Bengaluru: On her first visit to Kerala after being appointed financial advisor to Kerala chief minister Pinarayi Vijayan, Harvard economist Gita Gopinath has told the state it should consider taking a leaf from Chile’s playbook.
The South American country was once run by socialist statesmen, much like Kerala, before it became a labyrinth of neo-liberal economic policy experiments by American economist Milton Friedman and a group of other free-market advocates who together went by the name ‘Chicago Boys’.
Many on the Left, including the Communist Party of India (Marxist) that leads the Kerala government, have vociferously criticized the policies of this period, citing them to have caused rapid de-industrialization, unemployment, corruption and debt in Chile and other developing countries.
“She met the CM, the FM and the senior officers in important departments like health. She made references to Chile during the interactions," said Kerala’s chief secretary S. M. Vijayanand.
The reference was basically to point out how Chile manages copper exports—the core strength of its economy.
Copper is at the heart of Chilean economy and accounts for an estimated half of its exports. But since copper revenue varies with global market fluctuations, the Chilean government follows a fiscal strategy that involves channelizing budget surpluses in years when copper revenue is high to a stabilization fund and using it to mitigate difficulties when revenue is weak.
Gopinath’s call to follow Chile, first reported by regional newspaper Malayala Manorama on Wednesday, comes at a time when Kerala is a facing a major fiscal crisis.
The remittances from West Asian countries, after boosting the state economy for decades, are shrinking and the government worries this might even push the state into recession.
South Indian states receive remittances of over ₹ 1 trillion every year, making up 35% of Kerala’s gross state domestic product.
Also read: Shrinking remittances may push Kerala into recession: Thomas Isaac
An interview request sent by mail to Gopinath did not receive a reply. A call to Isaac went unanswered. Chief minister Vijayan’s office said he was travelling and would not be able to comment.
“In Chile, the limited decentralization carried out under the authoritarian Pinochet regime led to a worsening of student test scores and a widening of education differentials among socioeconomic groups between 1982 and 1988. In health, decentralization was accompanied by cuts in resources and the introduction of user charges: hospitals got more income while clinics got less...," Isaac wrote in a 2002 book he co-authored with economist Richard W. Franke, titled Local Democracy and Development: The Kerala People’s Campaign for Decentralised Planning.
The developments come at a time when Vijayan is reportedly deviating from the traditional ways of doing business for a Left chief minister in Kerala, mainly to attract investments to save the near-empty treasury, much to the unhappiness of his old-school comrades. Gopinath’s appointment itself had stirred quite a controversy in the state.
Also read: Why Pinarayi’s appointment of Gita Gopinath is stirring a row in Kerala
A CPM leader had suggested difficulties for the party to gel with Gopinath’s advice right after she was appointed. “No one is questioning her competence. But she will be dealing with the political economy of the state where the Left is trying to bring an alternative development model which is far away from neo-liberal economic thinking," the person had said.
Some, however, believe the chances of an ideological conflict are close to nil.
“Every region has its own strengths. Such anecdotes were called out to tell how other countries benefited out of their core areas. It is up to the CM to take that advice or not," said a person who is part of the government, requesting not to be named. “Basically she is trying to understand Kerala’s issues. Her focus will be on NRK (non-resident Keralite) investments, how to deal with it properly and all. She will also ideate ways to take Kerala out of its so-called infrastructure deficit. We have to do it anyway."