Open
or closed is not the question
Among the muddled themes on election platforms and press briefings
is the confusion regarding what the coalition's position is about
open economic policies. Although these meetings and press conferences
are expected to clarify each candidate's economic and other policy
stances, they end up confusing the electorate. This confusion is
an inevitable result of the incompatible policies of the SLFP-JVP-JHU
coalition.
They
proclaim that they are not opposed to open economic policies, but
not the open economic policies of the past UNP and UNF governments.
The question is not one of whether the policies are open economic
policies or not, as there is no possibility of returning to a closed
economy. The issue is the extent of liberalisation of trade and
investment that they espouse and the internal consistencies of these
problems.
What
are these open or not so open economic policies? Open economic policies
appear to mean different things to different people. In fact open
economic policies appear to be a euphemism for any kind of economic
policies with undefined restrictions. In fact open economic policies
mean a liberal trade regime. It incorporates a minimum use of trade
restrictions.
It
also implies a low tariff regime and the jettisoning of non-tariff
barriers to trade. This system of liberalised trade has been subscribed
to by both SLFP and UNP led governments. The SLFP led government
between 1994 and 2000 and the 2002-2004 government followed these
policies with a few changes of no serious consequences to the broad
framework of Open Economic Policies. Besides this, throughout this
period the President subscribed to these policies and pursued them
with vigour. The free trade agreements with India and Pakistan are
instances of such a commitment.
Does
the new coalition supporting Mahinda Rajapakse have a different
trade regime in view? If the answer is in the affirmative, Mr. Rajapakse
should make it clear what the changes are. Alternately he should
make it clear that there are no substantial changes and that the
coalition partners are agreeable to the continuation of liberalised
trade policies.
It
is mandatory to specify what controls the coalition intends to place
beyond what are there already. It is also important to keep to the
specified policies if returned to power. Both these are unlikely
propositions.
The rationale for open economic policies is very clear. A small
country with very little raw materials, inadequate capital and technology
and a very small domestic market, cannot produce quality industrial
products at competitive prices.
The
rhetoric that Sri Lanka is blessed with natural resources is plain
falsehood. We do not have petroleum, iron, coal or chemicals. In
fact we do not even have adequate land and water resources with
a population density of about 315 persons per square kilometre.
If our economic policies are based on fanciful ideas of non-existent
bountiful natural resources, we are heading for an economic disaster.
We have a very limited domestic market, as the purchasing power
of the 19.7 million for many goods is extremely limited.
The
attempt at widespread import substitution in the 1970s failed owing
to the non-recognition of these facts. Today even big countries
like China and India with a good endowment of some of the basic
resources and a large domestic market have also adopted open economic
policies as they realise the benefits of trade.
In
Sri Lanka's case, there is no option but to pursue a liberalised
trade regime and be competitive in international markets. It is
this need for greater efficiency and enhanced productivity that
requires to be stressed, not the extent of openness.
The
danger lies in the attractiveness of the political rhetoric that
we must produce everything; that we must not waste money to import
unnecessary things; that we must be self-sufficient in food; if
translated into policies can only lead to slow economic growth and
serious balance of payments problems. A liberalised trade regime
is an essential regime for a small country in the present global
context.
Some
of the coalition partners are ideological in their economic policies
and chose to largely ignore the changes within the Sri Lankan economy
and in the global economic context. If however the rhetoric we are
hearing is only the stuff of electoral politics to gain votes and
the policies they would implement, if returned to power, would be
vastly different, then there is still hope irrespective of whoever
may be elected President. If however due to their beliefs or ignorance
they think that a regime of trade controls in which the country
can produce all it needs is the panacea, then we are in for a retrogressive
period.
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