Photo courtesy International Business Times
One year after winning the parliamentary election of August 2015, the government is on track politically.
One year after winning the parliamentary election of August 2015, the government is straying economically.
In the year gone by, Sri Lanka has moved towards greater democratisation and reconciliation. The pace may not be to everyone’s satisfaction; much remains to be done – and undone; but the overall direction cannot be in doubt.
Economically the government has veered sharply from its initial promises. It is bereft of a clear vision or a strategy, teetering from one mistake to the next and increasingly willing to borrow from the Rajapaksa economic copybook.
A critical lesson of 2016 is that the wrong kind of economics can undermine the right kind of politics, and make even advanced democracies vulnerable to the siren song of racism, bigotry and xenophobia, an old lesson which each generation prefers to learn the hard way. The Brexit disaster and the rise of Donald Trump are warnings of what might await Sri Lanka if the government fails to right its economic path, in time.
Governance today is better than governance under the Rajapaksas, but given how bad things were, that is not saying anything very much. Every time President Sirisena soliloquies about good governance while favouring the likes of the pistol-toting former mayor of Hambantota, every time PM Wickremesinghe perorates about good governance while trying to impose more economic burdens on the masses, they are reducing the distance between themselves and the Rajapaksas.
Sirisena-Wickremesinghe administration’s VAT imbroglio is symbolic both of what is right and what is wrong in today’s Sri Lanka. It is also an indication that what is right about Sri Lanka – its greater democratisation – might succeed in alleviating the worst of its economic wrongs.
The VAT Hike – A blast from the Rajapaksa past
Had the Rajapaksas been in power, the VAT increase would have gone through, just as the previous hikes in indirect taxes were carried out with nary a negative word. The traders would not have protested, the courts would not have intervened and government ministers and parliamentarians would not have made their objections known.
The Sirisena-Wickremesinghe administration tried to sneak in the VAT proposals and failed, not only because Sri Lanka has become re-democratised but also because the two components of the hybrid government often counter each other’s destructive and self-destructive excesses. According to media reports, PM Wickremesinghe wanted to resuscitate the VAT proposals, but abandoned this piece of unintelligent governance when some of the SLFP ministers refused to play ball.
Some UNP minister called the VAT proposal a Rajapaksa tax. They were right, though not in the way they intended. The VAT hike is the clearest indication that the new government does not intend to carve out an economic path of its own but plans to amble down the Rajapaksa way.
The Rajapaksas followed a strategy of taxing-borrowing-and-spending, albeit with a difference. Rajapaksa taxing was of the indirect variety, targeting essential goods and services, placing a disproportionate share of the burden not on the rich but on those clinging to the bottom half of the income-totem pole. Rajapaksa spending was mostly military-related or on physical infrastructure projects with little forward or backward linkages and extremely limited employment and income generation.
A severe imbalance in the proportion of direct to indirect taxes was a major flaw in Rajapaksa economics. The ideal balance is said to be 40% in direct taxes and 60% in indirect taxes. By the time the Rajapaksas were voted out of power, the Lankan ratio was 20% in direct taxes and 80% in indirect taxes. This meant a policy of imposing a severely disproportionate share of the burden on the poor and the middle classes. High living costs and increasing inequality were among some of the more pernicious results of this tax imbalance.
The UNP was critical of this imbalance while in opposition. In the early months of the Sirisena-Wickremesinghe administration, there was some talk about redressing this situation. But those glimmers of politico-economic sense seem to have evaporated, as this government too becomes accustomed to power. The VAT proposals, if implemented, will exacerbate the existing direct to indirect tax-imbalance to even more precarious levels and cause further increases in living costs and income inequality.
The high growth rates of the Rajapaksa years acted as a facade for an economy which was structurally weak and dangerously flawed. These included the mushrooming of debt, growing economic inequality, high levels of youth unemployment (20.1% in 2014) and the absence of quality jobs (most job creation was in the informal sector). Though Sri Lanka continue to have a high human development index, the value dropped significantly when adjusted to inequality – from 0.757 to 0.669 in 2014 (a loss of 11.6%, which stemmed mainly from inequalities in income and education levels). Of the employed, 20.4% constituted working poor while vulnerable employment was as high as 43.1%[i]. Sri Lanka also ranked as a country with serious risk of hunger, even in 2014, according to the World Hunger Index.
These were not abstract problems, but politico-electoral time bombs. The Rajapaksas thought they could neutralise these problems with glitzy propaganda-hypes and daily doses of minority-phobia. They were wrong. As the Top Line Survey by the CPA revealed, by December 2014, cost of living was the number one problem affecting the electorate, a prioritisation which cut across ethno-religious lines and administrative boundaries.
Political unfreedom couldn’t prevent the regime from losing its unpopularity. All it could do was to ensure that the regime had no idea of its own unpopularity.
When national elections came, those voters who were affected by Rajapaksa economics used their franchise to unseat the Rajapaksas.
The Sirisena-Wickremesinghe administration won two elections promising to tread a different economic path. Increasingly that promise is being honoured in the breach. Not only does the government continue to spend lavishly on political elites (members of the Rajapaksa-led Joint Opposition have no hesitation in enjoying this largesse); it also displays a disconcerting inability to imagine a different developmental model and a tendency to impose more and more financial burdens on ordinary people.
If the government re-imposes the same – or even similar – set of VAT proposals, the main beneficiary of that politico-economic inanity will be none other than the Joint Opposition.
The link between economic discontent and racism/populist authoritarianism is almost an axiom. If the Sirisena-Wickremesinghe administration continues along its current economic path, it will jeopardize its own political achievements, especially in the areas of democracy and reconciliation.
Economic Disasters and Political Time Bombs
During his Uganda tour of May 2016, the then president Mahinda Rajapaksa was reportedly enchanted by the servile conduct of the Ugandans he came into contact with. According to the political column of the Rivira of May 12th 2013, Mr. Rajapaksa asked his Ugandan counterpart, “When we look at them (Ugandans) it is clear that they have a very obedient nature. How did you manage to make them so obedient?” President Musevini’s response was that this servility was a relic of the Colonial ethos, when White Masters kept their Black and Brown Subjects in total subjugation.
Rejected by the not-so-servile Lankan citizens twice, Mr. Rajapaksa might be thinking back to that incident with a good deal of nostalgia. But the incident is of relevance to Lankan’s current government as well. The much-postponed local government elections will have to be held sooner or later. If the government is serious about bringing in a new constitution, it must be ready to face and win a referendum. Both a new constitution and a political solution to the ethnic problem would require public approval in a referendum. And winning a referendum would be impossible, if the people, especially the Sinhala majority, are not relieved of their economic burdens. If the government wants to implement the rest of its political agenda, an economic policy of rice-and-curry now – rather than one of Jam Tomorrow – is a necessary precondition.
Even more than the UNP, President Sirisena and his SLFP cannot afford to antagonise the electorate. The President is particularly vulnerable, since any new political party by Mahinda Rajapaksa will be a direct threat to him and to the SLFP. If the government he heads continue to impose burdens on the electorate, Mr. Sirisena’s SLFP might slip to the third place in any future election, local, regional or national.
The Rajapaksas are experienced creators of minority bogies. Their efforts to incite Sinhala anger over such measures as singing the national anthem in Tamil failed. But if the government continues to mess up economically, the next time the Rajapaksas try to ignite minority hatred, be it over a new constitution or an attempt to find a political solution to the ethnic problem, they might succeed.
Stable societies are cohesive societies. Cohesion is impossible when a society is racked by inequality. Inequality’s destabilising impact can assume particularly deadly forms in countries beset with ethno-religious divisions. If some people feel that development is something that happens to others, disenchantment sets in and politico-psychological fissures develop. Instead of the necessary ‘national’ perspective, ethnic/religious/caste/class perspectives become predominant. Instability breaks out, even in the midst of spectacular growth. As history shows, ours and others, when masses are suffering economically, it is very easy to bamboozle them into demonising the ethno-religious ‘Other’.
If the economic distress of the masses worsen, it will not be long before the old myths of ‘rich’ Tamils preying on ‘poor’ Sinhalese will be resuscitated, joined by newer myths of ‘wily Muslims’ standing in the way of Sinhala prosperity.
If the Sirisena-Wickremesinghe administration does not cease straying into Rajapaksa territory economically, it will undermine its past political gains, its future political plans, its own political existence and peace and stability of Sri Lanka.
The Rajapaksas lived in their very own make-believe world. In that imaginary world, Sri Lanka was a rapidly developing land – its debt burden was not spiralling out of control; its poor were not been deprived of their homes and livelihoods; its environment was not been degraded; its health and education systems were in mint condition. In the end, they didn’t succeed in hoodwinking the electorate; just themselves.
Now those who succeeded the Rajapaksas, promising to alleviate the economic suffering of the masses are imitating the Rajapaksas. They too are trying to impose the superstructure of a prosperous, developed nation on the base of an underdeveloped, cash-strapped economy. They are too are trying to waste borrowed money on unnecessary military hardware, such as the MIG purchases. They too are trying to force the poor and the middle classes to foot a lion share of these bills.
In governance, speed is a virtue, only if the path is the right one. Non-democracies might move faster than democracies, but more often than not the movement is in an erroneous direction. The VAT disaster was averted because Sri Lanka now has such democratic basics as the right to protest and a non-cowed judiciary act. Hopefully, the reinstated checks and balances will act antidotes to the disastrous economic path of the Sirisena-Wickremesinghe administration and prevent it from hurling itself and the country down the precipice of a Rajapaksa return.
[i] http://hdr.undp.org/sites/all/themes/hdr_theme/country-notes/LKA.pdf