On the 5th Prime Minister Ranil Wickramasignhe delivered a speech on the government’s mid term Economic Policies. It was a 20 page 7000 word speech and I doubt many 21 year olds out there have read it completely. While all members of a democracy have a responsibility to stay informed, it is highly unlikely to happen. Especially when being informed involved reading a 7000 word speech filled with economic jargon; divesting- what’s that? But I am sure every 21 year old is going to hear one thing – Wimal Weerawansa and his Combined Opposition beating about the bush shouting “privatisation of national resources”.
Because the PM call these the 3rd generation of major economic reforms coming into effect in Sri Lanka since the 60s State Intervention and the 1980s garment led industrialisation. While some may like to claim the Rajapakse regime presented significant economic reforms, it never really presented a particular coherent set of economic reforms which changed the face of the economy. But these 3G reforms really promise to create a transformation. However it is one thing to promise and it is another to implement and achieve results.
So is Ranil back to Privatising the economy?
Before I answer that I would like question whether we really have a coherent economy. Well you might rebuke by claiming that our GDP grows by about 7% annually since 2009 proving a ‘healthy’ economy is present. The thing about calculating the GDP is that even the credit card payment I made to the University of London for my degree is calculated as an economic transaction that adds to the GDP even when all that money is a net outflow from the country. So I contributed to GDP growth by sending money to the UK. So I would like to assert we actually don’t have a coherent economy to begin with. We have a dead economy that has been surviving thanks to stop gap measures over the decades.
Ever wondered why the 2008 global financial crisis never really affected us? Well that was because our economy was not well integrated into the global economy and the global value chain that the PM wants to finally integrate us into. Those financial derivatives market that created the crisis never really reached Sri Lanka. And considering we don’t have much exports the effect of reduced demand was minor. Minor export drops were countered by the massive state investments.
So what’s with all the talk about privatisation?
Even during the General Elections the UNP promised that it would convert the State owned Enterprises (SOEs) into profit making firms. Now the PM is delivering on his promises that were approved by a majority of voters.
The biggest move is the Public Enterprises Act under which a new State Enterprises Holding Corporation is to be set up following Singapore’s Tamasek model. This was obvious from the beginning when the Ministry for State Enterprise Development was set up under Kabir Hashim.
What is Temasek?
Its basically the corporation that produces 15% of Singapore’s GDP and majority of its shares are held by the government. Their equivalent of the CEB, Ceypetco, other utilities and major state created industrial giants are owned by Temasek. Interestingly its Chairman is the current Singaporean PM’s wife.
This process does mean that the government is able to sell shares of SOEs to private sector investors. But it is not essentially a bad idea. The cost burden of these enterprises on the treasury has been enormous over the years. Privatising will allow these costs to be shared with the private sector. It also means that the current low productivity associated with these firms can be potentially changed – after all LECO provides better services than CEB.
Why did I say ‘potentially’ ?
The issue is all of these SOEs are highly unionized and all these unions frantically oppose privatisation. They will surely confront the whole idea of a holding corporation with hostility. Hostility that will surely be used for political advantage by the new combined opposition that MP Weerawansa is assembling.
I am completely in support of Sri Lanka having a strong opposition. The Rajapaksa regime would have been stronger if the opposition had remained a coherent force. Opposition is vital to building a democratic society and to ensure accountable policy making. But unfortunately all our oppositions ever want to do is some how get back the power it lost in the last election. It is almost impossible to imagine how the government is going to maneuver itself safely without committing electoral suicide and implement this initiative.
Further the PM also proposed to partially divest non essential state possessions like Lanka Hospitals and a few hotels. From an economic policy stand point it seems beneficial for the government to lessen its burden of taking up any loses these make and also it allows private investors to make capital investments in their expansion. But the likes of MP Vasudeva, who returned the Sri Lanka Insurance Corporation along with Lanka Hospital to state ownership, are bound to vehemently oppose such a divestment again on the claim that the nation is losing ownership over national resources.
Maybe what the PM needs to do first is improve the economic knowledge Sri Lanka’s society has. I am no supporter of neo-liberal deregulation that caused havoc in the rest of the world. But the reality is that market forces must be allowed to come to play. The reason our stock market is rigged is because government intervention is high, removing the ability for market forces to play out under due regulations. Government intervention is when the EPF/ETF capital is used to create a stock market bubble. State regulation is when the Securities and Exchanges Commission implements the regulatory framework to prevent fraud. First and foremost we need to establish a Faculty of Economics in the Colombo University to produce the economists we require without retaining the field in the Faculty of Arts.
The economic reforms go on to address more aspects and it is impossible to analyse and present it in as simply as possible in one article. Hence stay tuned for more articles on the matter in the coming week. Just as a disclaimer I do not claim to be an economic policy expert, but I am simply attempting to dispel common myths that are sure to emerge around these policy reforms from a common sense perspective and what limited knowledge I do possess.
*BTW – definition of Divesting – selling of an existing business by a firm or in this case the state.