Columns - The Sunday Times Economic Analysis

Distractions and diversions from economic issues could be disastrous

Changing Economic Scenarios
By Nimal Sanderatne

Distractions and diversions from economic development have been important reasons for Sri Lanka's below potential economic development. Since the end of the war and return to peaceful conditions the country's undivided attention should have been on ethnic reconciliation, national unity and economic development. A realistic assessment of the economy and pragmatic economic policies that are not motivated by political gains should have been put in place. Instead various political issues distracted the country from a concerted effort to develop the economy.

The slow progress in finding a durable peaceful solution to the ethnic issue got us dragged into international controversies. Emerging economic problems, such as the crisis in the balance of payments, were downplayed and countervailing measures delayed. Economic policies that would have inspired business confidence should have been put in place. Instead political issues that are distractive and counterproductive to economic development have occupied centre-stage.

The economic and social progress the country could have achieved is far more than what has been achieved. In a post-mortem of economic achievements, these distractions would be categorised as 'reasons for failure' to achieve the economic potential. It is once again opportune to focus on the fundamental issues of the economy and undertake economic reforms that would enable the country to move ahead on a high trajectory of growth.

Economists have pointed out that the country began at independence with initial conditions which were so much more favourable than those that prevailed in most other Asian countries except Japan and Malaysia. Today our per capita incomes are many times lower than those countries such as, the Republic of Korea (South Korea), Taiwan and other East and South East Asian countries. The economic conditions of East Asian and South East Asian countries today are far more prosperous than ours. Their levels of poverty and unemployment are much lower and social conditions are considerably better. An important reason for the lesser performance was the political distractions and their consequences.
Legacy of distractions

Distractions from economic issues are nothing new in Sri Lanka. The tendency of the country to distract itself from economic priorities has been a feature of post- independent Sri Lanka. Several economists have described our preoccupation with politics as one of "missed opportunities". The country continues to be distracted from its priority task of economic development. The latest such distraction was the recent UN Human Rights Council resolution on Sri Lanka.

Contrasting experience

The experience of Sri Lanka is in conspicuous contrast to the experience of Singapore and Malaysia, two countries that had similar problems. These countries managed the potential ethnic conflicts of their multi-ethnic societies so as to enable their economies to prosper. Some of the methods used in Malaysia may not bear scrutiny on the basis of minority rights, but the reality is that a country that faced serious ethnic violence was able to contain these and focus on the economic development of the country. In turn their economic prosperity contributed to the containment of ethnic problems.

Economic attainments, such as the increases in per capita incomes, reduction in poverty and increased employment opportunities, succeeded in diffusing and distracting people from ethnic issues to their material improvement and developmental concerns of their country. The economic strategy included a range of policies to improve the welfare of the people and raise the incomes of the deprived classes within an overall economic development programme. Political mechanisms to contain conflict and reduce ethic oriented policy too played an important part.

Singapore adopted a policy of putting language and ethnic issues out-of-the-way by uniting the people by means of adopting English as the common language that brought about both ethnic harmony and an impetus to development by the advantage of proficiency in an international language. The emphasis on English rather than Chinese, Malay or Tamil as official languages not only diffused tensions but conferred economic advantages to the trading nation.

Sri Lanka's problem

It is unrealistic to suggest that language and other policies could have been replicated here. Sri Lanka is a different country in many ways from these two and the most important difference is that the issues had to be resolved within a democratic framework of electoral politics and not under an authoritarian regime. Nevertheless the incontrovertible fact is that the leadership was able to contain ethnic and language conflicts in those societies. In contrast, Sri Lanka failed to contain the ethnic tensions. In fact several leaders pandered to the ethnic and religious emotions of the people and ignited and encouraged parochial interests for their own political advantage.

The impact of the ethnic and language conflict was an important factor in slowing down the momentum of growth at crucial stages of the country's economic history. Consequently inadequate economic growth resulted in unemployment, poverty and economic dissatisfaction of a high order.

There can be no doubt that these issues received inadequate attention owing to the distraction of governments towards religious and ethnic issues. In a decade after independence the first ethnic disruption occurred. Quite apart from the loss of life and property it eroded national unity, polarised ethnic differences and resulted in a severe brain drain. When the economy was progressing at a rapid pace after liberalisation of the economy in 1977, the high rate of economic growth had a setback after the July '83 ethnic disturbances.

The story since then is one of aggravation of the problem leading to terrorism and counter terrorism and a civil war of enormous proportions. These had severe repercussions on economic growth. Public expenditure was distorted, the public debt increased due to unproductive war expenditure, large fiscal deficits were recurrent and growing, foreign investment became a trickle, tourism from which much was expected languished and parts of the country's economy virtually ceased functioning.

Another opportunity

The end of the war last year and the eradication of terrorism signalled a time for a new opportunity for economic growth. At first there was hope that a rich peace dividend would be forthcoming. Instead of the country buckling down to the reconstruction of the economy, settlement of the grievances of the minorities, reconstruction of the North and East, the focus was once again distracted by two elections that engaged the nation for several months. The elections over there was the imprisoning of the army chief on a number of charges, victory parades, diplomatic disputes and the drama of a cabinet minister's fast unto death to tame the Secretary General of the UN.

All these diverted the attention of the country away from pressing economic issues. They are hardly the actions of a country eager to develop rapidly. Recent developments have hardly been for the good of the country's economy. Recent events have distracted the country's efforts once again from the economy, raised doubts on the safety for foreigners and foreign investment and altogether tarnished the country's image.

The economy is very much dependent on trade with the rest of the world, and particularly with western countries. It is also dependent on capital and technology from the developed world for high growth. Foolish slogans that undermine these vital economic links are dangerous.

A serious concern for economic development requires a quick resolution of the minority problem through acceptable constitutional reforms. Issues with the rest of the world should be resolved diplomatically in the interests of the economy. Law and order should be established and the safety of property right ensured. The realisation of the full potential of economy in a time of peace requires economic policies that would increase savings and investment at home and attract investments from abroad.

We must be resolved to not let the country be distracted from pressing economic issues if we are to sustain a high level of economic growth.

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