Printing money, data massaging will lead SL to economic disaster

: ERAN WICKREMARATNE Had Ruwan Wijewardene Committee report been implemented UNP wouldn’t have divided

Renowned economist, banker and former State Minister of Finance, Eran Wickramaratne who is on the national list of the Samagi Jana Balawegaya (SJB) in an interview with the Daily Mirror said that the government by hiding important economic information and trying to find short-sighted answers to financial crisis like printing money in a massive way was heading for an economic disaster. Excerpts;

Q Starting with the economy, your government had to face major economic issues with the Easter Sunday terrorist attack and this government had to face even worse situation with the Covid-19 pandemic. How are you going to face this situation if your party comes to power?

A: This government went on the wrong track from the beginning. Without proper understating or study, it went around and announced it would reduce most the taxes prior to the Presidential election. After the election it did not present any proposals to parliament or other solutions. As a result the government revenue fell drastically. It may have fallen about one third--that is about 600 to 700 billion. Now really there is a big issue becasue all the data we are seeing are in the first three months. And that was the period from which we handed over the government. That data looks relatively good. But now there is lack of information. We don’t have revenue figures, we dont know what the borrowings are, what the reserves of the country are, export and import numbers and then GDP. So we don’t know the numbers so we naturally are worried becasue there might be a data massaging.

Q Why do you say you don’t have data?

A:because they don’t publish it.

Q Who? Is it the Central Bank or the Finance Ministry?

A: Yes they don’t publish.

Q But isn’t that against people’s right to information?

A: Yes. Leave along right to information. The government may be borrowing beyond the stipulated limits laid down by parliament. That is a violation of the constitution. So we will have to wait till a new parliament is elected.

As I said the financial crisis is precovid. To give a tangible example, we were giving public servants their pay increases in a planned way. The last instalments to be given to them was in January before the Covid pandemic.

The government could not even honour that because it had created a crisis already. It is so unforunate. So two main figures to watch are revenue numbers which have plunged because when we took over office, the government revenue was 10.5 percent of GDP. And that was the lowest in the nearly 70 years postindependent period in Sri Lanka. And then we brought in an Inland Revenue Act. We basically put a right foundation to the economy. By 2018 we had raised the revenue to about 13.5 of GDP. Now with the new situation that has arisen the government is printing money and by doing so it can find a solution to the crisis. This issue is more fundamental than that. Though I don’t know the exact amount, I believe it is more than Rs. 300 billion. This figure came from a Centrail Bank official. Soon there will be inflation as a result of it.

Compared to present situation, during our time we had a programme to reduce the budget deficit. The Central bank was independent in terms of monetary policy and as a result the inflation was down. And basic prices of essenital food items were also were really down.

But today some of the basic food items have more than doubled in price. We can see the consequences already. This was during the preprinting. So after the printing we can’t even imagine what the the disaster we are heading for. Further it is officially acknowledged at about 600,000 jobs have already been lost. But the real figures may be much higher. We have lost our markets in the garment industry. The buyers also have gone bankcrupt. So the actual number of job losses is rising every day. Nobody could claim to have all the answers to the post-covid situation. But in the pre-covid situation itself the economic policy that this government was following caused this crisis. In a macro economy we have to start to put the rest in order. So they are talking in an insular and inward looking language.

Q If the government continues to hide information and print money what dangers do you foresee?

A: If we continue like this we will fall into a crisis similar to what some South American countries have fallen. have seen cases like this in other parts of the world particularly South America and and so forth where you have a complete collapse because when production is low GDP growth will be lower. When we have money chasing few goods inflation can become hyper inflation. This will mean more job losses. So this is a very serious issue which the people need to understand. Philosophically the government’s approach is authoritative rather than being market driven. A market necessariliy has two sides; the supply side and the demand side and the participants in it. The government’s approach is authoritarian. When things were not moving the President got down the Central Bank officials and shouted at them. For me this will not make the market work. Government needs to understand that Sri Lanka has been a democracy and people’s participation was very much part of it.

Before the covid issue heightened the government thought that this was some kind of terrorism and not a health crisis. Handling health, economy and education issues is complicated. It is not like handling terrorists. You can’t shoot and solve these problems. Some problems we can shoot and solve but not these. We need to get experts involved in these areas. In this Covid crisis there are 11 islands where there was not a single death reported. Sri Lanka is also an island. If the government had acted in January we would have a different situation. Our leader Sajith Premadasa himself raised this issue twice in parliament and the Rajapaksa government just laughed at it. Then two months later the government acted. Vietnam was in the same position. It did not have a single case in January but it acted. Even up to today, it doesnt have a single death. That is the outcome in acting in time. Sri Lanka converted a health problem into an economic disaster. While Vietnam’s economy steadily going forward, ours is going in opposite direction.

After the Covid problem was created I must give them the credit for controlling the spread. But I would say they created a problem and then they controlled it.

Q Another major challenge SJB will have is that the main UNP votes will be divied between your party and Ranil Wickremesinghe’s UNP. What is your view?

A: We need to really have an authentic alternative. This argument was there for past 25 years and people have not voted. Clearly there were reason. Partially reasons were leadership and partially the reason was corruption. Party’s grass root demand was for a new leadership but the party’s constitution did not permit. We are living in a democracy and there has to be internal democacy. When we have a new set of leaders, they would not be tainted with corruption.

Q Ranil Wickremesinghe is named as one of the best leaders. There are those who studied with him in the same school and those whom he brought into politics. You are one of them. Doesn’t it look like you betrayed him?

Not at all. First thing I wanted to say that there is nothing personal in these decisions. At personal level we have a good relationship. These are basically issues of policy, principles and differences of opinions. So you refered him to his vintage and schools. There are people like myself who were invited to join politics. We are glad he did that. I dont think Ranil Wickremesinge was inviting just to follow him. I could say this personally as I have discussed these things with him many times. Two years ago after local council election I told him that we should democratise the party. And the reason was I was opposed handing over the leadership to anyone. After Ranil Wickremesinghe we must have a democratic process so that we have a good leader. And some of the other office bearers as well. And then Mr. Wickremesinghe himself appointed a committee which was headed by Ruwan Wijewardene and he gave a report as well and it was on the democratisation of the UNP. He had that intention but I think there were some people who suddenly felt that if we take that root they would probably loose their clouts and therefore they basically bloked the report.

Q You seriously think that if Ruwan Wijewardene report was followed and implemented there would have been different ending to this problem?

A: Yes. Then the UNP would have just internally reformed. That would have been the best solution.

You can’t shoot and solve health and economic problems Shouting match with Central bank official does not solve financial issues Covid-19, by not acting on time Sri Lanka converted a health problem into an economic disaster. UNP split; we are standing where the people are standing.