Post-COVID: Long-term economic success linked to common sense and stable macroeconomic policies
From the socio-economical point of view, countries most affected were where, administrations failed to understand the biology, means of propagating the virus, how to control the COVID-19 epidemic, and consequently, turned control over to the military. The latter in general has no clue of containing an epidemic, never mind a pandemic. The situation got worse with prolonged shutdown of economies through unwarranted, inhumane, and harmful curfews and lockdowns.
COVID-19 precautions at a tea estate in Sri Lanka
Such actions were based on poor understanding of epidemiology and thus haphazard planning, a lack of effective strategies, and resultant panic by administrations taking improper actions. As a consequence of shutting down economies, household consumption, which accounts for approximately three-quarters of most economies and the trade, came to a halt and economies began to collapse. Administrators who championed the disastrous policy must be held accountable for the mess they created.
Monetary infusion into markets
Massive monetary infusions are designed to keep “oil in the engine” and to prevent the economy from seizing up (Dr. Farookh Langdana, Professor of Macroeconomics at the Rutgers Business School). Nevertheless, with the global shutdowns, within weeks employers and industries in the private sector realised they could function with fewer workers and working them remotely to maintain production, supply chain, and delivery of services.
In contrast, the public sector continues to pay through the taxpayer funds to self and its government servants even though they are not at work, which further drain respective treasuries. Consequently, in open economies, the reduction of jobs occurred rapidly in the private sector and become permanent resulting in the loss of millions of jobs.
However, countries with favourable labour laws protecting employees as in Sri Lanka, companies were forced to swallow the bitter pill and keep paying their employees. This had led to bankruptcy of thousands of smaller companies and consequent permanent loss of a larger number of jobs. The situation was made worse in those counties with lack of a sensible, balanced labour laws and non-exiting governmental support to business communities, as in Sri Lanka.
Rising inflation or deflation—What is worse?
The current real fear is not inflation but deflation. The latter will lead industries and consumers to suspend purchasing of expensive and nonessential items or funding new projects or construction. While, the low interest rates discourage savings, rising interest rates which occur with inflation will further reduce consumption.
Despite monitorization (QE) by central banks, the deflation negatively affects growth and the overall economy, and further reduces the household consumption. This can spill over to payment defaults by the government, interest payments on loans, salaries of government employees etc, leading turmoil and unfortunate socioeconomic outcomes. However, it seems that Sri Lanka is heading towards economic deflation.
Situations in the US and China
Despite trade and other disputes, China, and the US are inseparably linked by US dollar investments¾the treasuries in the US. Therefore, the US dollar is highly unlikely to collapse. Moreover, when the economy grows, it will benefit everyone and all countries.
South East Asian countries including Sri Lanka must remedy its monetary policies, multiple internal cracks, and financial mishandlings, relying on nepotism and favouritism, ongoing corruption, awarding commission based worthless contracts (a form of bribery). The nation needs to refine its trade, uplift supply chains, gradually reverse its trade deficits, especially with China, curtail import practices, and adhere to the principle of separation of powers of central bank monetary policies and judiciary, from the central administration.
Controlling governmental over-expenditure
Sri Lanka has overcrowded roads, more vehicles and a number of cell phones in use than its population. If the government has a sensible economic policy it should have restricted importations of cars a while ago, especially the higher capacity luxury vehicles. That would have prevented draining foreign exchange, reduce air pollution, and ease parking and road congestion. The privilege groups, such as politicians and doctors continue to demand import permits for luxury cars, other unfair and ridiculous perks, such as pensions, exuberant overtime payments, as if other professionals do not work hard. This is another example of abuse of privileges and exploitation of public funds.
In addition, the overall situation is abysmal because of the loans-related massive debt and associated large interest payments (in excess of US$ 680 million), money that otherwise could have gone for stimulating the economy, education, and development of infrastructure. Currently, the government of Sri Lanka is paying no tangible attention to stimulate the economy. Yet, it is preoccupied with spending taxpayers’ funds on unproductive activities that has no benefit to the country or its citizens. What is needed now is to drastically curtail the government spending, not monitorization, taking loans from other countries at exuberant interest rates, or selling national resources and assets to foreign countries.
Dwindling foreign reserves selling national assets, and trade deficits
Under the current status of a significant reduction of foreign reserves, expanding trade deficits, and the appearance of community-based secondary COVID-19 peaks, selling national assets or additional borrowings at high interest rates is not the way to steer the country. Instead, government should reduce its expenditure including the salaries of government servants at least as an interim measure to prevents its bankruptcy and curtail the rising prices of essential items such as food. The latter is mostly affecting the poorest communities. The government also has the fiduciary duty to protect the country, its sovereignty, maintain the law and order and the independence of the judiciary, and support its citizens.
The trend of borrowing money at higher interest rates from China is an economic death trap not only for Sri Lanka but also for several other countries that are in similar financial desperation. It is shocking that these administrations do not realise this. It is a sure way to lose valuable hard assets and national treasures that belong to the public. Because of the flawed policies, the lack of national policies for key areas such as water, and ongoing corruptions over the past several decades, politicians must be held accountable for the mismanagement of the country, and the current dire financial situation.
Summation
No government has the right to sell public assets to fulfil short-term needs or for personal benefit that cause long-term harm to the country and its citizens: In fact, it is in violation of the Constitution. In addition to the government, it is the responsibility of the mass media to educate the public unbiasedly and make the public aware of the grave financial and disastrous situations, so that “we the peo ple” (the “constituents”) can make the right choice through the ballot.
Countries need genuine leaders who put the country first in governing, diligently protect its sovereignty, and are honestly and deeply interested in the growth and welfare of the people and the long-term progress of socioeconomic status. Countries need capable and compassionate democratic leaders who have the ability to unify everyone and not divide or rely on disunity and destruction of the economy and prosperity.
It is not a ‘person’ at a higher office but making right policies for the country and fair implementation is what matters at this stage for Sri Lanka. The latter includes cost-effective development, establishing a healthy balance of regional and global politics favouring Sri Lanka, avoiding nepotism and corruption, protection of the independence of the Central Bank and the judiciary, facilitating small businesses, maintaining the law and order, protecting civil liberty, women and children, prioritizing science and education, and putting the country first.
(The writer is a professor of medicine, endocrinology and nutrition; former university professor, chief of endocrinology. He is a world-renowned expert in endocrinology, osteoporosis and metabolic bone disease, vitamin D, and nutrition, a Social Entrepreneur, a process consultant with expertise in founding, managing, and sustaining, global social ventures, and providing strategic long-term vision).