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)

Home              Sri Lanka Think Tank-UK (Main Link)

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>>>

Home            Sri Lanka Think Tank-UK (Main Link)