Financial Times

Need for accelerated growth, investment, peace
Tough road ahead for Mahinda
Sri Lanka’s business community and economists gave a guarded welcome to Prime Minister Mahinda Rajapakse’s victory at Thursday’s presidential election, saying while he should be given a chance to implement his policies, he must also be flexible and work over time to convince big business and foreign investors of his commitment to a free market economy.

Economists said his biggest challenge in the long term would be delicately balancing the economy with a host of subsidy offers, and triggering economic growth at the same time.

Deva Rodrigo, chairman of the Ceylon Chamber of Commerce, said it was up to the business sector to “reach out” to the new president and convince him about the needs of a vibrant market economy. “No elected leader would want to do anything bad for the country,” said Rodrigo, speaking in his personal capacity by telephone from Dubai before the chamber issued a formal statement on the election result. “So it is up to all others to reach out to the new president and convince him (of their requirements).”

He said he was “not unduly perturbed” by Rajapakse’s alliance with the JVP and JHU or lack of a clear position on a solution to the ethnic problem.

On the economic front, Rodrigo said: “He (Rajapakse) will have to do more than the UNP to win the confidence of investors, local and foreign. He will have to demonstrate that there will be no uncontrolled spending, contain the budget deficit and inflation and ensure that therefore the exchange rate does not depreciate too rapidly, and also foreign reserves,” said Rodrigo. He also made the point that Rajapakse, having won the presidential poll and being more popular than Wickremesinghe, could find it easier to ‘sell’ any solution to the ethnic problem to people in the south. “The average person might buy it (a solution) better than Ranil,” Rodrigo said.

He also said he was optimistic about prospects for peace, as Rajapakse, during a meeting with a Ceylon Chamber of Commerce delegation about a month ago in the run-up to the poll, had maintained he does not want to be “tied down in definitions, that he is for peace, and does not want to wage war.”

Rodrigo also said he had no fears that market reforms would be reversed or delayed, saying that although Rajapakse talked of a mixed economy, such a concept had many definitions. “This is where the private sector should engage the new president and push for free market reforms.”

Chandra Jayaratne, a former Ceylon Chamber president, said that now that the people have elected Mr Rajapakse, he hoped the business community would work with the new president.

Economist Dr Saman Kelegama, Executive Director of the Institute of Policy Studies, said one of the positives is that there is no need for fresh parliamentary polls.

“The new president can continue with the same majority in parliament and thus there would at least be stability in parliamentary politics – instead of another election.”

He expected Mr Rajapakse to continue with the same Rata Perata policies of the past 18 months in which the stockmarket also boomed while also talking to treasury officials to see how he could spread the promised relief measures over the next six years.

Dr Sirimal Abeyratne, senior economics lecturer at the University of Colombo, said the new president faced many challenges and complex issues. While his immediate priority is to see rapid economy growth, providing for the promised subsidies in addition to the budget proposals could cause huge imbalances in the budget.

He said the first quarter of 2006 was a critical period where the new president would have to launch accelerated growth policies.

Kingsley Bernard, chairman of J-Biz, said Rajapakse would have to deal urgently with the energy crisis and ensure more power plants are built without further delay.

“We congratulate the Prime Minister for being elected as the new President. We look forward to his implementation of the economic and development plan which he has already spelt out,” Bernard said.

FCCISL President Nawaz Rajabdeen said Rajapakse’s victory should help ensure a level playing field for small and medium industries.

“Although we need MNCs, we must not forget our entrepreneurs and rural development,” he said. “It is very clear all the MNCs and big business interests voted for the opposition candidate and that it is the rural sector and SMEs that contributed to Rajapakse’s victory. This shows very clearly he is going to be a true people friendly leader – that’s our requirement.”

Rajabdeen said that although both main political parties had paid lip service to rural development, they have had different agendas once coming to power – agendas influenced by Western ideas. “In a small country like ours, unless you develop the villages, you cannot develop the country.”

Asked about fears that the leftist policies of the new president and his allies could deter investment, Rajabdeen replied: “There were more investors during President Chandrika Kumaratunga’s and the JVP times than during the UNP times. Most of the Indian MNCs came to invest here during their period.”
He said the JVP had made clear that they want to develop local entrepreneurs before asking foreign investors to come here.

“The JVP has identified the weakest sectors of the economy as agriculture, animal husbandry and fisheries. If we develop these three sectors successfully we can create more SMEs and more entrepreneurs.”

He said he was confident Rajapakse would heed private sector concerns about market reforms, particularly those relating to labour laws. “I am sure they will not bring employers down and ruin the economy. There must be give and take. Both the employer and employee must create a friendly atmosphere for development.”

Rajabdeen also dismissed fears about the peace process being affected, saying: “The LTTE is yet to see the proposals of the new government. They might put forward better or more favourable terms and conditions for peace.”
He was also critical about the way the peace process was being handled.
“What is the use of having a ceasefire and a peace process when we are losing two or three people every day, including our foreign minister, owing to LTTE violence? This is not a real peace process. Under the guise of peace, important people are being eliminated. So we should have a more acceptable solution.

“Peace must be negotiated with all parties concerned, from a position of strength and not weakness.” Sarath Uyanhewa, vice president of the Small and Medium scale Industrialists Association-Colombo district, said Rajapakse’s victory demonstrated the people’s desire and dedication to build a national economy.

“The people believe that instead of always living on borrowed money, we must build our own economy,” he said. “We as small and medium enterprises expect to build a national economy and develop the country.

“We must build our own industries through our own efforts as far as possible, instead of depending on others to come here and do so. We hope that now the SME sector would have a better future. The SMEs have a very important role to play in generating employment. The incentives in the recent budget should help revive the SME sector.”

Uyanhewa said that to deal with the ethnic problem, the southern parties must now come together with a common agenda. “This is a good opportunity for the southern parties to come together and solve the ethnic problem and at the same time build the economy.

The north and east has good potential for industry and agriculture and it is time to re-integrate the north-east economy into the rest of the island.”

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