Of soaring debts and managing economies

By Ravi Ladduwahetty
It was the celebrated American and Pennsylvanian born Author and Poet Gertrude Stein (1874-1946) who once sagely wrote: "A rose is rose is a rose"

The cornerstone of her writing was that as she succinctly put it, was : " I am writing for strangers and that is the only way that I could do it" This was reflected in her creations - Three lives in 1909, Patriarchal Poetry in 1953, Four Saints in Three Acts and the foremost of her publications, the autobiography of Alice. B. Toklas in 1933.

However, the bottom line is that even after six decades after her reaching walhallah from the Pier Lachaise cemetery in the French capital of Paris in 1946, no one has any qualms of what she said about the roses!!

However, when a Sri Lankan financial journalist says "an economy is an economy is an economy, everybody has qualms about i!!

Look at the national economy of this resplendent yet war/ tsunami ravaged isle. Sri Lanka's annual revenues of Rs. 350 billion and Rs. 400 billion which is barely sufficient to pay the four main items of expenditure which are the salaries of the public servants which itself is around Rs. 128 billion and the three other high fliers are the loans and loan interest, pensions, and subsidies and transfers. That is why there is a gigantic current account deficit.

That is the reason why the Government has to go in for loans for capital expenditure for infrastructure development.

The disaster of the country became the blessing of the PA Government when the tsunami ravaged the nation on Boxing Day of 2004. There was global sympathy as far as the finances went. Italy waived off all the debt while the United States, the United Kingdom, Japan, France and Germany offered concessionary terms for the payments while having a moratorium for both 2005 and 2006. The heart of the matter is that the Government was able to save Rs. 27 billion in that exercise which is almost 50% of the funds which went into the Accelerated Mahaweli Program.

Now it appears that the Government is sitting on a volcano with the total debt outstanding at Rs. 2222.3 billion which, mathematically amounts to Rs. 2.2 trillion!! It is estimated that for the year 2006, the total outstanding is Rs. 434.6 billion which comprises the installment Rs. 282.9 billion and the interest Rs. 151.3 billion. In short, the economy is more fragile than a cut glass ash tray.

So, it will be at the end of the year 2006 that President Mahinda Rajapakse, who is also the Finance Minister will be in the unenviable position of making these payments and that too when the moratoria is over.

It is also sad that the officials in the Finance Ministry had not kept the President informed of the nitty gritties. It appears that statistics for politicians and bureaucrats is what the lamp post is to the drunkard. Not for illumination but for support!!

The country is facing a debt crisis of unprecedented proportions. What is also alarming is that the security situation in the country is also not very conducive to attract the confidence of the foreign investors. Japanese peace envoy Yasushi Akashi has also said that there will be no aid inflows in the event of the war breaking out.

It is in that context that the Government has approached Citibank NA to raise a billion US Dollars which translates to around Rs. 100 billion which is also not sufficient. This will all contribute to Cost of Living and rising interest rates.

The Government should also do well to get a proper independent assessment and rating from the donor community on these matters without living in a fool's paradise.

Otherwise, President Mahinda Rajapakse will also have to suffer same ignominy which all of us read as children… the famed Hans Christain Andersen fable about the Emperor and the clothes!!