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Economics and Elections

| by Tisaranee Gunasekara

“When the social contract is abrogated, when trust between a government and its citizens fails, disillusionment, disengagement or worse follows.”
Joseph Stiglitz (The Price of Inequality)

( August 31, 2014, Colombo, Sri Lanka Guardian) Most Lankans do not earn enough to make ends meet, according to government statistics.

53% of the urban population, 73% of the rural population and 81% of the estate population do not receive the minimum income necessary to pay for food and other basic needs, according to the Department of Census and Statistics.

“A family of four in the urban sector needed an income of Rs. 59,000 for their monthly food and other basic requirements, while a family of four in the rural sector needed Rs. 37,560 and a family of four in the estate sector Rs. 29,000.” And the absolute majority of families in all three sectors do not earn this minimum monthly income.

Obviously the fancy projects so beloved by the Ruling Siblings, from Arcade Independence to Lotus Towers, have no relevance whatsoever to the actual lives and needs of most Lankans.

A hungry man cannot be convinced that his stomach is full. But he can be made to believe that his hunger is a temporary condition. In the past the Siblings did manage to convince a large segment of the populace (probably a majority) that economic deliverance is just round the next bend.
No more. As the CPA surveys demonstrated, hope of economic betterment has eroded sharply between 2011 and 2013 – not just among Tamils and Muslims but also among Sinhalese.

In 2011, 70% of Sinhalese thought the general economic situation will improve in the next two years. In 2013 only 38.5% of Sinhalese thought the general economic situation will improve in the coming two years . A decrease of 45% in just two years amounts to a radical change in public perception. A change which can impact, perhaps even decisively, on politics, especially electoral-politics.

There is a yawning gap between what most Lankans want the government to prioritise and the actual Rajapaksa priorities. According to the CPA Survey, a majority of Lankans think the government should focus on cost-of-living, poverty and education issues. Fancy infrastructure projects and beautification programmes are not a priority for the Sinhalese either, who want the government to focus on cost-of-living (58.5%), health (33.1%) and reducing poverty (33%).
How can people not lose hope given this chasm between what they want the government to do and what the government is actually doing?

The prospect of a dimmer future is not just a matter of conjecture but also of hard facts. According to a confidential report by a ministerial subcommittee, revenue as a percentage of the GDP has been declining over the years. In 2011 revenue was 14.3% of the GDP; in 2012 it declined to 13% ; an even sharper decline happened in 2013, when the ratio fell to just 11%.

The regime’s grandiose revenue estimates for 2015 are thus nothing but pie in the sky, ‘unrealistic and unachievable.’

The Committee also warns against that cornerstone of Rajapaksa economics - excessive reliance on indirect taxes: “It is not prudent to continue our over-reliance on indirect taxes and must rely instead on a direct tax effort. We must ease taxing of goods for consumption and services regardless of the people’s income levels and avoid placing burdens on the poorer households” . The Committee has opposed another Rajapaksa habit - that of giving generous tax exemptions to favoured investors. Most pertinently, the Committee has warned that over time “neither savings, investments nor revenue have increased other than generating a higher rate of consumption.”

In a nutshell, the Rajapaksas prepare budgets based on non-existent revenue; they give concessions to the rich while imposing unbearable burdens on the poor and the middle classes; their over-reliance on indirect taxation is pushing prices – especially of essentials – up; consumption, be it governmental or popular, is based not on earnings but on debt.

Not only is the regime wasting the country’s meagre income on unproductive, wasteful and unnecessary ventures; it is also encouraging the people (especially the middle classes) to adopt an equally unsustainable living pattern. We have a country, a government and a people ensconced in a borrow-and-spend bubble.
Bubbles do not last. This is probably the main rational reason for early national elections.

Last time national elections were held early, so that the Rajapaksas could benefit fully from the rosy afterglow of victory. This time the main (non-superstitious) reason for early elections would be economics, the fear that in two years, the façade would have cracked too much and illusions would be in shorter supply than necessary.

Wrong Economics; Economic Wrongs

Gotabhaya Rajapaksa prides himself on his efficiency. Facts and figures tell quite another story. According to a report presented to parliament by the Auditor General, the UDA has been making loses since 2006. By 2011, the UDA’s accumulated losses amounted to over Rs. 1,230 million (1.23 billion rupees).

And when the UDA makes a profit, it does so the Rajapaksa way, via sleight-of-hand. Again, according to the AG’s Report, “Even though the Authority had realised a profit before tax of Rs.242 million in 2011, the profit was due to a receipt of Rs.532 million from the General Treasury….” In other words though the UDA claimed to have made a profit in 2011, in actuality, it made a massive loss of Rs.290 million!

Then there is the Mattala Rajapaksa International Airport; in May its total earning was Rs. 16,185/-; not profit; but income ! Incidentally one wonders how many litres of water are spent per day on maintaining this loss-making colossus while ordinary people and animals of Hambantota and Moneragala are tormented by acute thirst.

Despite the precarious state of governmental revenue, the Rajapaksas gave another signature tax break this month – to casinos. “…12% Value Added Taxes and 2% Nation Building Tax charged on existing casinos were removed and replaced with a mere 5% gaming revenue.” An understandable largesse, given that most of the exiting casino owners are Rajapaksa acolytes, including Dhammika Perera, businessman and Secretary to the Ministry of Transport.

The deficit caused by sky-rocketing expenditure and plummeting revenue is bridged by borrowing, mostly from China. Sri Lanka has received “an estimated $4billion worth of loans, grants and aid…. Nearly 70 percent of Sri Lanka’s infrastructural projects….are being funded by Chinese banks.” Most Chinese funds come not as grants/aid but as loans – meaning higher interests and stringent conditionalities, including political ones. This will worsen relations with Delhi, with PM Modi taking a tougher line on ethnic and fishing issues to punish the Rajapaksas for their dependence on Beijing. Rajapaksa economics is creating a vicious circle in the arena of foreign relations as well.

As the efficacy of razzle-dazzle to sustain false hopes fades, the Rajapaksas will embrace ethno-religious racism with increasing vigour. Imaginary enemies, from resurrected Tigers and Jihadists to Catholic Action and Western conspiracies, will be used to frighten Sinhala-Buddhists into clinging to the Kurrakkan shawl.

Moneragala is a test case. It hints at the lengths the Rajapaksas will go to, to maintain familial power and prestige. The greater the economic malaise, the more lethal the election violence; 2015 will be far bloodier than 2010.

  1. Question Time reveals colossal waster pf public funds while masses struggle – Chandani Kirinde – The Sunday Times – 27.7.2014
  2. http://www.scribd.com/doc/182597529/Top-line-survey-results-Democracy-in-post-war-Sri-Lanka
  3. The Island – 10.6.2013
  4. Light on revenue: Cabinet subcommittee says 2015 revenue targets undrealistic and unachievable - Sandun Jayasekara – Daily Mirror - August 23
  5. The UDA not just makes losses; it also breaks the law with impunity. For instance, “The Auditor General also noted that even though the Authority had been informed by the Attorney General in writing that the UDA was not authorised to establish a company for managing rest houses, the Authority had established a company named UGA Rest House, exceeding its legal powers. The company had been renamed as Lanka Rest House Company with effect from Nov.15 2010.”
  6. http://sundaytimes.lk/140427/news/uda-losses-since-2006-total-rs-1230-million-auditor-general-93978.html
  7. http://lankacnews.com/english/news/may-income-rs-16185/
  8. http://www.ceylontoday.lk/22-71278-news-detail-good-for-casinos.html
  9. http://www.aljazeera.com/indepth/features/2014/08/sri-lanka-economy-reliance-china-infrastructure-20148256345589851.html