SRILANKA: WAR...ECONOMIC CRISIS....FINANCIAL SCAMS.....UNEMPLOYMENT.....CORRUPTION.....LACK OF TRANSPARENCY....!!!

Urgent measures needed to solve economic crisis

Manel Abetratne

Certainly the military successes are a cause of celebration for the government which amidst locally and internationally voiced misgiving carried out a single minded course of action to eliminate terrorism . But military victory alone will not suffice when people in the country are forced to face economic deprivation due to the troubled state tof the economy.The success of the war against terrorism will soon pass into oblivion unless the government takes measures urgently to stem the continuing decline in the economy which is affecting the majority of the people . The world recession is having its effect on the country but local situations have aggravated its impact .
The various financial scams have not only left the depositors high and dry but have also in a certain manner reduced the circulation of money. Employment of those who worked in the numerous connected organizations appear to have been discontinued without proper notice or payment and many who once earned five figure salaries are today desperately seeking employment in a market where there is very limited demand for any other than unskilled casual labour. In the meanwhile small industries are also unable to survive cause credit facilities are extremely limited . Many registered finance companies have found that depositors having lost their faith in such institutions want their deposits back . This has certainly impacted on the financial liquidity of the company to give loans or to take on leases.

Meanwhile the recession in the developed world had its effect on the larger export industries and the government decided on a stimulus strategy to assist them . Under this support package exporters would qualify for a five percent incentive payment on their revenue provided they maintained 90 percent of the previous year's export turnover this year too and did not retrench workers .However exporters have complained that it is impossible to meet this export earnings criteria as exports have slumped with recession in key export markets reducing consumer demand. They have further stated that not only have orders come down but overseas buyers were also asking for lower prices, reducing their earnings even further. However while the government is willing to be flexible on the earnings criteria, it is not willing to compromise on the second criteria, that of companies having to maintain the same workforce to be eligible for state support.This attitude has created a certain impasse in the situation regarding the support package for the exporters.

Meanwhile, perhaps to provide the criteria needed for the IMF loan or in order to according to traditional economic concepts , assist exports and reduce imports the Central Bank which had protected the rupee allowed it to float and with it the currency has dropped to as much as 116 to the dollar. This will certainly impact on the price of imports which will reflect the increase on the dollar . In addition the media has reported that the governemnt according to the secretary of Consumer affairs has increased the cess on essential food items, including dhal, sugar, onions and potatoes. This would result in a price increase, but the directive was defended as a measure to “protect the local farmers and promote local products.” Traders association officials have stated that they would be forced to increase the prices of these items before the New Year. In addition they would also have to consider reducing their imports.

While all these measures are being taken perhaps to increase government revenue the majority of the people are striving desperately to make ends meet. The fixed wage earner is in a quandary ,his income is insufficient to cope with the changing economic situation.Already sectors are gearing up for trade union action which will certainly not help at this crisis situation in the economy . Many in the private sector are uncertain of the permanency of their jobs, a large number, even those in executive levels have been retrenched , and against a background of increased costs the termination payments have quickly disappeared swallowed up by loans and mortgages , children’ education needs and other daily expenses.

It is imperative that the government takes steps to stem the spiralling effect not merely of the recession but also of the numerous financial scams impacting on the economic climate. Concrete action has to be taken to at least provide a modicum of relief for the people who while wholeheartedly supporting the war effort are also seeking a way out of the economic situation they are in. The IMF bailout is urgently essential since the gross reserves of the Central Bank have fallen drastically. Regarding the present financial crisis it is necessary that the government and the Opposition together work out the needed logistics to provide a solution , merely opposing and seeking unrealistic solutions will be of no benefit.The country’s future development depends not on ‘airy fairy’ schemes enunciated by various government and Opposition members but on a sober analytical evaluation of the current problems facing the economy and concrete measures taken to solve them .Though stimulus packages appear to be in vogue as a panacea for all economic ills , such packages will really not bring in any essential situational change .As Milton Friedman has said people base their consumption on what they perceive as permanent income. Accordingly, any income received as temporary income is not considered when they plan and execute their consumption decisions. He called this ‘permanent income hypothesis’. As such stimulus packages which offer temporary income increases, will not contribute to increase consumption and demand. Further money income will not really have any distinct impact except perhaps to further complicate the present issues , hence it requires a joint effort by the Government and the Opposition to sort out the present economic crisis . Agitating for wage increases , increasing the cess on consumer goods and speaking of increase in export earnings by allowing the rupee to float and encouraging domestic production are often only hype meant to gain political mileage , hence it is urgent that the government if possible with Opposition consensus present a suitable and practical solution to sort out the present economic crisis.

Whatever stimulus packages the government suggests should be to induce investments and raise productivity . The private sector should be encouraged to invest more And finally stronger action must be taken to prevent the blatant corruption and the lack of transparency that has created most of the financial crisis that affects the country
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