Sunday, June 23, 2024

‘Govt adopts creative economic policies amid pandemic’


The Government is powering through amid tragic circumstances of the Covid-19 pandemic by adopting pragmatic policies to move the Sri Lankan economy forward.

Instead of borrowing from the International Monetary Fund (IMF) with unrealistic conditions and falling into further debt, creative and innovative policies have been adopted by the Government to attract foreign investment, especially through infrastructure projects.

While controlling exchange outflows with import controls, the Government has adopted the best possible measures in a trying situation, according to senior economist Luxman Siriwardena, Managing Director of Veemansa Initiative, a Sri Lanka based policy development and advocacy group promoting dialogue on sustainable and inclusive development.

Siriwardena spoke to the Sunday Observer on the many facets of Sri Lanka’s economic policies, the ups and downs throughout the years and the lessons learnt in the process.

Siriwardena was Executive Director at the Pathfinder Foundation until recently. He is a Fulbright fellow and received his BA (Honours) in political science from the University of Peradeniya and Master’s in Economics from Vanderbilt University, USA.

Following are excerpts of the interview:

Q : You have over 20 years of experience in the public service mainly in finance, economic reform and industries sector. What are the key highlights?

A: I have been promoting foreign direct investment, especially Japanese and Korean investments from 1978 under the Ministry of Finance attached to the Foreign Investment Advisory Committee. Even while I was at the then Ministry of Industries later on, I did promotional work relating to Japanese investment.

In addition to foreign investment relations, I was also involved in critical policy reforms at the Ministry of Industries which had an impact on not just industrial development but overall economic development.

The significant reform was the further liberalisation of the imports, and exports, and industrial development-related policies including the privatisation of many industrial enterprises which were under the then Ministry of Industries.

Several loss making enterprises were privatised.

I also worked on promoting the technology initiative project titled Technology Initiative for Private Sector under the Ministry of Industries during the time of then Minister Ranil Wickremesinghe and former Central Bank Governor A. S. Jayawardena. The project was funded by USAID that provided technological assistance for private sector industrial enterprises to become internationally competitive and export-oriented.

Q :After leaving the public sector, you worked extensively in policy advocacy and consultation. What were the challenges?

A: I joined the public service in July 1975 and retired after 20 years – in July 1995. Then I joined the private sector. I was attached to a German company to provide technical assistance to local companies.

Since then, I have worked on economic policy reform projects responsible for many liberal economic reforms including the establishment of the Public Utility Commission and others to open up several sectors including ports and shipping and so on.

The biggest challenge was that reforms always create winners and losers. Particularly in the beginning, people think that they will lose their advantages when the economy is opened up. They gang up and organise themselves. While the beneficiaries are not immediately visible, they don’t organise themselves. Therefore, people don’t see the benefits.

Also, with the five-year election cycle, it is difficult for politicians to develop less popular reform programs and they abandon most of them. This is the biggest challenge. No political organisation wants to be unpopular in the short term because the benefits will be seen only after a long period.

Countries in the region didn’t have this short term election in the beginning. Korea, Singapore, China, Malaysia and so on didn’t have short term Governments in the beginning.

Consistency of policies could only be maintained in the initial phases of economic development or the take off period as politicians try to play politics with economics. An example is the Kotelawala Defence University (KDU) Bill. The Bill will allow fee levying KDU to expand its academic programs. But the limited number of university students currently in national universities object to that. Those who want to gain political mileage join them. They do not consider the interests of the vast majority, deprived of university education in Sri Lanka.

They are not organised. An organised few can discourage policies that could benefit the larger population. Throughout history, this has happened and this was our biggest challenge and will be so in the future too.

Q : What lessons do you see from the closed economy of the 70s and later the open economy after 1978 for Sri Lanka’s future economic trajectory?

A: The 1970 Government, primarily due to adverse global conditions, imposed heavy restrictions on imports. There was a ‘grow more food’ campaign and rationing of food which did not fathom well with the masses.

These policies did not contribute to economic growth. An open economy was needed with selective interventions like what this Government has adopted due to Covid-19. Due to the pandemic, we don’t have the luxury of free imports. In the long run, we have to be open to the world with both imports and exports.

The 1970 period was a lesson we learnt on what’s not working out. Restrictions in the name of socialism to curb foreign investment will not allow the country to prosper.

Even in the academic sphere, there is drastic deterioration of standards due to many reasons including fear of competition from private education including the arrival of foreign education institutes. But we have to promote collaborations to grow and attract best skills.

Before I went to the US for my economics education, I had a socialist orientation. But with the passage of time, I studied other economies and keeping Sri Lankan interests in mind, I realised that Sri Lanka’s interests are best served from a mix of certain regulatory oversight necessary in many areas.

Therefore, 100 percent socialist policies are not going to work in Sri Lanka. It would rather create suffering and certain segments would be alienated.

We have to adopt the latest technologies to become competitive. For example, some of the world’s ports operate on artificial intelligence. We too must obtain foreign expertise to progress in this direction.

Q : What are your thoughts on the economic policies of the present Government in the backdrop of the Covid pandemic?

A. The current Sri Lankan economic policy is evolved under tragic circumstances. When President Gotabaya Rajapaksa came into power, the Government was planning very progressive economic programs. Unfortunately, within a few months in power, the pandemic engulfed the entire world including Sri Lanka, disrupting key foreign exchange earning sectors.

Sri Lanka had to adopt pragmatic measures considering the scarce resources; foreign exchange as well as local resources, and divert it to counter the pandemic. Exports, tourism, remittance and key foreign exchange earnings were affected. As a result, the Government was compelled to control exchange outflows through measures such as import controls, which were not earlier anticipated. This had to be done because of the unforeseen circumstances.

However, despite this, the Government is pushing ahead with important economic policies. For example, the Port City Bill, development of Colombo Port West Terminal and East Terminal can be cited.

Also, the Government is committed to increasing renewable energy up to 70 percent of the installed capacity of electricity. Measures are taken to reduce the use of chemical fertilisers and insecticides. This is not a populist policy. Multinational companies and local agencies are protesting. There are well-funded protests as their incomes are severely affected.

In spite of all that, there are certain interventions of the Government such as infrastructure development that will proceed. There are creative and innovative methods adopted to implement projects that don’t have direct impact on the budget and foreign exchange.

For example, the Government cancelled one of the elevated metro railway lines as it was not advantageous to Sri Lanka. An elevated highway connecting Colombo to Attidiya interchange will be constructed with an innovative funding mechanism. Therefore, the projects will not have a direct impact on the Government budget.

Amid the scarcity of foreign exchange, the Government has adopted the best practices to attract foreign investment in some form or other in infrastructure development and other projects like Port City Colombo. We have to be liberal with investments including in sectors dominated by state enterprises. Instead of borrowing from the IMF, the Government has prudently followed measures not to fall into further debt trap.

Q :What is your take on the relationship between policies and the implementation mechanism in Sri Lanka?

A: Looking back, we can identify utter failures during the Good Governance regime. Regarding then Prime Minister Ranil Wickremesinghe’s economic and social policies, I think he had some clear ideas of what to do. But implementation simply failed. In that sense, economic management failed.

For example, the Port City project was suspended and later on it was resumed after wasting two years.

The Port City Bill was initially formulated by the Good Governance regime. But the then Premier could not get it off the ground to take it to Parliament.

Now the Samagi Jana Balawegaya (SJB) opposes to the same things that were favourably considered during the Good Governance period. Be it the fertiliser issue, or the KDU issue, the opposition parties try to discredit the policies and stands with populist and irrational policies.

It is pathetic that those leaderships are taking such measures. If they come to power, they would muddle everything up again. They would just borrow from the IMF but will be unable to implement agreements. That is why we had to go before the IMF 16 times.

None of the programs we formulated with them were fully implemented. Half way, when the Government realised that their popularity is weaning due to short term impacts of some policies, they give up that policy line and implement a populist policy. I don’t think that we should go to the IMF and agree to programs as most often they get abandoned half way. That was what happened in the last 16 times. There’s no reason to believe that the next time would be different.

Q: Will Port City Colombo be the catalyst for economic revival?

A: Sri Lanka has had many mega development projects such as the Mahaweli project and Free Trade Zones.

But in the current international setting, Port City Colombo will be a much greater landmark project and a much bigger foreign investment attraction centre with high skilled employment generation. I don’t think so far or in the near future, there would be another project of that magnitude. It is not appreciated to the extent that it should be appreciated.

What is envisaged through the project is a green city development concept. Once this is developed, it will have a domino effect on the other sectors of the economy and other cities. Sri Lanka will become a regional hub – a regional financial centre through Port City if properly implemented. I emphasise on the word ‘properly’ because it mainly depends on the consistency of policies.

Q: World superpowers are emerging within Asia, particularly India and China, who are important in Sri Lanka’s development. How can we balance these relationships?

A: Throughout history, Sri Lanka’s relationship with India has been critically important, mainly because of the proximity and due to our civilisation links with India. During the 30-year terrorist battle, we realised how critical it is to balance the relationship with them.

India has a vibrant industrial sector with giant companies also operating in some sectors. It is beneficial to us as we could attract these investors. There’s a big market there for us, maybe in the future. On the other hand, China has been our friend throughout history even before establishing diplomatic relations; from the times of the Rubber-Rice Pact.

They gifted the BMICH at a time when they were still a low income country. In the recent years, China has been one of our greatest contributors to economic development, particularly infrastructure. It has been the biggest investor in recent years. In the Belt and Road Initiative, Sri Lanka is a pioneer member.

Our trade and shipping will be benefited through that. Therefore, strong relations with both countries are critical for our growth although there is a strategic rivalry between them. It has to be a critical foreign policy objective of any Government or party in years to come.

Source: sundayobserver.lk

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