linings in the economic clouds
Three recent developments have generated
optimism in the country's economic outlook. These are
the decline in the international oil price, the apparent
success of the government on the war front and the move
of the two main political parties to arrive at a consensus
on national issues. Each of these will have a beneficial
impact separately on the economy. Together they could
raise hopes for the economy to get moving to higher
rates of growth. The management and course of these
developments would in fact determine the end result.
This is especially so with respect to the war and peace
process and the arriving of a consensus on national
issues. Besides this there is an important and inextricable
relationship among them. Let us discuss each of these
|Cause for optimism: A govt. delegation
and UNP delegation trying to work out a consensus
on national issues.
Optimism based on the oil price decrease
could be short-lived. Economists have argued that the
extraordinarily high prices above US$ 70 were not keeping
in line with the current supply and demand price for
oil. The Iraqi war, the instability of the situation
with respect to Iran, aggressive US foreign policy and
speculation are among the factors responsible for the
sudden soaring of the oil price Nonetheless international
prices are on an uptrend that cannot be constrained
for long. The international supplies of oil are fast
running out and refinery capacity is limited and takes
time to increase, while the pace of consumption is increasing.
Despite the oil price increases demand is not declining.
The decrease in the international oil price to around
US$ 60 must therefore be looked at as a respite rather
than a resolution of the problem of high oil prices.
The massive shock to the economy will continue to batter
it, even at a price of US $ 60 a barrel, but we must
be mindful of the likelihood of prices rising again.
The apprehension is that this temporary
respite will lead to wrong policies. Complacency generated
by the decline in oil prices could compound the problem
for the future. Proper pricing of oil to ensure its
conservation, the development of a long-term energy
policy and the seeking of alternate energy sources should
not be eschewed. The fact is that even with the decreased
price, this year's oil bill is likely to account for
nearly a quarter of our import bill and soak up about
a third of our export earnings. The oil import bill
has been huge and has had a serious dent on the trade
balance. The trade deficit that reached US $ 2140 million
in the first seven months of the year is ballooning
towards the US $ 3000 million mark.
The success on the war front it is
hoped would bring the hostilities to an end and decrease
war expenditure. Even more important for a durable impact
on the economy, it must lead on to a settlement of the
fundamental problem. If the higher current war expenditure
leads to such a result then the country and the economy
would derive what has often been described as a "Peace
Dividend". This peace dividend has eluded us so
far for many reasons. For a chance of success there
must be a consensus on the solution to the problem between
the government and the main southern parties. In the
past governments fearing that such a consensus was not
possible have failed to come up with a concrete proposal.
It is in this context that we can view with some hope
the discussions of the main political parties to reach
a consensus. This would be of utmost importance. There
has to be a realisation that some minority parties would
oppose a reasonable solution and pander to the Sinhala
die hard emotions of the masses.
These discussions are not confined
to finding a constitutional and political solution to
the problems of the minorities and the finding of a
constitutional method of devolving power, but also attempt
to arrive at a consensus on other issues of national
importance as well. If the main parties could iron out
their differences with respect to important economic
and national issues, such as a consensus on the broad
framework of economic policies, an energy policy, privatisation,
education policy, health policy and infrastructure development,
among others, then such a consensus could speed up implementation
of economic policies. The confidence that is generated
would have an impact on investment flows, especially
foreign direct investment to the country. It would no
doubt have a beneficial impact on foreign aid as well,
especially if it were to coincide with the prospect
of a durable peace.
One has to be realistic in that there
would always be those parties that would oppose both
any specific peace proposal and a consensus on economic
policies. Unanimity is an impossible condition to achieve,
but a majority consensus should be adequate to pursue
the national policies with courage and determination.
Are we on the verge of a new political era that would
boost economic growth or are we expecting too much from
our political leaders?