Sri Lankan currency falls sharply

Sri Lankan rupee has fallen sharply in value by more than 4 percent against the US dollar since the Central Bank, in line with government policy, floated the currency on September 4. By Friday it reached 143 rupees to the dollar as compared to 137 two weeks ago.

The floating of the currency to depreciate its value is the first major austerity move taken by the “national unity government” of President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe.

Finance Minister Ravi Karunanayake told the Reuters news agency last week that the government “will ensure that before too long it [the rupee] will be brought back to an acceptable level.” He did not say what he regards as an acceptable level.

However, Reuters commented: “The market expects the currency to fall further in the short term if the Central Bank fails to tighten interest rates or the country does not see strong inflows soon.” Since January, the Sri Lankan rupee has depreciated by about 7.5 percent.

Foreign investors are already leaving to seek higher profits elsewhere. The Colombo Stock Market has hit a seven-week low. “Most global investors led by the USA will signal investors to exit from such fragile markets and re-invest their assets in their home country, such as the USA, to the detriment of markets, including the markets in countries like Sri Lanka,” First Capital Equity analyst Reshan Wediwardena told the media.

An International Monetary Fund (IMF) team visiting Sri Lanka to discuss the country’s budget praised the floating of the rupee, which is a longstanding IMF demand. A statement last Friday declared: “The mission welcomes the CBSL’s (Central Bank) recent decision to cease setting daily spot prices for the rupee and let market forces play a greater role in determining the exchange rate.”

During first half of 2015, the government spent $US1.4 billion from its reserves to defend the rupee fearing its depreciation would push up prices and fuel discontent among workers and poor against the government. The country’s reserves have fallen to $7.5 billion, which includes an Indian loan of $1.5 billion as part of a currency swap agreement.

Like other emerging economies, Sri Lanka has been hit hard by international currency turmoil, provoked most recently by China’s sharp devaluation of the yuan in August and concerns internationally about the impact of a rise in US interest rates. While the US Federal Reserve last week postponed an interest rate hike, the Sri Lankan currency remains under pressure.

The IMF team pointed to a worsening economic situation in Sri Lanka, predicting growth for 2015 of 5 to 5.5 percent, significantly below the government estimate of 7 percent.

The country’s total debt has ballooned to 8.2 trillion rupees ($58.7 billion), almost half of which is foreign debt. The government’s annual debt servicing costs have now surpassed total government revenue, aggravating the country’s balance of payments problems.

The trade deficit has increased to $4 billion during first six months of the year, a 15.6 percent increase compared to last year. Tea exports are continuing to decline in line with falling commodity prices internationally.

The falling value of the rupee will hit the working class and poor the hardest as it will drive up prices. According to the Sri Lankan-based Sunday Times, the wholesale traders association complained to Finance Minister Karunanayake that they were unable to maintaining stable prices.

The cash-strapped government announced an increase in commodity taxes on potatoes and sugar of 10 rupees and 12 rupees per kilogram respectively on September 9. Potato prices instantly rose by 10 rupees but the government forced sugar merchants not to increase prices. Importers, however, are insisting that domestic sugar prices cannot be maintained amid fluctuating international prices and a falling rupee.

On September 12, in another bid to shore up foreign reserves, the Central Bank restricted a leasing arrangement on vehicles to 70 percent of their value, down from 100 percent, in an effort to slow imports.

To avert a balance of payments crisis, the government is still seeking a $4 billion loan from the IMF, which flatly rejected a similar request in March citing its failure to cut the 2014 budget deficit to 5.2 percent of GDP. The government has promised to contain this year’s deficit to 4.4 percent.

The IMF mission is calling for sweeping pro-market reforms, including in “fuel and electricity pricing, subsidies, trade policy, liberalisation of factor markets (particularly land), and the investment environment.” It also advocated “putting state firms on a commercial footing, allowing them to make market-based financial decisions (including pricing) and subjecting them to the greater financial discipline.”

Such “reforms” will impact heavily on the working class. Fuel and electricity prices have already risen sharply. The privatisation or corporatisation of key state enterprises such as Electricity Board, Petroleum Corporation, Water Board and Ports will only lead to further price hikes and job losses.

Underscoring the IMF’s demands, a column in the Wall Street Journal on September 15 advised: “Most urgent is macroeconomic stability. Sri Lanka’s rising debt is unsustainable and the country is heading for another balance-of-payments crisis. It is dangerously reliant on foreign commercial borrowings at a time of increasingly volatile capital flows to emerging markets. Taxation and expenditure need radical surgery to prevent further public debt accumulation and make debt financing more sustainable. The printing press must be stopped.”

The columnist called for a “bonfire of domestic red tape to free up the private sector,” education reform so as to compete with other cheap labour countries and the restructuring and downsizing of what it branded as “bloated, loss-making public sector.”

The new “national unity” government in Colombo has been formed to ruthlessly implement this austerity agenda and to suppress any working class resistance. (WSWS)

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Socialism & The Electoral Failure Of “The left”

Searching a common candidate for 2015 Presidential election and campaigning for the victory of Mr. Maithripala Sirisena is a unique political experience. In this campaign activists who are labeled as “leftists” (whether old or new) played a vital and massive role in criticizing Mahinda Rajapaksa regime and the familial rule. On the other hand two frontline Jathika Hela Urumaya( JHU) MPs Patali Champika Ranawaka and Rev Athuraliye Rathana who fired initial salvos against the regime also possess a left orientation . Janatha Vimiukthi Peramuna (JVP) being outside the mainstream of common candidate platform courageously slammed the Rajapaksa familial rule in and out. The political bureaus of Lanka Sama Samaja Party (LSSP) and Communist Party of Sri Lanka (CPSL) split and Dr Jayampathy Wickramaratne, Lal Wijenayake(Attorney-at-Law) and Raja Uswetakeiyawa were in forefront of the search of a common candidate and subsequent campaigning.

Most of those former leftists who involved in the presidential campaign, thought that Ranil Wickremesinghe as a reformed personality. Former editor of the ‘Ravaya” newspaper senior journalist Victor Ivan is also one of such persons.

However JVPs stance from the beginning of the campaign for presidential election was controversial and as they did not contest the presidential election their support base voted for Maithripala. The JVP appeared as a partner of victory after the election and became a participant of national executive committee. Its campaign also directed at parliamentary election and had already decided to contest alone.

General Election

Maithri votes at the presidential election were distributed among United National Party (UNP,) Ilankai Tamil Arasu Katchhi (ITAK) and JVP at the recently held parliamentary election but the latter’s performance at parliamentary election was below 5 percent. One argument prevailing is that as the people were polarized between pro Mahinda and anti-Mahinda duality a significant section of people who associated with JVP voted for either to betel leaf or elephant symbol not to the bell symbol. With this electoral set back JVP‘s manifesto also became insignificant.

 

LSSP being the oldest party in electoral politics was unable to get a parliamentary seat because of their unprincipled policies. For Communist Party there is a seat in Matara. Though Wimal Weerawansa managed to get 5 seas through UPFA, I don’t categorized National Freedom Front ( NFF) as a party representing Marxism or Socialism.

With this Sri Lankan background the pertinent question that comes to my mind is whether there is a correlation between the failure of JVP including the left and failure of socialism in world scale.

Socialism

Scientific Socialism is the doctrine introduced by Karl Marx and Frederick Engels in the 19th century to replace capitalism as the next historical stage of human society. One of the features of socialism is to create a political party by proletarians to seize political power from the capitalists and following the teachings of Marx and Engels, Vladimir Iliyich Lenin, Leon Trotsky and Joseph Stalin led the Russian October Revolution in 1917 and applied socialist ideology to specific conditions in Russia and created the first socialist country in the world. In the 1930s a major theoretical split occurred in the Bolshevik party popularly known as Trotskyism and Stalinism. Sri Lankan left or socialist movement was pioneered by LSSP , was basically a Trotskyite movement and Communist Party followed the Stalinist model. Early left parties in Sri Lanka instead of hard line revolution embraced parliamentary politics and their contribution to the political discourse is great.

The new left that was formed in the mid sixties was an assault of old left. VLSSP of Edmond Samarakkody, Ceylon Communist Party (Revolutionary) of N. Shanmugadasan, Janatha Vimukthi Peramuna of Rohana Wijeweera, Peradiga Suanga of Gamini Yapa, Ginipupura of Kalyananda Thiranagama and later Nava Sama Samaja Party of Dr Vickramabahu Karunaratne are considered as parties of new left. These new left parties wanted radical social change but among these the JVP attempted to grab state power in 1971 following footsteps of Lenin, Stalin, Mao Tse Tung, Kim Il Sung, Ho Chi Ming , Fidel Castro and Ernesto Che Guerra.

Second insurrection of JVP between 1987 and 1989 was suppressed by then UNP government in ruthless manner and however in 1994 it participated in the parliamentary election through a different party and got a seat in Hambanthota. JVP politics since then is known to the public.

Democratic Revolutions

A great change sometimes called as democratic revolutions took place in late 1980s across Eastern Europe starting from Poland and ended up in breaking the Soviet Union into number of states. In parallel to this great change, Communist China under Supreme Leader Deng Hsiao Ping introduced economic reforms deviating from the socialist model but retaining the power of the Communist Party of China and ultimately China was able to maintain a high growth rate surpassing 8 percent continually for more than a decade. Now it poses a great challenge to USA to become another economic super power.

After the fall of socialism the countries in the Eastern Europe embraced the liberal free market economic model and social model with multi party representative democracy. Many of these countries are members of NATO. The national liberation movements against colonialism, neo colonialism in the 1960s and 1970s prevailed in Asia, Africa and Latin America gradually disappeared. Non- Aligned Movement (NAM) became a non entity and major countries in the NAM like India, Indonesia and many embraced free market. The cold war between USA and USSR ended and USA was identified as the sole super power. Western countries thought that after the fall of socialism the major threat to western system was posed by Muslim fundamentalism and one party dominance states in the Middle East. As at present Cuba is emerging from its international isolation and established diplomatic relationships with USA. Francis Fukuyama; contemporary liberal thinker wrote in his “End of History and Last Man” that multi party representative democracy will be the last social and political model in the world.

So the failure of socialism worldwide is now sealed and in this context a question arises as to whether there is any significant role to play by the socialists in Sri Lanka when state capitalism and socialism is obsolete and non functional.

My feeling is that the changes that had taken place in the above mentioned countries s were not properly followed by the left and socialist intellectuals of this country. JVP’s failure is also part and parcel of failure of socialism as a political ideology and instead democratic norms are respected and taken by people more seriously. People of Sri Lanka and specially the younger generation have understood the effects created by ongoing communication revolution and process of globalization in the digital age.

During the last five years we witnessed the rise of democratic movements in the Middle East beginning from Tunisia sometimes called as “Arab Spring”. The political change took place on the 8th of January this year in Sri Lanka resembles Arab Spring. People saw Mahinda Rajapaksa as an authoritarian( sometimes called as soft dictator) and Maithri-Ranil as democrats and on August 17 people rallied round democratic forces and not under obsolete socialist world outlook of JVP .

Fredrick Von Hayek

Liberal philosopher Fredrick Von Hayek who twice won the Nobel Prize for Economics was the first person to visualize the failure and collapse of socialism from a theoretical perspective. In his popular work “The Road to Serfdom” written in 1944 at London School of Economics, dedicating the book “TO THE SOCIALISTS OF ALL PARTIES” Hayek posed an important question when he said that do people believe that the economic planning can do within the exiting democratic institutions?. Hayek saw that central planning makes it inevitable that large amount of power is concentrated in the hands of the controlling authorities. He said that socialist system degenerates in to one of power, personal discretion and unequal treatment under law. In general, his view was ideals of socialism have faded into tyranny and if central planning policies continue to be pursued totalitarian forces will get the upper hand. Hayek believed and theoretically emphasized that capitalism did not create poverty it provided the mechanism that would cure it.

In conclusion it could be decided the fall of socialism in the world scale had also an impact on the electoral failure of JVP and “the left” as many of our citizens are well informed about the realities of global political trends in a one polar world. (By: Kamal Nissanka)

*Kamal Nissanka is the Secretary General of the Liberal Party. Read his more articles from here>>>

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Social Market Economy Vs. Social Market Socialism

Social Market Economy may be a familiar term or concept but the other concept might be new. As I perceive it, both concepts have very similar economic components but there is one significant difference. What is it?

Social Market Economy will continue to link the distribution of distributable output significantly to the ownership of means of production. On the contrary “Social Market Socialism” will separate the distribution of distributable output significantly from the ownership of means of production. This difference is not just theoretical; instead it has very far reaching practical impact. The impact is related to the efficiency of the economy. Let us discuss this matter further.

The UNFGG (United National Front for Good Governance) proposes an economic model which they define as “Social Market Economy.” If you are an interested reader of this subject, you may easily browse internet to read many scholarly articles written on the subject. Yet, my purpose here, in this article is to direct this discussion towards a possible application.

In regard to the concept of Social Market Economy, the word “Market” intimates in achieving economic efficiency through market mechanism and the word “Social” should stand for “public services and the state’s intervention in the economy.” In other words the efficiency of the economy would be primarily attained through “market mechanism” and the efficiency of fair distribution of distributable (or consumable) output would be attained through the intervention of the state or the government. Is this the economic model what UNFGG proposes? I guess it is. Then, what was the model existed under the previous regime? Priorities and components might vary, but previous regime too stood for Social Market Economy; no economist can deny it, even if so called corruption and nepotism existed under the previous regime. If this is the case, then this type of economic system must be properly defined not as “Social Market Economy” but as “Social Market Capitalism.”

 

Hence, my point is that Social Market Economy is only a useless label. In fact, it doesn’t explain any serious fundamental difference; capitalism is capitalism with two-tier production system in which almost all national proceeds are generated through “market-based-production” while society’s “common interests” such as general administration, law and order, health-care, education etc. are produced by the state using the money derived mainly from national proceeds. As a production system even socialism would retain this basic model of two-tier production. This means, in regard to economic production both systems would use same principles. Therefore I do not believe that envisioning a “Social Market Economy” has something new.

However, contemporary capitalism and true socialism are not the same. In money based economic system, the most fundamental and significant difference is that capitalism will continue to link the distribution of consumable output to the ownership of the means of production and on the contrary the scientific-socialist-system would de-link the distribution of distributable output from the ownership of means of production. This is the most significant difference between capitalism and true socialism. I am not sure whether JVP knows about this difference.

Both systems retain “market mechanism” to ensure the basic economic efficiency which efficiency we define as the efficient allocation of productive resources among numerous production processes. Perhaps, you may now wonder about the ownership of the means of production under the socialist system because, so far you had been indoctrinated that the main difference between capitalism and socialism is the ownership of means of production. It is not true.

Socialists talk about a phenomenon known as exploitation. The exploitation does not mean the expansion of productive capital and owned it by capitalist elite. Instead the exploitation is a question of the distribution of distributable income. In the final analysis exploitation means that you (the owner of businesses) allocate more consumable income for you or it is distributed as per your wish. In order to do it you must own the means of production or the government or both.

However, in money based well-functioning democracy the distribution of consumable output can be done fairly without any significant relation to the ownership of the means of production, such as factories, banks, etc. More intelligent capitalist elite know that this is technically and economically possible through maneuvering three economic variables, namely, wage structure, taxation and consumer credit. In regard to these variables “wage structure” relates to the entrepreneurial (or private) sector wages and the wages of government employees are included in the parameter of “taxation.” In regard to “consumer credit”, it relates to the employees in both sectors.

However, capitalists say that if you do de-link the distribution of distributable output from the ownership of means of production completely or to a greater degree, then you can’t ensure economic efficiency. Yet, the economic crisis erupted in the United States in 2008, clearly showed, that private ownership of means of production has nothing to do with ensuring economic efficiency. All major banks and businesses in the U.S. which are privately owned, such as Bank of America, Citibank, JP Morgan Chase, Wells Fargo, General Motors, Chrysler etc. should have bankrupted by now if not supported by the U.S. government. Hence, economic efficiency is not a thing directly related to private ownership.

In fact capitalism will continue to link the distribution of consumable income to the ownership of means of production through which exploitation become possible. The exploitation distort social production, waste resources, prevents socially necessary innovations and inventions.

On the contrary, a serious socialist might argue that if the distribution of distributable output is de-linked at least to a greater degree from the ownership of means of production, then, such an economic system would have more efficiency than contemporary capitalism in regard to the production, fair distribution of distributable output, full employment, protection of environment, direction of productive resources to make human friendly technological innovations and inventions, harnessing comparative advantages of global production etc. He or she will further argue that the separation of the distribution of distributable output from the ownership of means of production must be a goal of socialism, no matter whether factories, banks etc. are owned by private individuals or workers or corporations or unions or the government or workers’ cooperatives. For theoretical reasons I have to agree with this notion. In fact, this should be written in the election manifesto of JVP but I did not find it there.

This means the separation (or de-linking) of the distribution of distributable output from the ownership of means of production must be a goal in socialism. If the socialism can achieve this goal, then there is no need to bother about the question of ownership – because the so called exploitation does not mean the expansion of productive capital and owned it by capitalist elite, instead in the final analysis the exploitation means that you allocate more consumable output for yourself but you can’t do it now since the distribution or the allocation of consumable output has now been de-linked from the ownership of means of production. Can any economy do this? In regard to this question let me quote Noble Prize winning economist Professor Joseph Stieglitz. He is basically a capitalist economist.

Stieglitz says that, “… for total American consumption to be restored on a sustainable basis, there would have to be a large redistribution of income, from those at the top who can afford to save, to those who spend every penny they can get” (Free Fall, 2010). What does this mean? He says that redistribution of income must be separated from the owners of businesses. He further observes that, this would not only restore the consumption on a sustainable basis but also “help stabilize the economy.” In fact, Stieglitz was talking about the parameter of “taxation” which is one of the three parameters I mentioned above pointing out that those parameters or variables could be used to de-link the distribution of distributable income in a well-functioning democracy.

Therefore, the point I want to make here is that the said three variables namely, wage structure, taxation and consumer credit should be effectively used to the optimum separation of the distribution of distributable output. In such an economy entrepreneurs would be more enthusiastic than otherwise because when the consumption is restored on a sustainable basis, employers/entrepreneurs would get back what they expect from consumer spending. Is this what the UNFGG envisioning to do under whatever economic model? I do not know. But let us hope that they are going to do it. (Hema Senanayake)

Related Links;

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The sad truth no one wants to admit.

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No quick fix for Euro - maybe a slow one?

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(BBC)

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Greece and the global crisis of capitalism

The political, economic and social breakdown in Greece is an acute expression of a broader crisis of European and world capitalism.

The fate of this small nation is being decided solely according to the predatory interests of the global financiers and their political representatives at the head of national governments as well as the “troika”—the European Union (EU), European Central Bank (ECB) and International Monetary Fund (IMF).

For Greek workers, the impact has been catastrophic. They have already suffered the greatest decline in living standards since the Nazi occupation. Unemployment has doubled to 22 percent and 50.8 percent among young people, while millions more are relegated to precarious and part-time work.

Mass unemployment and poverty are set to worsen. The social counterrevolution in Greece is, moreover, setting a benchmark for all of Europe as the economic crisis spins out of control and the world is plunged into a recession deeper than that triggered by the crash of 2008.

The political stalemate in Greece, following the virtual collapse of the country’s two traditional ruling parties in the May 6 election, takes place within the context of a deteriorating economic situation in Europe, the US and Asia. Falling global equity markets, bank downgrades, rising unemployment and stagnating or declining growth rates point to a slide into depression.

In the US too, mass unemployment, poverty and homelessness are epidemic, and the type of austerity measures being carried out by European governments are replicated at the state and local level. In California, whose economy is comparable to Italy’s and bigger than Spain’s, the governor has demanded a new round of drastic cuts in health care, education and public employee wages.

There is an air of unreality surrounding all official discussions on Greece. Politicians and media commentators speak of imminent economic collapse and social devastation in one breath, only to demand that more money be paid over to the banks and greater hardship imposed on working people in the next.

Each proposed way out of the crisis only creates the conditions for deeper crisis down the road. All the money supposedly paid over to Greece as a “bailout” has gone straight into the coffers of its major creditors. Any additional loans will go to feeding the same ravenous beast.

Calls for further sacrifice have become impossible to accept. Mass working class opposition to austerity is on the rise across Europe. This has been expressed not only in the Greek election, but in France and other recent elections in Britain and Germany, where voters repudiated those parties most closely associated with austerity policies.

This reflects an extreme heightening of social tensions, rooted in the existence of an irreconcilable conflict between the most basic needs of the masses and the institutions of capitalist Europe.

Greek workers registered their opposition by rejecting the parties directly involved in negotiating the bailout conditions—PASOK and New Democracy. But the main beneficiary of this sentiment was SYRIZA, a party that speaks for a section of the Greek bourgeoisie that wants more extended debt repayment to avoid economic collapse and cosmetic alterations in the deficit-reduction terms to placate popular opposition. SYRIZA categorically defends the European Union and the euro, while presenting itself as an opponent of austerity, but this circle cannot be squared. Austerity and ever-deeper attacks on the working class are an integral requirement of the bankers’ EU and the capitalist order it defends.

The proposed solution advanced by the Greek Communist Party (KKE)—exit from the euro and a return to the drachma—is also fielded by numerous international commentators. But this would still leave Greek workers at the mercy of the global financiers and keep the rule of the Greek capitalists intact, while the value of workers’ homes, wages and what little savings they have would be immediately slashed by as much as 80 percent.

Ever broader layers within the ruling elite are coming to the conclusion that Greece will be forced to exit the euro zone. Some boast that this can be “managed” and that Greece should be simply pummelled until every last euro has been extracted from its people. Others warn that the very survival of the euro is threatened, as financial contagion spreads throughout the continent and beyond.

The latter view is more grounded in reality. Global financial institutions have a $536 billion exposure to Greek debt, but the Institute of International Finance estimates the true global cost of a Greek exit to be closer to $1.2 trillion, entailing “killer losses”. Wirtschaft Woche magazine says an exit would cost euro zone governments alone $300 billion and would push the continent into a 1930s style depression.

More importantly, a Greek exit will inevitably hasten the collapse of much bigger economies that are teetering on the brink such as Spain, Portugal and Italy. The run on Greek banks, which have already lost more than a third of their deposits since 2010, points to the dangers ahead. A full-blown bank run can quickly develop in one European country after another.

Workers in Greece and Europe have come face to face with the consequences of the failure of the capitalist system. Every “solution” to the present economic crisis that does not take this as its starting point brings with it the danger of further social destruction and a descent into barbarism.

Fresh Greek elections are scheduled for June 17, but they have no more chance of resolving the crisis than those that took place this month.

A new period has opened up where only the most radical solution is realistic. Greek workers must now adopt a revolutionary socialist and international perspective on which to base the struggles ahead. The same applies to the workers in Europe, the US and internationally.

The ruling class anticipates and is preparing for an upsurge in the class struggle, in which they know the destiny of Greece will be decided. PASOK’s Michalis Chrisochoidi, who heads the Ministry of Citizen Protection encompassing the police and secret services, this week warned that following an exit from the euro, “What will prevail are armed gangs with Kalashnikovs, and which one has the greatest number of Kalashnikovs will count … we will end up in civil war.”

Historically, the Greek bourgeoisie has demonstrated that it will stop at nothing, including military dictatorship, when it comes to preserving its rule. The working class must act in this knowledge.

What is required is the development of an industrial and political offensive, with the aim of establishing a workers’ government. Such a government must take control of the commanding heights of the Greek economy, seize the assets of the banks and the corporations and prevent any further flight of capital. The representatives of the troika must be shown the door and Greece’s resources employed to fund all measures necessary to alleviate the suffering of its people and provide decent jobs, education, housing and health care.

These measures will be realisable only as part of a broader political mobilisation of the European working class against the authors of Greece’s tragedy and their own hardship and suffering. Workers in Germany, France, Italy, Spain and the UK must take up the fight for the overthrow of Merkel, Hollande, Monti, Rajoy, Cameron, et al. Against the European Union of big capital and the financial parasites, the perspective must be the establishment of workers’ power in a United Socialist States of Europe.

Those who recognise the gravity of the present crisis and the political tasks posed should take their place in the ranks of the International Committee of the Fourth International. (WSWS)

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