Business Times

Sri Lanka: Shifting from the clutches of the west to a non-west cartel?

By a Special Correspondent

Now that the battle of the Presidency is behind us, a few tentative conclusions can be gleaned from the economic strategies of the first term of the Rajapaksa era. Firstly, his explicit strategy of taking the government’s economic development programmes away from the western province and focusing squarely on other less-fortunate areas of the country may have helped bolster his political majority in the southern electorate.

Secondly, the strategy of resorting to external dollar borrowings has paid off in the short-term by bolstering the country’s external reserves, creating a cushion against which imports of goods and services continued unhindered even in the climactic days of the civil war, when the balance of payments was under severe pressure.

But the third and, perhaps, most significant achievement of the Rajapaksa presidency has been the integration of the Sri Lankan development programme with the stunning emergence of China as an economic superpower.

These three broad guiding principles of the Rajapaksa regime have arguably set the stage for strong economic growth as a consequence of the defeat of the LTTE and the restoration of peace to Sri Lanka.
The economic development model may appear flawed from the blinkers of the so-called ‘Washington consensus’ which stresses fiscal rectitude, capital account convertibility and capitulation to the network of post-cold war ex-bureaucrats from rich and poor nations who congregate in the corridors of the IMF and the World Bank to fashion a world economic order which is subservient to American business interests.

In this respect President Rajapaksa was fortunate in that he inherited the presidency just as a the global economy was undergoing a seismic transformation thrusting the economies of the large emerging markets of Brazil, Russia, India and China (which go under the acronym BRICs) onto centre-stage. Thus, the radical shift in the global economic backdrop whereby the US, UK, Germany and Japan are struggling to emerge from the recession has empowered the BRICs to utilise their ample currency reserves to re-fashion the global economic order.

We are witnessing the emergence of an alternative world-view of economic development which could broadly be termed the ‘Beijing consensus’. Under this new economic policy paradigm, which seeks to emulate China’s rapid economic development since the 1980s, emerging economy governments should be afforded adequate finance and expertise to develop physical and social infrastructure without any accompanying pressure to engage in hasty integration with global financial markets that are dominated by Anglo-Saxon financial institutions.

From this perspective, President Rajapaksa was the ideal candidate to lead Sri Lanka into embracing the new economic rubric of the Beijing consensus. He is, by instinct, anti-western and makes no pretension of his dislike of the lifestyles of the English-speaking elites.

A symbolic gesture of this was the removal of the statue of Queen Victoria from the gardens of the President’s House when he assumed the presidency in late 2005. That defiant act may, with hindsight, mark the end of 500 years of Western rule of Sri Lanka which had commenced with the advent of Lourenco de Almeida on our shores in 1505.

More intriguingly, though, could it also mark a move to increasing domination by eastern interests in the Sri Lanka of the future. Could the 60 years after independence have been but an interregnum period after which Sri Lanka will lurch into the grasp of a new colonial disposition?

In other words, is the administration disengaging the Sri Lankan economy from the clutches of the Washington twins, only to subsume its interests to those of Beijing, New Delhi and Kuala Lumpur, the latest benefactors of the Colombo government treasury?

It is clearly too early to offer an unambiguous answer to this poser. Time will tell all. But the fact is that the economic and military successes of the first term of the Rajapaksa presidency were predicated on a massive borrowing binge which will have to be managed judiciously in his second term. His economic advisors are acutely aware of the quandary they face and off-the-record conversations with some of them suggest the stage is being set for a national belt-tightening campaign accompanied by aggressive privatisation of state-owned assets once the general elections are over. A significant pointer of this was the fact that his campaign offered a much lower hike in public service salaries than that of his main opponent for the presidency.

In the aftermath of the debt crisis that originated in Dubai, Southern European countries like Portugal, Italy, Greece and Spain (affectionately referred to as the ‘PIGS’ in financial markets) are suffering the consequences of excessive indebtedness and loose fiscal policies, culminating in the weakening of the European common currency, the Euro, since December 2009.

These developments are a warning signal to countries like Sri Lanka which have large external commercial debt burdens while running loose monetary and fiscal policies. It will not take much to create panic and reverse the strong inflows of hot money that have re-entered the Colombo stock and government bond market at some point in the future.

Fortunately commodity prices are strong and a likely recovery in consumption in our major garment markets will keep the economy on an even keel for most of 2010. But the foundations for sustained growth will have to be addressed seriously in the coming months to avoid a loss of confidence over the next few years.

Some areas which might be considered critical for economic planners are:

a. Raising tax revenues by including government officials in the tax net, abolishing tax exemptions under the BOI law and reducing all existing BOI concessions to 5 years. There is no rationale for tax exemptions now that the war is over.

b. While the development of other parts of the country is very important, the Western Province has fallen behind compared to neighbouring port cities like Chennai and Cochin. Infrastructure, particularly transportation and housing has to be improved to generate new construction activity which will boost the long-term recovery of the economy. The UDA must lead the charge by spearheading master plans for all major cities to facilitate private sector involvement in urban re-generation.

c. Industrial clusters already exist along the Colombo-Katunayake and Colombo-Kandy roads. These should be integrated to include worker housing and transportation networks so that they could be developed into multi-facility industrial/commercial hubs linked to the airport and port. Another cluster exists on the Colombo-Panadura stretch that could be developed further once the southern highway is ready.

d. Highway development has to be accelerated to facilitate more tourism development. In the meantime air taxi operator licenses should be given on an auction basis to facilitate the better utilisation of the myriad air strips around Sri Lanka, for tourism purposes. Air charters inland are too expensive because of a near-monopoly by the air force at present.

e. An axis connecting the Trincomalee harbour to Palaly airport can be developed with active participation of the Tamil Diaspora.

f. Start work on a diversion scheme for the Kalu Ganga to irrigate the Southern dry zone. Much work can be done in generating more export revenues from agriculture in the Mahaveli areas but it needs seed capital from the government to kick-start the effort.

If President Rajapaksa can make progress on a grand development vision for Sri Lanka along the lines sketched out above, and ensures speedy implementation under hard-working ministers, the future of Sri Lanka will look much brighter.

(The writer is a Sri Lankan professional with a wide knowledge on a range of issues, currently working abroad. He wishes to remain anonymous. Comments on this article could be sent to

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