Sober second thoughts on economic policies
Now that a new President has been elected it is vital that the unrealistic promises at the elections be looked at from a realistic perspective and the long term interests of the economy be paramount in the selection of the promises that are to be implemented rather than be committed to bad economic policies that were popular at election time. This would certainly violate the principle of political accountability, but be in the interests of the country.

The economic policies of Mahinda Rajapakse in the manifesto and at election meetings promised so many different bonanzas that are beyond the capacity of the government's finances to implement. A team of economists of the University of Colombo characterised the Rajapakse policies as a hotchpotch of ideas that lacked funds to implement.
Many of the policies advocated by him had a mix that was contradictory and inconsistent. Therefore there are uncertainties about the likely economic policies of the President-elect Mahinda Rajapakse.

The reasons for this uncertainty are many. It is impossible to implement all of these due to their costs. They contradict each other and are inconsistent with agreed global policies and existing international agreements. There were for instance overtones of a controlled socialist economy with the undertones of continuing capitalist and market-oriented policies. A plethora of promises that cannot be financed without harming the macroeconomic stability of the country threatens the country's growth strategies. The business community and entrepreneurs are apprehensive about the thrust of economic policies as they would adversely affect economic fundamentals and fear that these would discourage investment.

This is why the Colombo Stock exchange plunged on the day of the election results as it became clear that Mahinda Rajapakse would win the race.

There is a need for the new President to think over the policies during the month of the interregnum that has commenced. However, the new President faces a fundamental difficulty. The electorate expects the promises that have been made to be kept. Deviating from them would court unpopularity. It would be good politics to adhere to them but bad economics. Failing to implement the ambitious welfare package would infuriate the coalition partners, who would insist on implementing them. The other contestants have already said that they would hold the President responsible for implementing the promises made by them.

The promised widespread subsidies are injurious to the health of the economy and economic growth in the long run. Their implementation would adhere to the principle of political accountability but their implementation would result in inflationary pressures that would bring hardships and discontent. This fact is generally not understood or appreciated. This then is a catch 22 predicament that the new President would be faced with. It would be judicious for the President elect to study the situation and discuss the implications of his policies with his coalition partners and make significant modifications in them. The entire post independence economic history of the country is strewn with examples of various ways by which governments have overcome the implementation of promises made.

There is no doubt that there is a trade off between short-term political gains and long-term gains. The new President must keep in mind that long-term improvements are vital for his re-election for a second term, as well as the solution to the country's economic woes and social problems. The vital lesson that the President must realise is that poor people gain more from improvements in social and economic infrastructure than dole-outs that are unsustainable and impair a poor person’s capacity to be self reliant. Poverty in Sri Lanka is largely a rural phenomenon that cannot be significantly ameliorated by hand outs. In fact handouts like the Janasaviya and Samurdhi payments have often gone to the undeserving, while they do not reach many of those who are really needy. Such doles are also costly and unsustainable. Improving rural infrastructure and increasing agricultural production would increase food availability to about one-half of the Sri Lankan population. Farm households would have more income, especially the subsistence farm households.

Urban households too would benefit because of the likelihood of lower food prices. A strategy to enhance agricultural production is an equity approach to economic development and addresses the problems of poverty more directly and effectively than through subsidies. Industrial development strategies no doubt contribute to economic growth but their contribution at rural household level could be more limited and certainly more indirect in Sri Lankan conditions. Agricultural and Rural Development are the means by which poverty and human degradation could be reduced. Social and human development cannot be achieved if development priorities do not focus on the rural areas and both farm and non-farm households in them. While overall economic growth and diversification are important factors in reducing poverty and ensuring national food security, agricultural development has a vital role to play in reducing poverty and ensuring food availability at household level.

The improvement of agricultural productivity through technological change is an essential strategy in achieving food security, higher incomes and in redeeming people from poverty. Mere subsidies cannot achieve these objectives as experiences in many developing countries have proved. Therefore the President should consider such a strategy than implementing his subsidy programmes that would be a burden on poor people.
Now that the election is over and Mahinda Rajapakse is assured of a six-year term of office, he should think in terms of the long-run interests of the people, rather than court temporary popularity that would wane rapidly.

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