Need for new economic policy for poor countries
Sri Lanka born international economist Dr. Howard Nicholas of Erasmus University, Netherlands has categorically stated that Sri Lanka must not adopt the IMF recommendations on monetary policy for it has no rational basis and evidence of success anywhere in the world. Coming from a Western based economist that provides a lot of food for thought and would be worrisome to everybody concerned about the situation in Sri Lanka. Everybody was hopeful that we would have a chance of survival and was looking forward to a future with at least the bare necessities for existence. But having listened to Dr. Nicholas and knowing the track record of the IMF as has been vividly explained by one of its former heads Joseph Stiglitz, one is worried about what the future holds for us.
When Dr. Nicholas was asked what he could recommend as an alternative solution to the Sri Lankan economic woes he had said Sri Lanka has not tried to sort out the elephant in the room which is its 40-year history of running a huge foreign trade deficit. His solution is that Sri Lanka must substantially increase its exports. He had also cautioned against excessive reliance on tourism and foreign remittance as forex earners for these could be adversely affected by global economic crises and natural disasters like pandemics. However, the fact is that exports also could be subject to such global vagaries though perhaps to a lesser extent.
Moreover, with all due respect to Dr. Nicholas, it must be pointed out that during the last 40 years very few countries have come out of poverty following an export-led economy. South Korea, Taiwan, and Israel are favoured countries of the West for geopolitical reasons and they have been given special treatment by the US and Europe to develop into an affluent state. Other poor countries in Africa, Asia and South America remain way behind and progressing very slowly if at all. The following facts would substantiate this reality; Sri Lanka’s earnings from exports was only 23% of the GDP in 2014 and it has been around that figure since 1977. We have not been able to improve this situation for our exports, though increasing, lag behind imports which also keep rising. There is no way we could change this equation to any significant degree because to increase exports we have to increase imports too. To succeed in this dog-fight we must attract investors (most of whom are Robber Barons), we must prepare an investor friendly environment (often by denying the rights of workers) and be able to compete to capture our share of the market (which is often manipulated). Near impossibility of this has to be realised by all developing countries.
We are not alone in this boat, most of the developing countries are facing this problem. This system often leaves us short of dollars to buy our essential needs and we are forced to borrow from international lenders and get deeper and deeper into debt. Then we turn to the IMF which has been created for the purpose of keeping countries like ours afloat. This remedy is often worse than the malady and consequently the poor suffer even more. The fact that we will never be able to come out of this mess would be clear when we consider the following.
The new wealth produced by the world since 2020 has been USD 42 trillion. Two thirds of this huge amount of wealth has gone into the pockets of 1% of the world population which comprises the billionaires of the world. The whole of the rest of the world population, i. e. 99%, will have to do with one third of this wealth, which was largely produced by them. Further during the last few decades, the debt burden of poor countries has increased by 12 %. Inequality between the rich and the poor has increased by 8%. These facts and figures show that the poor countries could never come out of poverty by following the economic policies they have followed in the past. They must, jointly if possible, work out new policies and mechanisms to come out of their poverty.
There may be some chance of getting out of this vicious cycle by a process of import substitution. It may be easier to save foreign exchange by cutting down on imports of goods that could be produced locally, rather than trying to find dollars to import them. We have been importing a significant quantity of commodities that could be produced locally. If Sri Lanka could produce the essential food it needs, the import expenditure could be reduced by 50%. If import of non-essential goods is stopped another 25% could be saved. Then our export earnings could easily pay for the essential needs of fuel, etc. Moreover, if the goal of 70% of renewable energy could be reached, which should not be difficult in a country perennially bathed by sunlight, we could save enough of the export earnings for development work. All developing countries must strive for self-sufficiency and move away from export oriented, debt dependent economies. Indonesia has developed their economy mainly by developing their agriculture which has increased to 15% of the GDP whereas in Sri Lanka it has remained at 8% in the last few decades.
Joseph Stiglitz, Professor of Economics at Columbia University and former senior vice president of The World Bank and Nobel Memorial Prize winner, wrote in April 2000 in an article for the New Republic “They will say the IMF’s economic ‘remedies’ often make things worse – turning slow-downs into recessions and recessions into depressions. And they will have a point. I was chief economist at the World Bank from 1966 until last November, during the gravest global economic crisis in a half century. I saw how the IMF, in tandem with the US Treasury Department, responded. And I was appalled”. He was made to resign from his post in the World Bank. John Maynard Keynes in his book ‘National Self Sufficiency’ (1933) says “Ideas, knowledge, science, hospitality, travel, – these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible and above all let finance be primarily national. Experience accumulates to prove that most modern processes of mass production can be performed in most countries and climates with almost equal efficiency.”
N. A. de S. Amaratunga
