The problem in Sri Lanka is nationalization, socialist policies with a mix of populism, handouts and handouts, and a controlled economy
Sri Lanka is in deep trouble, due to the economic crisis and subsequent public outrage, which has hit the common man hard. Soaring inflation, weak government policies and the pandemic have badly wrecked the country.
On Saturday, the Sri Lankan government imposed a 36-hour curfew as part of a national public emergency. The following day, he also blocked the use of the country’s social media platforms amid calls for more protests.
The question remains as to who is responsible for this situation in the island nation. Among several other reasons, China’s debt-trap policy deserves some blame. The main reason, according to some analysts, is capitalism; however, this is anything but factual. For this pathetic condition, the socialist politicians and their continued hangover are to blame.
Sri Lanka gained its freedom in 1948, only six months after India. Shortly after gaining independence, her romance with socialism began. In 1956, SWRD Bandaranaike began making socialist reforms during his tenure as Prime Minister, supported by four National Socialist parties. He began by nationalizing the bus companies and enacting the Paddy Lands Act 1958, among others.
His wife, Sirimavo Bandaranaike, completed what was left in the socialization of the country after his assassination in 1959. During her first term, she began by nationalizing banking, education, industry, commerce and even newspapers, which ultimately resulted in her removal from office in 1965. Even in her second term in 1975-77, she more or less continued to do the same, resulting in high debt to other countries and to the IMF.
In 1977, the United National Party came to power and launched an open economic policy, according to some, in contrast to the previously closed economic policy, bringing financial stability to the country. They attribute this openness to the onset of neoliberal or capitalist policies in the country, although it is fair to say that.
First, state control over the economy has not been primarily removed. Second, the government owned over 500 companies at the time. Third, the Mahaweli development project has resulted in the unavailability of loan credit. Fourth, the state apparatus was expanded rather than contracted during this period. The Cultivation Officer Service was created and institutions such as the Board of Investment were created.
All this resulted in the budget deficit from year to year. The country did not attract such significant investment, partly due to political instability in the northern part from the 1980s to the late 2000s.
During all these years, national expenditures have increased exponentially and national income marginally. Sectors like tourism and agriculture were flourishing, but the government did not consider diversifying their income further. Since 2006, the government began to borrow heavily and invest in projects that proved to be economically inefficient.
It has invested large capital of up to $290 million to develop Mattala Airport, including $190 million provided as a high-interest loan by the Chinese bank. Yet the airport was known to be “the emptiest airport in the world”, borrowing the words of Forbes. Other heavy but underutilized projects include Hambantota Port, Sooriyawewa Stadium, Hambantota International Conference Hall, Nelum Pokuna, Nelum Kuluna, etc. The Sri Lanka Freedom Party in 1994 also launched a social security scheme, Samurdhi, which still transfers money to citizens. based on family members. Digression: Does this story remind you of what happened in Venezuela?
On the other hand, the Sri Lankan government did not sell public sector companies under its control, even though they were doing anything but making a profit. Sri Lanka’s largest electricity company, Ceylon Electricity Board, is the loss-making state company. Unnecessarily people have been hired by companies like Sri Lankan Airline, causing chaos. The same is true for many other businesses, but Lankan politicians have mastered the art of repeating the bombastic “We won’t sell national assets”. Only mentally bankrupt people can call this system capitalist.
The state of Sri Lanka was already terrible – and the COVID-19 pandemic hit the country causing the tourism industry to collapse due to movement restrictions.
Meanwhile, the 2020 parliamentary elections were held and the Rajapaksas came to power promising to cut VAT by 15%, which was later reversed anyway.
The enthusiastic green government did the rest by banning chemical fertilizers overnight, leaving farmers with no options and bringing down the agricultural sector, especially rice cultivation. The war between Ukraine and Russia drove up oil prices globally and ultimately hurt the fragile economy.
Sri Lanka’s foreign currency reserves have fallen nearly 70% since January 2020 to $2.3 billion in February 2022. In addition, it has to make debt repayments of around $4 billion during the remainder. of this year. The national debt is 1.19 times GDP. Credit agencies have also drastically reduced the island nation’s credit rating, making it difficult to borrow in the markets.
In short, the problem in Sri Lanka is nationalization, socialist policies with a mix of populism, handouts and handouts, and a controlled economy. Socialism kills. Slowly but surely.
The author is a freelance columnist who writes about international relations and socio-political affairs. The opinions expressed are personal.
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