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Inflation and downslide of rupee value will affect lower income earners - LSSP

The LSSP said yesterday that the second budget of the UNF government cannot make the slightest dent in the country's unemployment problem or the worsening problem of poverty. The cutting down of public sector employment and the Samurdhi handout will only aggravate these problems.

The party in a press release signed by its General secretary Batty Weerakoon said the LSSP fears that the additional Value Added Tax and duty if imposed on essential consumer goods will cause a steep rise in the cost of living while the real value of wages will decline. This will be so with all fixed income. The inbuilt inflation and the downslide of the value of the rupee will have a negative impact on the quality of life of all lower income earners and pensioners.

In this situation the maintenance of the fixed price of Rs. 13 per kilo of paddy will guarantee nothing either to the rice producer or consumer. In such circumstances there can be no ready market for agriculture or local industry.

Referring to Finance Minister K. N. Choksy's statement that "the government is committed to progressively widen the VAT base", the release said the commitment must be to the IMF which was disappointed with a VAT not being extended to retail trade too in the last budget. Presumably the UNF government withheld that extension till after it was able to accomplish what it wanted with the 17th amendment to the Constitution. Despite the disappointment it had to go along with the commitment because the IMF had to be worked on for the next instalment of the pledged aid.

It should not be forgotten that it is chronic unemployment and under-employment in the developed countries that is seen as the cause for their persistent economic stagnation. It does not appear that Mr. Choksy has taken this factor into account in the promises he makes for development of export-oriented industry. It cannot be ignored that the "Tiger Economies" too have been severely affected by the unending economic stagnation especially in the USA and Japan.

IMF 'conditionalities' are not meant to promote sustainable growth in the Third World. What it has achieved in this area is no longer a closely guarded secret. Top men from its sister institution - the World Bank - have in retirement earned the Nobel Prize too by salving their conscience through an exposure of IMF sins and not their own.

It is best that the country takes a second look on the budget proposals as relate to the capital account'. It is unarguable that the country needs venture capital for development of both small and medium industry in the private sector and especially what can be described as the "people's sector". But are we being bamboozled on this matter? Annex I in the budget in regard to "New Venture Capital Companies" can bring on us too the same doom as that which overcame Thailand and caused its financial crisis. It refers to new companies which invest in areas determined by the Minister. There can be no room in this for transparency. It will lead to corruption and cronyism. There is the incentive too for these companies to go along with the minister's wishes. Where a company does an 80% of its investment in this manner it can take out of the country the balance 20% for its global activity in relation to its foreign subsidiaries and branches. This the LSSP sees as the thin end of the IMF wedge for liberalizing the capital account. It can spell disaster. We do not know what the monies are that are taken out for this global activity. It does not appear that the Minister has thought out all its implications.

The LSSP release added that it is difficult to imagine that any government - the PA included - could have budgeted differently from within the confines of the IMF conditions and "conditionalities".

It cannot be fair to lay the blame for these commitments on Mr. Choksy. These are not of his seeking. It was the PA government that signed for all these policy commitments in early 2000. These include the item the IMF calls "Administered Prices" and take in its ambit the upward price adjustment of kerosene, diesel and electricity. The LSSP and other constituent parties of the PA was unaware of these commitments. The PA Executive Committee was not consulted on what was certainly a change in policy. This is mentioned only because the PA leadership must take the necessary warning from the consequences of this hustle as seen in the glare of the UNF budget. The PA can no longer speak blithely as it now does of an alternative government. An alternative government with a commitment to these same policies could take the country nowhere near development and the solving of its problems. What is needed is not merely an alternative government but more importantly an alternative policy. On this the question remains very prominently as to whether the PA leadership is willing to break with the compradorism of the UNP.

On the ethnic issue the budget robs the Provincial Councils system of all credibility. The central government with financial provision for its Regional Ministers and its version of the "decentralised budget" has taken over provincial development leaving the Provincial Councils in the cold. This could mean that the UNF is contemplating an asymmetric system of devolution for a N-E Region thereby jettisoning the Provincial Councils of the 13th Amendment. That sure opens another chapter in the ethnic conflict, the release adds.

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