleum corporation are included in the price formula and the corporation will be restructured to remove those inefficiencies. Many other government entities will face that fate. In addition to that there will be increases of income and corporate taxes which are contrary to neo liberalism.
This programme is a pragmatic one which can be implemented without aligning to different ideologies. Sri Lanka needs such an approach now. Neo liberalism is a term used in Sri Lanka in derogatory manner to condemn a person. Privatization of government entities is a neo liberalist ideology and creating a social security net is a socialist ideology. The country should be able to take positives from any ideology and implement those to the benefit of our people, not of trade unions. China adopted a similar approach. As a result, China is an economic power of the world today and was able to reduce poverty of the country drastically.
Published in Colombo Telegraph on 11 October 2022
https://www.colombotelegraph.com/index.php/are-the-imf-ranil-wickremesinghe-neoliberal/
