ECONOMYNEXT – Sri Lanka’s main opposition has questioned whether a new state owned which is being set up to finance and operated the country’s expressways would be 49 percent owned by a Singapore based firm.
Sri Lanka is setting up new state-run companies to manage land and hotel assets, invest in new technologies.
Both existing and new expressways are expected to come under the new company which will also raised funds, the government has said amid an attempt to create ‘non-debt creating’ inflows to finance capital spending.
“So when the new firm is established and transfer this authority to that firm, the state department under Minister Johnston Fernando will end up with nothing,” Hashim told parliament.
“You have decided and discussed with a Singapore based company to give them 49 percent of the shares of this company that will have the full authority of expressways and road
Development,” he claimed.
“You are privatizing our country’s roads with this.”
Hashim was road development minister under the ousted Sirisena-Wickremesinghe administration.
Prime Minister Wickremesinghe failed to privatize a single state firm under his administration and effectively adopted the policy of the previous administration in not privatizing.
The administration, critics claim, had severe policy fright and eschewed its earlier policies such as privatization which had brought growth, employment and stock market booms and effectively adopted several policies of the earlier Mahinda Rajapaksa administration.
Instead of engaging growth creating reforms like privatization (supply-side), the administration engaged in Keynesian stimulus, boosting state spending, printing money and transferring vast amounts of new taxes to state workers as salaries.
Not a single state firm was privatized during the period and the 2015 budget engaged in a ‘100 day program’ in the style of US New Dealers (.
The first 100-days of FDRs presidency), which in Sri Lanka involved expropriationary one -off taxes involving regime uncertainty and massive deficit spending and price controls.
“In 2015, when we built the government, there was a collapse in aggregate demand,” Prime Minister Wickremesinghe told parliament in 2016 even as the rupee was collapsing under money printing and strong domestic credit (Rupee, Sri Lanka, in trouble after Keynesian stimulus).
“In that situation in April we raised (state worker) pensioners’ payments by 1000 rupees, we raised state workers’ salaries, private sector salaries were raised.
“Gas prices were reduced by 300, milk powder 68, wheat prices by 12.50 rupees sugar 10 rupee, green gram 40 rupee, sprats 15. Sustagen 100 rupees. Tinned fish 60 rupees. Maldive Fish 200, Chillies 25, kerosene 06 rupees.”
“In this way we put more money in the hands of consumers to increase aggregate demand.”
“When we go from day to day, from time to time some prices go up, and do down. Incomes go up,” Wickremesinghe said.
“But I would like to say that we would not go to a situation where aggregate demand will collapse again.”
But ‘aggregate demand’ collapsed after the currency collapsed from 131 to 151 to the US dollar.
In 2018, after painful fiscal correction another monetary stimulus was done under ‘central bank independence’ from April 2018 just as the economy was recovering from the 2016 collapse.
The rupee plunged from 153 to 182 to the US dollar, triggering credit downgrade, wiped out the gains from fiscal corrections and triggered another ‘aggregate demand collapse.’
The current administration in December 2019 engaged in another ‘stimulus’ involving tax cuts just before the Coronavirus and over 100,000 persons are being hired into the state sector and more unemployable graduates given jobs from taxpayer money.
The opposition candidate Sajith Premadasa was also advocating ‘New Deal’ policies in his elections campaign, despite the experience of the 100 day program.
Sri Lanka is now printing unprecedented volumes of money under a so-called Modern Monetary Theory.
Central Bank Governor W D Lakshman had said having national debt over 100 percent of gross domestic product was not a problem since countries like Singapore also had large debt.
The Singapore has ‘government debt’ due to the structure of its sovereign wealth fund and how funds of its central provident funds are invested to give a return.
Classical economists had warned that small countries with pegs that engage in ‘stimulus’ always come to grief.
Singpapore’s sovereign wealth fund the GIC was built by ex-Finance Minister Goh Keng Swee.
“Our economy was and is both small and open. Financing budget deficits through Central Bank credit creation appeared to us as an invitation to disaster,” Goh once said.
“There was no effective way of exchange control in an open trading economy like ours to deal with the inevitable balance of payments troubles.
“The way to a better life was through hard work, first in schools, then in universities or polytechnics and then on the job in the work place. Diligence, education and skills will create wealth, not Central Bank credit.” (Colombo/Dec13/2020)