Financial Times

Presidential poll: Subsidies, handouts but where’s the money?
Hotchpotch policies, unclear on funding
By Feizal Samath
Economic policies of the two main candidates – Prime Minister Mahinda Rajapakse and Opposition Leader Ranil Wickremesinghe - are a hotchpotch of ideas with an unclear forward path that could trigger a dependency syndrome, according to a group of economists from the Colombo University.

“While deviating from economic fundamentals we are going back to a dependency era,” noted Dr. Rev. W. Wimalaratana, adding, “We are cultivating a psychology of dependency. It is not good for the country; not good for development; and it is not for the state to provide everything.”

As concern grew over promised subsidies and handouts and its impact on the economy, The Sunday Times FT in a unique exercise assembled a group of lecturers from the university’s economics department led by its head Prof Nimal Attanayake, and posed questions on these offers by both candidates in their manifestos and its viability. The team which also included economists Dr. Sirimal Abeyratne, Dr. M. Ganeshamoorthy and Ms Shashi Weerawansa, also concluded that the two main candidates' policies and direction were unclear in its policy and path; that manifestos are only ceremonial affairs; that both manifestos if implemented could send the budget deficit out of control and subsidies like these cannot be sustained.

Relief measures in Mahinda’s manifesto are mainly nutritional food for expectant mothers; monthly allowance of Rs 200 to purchase milk food for infants; 2.4 million jobs; increased salaries and cost of living allowances for public officers; duty free vehicles; increased duty free allowance and pensions for migrant workers; discounts on water and power use; kerosene subsidy; mid day meal; fertilizer subsidy; increased Samurthi; increased payments for child birth.

Ranil’s manifesto offers subsidised milk powder; dhal and sprats; increased food stamps; one million jobs; guaranteed price for paddy; fertiliser subsidy; waiving agriculture loans; guaranteed farmgate price for milk; tea estate subsidy and waiving of housing loans given to certain categories.

Some key areas that worried the economists were creating a population that would depend on subsidies and handouts and no clear indication as to how these populist programmes would be funded. “Irreversible Dependency Syndrome,” was how Dr Abeyratne tagged the subsidies. He noted that when the manifestos were prepared, no thought was given as to where the money would come from to meet this expense.

Asked whether the country’s scarce resources were being auctioned, he said the two manifestos had a ‘giving’ mentality. “That is giving handouts, subsidy schemes, and welfare systems. Growth strategies on how the economy would grow are absent,” he said, adding however that the “Mahinda Chintana” had far more subsidies than the opposition leader’s manifesto.He said the offer of 2.4 million jobs in six years was also unrealistic, adding that if this was the case the unemployment problem would be solved in two years. Prof. Nimal Attanayake said Sri Lanka would then have to import labour since it would be a full employment scenario.

Rev Dr Wimalaratana was however of the view that employment creation in Ranil’s manifesto was in line with the creation of five economic zones. “If that works then this growth could create jobs,” he said. Ms Shashi Weerawansa said the 8-10 percent growth forecasts were unrealistic since only two countries - China and Korea have achieved 10 percent growth.

Dr M Ganeshamoorthy said high growth was impossible without permanent peace and economic activity also in the north and the east. The team agreed that 7 percent growth was a more realistic figure while higher growth was possible only if the economic and political climate changed for the better.
The economists said the UNP’s offer of relief measures for the first time in recent years was an inevitable reality if they wanted to win. “At the last election, the UNP addressed the urban sector, overlooked the rural sector and lost. This time they feel they have to give something – that’s the political reality,” said one member of the team.

Prof Attanayake said the manifestos were absent on the capacity to handle these promised programmes agreeing that it was a hotchpotch of ideas without any clear direction.

There were bouquets however for the two leaders. The Opposition leader’s proposal to create a national health insurance scheme was commended in spite of that being a difficult task while the Prime Minister’s plan to offer English medium nursing courses was a step in the right direction as there is big demand for nurses overseas.

Rev Dr Wimalaratana also raised an interesting point -- that amidst these subsidy offers, the manifestos also spoke of macro economic management planning. “It’s not clear how this could be done,” he noted. Asked whether the budget deficit would go haywire if all these promises were kept, he said, “It’s difficult to provide numbers but it would go beyond management.”

The economists however believed these were short term measures that couldn’t be sustained. “It has happened in the past … it will happen again,” noted Dr Ganeshamoorthy. The team said there was no long term vision in the policies and no costing done on its implementation. “Another problem is that on TV (during the political talk-shows) everybody becomes an economist,” quipped one economist.

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