Dr. Sally, who is a visiting Associate Professor of the Lee Kuan Yew School of Public Policy of the National University of Singapore and a former advisor to the Finance Ministry, delivering the Central Bank’s 69th Anniversary Oration yesterday gave a deeply-analytical, hour-long snapshot of global developments since the Great Depression and how political changes and economic transformations have gone hand-in-hand to create the environment that Sri Lanka currently finds itself caught up in.
Describing himself as a “failed policy advisor to the Sri Lankan Government”, Dr. Sally recalled that Sri Lanka since independence followed mercantilism rather than the export-oriented industrial policies favoured by East Asian countries.
The introduction of the open economy in 1977 was spotlighted by him as the most important moment in Sri Lanka’s economic history, but acknowledged that it had mixed results, with protectionism intervening in fits and starts till 2005.
During the presidential terms of Opposition Leader Mahinda Rajapaksa, Dr. Sally said Sri Lanka under the ‘Mahinda Chinthana’ entered a period of de-liberalisation in the context of an “illiberal democracy, chauvinist ethnic agenda, a combination of crony capitalism and crony socialism that was highly centralised and a foreign policy tilting strongly towards China”. However, this came to an unexpected end in 2015 – but the results were far from impressive in Dr. Sally’s view.
“This was a once-in-a-generation window of opportunity for a combination of liberal and economic reform in Sri Lanka, probably the best since 1987. Ranil Wickremesinghe saw it that way and he and other senior UNP ministers have intermittently paid lip service to it since. On the political front we have seen modest successes but I suspect those successes are not major enough not to be reversed in the near future. I have my worries about that.
“On the economic front it failed comprehensively. We have had some modest success in macroeconomic stabilisation, not least to correct the excesses of the present Government as well as excesses of the last Government, but I wonder whether that will hold into the medium term. I have my doubts about that as well,” he said.
Dr. Sally went on to say that his observations were based on being a policy advisor for three years when he experienced the “utter shambles” of the decision-making process at top ministries where meetings began late, ended late, there was no agenda, too many people speaking and no one listening or taking notes. He questioned whether any top private sector corporate head would ever run a meeting in this manner.
Dr. Sally then also critiqued the appointments made by the Government exempting Central Bank Governor Dr. Indrajit Coomaraswamy, who he insisted should be supported to promote the independence of the monetary institution further.
“This Government came into power almost wholly devoid of talent and expertise, quite in contrast to the economic team that was put in place in July 1977. The LTTE and JVP did a spectacular job at destroying Sri Lanka’s political elite. The new Government came into power without an economic plan and it never developed one.
“What it eventually came up with was two things – firstly, a Christmas wish-list of things that were going to happen by 2025, and, secondly, rhetorical nonsense about a Sri Lanka take-off and Sri Lanka becoming the next Singapore, which I consider to be ‘Orwellian duckspeak’,” he said, referring to the term George Orwell coined and later made famous in his book ‘1984’.
The collective failures of the Government have resulted in citizens being faced with an unenviable choice, Dr. Sally said, referring to a lecture he delivered three years ago titled ‘Sri Lanka: Three scenarios for the future’, where he described the options of economic take-off, continued drift for Sri Lanka, and third, a relapse into what defined the former Government.
Dr. Sally referred to the latter as “a kind of Rajapaksa Government package of illiberal democracy, centralised crony capitalism, China as first friend, and a Sinhala Buddhist first ethnic agenda”.
“With elections in the near future, there is no sign of the first scenario of take-off, rather I think what Sri Lanka is faced with is a choice between those two other scenarios, which is continued dysfunction and continued incompetence where the role of the State is too large and the role of markets too restricted. The other choice is for relapse, with another decisive shift towards the State. It is as if Sri Lanka is faced with a choice between the devil and the deep blue sea.”
He warned that a possible political shift at the next Presidential Election comes in the backdrop of increasing global uncertainty; created by trade wars, increasing protectionism, eroding of international organisations such as the World Trade Organisation (WTO) and dwindling foreign investment.
He pointed out that in 2007 as much as 3.5% of global GDP went into investment but this had reduced to 1.5% by last year. He opined that Sri Lanka was not immune from the loosening of a rules-based system of international governance and the rise of populist leaders.
“My foreboding gets darker when I think of the external environment, because an external environment heading towards more potent mercantilism provides cover, not external discipline or exposure or corrective to continue drifting or see relapse. My worry is that institutions in Sri Lanka remain too fragile, more fragile than many in the Colombo chattering class appreciate to withstand such pressure.”
However, Dr. Sally attempted to end on a positive note and quipped that he was ending his oration with a quote from Karl Marx for the first time in his lecturing history.
“Still, nothing is pre-programmed, nothing is completely predetermined. I do not believe that. I think there are still battles to be fought, battles of interests, of institutions, of taking advantage of particular situations, even crisis as windows of opportunity. Carl Marx said, ‘Men make their own history but they do not make history as they please. They do not make it under self-selected circumstances but under circumstances existing already, given and transmitted from the past.’ In other words there are still choices to be made out there and, as I said, non-violent battles to be fought.”