The Sunday Times Economic Analysis                 By the Economist  

Coalition politics and coalition economics
The next President of the Democratic Socialist Republic of Sri Lanka could be one who has to implement coalition policies both with respect to political questions as well as the economy. The two main coalition partners have laid down similar conditions for their support to one Presidential candidate. Most of the conditions relate to the peace settlement with the LTTE, but there are some broad economic policies also spelt out in those conditions. In the current context the political conditions cannot be divorced from the peace effort. The success on the peace front would have a most important bearing on the success in the economy.

The political conditions of support, however unrealistic and impractical, may be sweet music in the ears of the majority of the majority community. Therein lies the rub. Are we strangling the peace process and thereby strangling the economy as well? The conditions in as far as the approach to peace is concerned are described as ones seeking an honourable peace. In that process it appears to rule out a number of options such as a federal solution. Many political commentators would now think that federalism is the most practical solution.

The LTTE, though once agreeable to a federal solution, appears to be non-committal about it. The essence of a federal solution lies in the details of the federal constitution. What powers are at the centre and what powers are devolved on the provinces? What are the geographical de limitations of the federal entities? These are details that are themselves difficult to agree on by the government, the LTTE and other parties. However these details appear irrelevant in relation to the coalition, as they are opposed to a federal solution. No detailed solution is talked of in the agreement. It is mostly a statement of what the coalition partners are opposed to such as the P-TOMS and the current Cease Fire Agreement.

The approach and the attitude of the coalition agreement and the basis of settlement are not likely to lead to an acceptable solution. Basically the coalition approach is a Sinhala-biased one without much hope of being a basis for the settlement of this question. The coalition Presidential candidate wanting to have direct talks with Prabakaran, a most unlikely scenario, further strengthens the scepticism that there is no solution in sight. It is not the intention of this column to discuss the coalition's peace process but the coalition approach is no doubt a backward march on the road map to peace and settlement. Coalition politics is likely to lead to a halt the process towards peace. In fact the fear is that it may take us to the brink of war.

While the UNF government and Chandrika Kumaratunga failed to arrive at a settlement, they both kept the hopes of peace alive and achieved an uneasy non-settlement that enabled the economy to thrive. The President herself acknowledged this contribution of Ranil Wickremasinghe at Tuesday's SLFP rally. Regrettably the coalition arrangement is driving the economy from hopes for peace to fears of war. Therein lies the threat to the economy.

The economic policies of the coalition are another fear. These are not spelt out in any detail, but have undertones of reversing the market-oriented private sector orientation of the economy. The clear statement that no important public enterprises would be privatised could be admired for its categorical and clear statement. Yet it has serious implications for public finances, aid and investment.

This is an ideological position rather than one arrived at by an analysis of public enterprises or their performance. However since most public enterprises, such as the estates, NDB, Telecom, Air Lanka and insurance, have been already privatised, the impact of this policy may be limited. The problem is whether this policy may reverse some of the privatisations by the two previous regimes. Will the government revert to a policy of nationalisation? This may not be a realistic option but even statements that they might do so could have grave effects on investment and growth.

One of the significant milestones in the country's post independent economic history was the continuity of economic policies in 1994. For the first time since independence, despite a change of government, the new SLFP led government assured a continuity of economic policies. The change of government in 1994 did not result in a reversal of policies, as it had been before that, when governments changed. In 1994, the new government headed by the SLFP, announced its commitment to continue market friendly open economic policies.

It too gave private enterprise the lead role in economic activity and pledged to support private enterprise and characterized its strategy as Open Economic Policies With A Human Face. The first Economic Policy Statement of the government made this stance quite clear when it stated, the government stands committed to building a strong national economy within a market framework. The principal engine of growth is expected to be the private sector, both domestic and foreign. It promised to pursue market-friendly policies and it kept to that policy stance.

Various statements of the coalition parties are contributing to creating considerable doubt as to whether there would be a continuity of market-friendly polices. Ignorance of economics and the developments of the international economy and obsolete socialist policies may lead us once again into a period when the government controls the economy.

Whether this would happen is in the hands of the people who may in any case be swayed to vote on the basis of other political considerations. On the other hand, there is a strong body of opinion that were the coalition to assume power, the ground realities would not permit such a reversal of policies. It is this contention that generates optimism among investors, despite the happenings on the political scene. Yet coalition economics is likely to decelerate the tempo of economic activities.

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