Millennium Challenge Corporation in Sri Lanka: Paving the Way for Land Grab by Multinational Companies Comments Off on Millennium Challenge Corporation in Sri Lanka: Paving the Way for Land Grab by Multinational Companies 438

Article by: Prof. W. D. Lakshman

The decision of 29 October 2019 by the outgoing Cabinet to sign a compact with the Millennium Challenge Corporation (MCC) has given rise to extensive public discussion and debate. A new President has been elected on November 16, 2019, with a new Prime Minister and a new Cabinet sworn in soon after. The new government is bound to reconsider its predecessor’s decision to sign the MCC agreement.

The proposed MCC compact, once signed, would make a US government grant of USD 480 million available for expenditure in two Sri Lankan projects – a transport development project (costing $400 million) and a land project (costing $80 million). These two projects are supposed to address two binding growth constraints in the country: inadequate infrastructure of transport logistics and restricted access to land for investment purposes. The MCC grant funds will be disbursed in stages over a period of five years. Unlike other official grants, the MCC grant will not be disbursed to the Sri Lankan government. Instead, these funds will be channelled into a Sri Lankan private company specially set up in Colombo for this purpose by the MCC to be used in the implementation of the two accepted projects. This company will monitor the progress achieved in the projects concerned and grant funds will be released step by step if progress achieved in each stage is judged satisfactory. The US government reserves the right to terminate the operation of the project at any time if the MCC is not satisfied with project implementation progress.

Millennium-Challenge-Corporation-in-Sri-Lanka--Prof.-W.D-Lakshman--Governor-of-the-CBSL---BiZnomics

It is good to begin this brief article about the desirability or otherwise of signing the MCC compact by placing the MCC in its proper global perspective. The “Western development establishment” led by the US has dragged increasing numbers of developing countries into the net of neoliberalism since the 1970s and 1980s. Sri Lanka has the dubious reputation of having been a pioneer to be so dragged into a neoliberal policy framework. The use of foreign aid conditionality has been the mechanism widely used by the Western development establishment to neo-liberalise developing countries.

Millennium-Challenge-Corporation-in-Sri-Lanka--BiZnomics

The IMF and the World Bank have formed the institutional mechanism used in the process. Under conditionality, the countries receiving grants and loans on concessionary terms were required to gradually meet the laid down policy conditions after loans were authorized and dispensation commenced
in tranches. The grant “assistance” to a developing country1 through Millennium Challenge account of the US signifies a different way of converting the developing country victims into a neo-liberal policy framework. This method has been described as “preemptive” development assistance. It entails refusal and withholding of funds until demands made by the donor country are met.

The conditions to be met are listed under three broad headings, namely
1) ruling justly (good governance);
2) investing in people (health and education for all);
3) “economic freedom” (sound economic policies that foster enterprise and entrepreneurship)

Cont..
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Rupee still not out of the woods 0 657

By : Kenneth De Zilwa

The USD/LKR has halted its slide temporarily. The main factor had being CBSL “Moral Suasion” and regular intervention in the spot market.  Despite these measure the external environment vulnerability had seen the currency slip by 19pct in 2018.

USD-&-LKR
Source: Thomsonreuters

 

The analysis below indicates the rupee weakness over the past 2 years. Thus we continue to believe that the overall trend of a stronger Dollar viz a viz the LKR would continue in 2019.

The Central Bank has made it position clear as they are going stick to an exchange rate policy of cautious intervention at times of excessive volatility in the forex market, Central Bank Governor Dr. Indrajit Coomaraswamy said on 4th January 2019 at the launching of the economic road map for 2019.

Recommendation by Econsult – Stay long Dollars and use opportunity of selling by the CBSL / Moral Suasion to buy Dollars on dips

Forward Market Quotes For USD/LKR- FWD prices must be used in pricing of Cost of sales

FWD price = Spot + Premium

Forward-Price
Source: Thomsonreuters

Active Trade policy for economic development 0 448

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Professor W. D. Lakshman

Biznomics-active-trade-policy2Do countries with lower barriers to international trade experience faster growth? This has been one of the most vigorously debated questions in economics and political economy. Mainstream economics since Adam Smith strongly favours free or freer trade. In contrast, different strands of political economy have been critical of these views. Liberal trade has become a policy position pursued by international trade organizations like the GATT (and after 1995, the WTO), and by international financial institutions like the IMF and the World Bank. For many in this line of thinking free trade has become an ideology. Renato Ruggiero, the first Director-General of the WTO, writing in the last decade of the twentieth century, argued that liberalization had “the potential for eradicating global poverty in the early part of the next [twenty-first] century—a utopian notion even a few decades ago, but a real possibility today”. The free trade ideology has attracted traditional elites and economic bureaucracies in many developing countries as well.

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The free trade policy prescription is based on the theory of comparative advantages developed by a long series of well-known economists starting from David Ricardo of the nineteenth century. (Ha-Joon Chang in our issue of May-June 2019 presents a lucid explanation of the fundamentals of comparative advantages theory). In reality however, international trading has never been free.  During the period of European colonialism, foreign trade was controlled by the imperial powers and a few large and powerful trading companies. Colonial territories were opened up for foreign trade using imperial power. Countries that could not be brought under direct colonial rule (e.g. Japan and Thailand in Asia) were compelled to open up for foreign trade through unequal treaties which they were forced into signing. Foreign trade in colonies and countries brought under unequal treaties was seriously disadvantageous to the territories concerned.

 

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After World War II and in the era of decolonization, there was the US domination of world trade matters. The currently prevailing pattern of international division of labour and the rules of the game governing international trade are being governed and managed by the set of international institutions referred to earlier, working according to dictates of the US-led bloc of Western powers. Various global forces operate in support of these institutions – the ideological commitment to free trade, bribery and corruption unleashed by MNC-led international capital, and numerous political pressures, occasionally backed up by military power of dominant nations.

Foreign trade has been described as an engine of growth (implying causality) or at least as a handmaiden of growth (implying concurrent movement). Countries which have experienced export-led or outward-oriented growth processes are cited in support of growth-engine or growth-handmaiden hypotheses.  Mainstream theory however ignores inward-oriented import substitution activities which often pioneered the economic growth processes of the countries concerned. The export-led characteristic developed later once production capacities were developed through import substitution. Historically, in the initiation, sustenance and guidance of both these growth processes – import substitution and export orientation – active trade policy has played a crucial and critical role. The effective policy stance here has never been free trade, passively leaving trade flows to global market forces. In effective trade policy stances there were always complex and dynamic combinations of openness and restrictiveness.

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A point of great significance in trade policy discussion is that every process of development, taking place over time and space, is unavoidably uneven from one region to another at the country level and across different countries at the global level. As development processes take place at different rates in different countries, some regions and countries have achieved development earlier than the others. In this process, the “developing countries” always have got themselves stuck in a “late development” syndrome, subjecting them to more disadvantage than advantage. The “one suit fits all” type of development policies advocated in different versions of neoliberal packages, are hardly likely to meet the development challenges of all developing countries. This point comes out strongly in the extensive trade policy debates in development theory and practice.

Cont..

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