By P. Nandalal Weerasinghe
Yes. That’s right! Inflation is not the problem we have today. In fact, inflation is the perfect solution to our problems. Read carefully!
Why did we run out of dollars? Why do we have huge rupee and dollar debt? Why did we continuously borrow? Even after the default, why are we going behind lenders and begging for more loans?
Because we are a nation of consumers, not a nation of producers! We are a population of 22 million consuming more than we are generating (or producing). Obviously, if you spend more than you earn, you end up borrowing!
Our politicians, for decades, made us slaves to subsidies. Fuel subsidies, fertilizer subsidies, free houses, subsidized water and electricity, free education, free healthcare, free cash etc etc. These politicians did not do this because they love you and me, they did it just to buy our votes and to make us their slaves! That’s the culture we need to change now. Out of the total debts of ours, yes, politicians may have busted max 10 per cent, but the balance per cent was busted by all of us as a nation by consuming subsidised goods and services for over 30 years!
Do you know that if we had not subsidized fuel and fertilizer for the last 25 years, our foreign debts would have been less than half of what it is today? Do you know that this country has 1,500,000 government servants, 800,000 three wheelers, 200,000 boutique shops and 50,000 salons, spas, cosmetic and photo shooting centers ? If you are a person traveling abroad regularly, have you ever met a Sri Lankan taxi driver abroad? A Sri Lankan spa attendant, Sri Lankan mobile or boutique vendor? Never! Why is that?
Unlike in India, Pakistan, Bangladesh, Philippines, Indonesia, Thailand etc, in Sri Lanka, people can live a normal life without starving, even if you don’t do a productive job, because almost every basic need here is free or subsidized! If you are fed, why hunt? This is the culture our political vultures gifted us. We should not only chase away those vultures, but must change that culture and society also! If we expect only to chase those vultures away, but after that come back, relax and live in the same unproductive, subsidized, mediocre society, then this change we are asking for has no meaning whatsoever.
Let’s not subsidize anything except health and education. Let everyone pay the right price for what they consume, if they need to consume. Poverty is something that should be defeated, not something to be embraced! Our political culture encouraged us to embrace poverty and not to defeat poverty. They gave us free/discounted things and we got addicted to that. They bred a generation of unproductive individuals, consumers, to be slaves of a subsidized society. What we are going through today is a direct result of that.
Inflation will get rid of this anomaly. Inflation will push people to be productive to survive. Inflation will adjust the prices of goods and services and will demand consumers to pay the cost of their consumption, by themselves. Inflation will ensure that by running a three-wheeler, wayside boutique shop, or small salon/spa, an individual cannot maintain a family. In short, inflation will demand you to be more productive, or perish! Inflation will be addressed by productivity and not by adjusting the policy rates. We must implement more productivity focused economic policies and not consumer based policies. Going on age-old theories, recently, the Central Bank drastically increased the policy rates. The objective was to curb the inflation. This is sadly a wrong move and will not encourage productivity, but discourage it! Higher interest rates for deposits amount to subsidy given to deposit holders at the expense of productivity.
No friendly country or lending institution shall lend money to Sri Lanka to re-implement or maintain this unproductive, subsidized society. Because if they do, these lenders will also not get their money back and the country will declare bankruptcy again in a few more years! Lenders including IMF must insist that no imported goods, including fertilizer and fuel should be subsidized. They must insist that the dolling out of money by way of various other subsidy schemes be stopped. They must insist that retirement age of all government employees must be at 60 years and not 65! Lenders must demand that government business ventures not making profit be shut down or privatized. Don’t lend us to defend our currency artificially. If our currency has no value, let it be 4000 ruppees per dollar, not 400! Don’t lend us a penny to be wasted. If you lend us to waste, you are not a friend, you are an enemy! You are not managing our problem. You are worsening it!
This economic collapse is the best thing that happened during our lifetimes! We need to wake up, not only to chase these political vultures away, but also to change ourselves, our attitudes, and our society. There will never be a chance like this again!!!
Weerasinghe is Governor of Central Bank of Sri Lanka.
