Business Times

Economic poser to Rajapaksa & Fonseka

President Mahinda Rajapaksa wants to reduce poverty to the lowest level in the country while his main challenger at next month's presidential poll, Gen. Sarath Fonseka sees corruption as one of the main issues and wants to completely remove it from the system.

These views came out in an exclusive email discussion on business and economic issues in the Business Times. In an email response to a set of questions on business and the economy posed to the two main candidates - President Rajapaksa said that he has the best economic management team while the next six years will be a period where Sri Lanka will build for the new century.

"… I can confidently say that not a single job will be lost, even if the GSP+ is withdrawn. We have the strength and we will deal with the fall-out. So, our workers need not worry," he told the Business Times, adding that he planned to ensure 100% electricity coverage in the country by 2016.

Gen. Fonseka noted that the end of the war provided a golden opportunity for the government to release resources for development. "But unfortunately these resources are now being amassed by a clan and a few sycophants hovering around the clan, leaving the masses to boil in the pan. The endemic corruption is continuing unabated," he told the Business Times.

Five questions were posed to both candidates last week. They are: 1) If elected/re-elected what would be your priority for the economy?: (2) Businesses in Sri Lanka complain that it's too expensive to run a business. Any comment?: (3) Business also complains that they are overburdened with taxes?: (4) Sri Lanka's three main export and foreign exchange earning sectors are garments, migrant workers and tea.

The majority of workers in these three sectors are dominated by women but they are not given their due place in society? Will you change that and if so, how would this be done?; and (5) Are there five points on which you think your opponent will fail on business and economic issues?

Here are their responses which are unedited:

Rajapaksa vows to bring down poverty
ON priorities:

I would be keen to get the economy back to the 6% plus growth by next year. When we do that, we would be able to bring down poverty substantially, generate more employment for our youth and improve the living standards of our people further. We will also be able to achieve the millennium development goals well ahead of the target period.

In the first 3 years of my Presidency, I was able to achieve an over 6.5% average growth, which is the highest ever growth over a sustained period in our history. This year, in the midst of the intense global downturn, we will record about 3.5%growth. During the past 4 years, I was also able to bring down poverty and unemployment to historic lowest ever levels. In the context of many countries recording negative growth and massive unemployment, this is certainly a very commendable achievement. I could therefore, safely say that we will be well poised to achieve 6 to 8% growth in the next few years which will result in further reduction in unemployment and even faster reduction of poverty in this country.
The fact that now our interest rates are substantially low, inflation is moderate, exchange rate is stable, external reserves are high and the infrastructure is showing significant improvement, we would be well poised to sustain this growth model in the future.

We would take bold and strong decisions like what we have done in the past in relation to power and energy, economy and security to position Sri Lanka as an important regional player. We will also develop youth skills, English education and training of our workforce.
I would also concentrate on regional development with a clear focus of improving our per capita income to the level of about US$ 4,000 within the next 6 years. It took Sri Lanka 55 years, 1948 to 2003, to reach a per capita income level of around $dollars 1,000. But during the succeeding 5 years, 2004 to 2008, we were able to increase it beyond $ 2,000. That is surely an amazing achievement.
The fact that this doubling of per capita incomes was achieved, while we were liberating the country from an inhuman terrorist group, makes it even more extraordinary.
The next 6 years will be a period where our nation will build for the new century. The new wave of development strategies that we will implement will develop the country on all fronts.
We will take measures to bring poverty levels down to below 2%. We will ensure 100% electricity coverage in our country by the year 2016. We will ensure that there will never be any power shortage. Over the past 4 years, we increased the electricity coverage from 75% to 87% of our country.

In my second term as President, we will ensure that every youth who completes his secondary education will be assured of a livelihood. We will develop a scheme that will entitle our youth to specialized education of one’s choice when they turn 18. Such education will be supported by my new Government. By these initiatives, we will ensure that every youth would be trained for a livelihood program or profession, without exception.

We will also make the best use of the opportunities that have opened out due to the liberation of the North and the East. These parts of the country too, could deliver tremendous value to our economy over the next few years.

The re-settlement process of our brothers and sisters who were displaced because of terrorism, is now going on at a fast pace. Our commitment to resettle 80 to 90 % of those displaced by the end of this year is on track, and that will be completed by the end of January 2010.

I will also lay special emphasis on improving our country’s governance structures, so that the administration as well as other sectors would be even more efficient. Over the past 4 years, we made significant improvements in our administrative mechanism, and that is why we were able to implement the biggest ever development programmes in the history of our country. Even so, our next wave of development would require the establishment of better processes and procedures, and I would make it a priority to establish new and tight standards and norms to do so.

ON costs of running a business:
I do admit that there was a time when it was expensive to run a business. Inflation was high, interest rates were high, the uncertainty caused by the conflict resulted in high insurance premiums and demands for high returns because of the risks involved. But today, we have been able to deal with all those issues.

With the massive improvement in infrastructure, the establishment of low interest rates, and the achievement of a stable exchange rate, we have been able to reduce the cost of operating businesses and thereby bring stability in our key macroeconomic variables. These factors have enabled the business sector to take investment decisions more confidently. The manner in which international and local investors have responded in the stock market, government securities market and international sovereign bond markets provides ample evidence about the improved investor confidence in Sri Lanka.

Our companies are also becoming more productive and are now competing on quality in niche markets rather than offering cheap labour or cheap products. By doing so, Sri Lanka is gradually moving up the value chain with greater focus on value addition. Perhaps we would do well to remember that a garment exported from Sri Lanka at a price of around 10 Euros with a value addition in Sri Lanka of about 5 Euros, is reportedly sold in a European retail store at around 50 Euros. That huge gap will indicate the opportunities that exist in the world. Some of our businesses are now positioned to add more value and move up this value chain, and consequently enjoy a larger share of the profit in this industry. Some companies have been able to do this successfully in the tea industry as well. That is a welcome development for Sri Lanka.

We are hoping that with the normalization of our country conditions and the stability shown in our macro-economic fundamentals, Sri Lankan businesses would be able to make use of the new platform, and enter into these new areas that yield higher returns. If they do that, some of the difficulties that individuals face at the low end of the value chain could be overcome and overall gain would be for the country.

ON business being burdened with taxes:

For a long period of time, the direct tax rates in Sri Lanka have been high when compared to certain other countries. However, the overall taxes collected in the country, when considered as a percentage of the GDP, is significantly lower in comparison with other peer countries. Our Government’s intention is to ensure that the overall tax system and administration is improved so that it is simple and equitable. That is not an easy task. But as the Minister of Finance, I am committed to such an outcome, and that is why I appointed a highly professional Tax Commission which has been requested to advise the Government on this subject. The Commission Members include several respected private sector management and tax professionals as well as experienced businessmen. I am, therefore, certain that the recommendations that would be made by this body would help us to formulate a system where business would not be overburdened, while at the same time we are assured of the funds needed for the development activities that are contemplated by the Government.
Everyone other than the highly politicized economists and tax commentators would concede that Sri Lanka’s public expenditure over the past 4 years that was financed by taxes, has resulted in the distinct improvement of life styles of our people. There has been value for money. The improvements and additions to our road networks, new port development, water supply projects, electricity generation and distribution projects are visible in every part of the country.

We are at present building 3 major power plants in Norochcholai, Kerawalapitiya and Upper Kothmale. Kerawalapitiya is already supplying power to the national grid. We are undertaking massive port constructions in Hambantota, South Colombo, Galle, KKS and Oluvil. We are building a new international airport in Mattala. Flyovers, Highways and Roads are being constructed everywhere. New water supply schemes, tank restoration works and fisheries harbours are being built in all parts of the country.

Everyone knows that we have encouraged all levels of businesses, as well as touched the lives of every village resident. No other Government since independence was able to achieve this level of extraordinary development in a wide area of operations. I think our achievements have been well appreciated by everyone in our country and that is why my party and its alliance has been able to secure over 65% of the popular vote in many of provincial council elections that were held over the past year or so.

ON garment, tea and migrant workers contribution:
I have been a person who has been a strong supporter of giving women their due place in society. My political history and stance clearly shows that, over the past 40 years, I have been a consistent advocate to provide women the opportunity to work with dignity, live as equal citizens, and contribute their ideas and expertise for the betterment of society.

From the time I took responsibility as the Trustee of this Nation, my actions have shown that I have supported this cause with great vigor. I have initiated programs where our embassies abroad take a positive attitude to the migrant women workers’ requests and resolve their grievances as quickly as possible.

I have also actively supported the tea and the garment industries with many initiatives, because I am fully aware that women workers are the backbone in these sectors.

Programmes have commenced where women who seek employment abroad are trained in a professional manner and these programmes will be supported even further. By doing that, we would ensure that the migrant women workers are able to obtain higher salaries and better working conditions. That would also probably reduce the period they have to work outside the country, suffering great hardships.

In the case of the tea industry, we have introduced programmes to improve work conditions and maternal health of women in the estate sector. Many programmes have been implemented to improve the social conditions of women with higher wages and better training as well. These initiatives would be continued with even greater vigor in my next term.

As far as the apparel industry is concerned, I think our women have now acquired a high level of skills, which would now position the industry to negotiate prices that would take into account the higher wages in time to come. The overall productivity level improvements that have been achieved are also bound to improve, and that factor too, should yield better results for our women workforce in the future.

ON five points your main opponent will fail:
There are 21 other candidates, and as you know, the candidates who are fielded by various political parties have marginal representation in Parliament, and they enjoy very small vote bases. However, since I do not want you to think that I have neglected to answer your question, let me provide you with five points where you can see why I will succeed in business and economic issues, much more than the 21 other candidates.

First, I have been able to lead our economic management team, by giving them a clear direction and vision at the most difficult period in our economic history. If a journalist asks me about economic policy, I will not tell him that I will ask someone else and respond! I know clearly which direction our economy should take. Some opponents are sandwiched between the stance of a closed economy and the position of neo-liberal economic policy. Those two do not mix. Just imagine what kind of a pickle the final outcome would be if one were to be guided by diametrically opposite and conflicting economic principles. The only saving grace is that the entire country knows very well that there is no chance for anyone of the other 21 candidates to be elected.

Second, I am the only candidate who can provide confidence to the business community. We have a clear economic vision and we have delivered. I have seen what some other candidates have offered. Some people backing a particular newcomer to politics say that they want government-owned businesses to be sold, lock, stock and barrel. Some others who back the same candidate want the state institutions retained. One part says to cut the public sector employees number to half, while the other part wants to double it! One part says to stop the fertilizer subsidy and call our farmers “amude jokers”, while the other part wants to give fertilizer free. There is so much of confusion, it is unbelievable. The business people are naturally scared about this type of candidates and this why this time round, the majority of the business persons are gathering round me.

Third, I am the only candidate who has a clear idea about what development is needed in this country. When the “Mahinda Chinthana” was developed, I had consultations with more than 400,000 people from all walks of life. Businessmen, teachers, farmers, judges, economists, shop-keepers, security guards, nurses, doctors, sportsmen, armed forces, students, artists, trade unionists, etc. etc. In that way, I was able to develop policies that took into consideration, the aspirations and views of people from all walks of life. I have also kept in close touch with these and other groups, even during the past 4 years when I served as President.

Candidates who have been able to gather a little support from just a few parties, all of whom have been discredited in the eyes of the people, and who are driven by blind hatred, do not have any idea as to what the grass roots level wants. So, the policies that others say they will implement will not have any universal acceptance or design, and therefore, from day one, those policies and plans are doomed to failure.

Fourth, I have extensive experience in governing. We all know, it is not merely by giving orders that you manage an economy. It is not direct orders that succeed in the economic field. It is how you fashion policy with signals and indications, as well as through direct and indirect interventions. Without experience, one will not know what works in the field of economics, business and commerce and international trading frameworks and that is what is lacking in many of my opponents. I also know to how to deal with trade unions and ensure industrial harmony. My industrial harmony record is the best in our country’s history. People still talk of the July’80 strike. So, from that angle too, it would be a disaster for our country if a tyrannical or inexperienced leader, or both, ever assumes responsibility for economic and business management of our country.

Fifth, I possess a team which has been handpicked for the economy for their ability. They have proved themselves and delivered results in the most difficult times. Can any other candidate say who will be responsible for his economic policy? Who will be responsible for its implementation? Who will handle foreign direct investments? Who will handle infrastructure development? Put another way, has there been a single cohesive economic plan prescribed by any other candidate, other than some wild promises and blind appeasement just to win support by hoodwinking people? What are their economic visions and goals? What is their policy thrust?

Can you possibly entrust a country’s economy which has been nurtured into good health through tremendously difficult global uncertainties, to an unknown, unproven, inexperienced person? Can a country take such a huge risk? Can our people be subject to such uncertainty?

Our people are smart. They will see these weaknesses. They will realize these dangers, and rightfully conclude that any other candidate other than me, will fail our country and economy. The people will not take that risk. That is why I am confident that no other candidate will have any chance of posing any challenge to me in these presidential stakes.

ANY other comments:
The only campaign slogan that the Opposition has, is to make baseless and malicious allegations against my family members and me, by continuously chanting that we are corrupt, corrupt and corrupt. They also implore to the gods that our family, my wife and my 3 sons are destroyed. This is the slogan that speakers on their platforms have been asked to repeat, so as to sling mud at me and my family. This is cheap and vicious politics. The people of our country know us better. We have been in public life and have been with them for over 40 years. Not 40 days! Our people know as to who is actually corrupt and dishonest. They will give the right answer. They won’t be swayed by this hate campaign that is unleashed by this discredited and unpatriotic group, who will stoop to any level, even betray our beloved motherland.

The last 2 years have been very difficult for our economy and country. But yet, when compared to many other countries, Sri Lanka was able to do better than most others.
When other economies collapsed, ours progressed. When businesses in many developed countries closed down, ours survived. When workers in their millions lost jobs in many other nations, our workforce retained their livelihood. When other governments pumped billions of dollars to stabilize their financial systems, we stabilized ours without such efforts. When other countries delayed or defaulted on their re-payments, as a result of high world oil prices, we were able to negotiate long term credit lines and deal with the crisis. When currencies of many countries depreciated sharply, the Sri Lanka rupee held its value. When hundreds of banks failed across the globe, we protected the banks in Sri Lanka. When food riots took place in many societies, we enjoyed food security in our country. We were also able to strongly resist and overcome the sinister efforts of various parties, both national and international, who tried to destabilize our country economically. In this regard, you may recall the attempts of the Opposition parties to block our sovereign bond issue and our IMF Stand-by loan facility. We were able to defeat both such attempts comprehensively.

The latest is the threat of withdrawal of the GSP plus concession, which we see as yet another of those pre-planned destabilizing efforts. In this regard, I wish to firmly assure all local export industries that my Government will safeguard their industries with the measures necessary to support them, in the event of a carefully managed, strategic withdrawal of this GSP+ scheme so as to influence this election. The fact that it is being raised at this sensitive time is not surprising to me. Almost a year ago, I suspected that such an attempt would be made, to coincide with a Presidential or General election. My suspicions have been proved right today. My 40 years of political experience enables me to anticipate these types of tactics. That is why we got ready to deal with this situation fairly and squarely, a long time ago. Now we are ready. Therefore, I can confidently say that not a single job will not be lost, even if the GSP+ is withdrawn. We have the strength and we will deal with the fall-out. So, our workers need not worry!

Fonseka pledges to eliminate corruption
ON priorities:

Stamping out large scale corruption which will immediately increase Sri Lanka's growth rate by 2 percentage points. Therefore my immediate priority will be to eliminate the cancer of corruption in economic management and redirect the resulting savings into urgent people-friendly development via both the public and private sectors. Unshackling market forces in a corrupt free people and investor friendly economy with the right amount of regulation will unleash Sri Lanka's potential and boost economic growth and distribution of wealth leading to a better life for all Sri Lankans; not just for a select few.
Without a doubt the resources required to fight the war kept us from reaching our development potential. Ending the war however provided the golden opportunity for the government to release resources for development. But unfortunately these resources are now being amassed by a clan and a few sycophants hovering around the clan, leaving the masses to boil in the pan. The endemic corruption is continuing unabated.
According to the Sri Lanka Economic Association President Professor A D V de S Indraratna, a respected economist and advisor to the Government, if not for corruption, "Sri Lanka's growth rate would be raised by a further 2 percentage points without any further increase in the present rate of gross investment or productivity." Applying this number to the latest available Central Bank figures, the loss of our country's GDP for 2008 alone, is approximately Rs 300 billion. This is almost twice the current expenditure on defence or 30 times more than current expenditure for the Ministry of Higher Education for that year. Cumulatively, from 2005 to 2009, it has been estimated elsewhere, that corruption has denied the people a total sum of a staggering Rs 810 billion, a loss much bigger than the annual government revenue. Even though we won the LTTE war we are losing the economic war.

President Sarath Fonseka will prosecute the economic war the same way General Sarath Fonseka prosecuted the LTTE war by formulating winning strategies and appointing professionals and not political stooges.

As one of my first duties as President I will take steps to completely and once and for all eliminate the politicization of economic management that opens the doors for the massive corruption, nepotism, wastage and ego-boosting extravagance we see today. I will immediately legislate anti-corruption measures using emergency law. Within days I will reactivate and give teeth to the Commission to Investigate Bribery or Corruption and fast track legal action to severely punish those found guilty of bribery and corruption. Proceeds of corruption will be taken away.

ON costs of running a business:
They are right. Cost of doing business is very high. According to the "Doing Business Survey" Sri Lanka is ranked 105 out of 183 countries; in fact our rank had fallen by 8 places just during this year.

Beyond direct taxes businesses have to make numerous payments just to survive.
Getting a license these days sometimes costs more in commissions than the actual service offered by these licenses. There is hardly any transparency in tenders and projects are highly inflated. Harassment by excise and customs officers is causing immense difficulties for legitimate businesses to operate. Besides all this, they are also called upon by the 'economic hit-men' masquerading as loyal politicians to contribute to their various nefarious causes. All this corruption is adding layers upon layers of costs in running a business.

As President, I will clean up this mess by eliminating corruption and bring to a halt the 'kappam' regime. This will reduce the cost of doing business and let our hardworking business people engage in their work without fear and favour.

At a more macro level, I will work with the new government to ensure inflation is maintained at low levels, interest rates are brought down and exchange rate is stable so that businesses can have greater certainty thus reducing the overall cost of doing business.

On business being burdened with taxes:
Once again, they are right. There are numerous taxes, and taxes on taxes imposed on every business. Customs duty, surcharge, excise duty, VAT, CESS, PAL, NBT, BTT, SRL are only some. It estimates the total implied tax rate of 64% of profits. Honestly, it is amazing how businesses actually survive after paying such high taxes.
The question is why such high taxes need to be imposed and how to reduce these taxes. The answer is clear; the unabated corruption is taking away the legitimate income of the state and therefore more and more taxes are being imposed on businesses to cover up the losses. When I win my war on corruption these taxes will naturally come down.

ON garment, tea and migrant workers contribution:
This is a shame. We use our women for all the hard work but don't pay them enough and subject them to exploitation. Migrant workers, numbering over a million, of which half are women working as domestic aides and the like, bring in over Rs 3 billion a year which we use to stay afloat. The government charges them high fees but treat them shabbily. Tens of thousands of innocent women are stranded in various centres in the Middle East having failed in their attempts to escape from abusive landlords. We just heard that thousands of them are living under a bridge in Saudi Arabia in appalling conditions even without food. Hundreds of women die every year while in harsh employment conditions. Many commit suicide. Then there is the whole issue about their families back home; children growing up without mothers to teach the right and wrong, to look after their well being. Research has found many of these children suffer abuse at the hands of close relatives in the absence of their mothers. It was recently reported that 27% of cases pending before the high court relate to child abuse; what an appalling situation.

As one of my first actions as President, I will take steps to bring every single stranded Sri Lankan migrant worker back home at the earliest possible. I will ensure my government takes measures to improve the skill level of the women who wish to proceed overseas so that they can obtain better paying semi-professional jobs. I will also ensure that returning migrant workers are provided opportunities at home engage in profitable ventures. Perhaps start a small business with a low interest loan, or engage in some vocation.

Then there are hundreds of thousands of women in the apparel sector many of whose jobs are in danger of being lost due to the withdrawal of GSP+. As President I will, with my All Party Cabinet, initiate action to regain the GSP+ facility in my first day in office so these jobs will be saved. There are several problems in the sector that need attention. One is to make sure they receive a living wage. I intend to start discussions with the apparel manufacturers to see how this can be done. At another level, these young women stereotyped as 'Juki Girls' who come from rural villages live in crowded hostels and have to deal with life issues, many for the first time. Many do not even have proper nutrition.

This must be changed. As President I will recognize efforts by socially responsible employer programs such as "MAS Women Go Beyond" that empower women employees and champion the cause of women's empowerment in society. I will encourage more and more employers to follow suit so that they can create win-win partnerships with these women.

Women labourers in tea and rubber suffer untold misery. They must be uplifted from where they are. They must be provided training and advice on how to improve their marketability by acquiring new skills so that they will have opportunities beyond the plantations. However, if they wish to stay as plantation labour, estate management companies will be required to ensure their productivity levels are increased via new techniques, new technology and better management so that at the end of the day these women can receive a decent living wage. I will, with the elected government take concrete steps to improve the lives of these poor estate women.
ON five points where your main opponent will fail:
President Mahinda Rajapaksa has clearly failed to win the economic war. While a select few have amassed phenomenal wealth the rest have had to do with little. At last count (Department of Census and Statistics 5 yearly income and expenditure survey in 2007), the monetary income of an average household was a mere Rs 22,500 per month.

Expenditure however was 23,000. With the high inflation of almost 30% in mid 2008 and no compensatory adjustment to incomes, today's position is much worse, people burning in the frying pan. Worse, the government is misleading the people by offering them illusive 'budget packs', a public admission that masses cannot meet their ends with the available income. Today the average family has absolutely no savings for the future; a terrible indictment on economic management, rather mismanagement. Worse yet, over 15% of Sri Lankans still live in abject poverty. In districts like Ratnapura, Monaragala and Nuwara Eliya poverty is rampant; close to 30%. Of all poor households, an unacceptable 45% are in agriculture.

The mere fact that the President is campaigning to create a 'Suba Anagathayak' or a brighter future for Sri Lankans is admission of this abysmal failure in economic management.
Not five points, but President Rajapaksa's economic management plan is flawed. There is no 'Suba Anangathayak' for our children under this regime reeking with corruption.

ON any other comments:
Life is hard under the Rajapaksa regime. I will bring in the change that the whole country is waiting for. I as President Sarath Fonseka will win the economic war.

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