Financial Times

Call to cut funds for parties
Business leaders are expected to consider a call to freeze private sector funding for errant politicians and political parties at a meeting this week following the announcement of a snap general election and the dissolution of parliament.

The April 2 general election would also be the first to be held with the Fiscal Management (Responsibility) Act, that is meant to prevent election giveaways and ensure fiscal discipline, in force and under which the finance ministry has to submit a report on the state of public finances.

The government is most likely to miss fiscal and economic growth targets given the disruption that usually accompanies an election and the possibility of a new regime changing existing policies and programmes, economists and analysts said.

"The election will result in a slowdown in economic growth," said Dushyanth Wijayasingha of Asia Securities. "It would hurt revenue collection and increase expenditure. Interest rates have picked up. This means servicing of the public debt would be that much more expensive."

The impact on the corporate sector would also be severe with investments being put on hold pending the outcome of the election. "That will affect growth in the next couple of years."

The stock market plunged as trading opened on Monday and continued to fall the next day with brokers saying it might penetrate the psychological 1,000-point barrier on the All Share Price Index. But it bottomed out mid-week and managed to regain about half of its losses by week's end.

Aid agency officials said the political instability is likely to delay aid because of delays in government decision-making and the time taken for a new government to settle down and decide on their economic policies.

World Bank country director Peter Harrold said World Bank support for poverty reduction would be delayed because the IMF has put off disbursing funds for the poverty reduction programme owing to the current instability.

"Now we'll have to wait for the outcome of the election to see who the new government is and what it wants to do - what their economic policy is going to be." About $176 million in World Bank aid would be held up.

The Joint Business Forum (J-Biz) expressed dissatisfaction over another election saying it would disrupt corporate and economic activity and set back the economy but their views were not shared by small businessmen who welcomed the chance to get rid of what they said was a corrupt regime. J-Biz chairman Mahendra Amarasuriya said the organization had not yet discussed making a call to the private sector to stop funding political parties but was likely to take it up at another meeting on Wednesday.

"We want to also indicate to political parties that we would like them to give their policies in regard to important issues like the ceasefire, the peace process, whether they want an open or closed economy and education," he said.

"At the same time we will discuss the issue of funding. There have been various proposals that we should issue a statement that the private sector must not fund political parties. It will be discussed on Wednesday."

Amarasuriya said business leaders had also been invited to meet the senior leadership of the PA-JVP alliance on Tuesday to discuss their policies. Nihal Abeysekera, President of the Federation of Chambers of Commerce and Industries of Sri Lanka, said the poll was likely to disrupt work. "Workers who go back to their villages to vote on April 2 might not be able to get back to work till after the traditional New Year, especially if transport is disrupted by violence.

"The month of March is one of heaviest selling months in our calendar in view of the Sinhala and Tamil new year in mid-April. Now with elections people will be hesitant to stock up - it means the economy will slow down."

Foreign aid and investment were likely to be casualties of the poll. "The country depends on foreign aid and investment. If we don't get it, we to need to borrow internally. That will fuel inflation."

Sarath Uyanhewa, vice president, Small and Medium scale Industrialists Foundation, Colombo District, said he does not agree with the view propagated by big business that the poll will disrupt the economy.

"Nor are we worried that it would affect foreign aid and investment," he said. "We must not always depend on foreign aid and loans. Ours is a fertile country with many resources. We need to support and develop local agriculture and industry."

He said in many countries small and medium scale industries account for the bulk of employment and that many small and medium businessmen support the JVP because of their declared commitment to uplifting local farmers and industrialists. Officials said that under the Fiscal Management (Responsibility) Act, a pre-election Budgetary Position report must be submitted by the finance ministry within three weeks of the announcement of a general election to announce the current fiscal position of the government to the public to avoid election handouts.

The Act however says that the finance minister must make an announcement within one week of an announcement of an election that he has disclosed all the known information required for the preparation of the pre-election budgetary report.

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