ECONOMYNEXT – Sri Lanka has given tax cuts to the super rich, and is moving on a path towards a North Korea style autarky with import controls and a command economy, opposition leader Sajith Premadasa has charged.
“We are somewhat moving towards as an economy that is akin to North Korea, a failed state a failed economy,” Premadasa told parliament.
In North Korea money printing, which drives import controls and self-sufficiency is accompanied by taking zeros off the currency from time to time, which is called re-denomination.
Reports have suggested that the economy is partly ‘dollarized’ with Yuan notes. South Korean reports claimed that Pak Nam-gi who was head of finance and planning was shot by firing squad after the 2009 re-denomination.
Meanwhile Premadasa said the government was trying to dis-engage itself from international activities and the European Union has already raised the alarm.
“We are alarmed as a responsible opposition because EU countries are a vital export destination for Sri Lankan exports,” Premadasa said.
“If the EU countries decide to reject the import restrictions the Sri Lankan government is embarking upon, has the government given some thought to the detrimental impact on Sri Lankan exporters?”
He said State Minister of Finance Nivard Cabraal had said the current administration was embarking on a revolutionary path breaking economic policy which no other government had implemented in economic or political history of the island.
“In a sense I agree with him because at the end of last year this government took the most ludicrous decision of cutting taxes to benefit the super rich by ensuring that 600-800 billion rupees were given as handouts to the well off in our society,” he said.
While criticizing neo-liberals the current administration had done what no-neo liberal had done, he claimed.
“Through this tax cuts the government has crowned themselves as the super neo-liberalists in the whole world,” Premadasa said.
“They are engaging on what once President Bush said was Reganomics, they are engaging on voodoo-economics, they are engaging in crony-capitalism, they are propagating lies untruth and deception to mislead the people,” Premadasa said.
The current administration is not engaging Reaganomics, the foundation of which was monetary tightening by Federal Reserve Governor Paul Volcker which strengthened the dollar and ended the Great Inflation of the 1970s as well as tax cuts, analysts say.
Sri Lanka is printing money after cutting both income and value added taxes and has imposed exchange and trade controls.
The last UNP led administration also allowed the central bank to print money and take the rupee down from 131 to 182 to the US dollar triggering output shocks and driving them out of office, critics say.
They also raised income taxes saying they wanted to raise direct taxes. Direct taxes kill investment and jobs, as investible capital is taken and is frittered away in current spending such as state worker salaries.
Policies under Reagan and Britain’s Margaret Thatcher laid the foundation for almost three decades of growth around the world. The so-called ‘Great Moderation’ period ended with Federal Reserve money printing triggering the housing and commodity bubbles which collapsed in 2008/9.
Fed tightening brought food prices down to the less fortunate in the US as well as to all the countries that did not print money and bring down their currencies. Bit Sri Lanka printed in the 1980s, creating economic hardship and strikes.
Reaganomics launched the Uruguay round of trade negotiations in the 1980s which helped liberalize global trade and helped smart countries to draw foreign direct investment for export.
“…[L]et me say at the outset that our trade policy rests firmly on the foundation of free and open markets — free trade,” President Ronald Reagan told a meeting of business leaders and trade officials in September 23, 1985.
“I, like you, recognize the inescapable conclusion that all of history has taught: The freer the flow of world trade, the stronger the tides for human progress and peace among nations.”
The US leadership in free trade under ‘Reaganomics’, not only raised the living standards of people in US but lifted hundreds of millions of Asians out of poverty from countries ranging from China to Malaysia and helped create many of Sri Lanka’s export industries.
Reagan Apparel Trade
Premadasa’s father, Ranasinghe Premadasa expanded Sri Lanka’s apparel factories benefiting from the free trade leadership of the US under Reagan and also the earlier multi-fibre agreement, which was brought under the World Trade Agreement after the Uruguay Round and was gradually dismantled.
Reagan vetoed two protectionist textile, apparel and footwear quota bills in 1985 and 1988.
RELATED LINKS (NYT 1985): President vetoes textile bill
RELATED LINKS (LA Times 1988): Reagan Vetoes Bill Restricting Textile Imports
President Donald Trump on the other hand was bashing free trade and launched a campaign against the North America Free Trade Agreement, which helped millions of poor in Mexico and helped US citizens get cheaper goods allowing them to spend the saved money on other job creating services or goods.
The NAFTA was born out of the Reagan-era US-Canada Free Trade Agreement of 1988.
Margaret Thatcher who engaged in what some critics claim to be ‘neo-liberalism’ also tightened monetary policy ending International Monetary Fund bailouts of the Bank of England (Sterling crises), abolished exchange controls and allowed free trade.
Today the UK is the second largest export destination of Sri Lanka after the US.
Premadasa in his election campaign wanted to implement ‘New Deal’ style economic policies, which economists later said was a key reason for prolonging the Great Depression in the US, as it involved severe policy or ‘regime uncertainty’ especially after a Presidential Executive Office was set up (Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War). (Colombo/Dec04/2020)