ISSN: 1391 - 0531
Sunday, December 24, 2006
Vol. 41 - No 30
Columns - The Sunday Times Economic Analysis

It’s a blue, blue Christmas without peace

By the Economist

Christmas Eve is a day of happy events and of glad tidings of great joy. It is a time to reflect on the Prince of Peace. However on this Christmas Eve it is in fact difficult to summon up tidings of gladness. Peace is remote and the economy is on the verge of a serious crisis. The saddest development is the war situation as a result of which thousands of our people are homeless. No inn to lay their heads. Prospects of returning to their own homes and enjoying some peace are still remote. The prospect of the number of refugees rising is a horrendous thought.

In this national situation of gloom the other half of our people are planning expensive and extravagant Christmas celebrations. The truth of the JVP slogan Colombata kiri; Gamata kakiri gets a new meaning and relevance: Christmas for Colombo; Starvation for the war affected and the Poor. The message of Christmas has not been heeded for the last two thousand years. It is not being heeded this Christmas either.

In as far as the economy is concerned the worst news is the war. The consequences of the war are pervasive in both economic and human terms. In as far as the economy is concerned no other shock has had such a long-term impact on the economy as the war. The impact of the conflict in 2006 is yet to be seen.

Cribs for Jesus but tens of thousands of Sri Lankans have been rendered homeless by the ongoing war

Last Friday a distinguished audience of economists, businessmen and academics were reminded of the costs and consequences of the war when the book Development Under Stress by Dr. Saman Kelegama was launched at the OPA auditorium.

In his book Dr Kelegama dwells on the theme of several constraints that have prevented the country’s progress. Among them is the war that has ravaged the country for two decades. He contends that a “concerted effort was not made to address the ethnic animosity between the two major communities that erupted time and again…and culminated as a civil war in North/East Sri Lanka during 1983-2001.” And adds: “This conflict substantially disturbed the economic management process.”

What he has observed of the past two decades is in fact the current situation as well. We do not appear to have learnt the lessons of our recent history. The economic costs and consequences of the war are aptly summarised in the book. He points out that the war resulted in serious consequences to the economy and the government had to grapple with serious macroeconomic instabilities. Kelegama argues that, “The 17 year war was costly and deterred foreign and local investment, reduced tourist arrivals, caused immense damage to the country’s infrastructure, and above all led to many deaths and brain drain of skilled labour.”

Dr Kelegama explains the economic consequences of the war in these economic terms: “The costly war, among others, led to large budget deficits (exceeding 8 per cent of GDP) during the 1990s. Large scale domestic and foreign borrowing to finance the budget deficit accumulated as large public debt over the years, so much so that by the year 2000, public debt to GDP ratio had exceeded 100 per cent. In 2001, the country faced an economic crisis consequent to the war escalating and international oil price hike in the year 2000.”

An interesting exercise in the book is the attempt to capture both direct and indirect economic costs of the war. He suggests that the war may have cost at least the equivalent of twice Sri Lanka’s 1996 GDP.” This ordinal measure should be remembered by all who quite flippantly speak of war as the only option to peace.

The current situation is one in which we are heading for these macroeconomic imbalances. The current high budget deficit, inflation, the impending huge trade deficit, the dislocation of sectors of the economy such as tourism, foreign investment, fishing and agriculture in the East, the huge trade deficit, the impending balance of payments crisis and the depreciation of the currency can be largely traced to the war expenditure and its consequences.

These are only the economic costs and consequences. The human and social costs are immense and incalculable. The social costs have increased sharply in recent months during this Christmas period. A record number of refugees are homeless in the East of the country; people are starving in both the North and East and living a life more desperate than probably at any other time in the recent past.

There are also alarming threats to the economy in that the record of human rights are leading to the suspension of aid and an imminent possibility that the trend begun by some countries may be adopted by others. The mismanagement of the economy, as evident in the bludgeoning fiscal deficit and the inflationary trends, are resulting in the withholding of concessionary aid by multilateral agencies with a consequent resort to higher-cost commercial borrowing. The foreign debt is rising as a result.

The domestic debt too is increasing with the increasing government expenditure. This is in an international economic environment where oil prices are likely to commence a further upward movement after the short respite of the last couple of months.

Further depreciation of the currency is inevitable. This would feed the inflationary trends further and heap burdens on the population that is hard pressed to meet their basic needs of food.

Economic considerations alone demand a quick end to the war and a control of the escalating war expenditure.

A prerequisite to this would be an acceptable solution to the ethnic problem. It is only after the government proposes a just solution acceptable to the minority communities and seen as reasonable by the international community that peace is possible. Peace that is so essential for the development of the economy and the resolution of the country’s acute problem of poverty. Let us hope that peace that has eluded us this Christmas will be realised by the time of the next celebration of the birth of the Prince of Peace.

 
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