Look West Again
Sri Lanka will have to seek funds from international commercial capital institutions at high rates of interest to support budgetary proposals, news reports said last week. This follows the International Monetary Fund (IMF) refusing to provide any direct or indirect ‘budgetary support’ for Sri Lanka. Authoritative financial analysts say that now Sri Lanka has been classified as a Low Middle Income Country, the IMF considers that it has access to international capital markets.
The IMF usually comes to assistance of developing countries when they are going through balance of payment crises. In July 2009 the IMF approved (US)$ 2.6 billion facility as a Stand By Agreement but will not extend support for budgetary proposals now that our foreign exchange reserves are said to be around $ 7 billion.
The inclination made towards the IMF, despite the claims by the Central Bank Governor Nivard Cabraal about the booming Sri Lankan economy, leaves room for concern.
Leading economists have pointed out to the continued slide of the economy last year, which is continuing this year too. At the end of last year, the rate of inflation increased to nearly 10 per cent and this trend is continuing. Inflation, according to the Colombo Consumers’ Price Index (CCPI), increased from 9.2 per cent at the end of last year to 9.8 per cent in January and indications are that there would be galloping inflation with increasing prices of fuel and food.
Economic statistics, whatever the tune they are parroted out, cannot hide facts from the people because the pangs of hunger and the state of the clothes on them will reveal the true state of affairs. Long years ago when a politician argued that ‘there is no reason for the shortage of onions in the market’, an irate editor who missed onions in his pol sambol wrote: logic is a poor substitute for onions.
Inflation is caused by factors external and internal. While rising price of imports in world markets such as the price of oil is beyond the control of the Sri Lankan government our politicians and bureaucrats contribute their own inputs through blunders, inefficiency and corruption.
The losses incurred by the Ceylon Petroleum Corporation and the Ceylon Electricity Board in 2011 amounted to a whopping Rs 119.5 billion. In 2012 it increased to a colossal Rs 261 billion despite the price of oil and electricity being hiked up for the hapless consumer. Penalising the consumer for no fault of his may be one way of reducing government expenditure but the fallout of increased prices of fuel and electricity in the manufacturing and commercial sectors would once again fall on the consumers.
The obvious call should be for radical reforms in these two white elephants including others of the same ilk such as SriLankan, SLTB and many others which keep the government in the red. Radical reforms in these institutions are called for such as kicking out the political cronies, hangers on, bribe takers and sophisticated crooks. But that would be a formidable task for President Mahinda Rajapaksa and his party because these institutions are packed with loyal and valiant supporters.
The inevitable answer should be privatization of these institutions. But in this instance too President Rajapaksa has shackled himself. His proud claim is that unlike the UNP government under Ranil Wickremesinghe, which reduced the size of the public sector, Rajapaksa has expanded and nurtured it. But at what cost? Rajapaksa has been recruiting en masse new inexperienced and untrained graduates into government service. But what do they contribute to the economy in real terms? Any move to privatize the Electricity Board or the Petroleum Corporation would no doubt meet with violent resistance. President Rajapaksa, despite the tremendous executive presidential power vested in him and his command on two-third of parliament, is bound hand and foot to maintain the status quo of the white elephants.
Rethinking of the Rajapaksa foreign policy is also called for in the context of the times. Rajapaksa locked horns with the Western nations right at the commencement of his first term when he did away with the Four Chairs – US, EU, Japan and the Netherlands – overseeing the peace process with the LTTE – and went ahead with a military solution strongly opposed by the West.
President Rajapaksa had his way and defeated the LTTE in the battlefield. Three years have passed and it will not be to the advantage of Sri Lanka to continue with anti-Western policies. One ally; Muammer Gaddafy has fallen in the desert sands. The other, the Iranian regime is crippled with American sanctions. Sri Lanka has already lost significantly from US sanctions on Iran and it has been estimated at Rs 2 billion loss last year. The country lost on differed payments arrangements and concessionary pricing.
The country lost significantly when the European Union withdrew the GSP Plus concessions for our exports. Nivard Cabraal was cocksure that that withdrawal of GSP concessions would not have much of an impact on this country but now Sri Lanka wants to seek GSP concessions again.
Whether Sri Lanka’s anti-Western stance was by design or circumstantial, the most fundamental fact is that the US and EU are our two biggest markets for our exports and should not have been glossed over. Our exports to these two markets fell significantly last year but that may be due to recession of their economies. In the long run however, they will remain the markets that could absorb most of our industrial products.
China no doubt has helped this country in fighting terrorism and without their assistance eliminating terrorism may not have been possible. But China, despite its one billion and over population, is not a market for Sri Lanka’s industrial and agricultural products. With Middle Eastern countries we have had good relations and they prop up our economy providing employment for our expatriate labour but which is now running into opposition within the country.
Direct foreign investment is a vital factor to make a developing country’s economy spurt ahead but here too foreign investors so far have been by and large from the West. It is unlikely that the new found friends in Africa or South East Asia are likely to invest significantly in this country in the foreseeable future.
It’s time to look west again.