Running the economy: Sanity, vanity or reality

* Dr Anila goes on rampage: takes govt. head on regarding policy issues

The Island, October 31, 2011, 9:48 pm 

In a no holds barred address, delivered in an unbridled spirit of candour spanning 47 uninterrupted minutes where she virtually kept a 1,200-plus spellbound audience virtually at the edge of their seats in pin drop silence, the single largest conference audience in this country to date which no Colombo five star could hold, comprising mainly Fellow and Associate Members of the Institute of Chartered Accountants of Sri Lanka, laced with erudition and statistics from her retentive memory, and at times sending them into raptures with caustic wit, biting satire and anecdote, she dared the government to address policy related issues, ranging from arrival targets for the tourism industry vis-a-vis dollar earnings to grandiose proclamations of high external reserves based commercial borrowings at high interest rates.

By Ravi Ladduwahetty

Retired Central Bank Assistant Governor and outspoken Economist Dr Anila Dias Bandaranaike, recently, took on the government on policy related issues in post war Sri Lanka, adding that: "The country’s development potential is unlimited but we need to develop it with wisdom and balance."

Addressing the 32nd National Conference of the Institute of Chartered Accountants of Sri Lanka at the Waters Edge under the theme: Sanity, Vanity and Reality, she conceded that Sri Lanka’s economic indicators had improved leaps and bounds over the last 40 years, but underscored the significance of sorting our regional disparities in economic growth.

Vanity or Sanity: Show-casing Sri Lanka as "Emerging Wonder of Asia"

"Can 20 million people and environment cope with 2.5 million tourists?" She asked and challenged the government to say why it was targeting numbers and not dollar earnings.

She also had the audience in cascades of laughter when she said that the projected 2.5 million tourist arrivals was based on the figure touted by a loyalist out to President Mahinda Rajapaksa as the ideal targeted number and the target figure was based on that.

"It is true that Sri Lanka is the emerging wonder of Asia. But I don’ t approve the way that the country is being showcased. It does not matter whether there are 100 or 1000 tourists, but what matters is not the quantum of tourists but the dollars. It is as simple as that.

There are around 800,000 tourist arrivals and 2.5 million arrivals would mean that the resources would have to be tripled; the buses, the food, which will mean more imports. Forty to fifty buses together, on these narrow roads, will mean that if one gets stuck, all will be stuck! The construction cost of a hotel room is around a million dollars. Can we imagine 2.5 million tourists in our food courts at Polonnaruwa , the Gal Vihara and Ritigala Forest Hermitage ? This is mind boggling on our narrow roads.

"At current migration labour force entry rates, are 500,000 jobs in tourism by 2016 realistic? The current labour force in the tourism industry is 100,000. With people migrating at a rate, who is going to give the 500,000 jobs ? Who is going to give the jobs for the economy to grow at 9%?

"Also targets for BPO, IT sectors as envisaged? The second international airport at Mattala, do we need it ? Of the second seaport at Hambantota, we heard about that rock and that the first ship has come in but now, there is deafening silence in the newspapers about further ships coming in. Then, international sports venues- Sooriyawewa, Pallekelle, Dambulla and there is a Nittambuwa sports complex also in the offing, but Sri Lanka Cricket has no money to pay salaries. "There is also talk of the Upper Kotmale Hydro Power project and filling up the Kotmale reservoir. Can’t we wait at least a unit of electricity is generated from it? Now the government has to evaluate the true benefits versus colossal costs to Sri Lanka and that has to be recognized. We need to be careful about the hype versus performance. We are gassing about gas now even before finding whether it is commercially viable. It is time that we walked the talk for credibility.

"If we are showcasing Sri Lanka as the emerging wonder of Asia, this is too much egoistic talk versus hard reality. This is vanity versus sanity which needs clarity, otherwise it will be inanity!!," she quipped amidst a round of applause from the audience, buttressed with cascades of laughter.

Past reality and future 
sanity:

National Policy Targets and Performance:

"Can we expect private investment with the expanding role of state and armed forces in the economy? Can we achieve investment and growth targets on low credibility with investors? Can we reduce budget deficits and maintain debt trends? Can the Central Bank of Sri Lanka intervene to maintain current interest and exchange rates and also sustain growth targets?

"The government boasted of US$ 8 billion in external reserves which was mostly from commercial borrowings," she said, amidst ripples of laughter and amusement among the entire audience.

So, the question is: Vanity or Sanity?

"Are we on a balanced path to our medium term goals? Is it sustainable that our country is going today? Can sanity overcome the vanity to rectify these issues? The private sector also needs to look at these issues loud and clear and ask the government where the consistency is.

"Will the sanity overcome vanity where credibility is offered to all the stakeholders? Unless the government gets off its high horse and restores credibility, the required investments will not come in. Will vanity become sanity where the realistic performance will not be measured when it comes to performance? It is true that there are the positives and the negatives. It is very seldom that I see or hear any government official talking of the negatives. What we hear is that it is gung-ho on all fronts and that all is right everywhere.

"There is a lot of hype. We must be balanced to see the positives and the negatives as well.

She said: "Twenty five years ago, before that watershed year, and the last year, going by the statistics of the Central Bank Annual Report, let us see the future whether it is vanity or sanity. The highest investment which has been achieved to date that has been achieved during the days of the accelerated Mahaweli program which was 28% of GDP. We were at 29% last year and we are trying to bring it to the mid thirties. We are also trying to reduce the budget deficit drastically. Debt to GDP reduced from 80% to 67% and external debt to be reduced to manageable levels to 12-15%

"The targets are based on post conflict optimism, and I think it is rightly so, with investment led, infrastructure led and consumption led development may generate revenue to meet government expenditure and debt servicing.

"One thing is that we have not got the kind of investment that we need and I asked Deputy Governor of the Central Bank Mr. Dharma Dheerasinghe and he said that it will come. It is nowhere near the thirties yet. Last year there was the growth of 8% and I would not be surprised if it is 8.5% this year because, it was on a low base.

"Taking into consideration, the post 2009 era, there is a lot of construction, be it roads, hospitals, schools, there is domestic tourism, there is investment coming, there is the cultivation of the lands which were not hitherto cultivated in the North and the East due to the hostilities coming back into practice and the demands of that part of the country also have to be met. The immediate growth has to be high. So, achieving 8% is where it should be. But the problem and the challenge will be in 2012 where the low base is no more. So, we have to have this investments for GDP growth to be between 8.5%- 9% or 10% We will also have to remember that inflation could also set in.

"Yesterday, there was a clarion call to invest. All the government policy documents say: " Invest, invest, invest"!! But the government has an expanding role. The Government did not open Sri Lankan Airlines, Shell Gas or Sri Lanka Insurance Corporation to the private sector. They took it on themselves and now we have the government expecting the armed forces to run Janawan Halas all along the A 9 highway, to selling vegetables, to running commercial transport with the Navy and the Air Force and the latest I saw was a shoot of shops at Kilinochchi run by the Army . So, there is a little inconsistency there of the signals that the government is emitting. I don’t see the private sector also asking these questions loud and clear.

"So, the question is, can we achieve the requisite investments and growth targets on low credibility? We have to have that credibility. One is the government’s foothold in economic activity. Secondly, where the government also has adopted a very stubborn stance in the manner it is handling the Western world, which is also very hypocritical in the manner that they are attacking Sri Lanka, not that we have not done anything wrong. We have to build that confidence.

"The third point I want to make is the high external reserves. How can we boast of US$ 8 billion reserves which is said to be sufficient to fund six months of imports when they are based on commercial borrowings? I was at an earlier conference where the International Monetary Fund Representative Koshi Mathai stoutly defended Sri Lanka’s External Reserves. Three days later I saw in the newspaper that the IMF had taken a new turn in spelling out that they were non borrowed reserves. Then comes the question of how it is going to be sustained.

"Then on the budget deficit and maintaining the debt servicing targets. Employment opportunities are expanding but the private sector is also not expanding enough to absorb them. State employment will mean salary bill, pension bill and other perks such as transport etc. All that costs the government money and with the current borrowing trends, is it practical in terms of reducing the budget deficit and reducing debt? The Central Bank will be doing magic by keeping all these things going! How sustainable is this and how long can you go on?

"My point is that the Central Bank needs to maintain the exchange rates and the interest rates for the maintaining of stability, but, can you also sustain the growth targets with the same levels. One needs exceptional arithmetic for it to work it in the short term. You want investment to grow at 34% and for that, investment goods have to come in which would also mean that the investment bill is also going to grow. That would also mean that there will be pressure on the exchange rates to depreciate.

"The targeted 34% for investment will also mean that there will be demand for credit, which would mean that there will be pressure on the interest rates. So, the question would be how does one maintain the interest rates and the exchange rates at the current levels with the 9% economic growth and the 34% Investments of GDP without also simultaneously managing the inflation. If the government can manage that, I will pull my hat off to them!"

Earlier, she said: "We need to take into account the economic backdrop that we take our food, our housing, our clothing and our shelter along with the other economic services such as our transportation, communication and finance while having the ability of helping the environment

"In addition to that, we also have to think about intellectual well being, having the opportunity and access our educational, professional, aesthetic and cultural pursuits that would enable us to achieve our potential and through that, having the access to employment for a professional career where we can achieve our potential and at the same time, not forgetting that, as human beings we should be able to enjoy our music, theatre, drama, reading and those aspects of human well being .

"As for emotional wellbeing, we need to be comfortable that the society we live in is a physically safe environment and the Police and who ever who is supposed to look after us is doing their jobs and that we are allowed to be free in our thoughts, our speech and our beliefs leaving us to enjoy not only our physical but mental health as well.

"So, I would like to stress that the human well being is just broader than simple material needs and includes intellectual simulation and emotional security. I think that in this point of Sri Lanka’s history, we need to look at this from a broader perspective.

" So, the reality is, what resources in our country that will enable us to uplift the quality of the lives of our people on all these fronts. We are an island nation. A nation with no bounds of natural security with the sea around us; we have the harbours and the beaches which are being turned into commercial ports, ocean resources, not only the fishing but the minerals, wind power and above all, a very strategic location which encompasses the main routes maritime routes of the world and we are next to one of the economic super powers and a regional super power- India.

"Land wise, mostly arable and flat with accessible mountains conveniently placed at the middle of the country and with plentiful water and I can assure you that the dry zone has more water than most parts of the world.

"We have now 30 years of terrorism behind us and now we have all the opportunities to surge forward. In that process, we have to stress for balance and we have it so good. We need to achieve that potential by efficient and honest efforts. "

Responding to the comments made by Chief Guest -Defence Secretary Gotabhaya Rajapaksa the previous night, about the need to eradicate corruption, she said : " We need to make sure that we don’t fall into the same trap like some of the large financial organizations of the western world. We also need to safeguard that rich multicultural heritage while maintaining our unity in our diversity and be Sri Lankans and not be divided on ethnic and / or religious grounds and as one voice while enjoying the fabulous environment that we are privy to. We also need to enjoy and preserve life with leisure with family and community for contentment. We need to have time for leisure and for the family and the community. Earnings, the big bucks with the material well being is not going to satisfy our lives. There is much more to life - family community and contentment.

Where are we today?

" I am told that I will be addressing an audience whose average ages are 30 plus and I am talking about an era where most of you were seeing the world. We have moved away from that era. Firstly, from the perspective of material gains. We are now living in a country where 90% of the households live in houses either owned by them or free of rent and permanent; This, in sharp contrast, to 40 years ago, where the number of people living in their houses were just 40-50%. The others did not have their own accommodation. Access to sanitation, safe water and electricity is between 85 and 90%, compared to electricity under 10% forty years ago where only half of the people had access to safe water at that time.

"Forty years ago, at the time I was a schoolgirl, hardly anyone had a telephone. But today, we have moved on, but we have to remember that 10-15% or 2 million of the population don’t have access to welfare. Last year, Samurdhi provided 1.6 million people Rs. 9 billion in welfare where as 1.8 million people brought in Rs. 465 billion foreign remittances. Samurdhi translates to around Rs. 500 per month per person while the migrant workers’ remittances translated to Rs. 20,000 per month per family.

"The National Numbers look good but the issue is the regional disparities. The Western Province is different to the other provinces. A quarter of the population produced half of the economic output in 2010 which is equal to the rest of the country. That translated to multi- household expenditure last year was Rs. 42,000 in the western province which also means that only 4% of the people live below the poverty line in the Western Province, she said.

"There was infant mortality going down drastically and life expectancy going up, and the dependency ratios has also go down," she said

National Priorities in our Quest for Balance

" What we need to achieve is our potential by ethical means. What we need is to safeguard our rich multicultural heritage, maintain – unity in our diversity, preserve our natural environment, share – leisure with family and community and while enjoy living in harmony and health Our Country’s potential is unlimited – Develop it with wisdom and balance!"

Our country today- the reality- Development Model targets well being

"Our country today provides for infrastructure to improve regional economic access, focuses on "Hubs" in Services sector to grow, advocates private participation in development, encourages foreign employment to raise foreign earnings and reduce unemployment, overlooks environmental implications of chosen path and pushes chosen path by discouraging alternate views.

"Of the education statistics, it was only 30% who passed up to GCE A Levels forty years ago which has increased to 70% now and we have to increase that to 100% With that said, our employment has gone down to 5%. In 2010, 61% were eligible for university, but only 10% could enter Free State Universities. Opinion divided on Private Universities. The state provided 14 % of employment in 2010 which accounted for 800,000 people and 1.8 million migrant workers equal about 20% of labour force. The private sector has not generated new jobs and that is an issue for you guys. The reason for the reduction of the employment is due to the state and the outside world generated employment and not Sri Lanka’s private sector. So, these are the questions that we need to ask ourselves.

Current Reality – Emotional Well-being

"Terrorism no longer a threat with the conflict in the North and the East being over and our personal security threats were also over, but there is inadequate trained professionals such as psychologists, psychiatrists and counselors to treat post conflict mental trauma.

" Ten days ago, we have seen political rivals of the same party where they almost killed each other and one was killed. Rising political thuggery, gun culture, underworld violence – do police, courts protect citizens under this culture? Those are issues that we have to grapple with.

"Of balanced language policy, President Rajapaksa has said that he wants a tri-lingual society as soon as possible but there is no minority rights in practice – for official letters, notices, court proceedings are not processed in a manner that the people do not have it in the language they deal with. There were also instances where I have been to official venues where the medium of instruction was in Sinhalese.

" I was in a Court in Fort where there were large numbers of members of the minority and all the notices in the Courts were in Sinhalese. There is a dearth in the communication in presenting the language that the people understand and communicate.

"True that the Government is doing a lot on reconciliation issues but there is perceived apathy on reconciliation issues. There is still a large and excessive Army presence in Jaffna , and there is weak inclusivity in North development. There is a 30 member team of officials for the development of Jaffna District, but there is not a single Tamil speaking person in that. This is true and perceptions matter.

"Of the freedom of speech, we know how the media officers and media personnel have been attacked when there is criticism of the state. Sri Lanka has to live with it. It is not good to ask the Government as to whether they have double standards. Sri Lanka has to answer a lot on its media at various international fora from various western powers at various intervals . I don’t think that we were diplomatic in the manner that we handled it, but all we had to say was, the terrorists were our own people who were being used as human shields, try to minimize co-lateral damage without saying that you guys have no right to come there. If we need to see development, we have to have them on our side. That seems to sum up the reality on the emotional well being and self-defeating attitude to criticism – attacks on local media personnel and offices, poor diplomacy to counter international hypocrisy

Current Reality – Summary

= Material Well-being? - Sri Lanka is a lower-middle income country with national socio-economic indicators at upper income levels. But regional disparities high, aging burden rising

Current Reality - Structure of Economy

" We have a dramatic change in the economy from 40 years ago where the agriculture sector has declined and where the share of the sector is keeping to declining, Services increasing, as economy develops and the industrial sector has been moderate. In today’s world, one needs services in a backdrop of agriculture and industry, one needs better transportation for goods to move to markets, for goods to move to airports and ports for export, good market information for agriculture and industry to determine what goods to produce and what prices to determine, one needs also financial services to ensure that credit is available for agriculture and industry. So, services have to grow faster than agriculture and industry to fuel growth in the other two sectors.

"We have also seen the dramatic increases in household incomes quite considerably largely attributable to migrant remittances, and with that, they too, they want more and better services, better transport facilities, better education for their kids, better health services, better leisure and better holidays and people are spending much more for weddings and funerals than ever before and therefore, all these needs have to be met. Basically, these services need to be grow.

"There is the minimal change in Industry share , efficient services needed to fuel growth in other sectors, and more and better services required as household needs expand with higher incomes.

What is the reality today?

"Basically, yesterday both the President of the ICASL Sujeewa Mudalige and Defence Secretary Gotabhaya Rajapaksa said that we have today a development model that targets material well being. It also provides for infrastructure and provides regional economic access to sites which would circumvent the regional economic disparities.

"Of the statistics, but today, around 90% of the industry is in the western province and where a mere 10% lies in the other eight provinces. I saw in the slide presentation yesterday that there are the eight bridges between Batticaloa and Trincomalee with all the roads and all that.

"Of the specific hubs, ports and tourism, Information technology and BPOs. All these are on the national development program. I would also advocate the private sector participation in development.

"I would also like to congratulate the government in that there is a lot more focus on the environmental issues than ever before, but yet, some of the environment related issues in relation to some projects are still over looked. There was reference to a road that on the side of the Sinharaja Forest. Roads can be built anywhere, but the Sinharaja Forest is a special place. There was also another controversial road that went right through the Wilpattu National Park, which joined Puttalam to Mannar. These are just a few of the many as far as roads were concerned. There was the issue of the second airport at Mattala. There are also a few more issues to maintain our balance.

"In addition to that, we have to recognize that, however well intentioned the government is which is doing a very good job on the macro, is that push to discouraging alternate views.

" I made the references to the media and I see lots of people including former colleagues and professionals in economic policy saying: " I no longer bother to say anything or even constructive criticism because nobody is listening. I think that does not augur well for us. We have to congratulate the good and recognize the bad and talk about it constructively and not to destroy. So, that is the economic model that we are talking of.

Current Trends – Vanity or Sanity?

Emphasis on foreign 
employment

"Granted that there is an end to civil conflict, but there is no end to out-migration, brain and skills drain. Retirees were returning, but middle management and young skilled workers were leaving Government policy to encourage migration, with inadequate options, incomes and challenges to retain trained and untrained Sri Lankans, declining HR capacity to deliver on Sri Lanka’s post-conflict development targets and she asked whether the state and citizens balance options for and against living in Sri Lanka today.

"There is a crying need for a balance in the state – citizens balance. Why is there a mass exodus of people from this country. There is a need for sanity to recognise the pushing for the people to go to bring that Rs. 465 billion to enable the economy to grow at 9%

Vanity or sanity: Emphasis on money and material well-being

"What money can buy drives lifestyles. Monetary gains, not professional standards, drive most businesses. Non-communicable diseases linked to stress rising. Globalization and unrestrained marketing, not facts, influence food habits; also lifestyles. Energy, water and waste disposal under strain with "development"Rising noise, water, air pollution, traffic congestion with "development". Do those who make "big bucks" enjoy optimal well-being?

"On money and material well being, well, that is the wy that the world is going. We, at this stage, need to guard ourselves without merely going by monetary gain. We have seen the Enron scandals and all that. We need to guard ourselves against rising stress.

"It also does not mean that all the human beings who make the most amount of money does not necessarily have the best emotional well being. What if all the restaurants which now sell those hot hoppers and the kottus are replaced with the pizzas and the hamburgers? We must ensure that our eating habits and dressing habits are not overly influenced with the rising tides of globalization as well

Vanity or sanity: Is there balance in our use (and abuse) of resources for "development"?

"She posed the questions: "Will Vanity prevent the Sanity of valuing our non-material advantages and conserving our resources? Despite improvements in material well-being, is there balance towards achieving total human well-being? Is there balance in our use (and abuse) of resources for "development"? Will Vanity prevent the Sanity of valuing our non-material advantages and conserving our resources? Despite improvements in material well-being, is there balance towards achieving total human well-being?

How do we regain our Balance?

"The method to regain our balance, she said, was to recognize reality, avoid vanity and maintain sanity to ensure that Sri Lanka’s development will be sustainable and uplift human well-being," she concluded amidst sonorous applause from the appreciative and attentive crowd.