Rain at the World Trade Centers, yesterday

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I recently heard that Mahinda runs the economy like a handiya kade (corner store). Honestly, the stores on my corner are better run. This would be like a handiya kade where roast paang costs 300 Rupees and the owner drives a Hummer. A few days ago the news was all crashing jets and bus strikes and a depreciating rupee and rising prices everywhere. I actually don’t understand what’s going on, but it is affecting me tangibly, and even more the people on the street.

I’m pretty broke but with a safety net. While an increase in bus fare and food prices does affect me, it doesn’t in the same way that it can completely fuckswaddle people living on like Rs. 500 a day. For example, I hire a cleaning lady for Rs. 700 a day. That’s a bit above market but it’s worth it. She takes the bus from Rajagiriya and back and uses the money to buy daily whatever. Her bus far has now gone up (by at least Rs. 10 I would guess) and the price of bread has gone up and the prices of everything will go up in due time. Wages, however, don’t go up by the same logic. I’ll pay her more now, but I think that’s an exception rather than the rule.

Anyways, Jack Point actually has some sense (or at least a sensible opinion). Here is a bit of a comment he left on indi.ca:

The finances of SL Cricket are instructive. The country can end up like that unless debt and public spending is managed. Public spending that delivers good services is worthwhile. Public spending that winds up in the hands of cronies due to corruption is sheer waste. Public investment in infrastructure needs to improve productivity- if not no return is generated; and the burden of taxes must rise further if the debt on a white elephant (which generates no return itself) has to be repaid.

and here’s a few paras from a blog post he did:

The IMF demands that the Government sets its macroeconomic house in order – or least embarks on a plan to set in order before it lends. One point is that the budget deficit needs to be brought down. This is excellent advice that the Government can follow by either cutting costs or raising taxes. The pattern that we have seen in the last six years has been no restrictions in Government expenditure, which means ever more taxes on the population. When one discovers that a great deal of this expenditure is spent on white elephant projects (eg Mihin Air, Lankaputhra Bank), or servicing high interest commercial borrowings the people need to start asking why they should fund the lavish lifestyles of so many cronies. (Read some comments on the COPE report for more on this subject here).

Until some means is found to get expenditure cut one must be resign oneself to the payment of higher indirect taxes. These are mostly imposed on essential foodstuffs (Dhal, onions, potatoes and canned fish are particular favourites). We saw this last month and once or twice last year. This is of course in addition to increases in fuel, gas, alcohol and a host of other items that took place in the month before and the months after the budget. Very little new taxes are actually announced in the budget, everything takes place the month before or a few months after. This little subterfuge really works, even I find it a little difficult to recall what exactly went up and when.

Due to the huge losses at the CEB, we can expect a (long overdue) increase in electricity rates as well. The non-operational coal power plant, built with expensive Chinese debt, no doubt contributes to this loss. The interest needs to be paid, even if no power is generated, and the consumer or taxpayer ultimately foots the bill, while those who build the plant walk away with their profits intact.

The exchange rate is linked to the interest rates so we need to wait and see where things end up. In anticipation of the depreciation interest rates were edging up, we need to see where they end up. Businesses which were making good profits on the back of low interest rates will find that borrowing costs go up, banks will find margins squeezed (as deposit rates rise) and overall increases in indirect taxes will bring about wage pressure. Company earnings will therefore be adversely affected but the biggest blow will fall on consumers.

When the average consumer is left poorer, does a the GDP growth number have much meaning? (Court Jester)

Both are worth a read.

Posted on Wednesday, February 15th, 2012 in Business, economics, Photography, Sri Lanka.