The recent parliamentary Select Committee sessions on public finance were interesting, and sometimes a trifle more than that, but were they useful? All current and past big-guns of the Central Bank and the Treasury and so on were present, and these were deemed important sessions because the people of this country were to be given some idea of how the events culminating in the economic meltdown of 2022 materialised.
These sessions would technically go down in history as revelatory. If these public officials are unable to give the people an idea about how the country went into debt default and so on, who could?
However, the general consensus among the key officials present that were in charge of the economy in the key financial institutions at the time the initial economic crisis took hold, was that the initial policy decisions including the tax cuts of 2019 were policy initiatives that were taken by the elected leadership.
There was much derring-do regarding this stance that was taken, but nobody seemed to offer — at least at the time of writing — any idea about who was responsible for the proximate causes of the crisis.
There are policy decisions and policy decisions, but who was responsible for letting the situation slide until it became an unmitigated calamity?
What was heard from the panel of officials was standard i.e. that public policy as decided by elected officials had to be implemented in the main, and that the policy decisions could be backed up by the levels of growth and so on that obtained at the time certain decisions — such as to slash taxes drastically — were taken.
But unexpectedly, according to the then Treasury Secretary, Covid happened, and there were shut downs and so on, which were impactful, but did not impinge on the projected recovery in 2021.
MOTIVATED
However, he said this projected recovery too did not take place because there were repeat shutdowns due to the so called Delta-variant in 2021 and so on. This means that conditions were changing, and those rapid changes were readily discernible.
In which case, why was policy on many fronts not adjusted, and not walked-back in crucial instances? That is the key question that the Select Committee should require answers to, because public policy on the part of elected officials can vary.
There was a desire to spur growth in 2019, when Covid had not happened, and there was a need to grow out of the stagnant growth pattern in the years immediately preceding 2019. Tax-cuts therefore were implemented by the new regime with a view to kick-starting growth.
Though arguably the tax-cuts granted were excessive, the pre-Covid tax concessions were public policy initiatives that were motivated by the idea of growth. As far as policy goes, this was the prerogative of the new Government and would not have been classed as drastically bad policy, pre-Covid, when all indications were that the economy was poised to grow at a healthy gallop.
But then, as the former Treasury Secretary Attygalle said, Covid mixed all growth expectations, and what’s more the envisaged recovery as stated earlier was also sabotaged by the Delta-variant related closures in 2019.
However, old policy was not walked back, and among other things, when there was a clear indication that remittances were not accruing due to the fact that the dollar was pegged at a fixed rate, the then policy czars were extolling the virtues of such policy, instead of reversing course.
There was no policy walk-back when it was clear that Covid had aborted all the sanguine growth plans. Why didn’t the Central Bank bigwigs including Nivard Cabraal at that time advise against retaining policy? Not just that, they kept arguing for keeping the earlier 2019 policy initiatives intact.
DIRECTION
What were they thinking? The consequences have been dire, and the public deserves to know the answers. On debt restructuring, similarly, the financial czars did not budge and were opposed to any suggestion that the debt be re-addressed because it was becoming increasingly obvious that as a country we were not going to have the foreign currency to settle our external debt.
On top of that, the approach of the policy-czars at that time was to scrupulously avoid approaching the IMF.
The consequences have been dire. Where are the answers to the question, ‘what were they thinking’? Concerning the issue of refusal to restructure debt, there have been allegations that individual creditors were coercing policy-outcomes i.e. those in charge of policy at that time were not happy to change the policy direction, because there were ‘friends’ who stood to gain if the sovereign bond disbursements for instance, were paid, despite the obvious financial difficulties of the State.
It is the duty of the Select Committee on Public Finance to at the very least ascertain if this type of recalcitrance on policy was intentional, and was dictated by ulterior motive.
Who were the creditors they wanted to satisfy? At the time of writing, none of these issues had been addressed frontally even though Anura Yapa MP has gone on record telling the media that the issue of the dollar-peg for instance would be addressed in the near future.
The recent — ongoing — economic debacle is historic, and there is absolutely no case to be soft on the investigation. Even though there are no sanctions and punitive measures imposed on public officials for incompetence, they can be held accountable for corruption if ulterior motives were involved in intending to pay off individual creditors, for instance.
Also, if there were suspicious circumstances in the decision not to approach the IMF on time, these should at the very least be discussed thoroughly so that the public could have a very good idea regarding why certain policy initiatives were never challenged or changed, despite the facts staring in the face.
When the country was running out of reserves to settle the debt, and there was a very real risk that no revenue would accrue on time, why did the Central Bank high-command together with Treasury officials and so on insist on letting things slide?
These people were not children to believe that things would fall into place of their own accord. Something was radically wrong if the top officialdom could not predict the consequences of rapidly depleting currency reserves.
If the Parliamentary Select Committee cannot divine the answers from the officials involved, there would be a further loss of faith in the process of oversight and accountability — and it’s not as if there hasn’t been a severe loss of faith in over sight institutions, and in the ‘system’ in general already.
BANKRUPTCY
The public deserves to know the truth regarding the historic mishandling that accounted for the economic debacle. Putting it down to Covid would be ridiculous, because (not) approaching the IMF on time for instance, had nothing to do with Covid.
People do remember the bragging that went on months before the calamity hit, about Sri Lanka never deigning to approach the IMF. There is no doubt that the preceding administration has to shoulder the responsibility for that disastrous decision, but where are the strictures, where are the sanctions one may ask?
These vast policy missteps if they are put down to ‘mistakes’ would totally erode confidence in the system. The Parliamentary process and all processes of oversight have to approach the relevant issues with that mindset i.e. that the usual lackadaisical approach to public accountability would not be remotely satisfactory in the face of these historic blunders that led to the country’s first debt default, and the bankruptcy of the nation.
The public cannot be treated to a show and a spectacle and then a non-answer with regard to the debacle that has been the result of the doings of certain individuals. If we as a country do not learn the extent of the problem and how it was caused, we are very probably not going to do a great job at arriving at solutions either.
The bottom line is that accountability and oversight have to be real. Showpiece efforts would certainly not be tolerated by the citizenry this time around.