Financial Times

A credible, equitable, and fair mechanism devoid of egotism must be developed to tap the highly educated and motivated expatriate population to obtain support, assistance, and the leadership. In addition to leapfrogging wealth and prosperity in Sri Lanka, these efforts will help bring new ideas and technologies to Sri Lanka, thereby resulting in infrastructure and economic development, and most importantly through entrepreneurship and innovations, generating sustainable local job opportunities. Expansion of the job market will lead to political, cultural and social stability, and will further strengthen the economy. This positive cycle will attract further FDIC and the country will undoubtedly tread the path to prosperity.

However, the technology to be transferred must be essential to the well-being and economic development of the country. Such as computerization of the governmental process (e.g., Inland Revenue/Tax Department) will give a greater control over appropriate governmental revenue collections, or control over a large building or irrigation project, etc., which not only should minimize wastage but also, leads to improve efficiency and cost-effectiveness. However, government must resist importing technologies or major pieces of equipment merely on commission basis, to achieve political mileage, under pressure from internal or external vested interests, or technologies that are inappropriate for the country.

Pre-requisites for economic development

Stagnation of the Sri Lankan economy since gaining independence from the British is mainly due to the lack of stable, long-term national development plan and a vision that addresses social and economic issues, education and infrastructure development. It is disturbing to see the trend of concentrating only on short-term policies together with the prevailing widespread corruption at higher levels. To achieve success, each of these factors must be addressed candidly.

To improve the social condition and prevent further deterioration of values and the Hela culture, it is important to fix law and order including curtailing imports and distribution of alcohol. With reference to the latter, it is hoped that the new Sri Lankan government will soon embark on revoking liquor licenses in the range of 400 per month. This would allow within the next two years Sri Lanka to revert to number of liquor licenses it had during 1970. In addition to its overall economic and social benefits, the positive impact of such a small measure is likely to be tremendous on curtailing health care costs, and improving law and order. Government must have the courage to implement these: what is best for the majority of the inhabitants, in spite of the likelihood of potential objections from the influential and stakeholders. The inevitable loss of revenue to the government from losing liquor licenses will be offset by the savings from health care and law-and-order.

Another important area, which will have major deleterious effects in the country, is the mushrooming of fast-food outlets and its impact on health of the population. The younger generation deviating from the healthy, balanced, traditional Sri Lankan food is going to be a healthcare nightmare for the country. It is unfortunate that both the government and the media are supporting this impending disaster due to short-term financial gains, rather than putting the country first. One must think about the longer term negative public health consequences, especially with reference to childhood obesity, diabetes and other associated medical disorders, escalating healthcare costs, loss of productivity, and significant increase of morbidity and mortality in years to come after this dangerous and short-sighted introductions of “failed” Western food habits to Sri Lanka. Currently the most vulnerable group is the upper middle class population. It is still not too late for the government to intervene to reverse this negative and dangerous trend and take steps to curtail this (albeit) highly profitable business. In addition to the above-mentioned controls, it is time that the government starts a campaign to educate the public. Appropriate actions now, will prevent billions of rupees wasted in the future. Emphasis must be on preventative health rather than the acute care.

It is important for us to realize that the country should not depend solely on loans from the World Bank and other donors, and on foreign exchange earned from traditional exports such as tea, rubber, coconut, gems, exporting foreign labour, etc. Similarly the country should not depend on middle-eastern oil/gasoline for its energy. Due to the high unemployment rates due to lack of new job creation, many professionals and skilled workers are taking their expertise to other countries.

New ways of thinking is necessary to break the vicious cycle of dependence. For example, instead of exporting low wage unskilled (domestic help) and semi-skilled labour to middle-east as described above, Sri Lanka should establish training highly skilled labour, for example nurses in excess and arrange government-sponsored export program of these high-skill high-wage earning labour to industrialized countries who are desperate for such skills. For example, the US alone is currently short of 130,000 trained nurses and the demand continues to increase. These proactive measures (in comparison to export of labour to the Middle East) will minimize social disruptions, improve safety of individuals, markedly improve earning capacity (i.e., at least 10-15 fold improvement of income per person), and significantly improve foreign exchange earnings for the county with a much smaller number of exports of these higher waged jobs.

What kind of economy are we referring to?

Sri Lanka must develop more innovative ways of improving its economy. The hard fact is, many of the big ‘donors’ are not really interested in developing the countries they help. Their motives for lending money to Sri Lanka and other developing countries are contrary to what one would expect from them. Some conditions that are imposed by these donors to push through their globalization and marketing agenda, especially for agricultural-based economies are destructive of local jobs, economy, as well as culture and the heritage.

It is not a secret that only a small proportion of the loans or donated funds reach the earmarked projects, or the people who are the intended beneficiaries of these funds (i.e., high overhead costs and heavy pilferage). The situation is not different with most large non-governmental organizations (NGOs) that are working in developing countries.

In Sri Lanka it has been estimated that less than 10-15% of the donated money is actually used for the intended purposes by these NGOs; the rest goes into their administrative and overhead costs (including business class flights and hotel bills for their officials, acquiring expensive high-consumption vehicles and other luxury items, air conditioned travel, etc.), and ‘other costs’. In some instances, money raised from the public is siphoned out to do completely unrelated activities; widespread ongoing unethical and forceful religious conversion by some of these NGOs is one such example.

Why Sri Lanka is not progressing adequately

Apart from cheap labour and good weather conditions, there is nothing unique or attractive that the Sri Lankan government is offering at present to foreign firms to encourage them to invest in Sri Lanka. Yet, there is so much more ’wealth’ available in Sri Lanka that isn’t being “marketed”. The red tape, lack of proper infrastructure, corruption at high level, and bureaucratic delays decrease the enthusiasm of potential investors. To prosper, Sri Lanka must attract FDIC as a source of funding, rather than depending on foreign loans. Irrespective of the political party in power, it is the duty of the government to have a long-term, viable and sustainable national policy to develop the country, to protect its sovereignty and unitary status, and to maintain security, and law-and-order. The general development strategies carefully mapped out for the country should continue regardless of changing political ideas once in every four to six years. Legislations should be introduced imposing severe punishments for anyone attempting to derail the progress of the country irrespective of party politics must create deterrent.

Dangers of depending solely on the traditional economy

An economy based solely on exporting raw material, low quality easily manufactured products is highly vulnerable to fluctuating currency levels and competition from cheaper suppliers such as China and Taiwan. In this situation, the economy of a given country can take a downturn over-night, as what happened during the Asian currency crisis a few years ago. In the long run Sri Lanka must develop its own brand names and identity (such as Ceylon Tea, Sri Lanka Tourism, etc.), especially in the high-margin industries, so that it can sustain fierce competition from other countries such as China, Taiwan, and South Korea.

Sri Lanka must consider augmenting the traditional raw material exports with local manufacturing, and export of finished goods. It would not make economic sense to export raw material cheaply to industrialized countries and then import the finished products made from the same raw materials at a much higher cost. It is also necessary to consider exporting non-traditional exports and refined products, which gives much larger profit margins. For example instead of exporting cardamom, cloves and other spices, Sri Lanka must export essential oils and aromas obtained from these spices at a higher price.

Simply spending money by international donors in non-essential items in developing countries is in fact detrimental to the recipient country; this leads to repetitions of the poverty cycle. Furthermore, international aid agencies as well as NGO’s must be accountable to their own governments, philanthropic donors, and also to the recipient countries for the outcomes and cost-effective use of these public funds.

Another problem with donations and grants seem to be that no one agency is responsible for achieving the set goals or monitoring the outcomes. It would be more cost-effective if the donors identify focused projects created by motivated local organizations or individuals who will find locally acceptable creative ways to solve locally relevant problems. And the job is done using local talents and material. Sri Lanka experienced this in the post-tsunami era with the little work performed by the large international NGO’s versus, the progressive work of grass-root levels small organizations. In any case independent auditors or organizations must monitor and scrutinize these projects in the field to document the outcome results as well as the cost-effectiveness. Sri Lanka must create a legal authority to monitor these operations, and to take firm actions including exposing locally and internationally the organizations that do not deliver or end up doing inappropriate or unethical work. These types of internal policing should also minimize pilferage of funds and curtail wrongdoings.

Government responsibilities for economic development

One of the strategies that the Sri Lankan government should adopt is to identify its ‘potential future economic strengths’ in high-intense economic activities such as call-centers, high-tech industries, brand names, export of highly skilled labour to the West, finished product development and tourism. It should earmark more resources for development, marketing and training in these identified areas. These areas should have comparative advantages for Sri Lanka, and should also strategically position the country to take in recurring revenue base.

This should not however be at the expense of the agricultural sector, which is vital for Sri Lanka and must continue to be supported and expanded. In addition, the Sri Lankan government must go the extra step to assist local industries and businesses in identifying export markets and facilitate export products.

This will boost local industries, help recover from the current economic downturn, and decrease future debt. In an exemplary manner, the Chinese government does this consistently, and the Indian government has begun to adapt the same process, but this is yet to happen in Sri Lanka.

Another area that needs diversification is the positioning and bolstering of high margin industries such as assembly or manufacturing of essential items and high-tech products.

As a country endogenously moves through its product life cycle, this is likely to happen eventually. But the respective governments have the leverage, and the responsibility to expedite this cycle. For example, Singapore and Hong Kong began with petrochemicals, plastics, and textiles, moved to shipping, and then on to electronics and banking; establishing themselves as financial capital in the region. This generated major acceleration of their economies that drove significant advances in social welfare.

Reliance on international loans

Historically, Sri Lanka has been a rich country; in fact it has even given loans to Great Britain and supported Japan when those countries were in need. However, things systematically deteriorated since its independence to an extent that the country is now relying on foreign aid and loans. Successive governments and their political leaders must bear responsibility for this economic as well as social deterioration of the country. This dependency has created a unique opportunity for the West to exploit and impose its culture and policies, and gain control over local decision-makings. One such way this has been launched is via the International Monetary Fund (IMF) and the World Bank using the “Third World Structural Adjustment Policies/Program” in Sri Lanka, as well as many other developing countries. Sri Lanka got into this trap initially in 1977.

In their attempts to assist Sri Lanka, IMF and the World Bank provided liberal credit, which inevitably became a huge burden to Sri Lanka. This is as with many other developing countries, a debt which could not be repaid. In many cases, financial assistance is helpful, but not under some of the conditions imposed by these organizations.

Unfortunately, those countries that accepted the new ‘generosity’ of the IMF and World Bank never thought of the negative consequences of accepting enforcement of full-fledged free trade and liberalization as advocated under set conditions by these organizations.

Even though these organizations were forcing their policies, the governments of these developing countries themselves should bear the responsibility for accepting these policies that are destructive for the recipient country in the long-term. To obtain the benefits and advantages of an open economy, these policies should be implemented gradually to prevent chaos in the country. But that is contrary to what the donors demand.

It is not a surprise that many Western countries have control over these two organizations and, are eager to get a grip on economies of developing countries to impose their marketing agenda.

For example, since accepting these conditions associated with these loans, the Sri Lankan currency has continued to devalue, inflation has shot-up and the cost of living has escalated, leading to further impoverishment of its citizens and destitution to over half the population in the country.

Due to the unscrupulous loan mechanisms, Sri Lanka’s foreign debt rose from US $750 million in 1977 to over $12 billion in 2005. It is ironic that, despite the fact that Sri Lanka is unable to service its current debts, a further $4,500 million US$ in loans are being offered at this time (under the disguise of ‘reconstruction’), which may eventually lead the country to bankruptcy.

Against any common sense and internationally accepted norms, even as we speak, the World Bank, Asian Development Bank (ADB), and the IMF are together, negotiating directly with a terrorist group in Sri Lanka to hand over these loans.

These organizations have expressed interest in providing loans directly to this terrorist group (which is in fact banned from a number of countries in the world including USA, Canada, Australia, Great Britain, EU, etc.) which in part sponsored by biased Western NGO’s, bypassing the country’s legitimate government.

If these loans are granted to terrorists against the common sense and international law, it is not the terrorists but the ordinary taxpayers in the country who eventually will have to pay back these loans. One should notice that these are neither donations nor interest-free loans, and will increase the country's debt by 38%.