Finding the right economic mix
There is no short cut to economic development. This is something
I keep telling the people across many areas in Sri Lanka that I have visited.
If we work hard now, we could enjoy some benefits while our next generation
will enjoy much more. That should be the vision of our economy.
A visionary in the Premadasa mould but coming from a wealthier background,.
Milinda Moragoda, Sri Lanka's new minister of Economic Reforms, Science
and Technology, is refreshingly honest ("we won because we were seen as
the better of two evils not because the people liked the UNP. It was an
anti-PA vote not pro-UN").
A new set of values, a decent election campaign, an ideas man, uses
modest Indian-made cars and plans to give his official BMW to another cabinet
colleague. Wears short-sleeved shirts, typical working class office attire.
Speaks a lot of sense. "Judge us by our actions - not what we say or promise
to do," he says in an interview at his modest private office at Kirulapone.
Moragoda, along with Prof. G.L. Peiris, has also been assigned the role
of coordinating the peace process.
Excerpts of the interview:
What is required now is a second generation of reforms, a type of 1977
situation. The 1977 momentum has begun to die down. If we are to focus
on a growth-oriented economy, we need another 1997-set of dramatic reforms
aimed at accelerating growth.
In a globalised context, we need to find a niche market. In this region,
there are two giants, China and India. If we are to look at accelerated
growth, we need to treat one or the other as the locomotive based on proximity.
If you look at what happened to Singapore, Hong Kong and the so-called
Pacific-rim, those countries were pulled along by China and to some extent
Sri Lanka is geographically located and at a location where we can become
the gateway to the Indian subcontinent. But various factors have prevented
us from achieving this like the war, lack of a clear economic vision, a
more liberalised, investor-friendly environment and foreign-investor friendly
than the other countries in this region.
There is also the issue of mindset. Our business community is, for instance,
more comfortable in London or New York than in Delhi or Mumbai. India,
as an economic giant in this region, has been moving quickly on economic
As far as Sri Lanka is concerned, our role as a regional player has
been taken away from us by Dubai which has emerged as an investment centre
into the Indian subcontinent.
If we are looking for an economic vision, that is the vision we should
have - to be the financial centre, the logistics centre, the gateway of
the South Asian subcontinent.
We need to have a deep reform process. We have inherited an economy
where there is a high budget deficit for various reasons and a widening
deficit. According to current trends, the budget deficit would be around
13-14 percent this year which is not sustainable for any economy, let alone
ours. There would be pressure on reserves in this situation.
Our state corporations most of them or all are bankrupt or losing
money. Our defence spending is simply not tenable for an economy of this
size. The public sector is larger than it should be and not efficient either.
There are other blockages like the financial sector. This sector in any
country represents the veins through which the blood flows, not so in the
Sri Lankan case.
The education system has serious problems. We are not producing people
for the workplace. Unfortunately all these problems are prevalent in a
country that has human resources, which succeed abroad. Sri Lankans do
well overseas not here.
Given this situation, we need an economy that has to be restructured.
There are two ways of doing this. One is what I call the numbers game.
We try to reduce the budget deficit from its high level. This is the traditional
method but it is not the most efficient.
What we have decided is to look at growth as a focal point and set an
agenda for growth. If we grow, we can get the revenues we need and cut
the budget deficit. That is not easy as the growth agenda requires a lot
of political resolve and short-term restructuring.
That was the decision that was taken to go for a growth-related agenda
and this is also in the context of dealing with multilateral agencies like
the IMF, World Bank and the ADB.
Traditionally our economic policies have been donor driven. The donors
tell us what should be done instead of us telling the donors here are
our plans, give us your money.
We would like to reverse the process by telling donors these are the
reforms we plan to effect and we are going to be aggressive. But in return
we don't want you to play this numbers game. We will be trimming the budget
deficit, get our revenues right but in a way different from the past.
The priorities for reform in the first 100 days would be public
sector restructuring like what do we do with loss-incurring corporations
or labour market reforms. This is politically a difficult issue. We have
to find a compromise between labour and private sector interests. We have
to strike a balance between the two sides with the government acting as
Financial sector reforms are also critical. The state sector is saddled
with a lot of debts making the whole system inefficient. Education reforms
are also crucial. Deregulation is necessary. Are we going to resort to
an open skies policy in aviation which would be intelligent for a small
country and how do we do this?
Inland Revenue, excise, customs - we need to make these departments
more efficient. We need a simple tax system that is transparent and one
people can understand. We have a huge black economy.
These are some of the reform issues and we are now in the process of
sequencing. We will be working out that framework and then talking to international
agencies. We are interested in negotiating a poverty reduction and growth
facility with the IMF.
But what we want to do is to make it our agenda, not theirs (IMF). Politically
it is not easy. These are tough decisions and a large part of it would
be our ability to explain to the public that if these reforms are not undertaken,
Sri Lanka has no economic future.
You are generally perceived as an urban-based market reformer and
out of tune with rural needs. Is that assessment correct?
If you look at my campaign, I speak for five minutes and ask people
to ask questions whether in the villages of Avissawella or in the slums
of Colombo Central. What I found out was that people in the country are
far more intelligent that what the politician thinks. The politician makes
promises, breaks them and relate fairy tales.
The people have got played out for the past 50 years. For instance Sri
Lanka had a per capita income that was equal to South Korea or Taiwan in
the 1950s. Today we have become the basket case of South Asia. We have
a tremendous human resource, the only resource needed for development.
We don't need oil, gold, silver or platinum. We need only human beings.
Japan developed with it; Taiwan did the same. Likewise Singapore or South
Korea. We have the human resources. We also have a history of success -
whether hydraulic engineering or architecture.
But our political culture and system has ruined this country. Politicians
have divided this country on ethnic lines, cast lines, political lines
and never looked in common to develop the country. What we lacked was that
a common vision.
My belief is that if we are straight with the people, they will accept
it. If we are going for cheap popularity - we can do that but this country
will be destroyed quickly. We will then never fully realise our potential.
We need to change our political culture. Lee Kuan Yew (former Singapore
Prime Minister) used to say he doesn't want to be popular, only respected.
Our people are looking for a similar model as they have no faith, no confidence
We won this election because we were seen as the better of the two evils
(UNP and PA). Not because they liked us more than the other. It is up to
us now to win the confidence of the people. In my experience as a politician,
the people are intelligent and need to be told the truth.
There is no short cut to economic development. This is something I keep
telling the people across many areas in Sri Lanka that I have visited.
If we work hard now, we could enjoy some benefits while our next generation
will enjoy much more. That should be the vision of our economy. People
have got fed up with the system. They see the lives of politicians prospering
but their lives, generation after generation deteriorating.
If we are unable to win the confidence of the people, then we as a party
have no future and the winners will ultimately be the JVP. The JVP exists
because neither of the two main political parties has been able to win
the confidence of the people. Both parties have let the youth down.
The people are fed up with the system. If we go around with populist
slogans saying we are going to bring down the cost of living, etc, we would
fail. We have a huge challenge but to do that we have to communicate and
On the 100-day programme what reforms are achievable?
We are at the moment sequencing, framing these reforms. We are looking
at deregulation of the petroleum sector, ending the state monopoly and
un-bundling the Ceylon Petroleum Corporation. In fact a lot of the distribution
network, the bowser fleet is in private hands. Then we need to encourage
the big players to come here in the petroleum sector storage, bunkering,
There has to be a competitive climate, a competitive advantage in this
sector. For this purpose we are setting up a (petroleum) regulatory authority.
One of the things we learnt from the previous government is that the regulatory
framework has to be in place. We have to give the consumer the best deal,
a range of choices.
The CPC with its losses totaling Rs. 20 billion or the CEB for that
matter is charging consumers higher than market rates. As far as the CPC
is concerned, it would take three years to recover the losses even with
the current restructuring of the corporation and the pricing mechanism.
We have to look for other ways of paying off these losses but in doing
so we tax the economy. These are the realities.
Explaining regularly to the people is the key to good management of
the economy. If we increase salaries, the consumer has to pay more for
goods and services. That is the nexus - that is the reality and needs to
be explained to the people.
The problems that we face are extremely difficult. They can only be
solved if we as a society get together. If we continue to play politics
we are sunk. We need to be united. That's why the prime minister is repeatedly
inviting the opposition to join in a national government formation.
n Power sector reforms? This is one of the biggest challenges faced
by the government. The CEB hierarchy needs to look at what sectors have
to be privatised, what sectors have to be restructured.
In today's world where private power is an accepted principle, we seem
to be nervous about it. Privatisation is not a solution to all the country's
problems. Look at Singapore for instance, where the airlines or port are
government entities and run efficiently. Our problem is that we are unable
to run anything efficiently that is in state hands.
If we cannot restructure corporations or provide services at a fair
price to the consumer without financially burdening these entities
then we need to look at other options.
A macro economic reforms framework
The budget will be the first signal in March. Before the budget we will
try to bring in as many reform measures as possible. The prime minister
himself is coordinating the economy and all of us involved in this exercise
work closely with him.
We are working on a matrix of reforms. We are discussing these issues
with the donors and preparing a framework and discussing this with the
prime minister. He would have to advise and guide us on the sequencing
and also the desirability.
We should have this framework ready in the next few weeks. A lot of
the reform measures would have an impact on the budget because of the revenue
and expenditure side. The budget would be the first major signal of the
government's reforms process but prior to that we would be initiating various
There are no easy solutions. What we have is sincerity. The prime minister
has consistently over the past three elections said we need to find a solution
to this problem. If there is sincerity on both sides, we can have a dialogue.
We need to convince the people of this country and be credible and prove
that this is not again politics. This is the last window of opportunity
for this country. The government has said that it would keep the opposition
informed of all moves on the peace process and has told Norwegian negotiators
to do the same.
If the opposition chooses to play politics, they will destroy the process.
We are looking for a new culture in politics and it would be tested for
the first time in the peace process.
We have set up a secretariat with experienced diplomats including Bernard
Gunatillake in a multi-faceted team on this process. I have requested them
to prepare a benchmark study of what has happened from Thimpu (peace talks
in 1985 in Bhutan) to now.
We have no information base. We have had negotiation after negotiation
but we don't know what succeeded or failed. In fact we are relying on the
Norwegians to know what happened instead of relying on our own source.
We want to build a database through this secretariat.
Nobody keeps notes; there is no kind of institutional memory. Negotiations
in the past have been highly personalised. What happened during the Premadasa
negotiations or the Kumaratunga phase, we don't know.
The LTTE on the other hand have an institutional memory. They are able
to pinpoint dates and issues which cropped up over the years. The other
problem is implementation. For instance, during the last round of peace
talks, Ms. Kumaratunga gave instructions on lifting the embargo but it
was not implemented on the ground.
What we need is a very, workmanlike approach - getting down to details
and pushing them through.
On science, technology and research
We are planning to hold a conference, earlier physically but now as
a virtual, networking (Internet-based) meeting where we invite Sri Lankans
who have some to offer and contribute to the country's development to throw
up some ideas.
In research, we are spending too much time reinventing the wheel. If
we are doing original research it must have an immediate, practical benefit.
There needs to be more private sector input in research.
I plan to do two things in the boards and institutions in my ministry,
appointing one-third women and infusing more private sector people into
the system so that there would be a blend between the scientists and the
private sector. We have some excellent scientists. If we can blend it with
private sector blood then we may see some practical things happening.
I would like to see these institutions as incubators for ideas. In the
IT sector, the ministry will not interfere, just act as a catalyst and
remove the bottlenecks.
How do we make IT relevant to the people? Young people in the village
want access to IT, computers, but the digital divide is still large. The
government needs to improve IT literacy and make it cheaper to the village.
We would like to collaborate with India on IT. There are a lot of studies
done, not only in IT but in various sectors. There are studies on many
topics but implementation is poor.
The proposed land bridge - which is a gigantic and ambitious task....?
There are much more ambitious bridges across Asia or Europe. The stretch
of water across the Palk Strait is, however, shallow. In today's world,
the moment you do this, we become part of a larger subcontinent.
The whole mindset changes. If you board a train and get to Madras in
a few hours, the whole thinking process changes.
Distances and time create a lot of mindset issues. For instance if we
had a highway from Colombo to Jaffna 25 years ago, we won't have the problems
we are facing today.