Financial Times

Restore investor confidence
Fortunately, the run-up to Friday's general election did not see the kind of irresponsible government spending that have come to characterise previous polls, as ruling parties have tried to bribe voters, that could have derailed the fledgling recovery in the economy. Although some subsidies had been announced in the run-up to the poll these were justified as being required to help victims of the drought and to cushion consumers from the effects of rising world market prices for essential commodities such as sugar.

Most of the indicators point to a resurgent economy with inflation continuing to fall, interest rates having come down and overall economic growth still expected to be high, although the budget has come under pressure with the deficit larger than planned.

However, the conventional indicators by themselves don't tell the whole story. The country still suffers from high levels of poverty and unemployment as well as malnutrition, is still largely a trading economy with not much industrialisation and is getting only a trickle of the foreign investment it could get.

One of the priorities of the winner in Friday's poll would be to re-establish investor confidence. This would include the confidence of multilateral donor agencies and foreign governments as well. The new government would need to reassure the business community of its commitment to a liberal economy and continuing reforms.

The private sector has voiced doubts about the commitment of both the main parties to good governance, improving efficiency and to tackling corruption. Some investors had already signalled their feelings by putting on hold planned investments, although others have gone ahead with theirs.

In the case of the People's Alliance-JVP combine, the corporate world continues to have reservations about its commitment to a free market economy. Hopefully, the rhetoric that has caused alarm in the business world would give way to realism if the alliance does win the poll.

Stock brokers have said that there does not seem to be much difference between the economic polices that have been announced by both the main parties despite the rhetoric and disinformation. The stock market is expected to soar if the UNP wins.

Brokers have said that there might be a temporary downturn if the PA-JVP is victorious but that the market would gradually pick up again once investors realise that the general thrust of its economy policy is not much different from that of the UNP's - provided there are no other hiccups that could affect economic growth, such as a resumption of the war.

Establishing a permanent peace by speedily resuming talks with the Tigers would thus be the first priority of the new government. Whatever its economic policies might be, everything depends on a durable peace. The International Monetary Fund has warned that a lengthy stalemate in the peace process could delay further foreign aid and investment. The polls had delayed the release of the second tranche of $80 million under the $567 million Poverty Reduction and Growth Facility and Extended Fund Facility.

The incoming government would also have some crucial economic questions to deal with. Chief among these would be the reforms that are already underway. Foreign donors have made clear that future aid and investment would depend on continuing the reforms - mainly deregulation and privatisation - in addition to progress in the peace process.

The private sector and the donor agencies are still not entirely happy with the labour market reforms and are pressing for further liberalisation. Donor agencies are also putting pressure on the government to control spending and resist demands for further wage hikes. Now that the polls are out of the way, the new government would be better positioned to deal with such issues.

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