One one things

So I was replying to drac’s comment on my last post when being the clumsy monkey that I am, I managed to delete a good 3 paras by one stray backspace press. So I thought i’ll make a post of it, now that I woke up before the alarm on avurudu morning. Drac and I were discussing the pitfalls of donor conditionality and whether it isn’t such a bad idea to “go it alone”, as was brought up in the previous post. Drac argued that donor conditions were not always politically feasible to implement (very true) and sometimes undesirable. This is the relevant part of drac’s comment;

“Do you really think that a government is in a position to say no to terms and conditions put forward by banks? I’m pretty sure it’s not as simple as saying no. Benin is one example, Indonesia is another. A frequently recurring theme with both ADB and WB development aid and loans is the requirement for liberalization of markets. Some industries in SL are less ready to take this step than others

The problem with blaming donor conditions and making unpopular decisions is that the opposition usually takes the chance to promise an overturn and a return to the status quo. As superficial as it sounds, people do buy that line and vote accordingly. It happens to the UNP more than most Speaking of specifics, the organizations have long been on the government’s case to reduce subsidies and welfare spending… I’m sure I’m uninformed but I remember that being a long running string attached to further aid.”

A couple of interesting points come up here. The first is that loan conditionality has evolved over the last decade or so. In the 80’s and 90’s the World Bank and the IMF notoriously imposed loan conditionalities that have been at loggerheads with the interests of developing countries. I think their main fault was to assume that market imperfections in developing countries are much the same as those which affect developed countries. But there seems to have been a shift, which culminated in the Paris Declaration a couple of years ago. From the Sri Lankan experience, there certainly has been a change since the turn of the century.

In 2001, following the worst year for the economy in my memory, SL took a structural adjustment loan from the IMF. Part of the conditionality of this loan was to temper the tampering with the exchange rate. We had a balance of payments crisis bc we created excess domestic demand without letting the exchange rate adjust, resulting in a crashing BoP. (I’m going to have some fun here so ignore this if you have a decent understanding of macroeconomics; excess govt. spending results in increased demand without a parallel increase in supply to meet this demand, so ppl spend more than what the country produces, therefore requiring imports. With increased imports there will be downward pressure on the balance of payments. Now if the exchange rate is allowed to float, it will depreciate in reflection of the increased imports, making imports more expensive. This would reduce demand for imports and the BoP would be OK. But if the exchange rate is articifically held high by govt buying Rs, imports will remain relatively cheap and demand for imports will not fall, putting more and more pressure on the BoP until crisis hits.) So I think that type of conditionality is a sensible thing. It would be like spending loads of money on treating cancer with panadol if not. (It was amusing hearing chief justice Sarath Silva referring to the latest CBSL growth figures as unbelievable (literally) and that the economy is like a cancer which also grows but that growth is not necessarily a good thing in this context. Please sir, stick to your day job).

The type of macro conditionality that I think drac was referring to was more a thing of the 80s and 90s. The latest episode of SLkan borrowing which was associated with market oriented reforms was in the ‘02-’04 PRSP (also known as Regaining Sri Lanka) process under the then UNP govt. The RSL received budgetary support funding from the Bank and the Fund in the form of PRSC and PRGF. The RSL was not imposed by the donors. It was highly market oriented and economically right wing, but this was a reflection, I think, of the political economy ideology of the UNP. Now it could be argued that the UNP tailored the RSL so that it would receive funding from the donors, and that’s why it was so market oriented, but then you can’t really say it was imposed. It wasn’t like in 2001 when we took a loan out of desperation, this was more a choice. If the govt did not want to be under such conditions it just didn’t need to go for a PRSP.

The present govt for instance is not going for a PRSP process. The loans they have been taking are what are called project based loans, where a donor will support a particular project, rather than supporting the budget in general. In these kinds of loans there is no macro-conditionality involved. You can ask the ERD, you can even ask the JVP and they will have to admit this amidst a violent volley of rhetoric. Conditionality in this case is a matter of project specific conditionality. For instance an energy sector project will have CEB reforms attached to it. The ADB funding for an energy project fell through bc CEB reforms did not take place, one of the best things that has happened to our country imo. I would argue that a clever govt will use donor conditions to tie their hands into tough but needed reforms, but drac is right to suggest that this would be political suicide in Sri Lanka’s recent history of coalition governments. If a donor tells the govt that it won’t fund a project unless agricultural subsidies are removed or land reform takes place, the govt can just give them the finger and go get money from the ADB (which traditionally does not impose macro conditionality), Japan, China or Iran (yay). More importantly, the donors’ agenda is to keep lending, and given the increase access to external finance in SL (emergence of China, India as lenders), the multilateral donors have less power in the negotiating bargain. This situation changes when desperation sets in, like in 2001. In such an instance the government must get cash at low rates from a specialised institute like the IMF. In such a case there is far more power in the hands of the donors. So I do think there’s a hell of a lot of choice involved here, and evil donor imposed conditions are hardly a valid argument any more.

As mentioned earlier, the Paris Declaration addresses most of the concerns of recipient countries in terms of donor powers. But the problem is that Sri Lanka as a negotiating government makes little or no use of the PD in aid negotiations. Given the fact that donors want to lend, and there is a document around called the Paris Declaration and there are alternate sources of capital, there really should be a massive amount of recipient voice in aid arrangements. The fact that we don’t always get the bargain we want is more our fault than anyone else’s.

My TV watching has reduced quite dramatically since returning to SL. Watching the World cup on Eye has made me spend more time watching tele and as a result i’ve noticed an interesting trend amongst some of the advertising. Several ads, three of which come to mind immediately, are based on a nationalist theme. The ads i’m referring to are the Lanka Bell ads, the Cargills advert with the salesman claiming to buy stuff directly from farmers and thereby supporting the farmers and finally the mihin air ads, the sky is ours. Of these the Lanka Bell ad is quite disturbing, they refer to the company being noble bc money doesn’t leave the country, it is a pretty obvious stab at dialog. The cargills advert is pretty harmless and the mihin air one is again a stab at SLkan airlines and its partial foreign ownership, I think.

The Lanka Bell advert is symbolic of the ideas of a lot of ppl i’ve interacted with in Sri Lanka. The idea is that foreign investment is all good but the profits leave the country, so we must stop that. People forget that profits make up just one part of economic activity. Employment generation, knowledge transfer, and services provided are several fold more important to the country than the profits that are repatriated. The telecom sector is easily the standout success story in terms of privatisation and liberalisation, it has its faults, but you can’t argue with the tremendous improvements in service provision in this sector and the benefits enjoyed by the consumer. The idea that ownership of the company needs to be Sri Lankan is an unfortunate misunderstanding of the macro impacts of investment. I personally care more that i receive quality telecom services than whether the company is owned by a Malaysian or a Sri Lankan. Even if profits “remain in the country” into whose pockets does it go? certainly not to the rural poor, so really the average Sri Lankan should not care whether profits go to Malaysia or to a few people in Colombo. Sure there is bad foreign investment, with little knowledge transfer and local employment creation only in low skill categories, but this is something that the BoI needs to look after. Taking a xenophobic view with regard to foreign investment is counter-productive, specially in a country where capital remains scarce.

The whole “deshiya” stuff is I think a gimic. I don’t think cargills will buy stuff from local farmers if they can import the same good for cheaper, nobody would unless they’re altruistic and not profit oriented. This nationalist image is pretty similar to the stance being taken by the govt at the moment. We hear the president, the ST and other key officials running around saying we don’t need donors, we can manage on our own, we have aid from India, China and Iran (wtp) and we don’t need help from the WB, IMF, ADB and what not. This whole image of being a self sufficient, sovreign nation is being portrayed everywhere. In fact I heard the head of the national resources department in a radio interview say that SL didn’t need foreign assistance to build the Parakrama Samudraya, so why do we need help now. But all this is just noise. The borrowing from the international financial institutions (bar IMF) have not changed. But there is increased borrowing from countries like China, and also projects funded through commercial borrowing, which are of dubious quality and have limited transparency. (WB, ADB borrowing require competitive bidding, these criteria are no longer required when the govt. funds a project using commercially borrowed (or printed) money, and from donors like China).

It can be argued that the emphasis on being an independent, sovreign state thing is, at least partly, an excuse to spend money in an irresponsible manner. Mihin air. Would any donor in their right minds fund such a project? I think not. The noise makes projects like this easier to achieve. And this kind of nationalistic mindset lulls ppl into believing that we can and we do need to develop on our own and will support the govt in such ventures. But clearly some of these projects have very limited benefits for the majority of the population. The funding for Mihin air was drawn from “emergency” credit through the treasury, i really don’t see the emergency requirement for a budget airline wholly owned by the state (surely a first), specially for a country with public debt around 100% of GDP.

I am firmly of the belief that the state has a role to play in economic development in developing nations like ours where market imperfections (specially information) are completely different to those which are prevalent in developed nations, and those which neo-classical economic theory is modelled upon. So there certainly is a role for the state, but there is again a huge difference between good state intervention and bad state intervention. I’m afraid at present in SL the former is being championed but the latter is the reality. I think the one exception is in the long overdue infrastructure projects, the Southern highway and the power plants. But that again is interspersed by poor infrastructure investments such as the airport in the South. The geographic concentration of the infrastrucure development (Hambantota port, highway, airport) is also a bit too much of a coincidence.

It’s important that people do not buy the gimics about nationalism and domestic ownership. We are a small island nation in a global economy, we don’t have the domestic markets which would allow us to be self sufficient and happily closed to the rest of the world. The sooner we understand this reality and learn how to deal with whatever pitfalls open economics brings, the sooner we’ll make any real progress.

It’s a sunday night and i’m feeling tired even before the week has started. That’s not how it should be, specially after 3 of the most relaxing days on the beach in Talpe, rounded off by a Hansi roti kadey stop on the way home. I read fiction for the first time this year, I didn’t take my laptop with me and I didn’t even feel the time pass. The first four months of this year have been very heavy with work, there’s been great fun in between, with lots of travelling and of course the world cup, but i think im feeling the pinch a bit. Last week I finished 2 of the 4 major things i’m working on, and I think both went well, so much so that it’s fair to say the last 2 weeks have been possibly the best of my short career so far. So hopefully by the end of this month i’d have completed the other two major things, leaving two smaller matters to be dealt with by mid-May. Responsibility levels have increased, the importance of the work has increased and I’m loving it, but I think a break is needed. A break in the sense of knowing there is nothing pressing that I should be doing when I’m not at work. For the past 4 months even if i’ve been out of town or just at home on a weekend, i’ve had work nagging me in the background, and that’s tiring. So there is a plan emerging to go to Nepal in the end of April to do a bit of trekking, rafting and discovering the land beyond Katmandu. If that is to materialize, i’ll have to work extra hard over the next three weeks and pray that nothing new comes up. Which is why i’m annoyed that I’m feeling jaded already.

I seem to be running into some bad luck these days as well. I was incapacitated in some way through most of March. First up i caught a flu of sorts which meant no swimming and made work very difficult bc of the A/C office. Actually the lack of swimming was far more troubling, the daily swim has become part of my routine, and being a creature of habit, i’m not fond of change. Soon as i recovered i managed to chip my toe while playing football with the dog. Lost a quarter of my big toe nail, a lot of skin, a chunk of flesh and the ability to wear shoes. Those who saw my toe once it was finally exposed from the bandaging will tell you that I am exaggerating a lot, but there really was a lot of blood so i was entitled to feel distressed. During the injury time i had a dramatic limp and an even more dramatic amount of protectiveness, warning everyone to stay away and producing menacing looks to deter those who dared venture close. Eventually it healed and I was able to get back to my usual activities.

Hardly a week had passed when I went to waadduwa to mess around on a poya day in the sea. The sea was a typical poya day sea, rough as hell and unswimmable. So i resorted to catching crabs on the beach. I spotted a nice large and lazy looking fellow who seemed unaware of my presence. I produced my best 007 stalking and crept up on the unassuming crustacean. Now i’m quite good at catching crabs, specially up at Buba on a Sunday evening where the overfed devils are almost too easy. So expectations were high. I inched closer, the crab barely moved, and then i pounced. As soon as i hit the ground i knew i had done something to my shoulder. My first reaction was that it had popped, but i stood up dazed, tried to join in my friends’ laughter and felt around nervously for jutting out bones. My whole arm was numb but i could move it around without too much difficulty. No breaks, no dislocations. I figured its just sore, and i couldn’t make a fuss bc it would all look quite silly. I went home and mocked my mother for suggesting physiotherapy. I expected it to be fine by morning, a strained rotator cuff seemed the obvious injury given the nature of movement possible.

I ambled into work and all was fine till around 12 when the pain began to sharpen and I knew something was wrong for the pain to get worse. I bit the bullet and called the physio, maternal instinct is just too damn annoying. I was glad she didn’t do the whole “i told you so” gig. The physio examined me in all manner of ways, bending my arm back and forth and testing every plane of motion. He frowned and I began to worry. I asked him if its rotator cuff, and he said probably not, that this is a lot worse. Apparently the fall on the elbow had been at such an angle that it got no cushion from any muscles, all the weight fell square on the shoulder joint, as a result the tendons and ligaments in the shoulder capsule had got torn. Apparently the delayed pain was the tell tale sign. The blood flow to the capsule is very low, and therefore healing is a particularly slow process. And worse still, recurrence is pretty much a given. I asked the dreaded question, how long? The physio replied that soft tissue injuries can take up to 6 weeks, and during this time it would require utmost rest. That means no swimming, no imaginery bowling, and no driving in the immediate future. I felt deflated. The only thing that interested me was the prospect of wearing a sling and looking rather cool, specially since I was making a presentation at a conference the next day. Of course i would have to hatch a better story than “i fell down trying to catch kakkotuwas”. But the physio disappointed again and said no need for a sling. My pleading look went swish over his head.

One good thing came out of it, I got to skip a dinner in honour of the conference guests that night due to physio commitments. That gave me a chance to watch the England vs SL match, and what a match it was. Big Dil stepped up and won it for us off the last ball after that bugger Bopara cost me a few months of my life by weakening my heart that much more. (but what a knock, well played). The next morning all the SLkans at the conference were red-eyed, but we gave one another knowing looks and smiles of acknowledgement knowing the whole thing was worth it. As the parents have been saying, it maybe a bit of an apale time for me, but things are looking good in the West Indies. Good luck chaps.