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| Sunday, 25 September 2005 |
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| News Business Features Editorial
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Market driven economic reforms the need of the hour by Hemal Dias, General Manager, International Marketing - Coco Lands Ltd., Sri Lanka In today's context Sri Lanka is in a very crucial stage more than ever before as all political parties are rallying round with the forthcoming Presidential Election and its direct impact on the economy and the greater concerns on the peace process in particular. Whoever is going to be elected as the fifth Executive President in this island of just under 20 million people must have a clear vision on economic and foreign policy for a minimum 15-20 years. Emerging economy Sri Lanka as an emerging economy has gone through many obstacles during the last two decades much greater than 9/11 or recent Katrina's devastation in New Orleans. A smaller nation like us has quickly recovered without having a major impact in the country's economy and the society at large. Ever since I have started to associate with many overseas clients, what I have realised is that still Sri Lanka has a superior image in the international markets and they perceive us as high literates out of all the countries in the subcontinent and every person whom I deal with in the International Markets express their concerns on our development progress and always give first preference to our products and excellent services. Indeed this is due to our exposure to the world since 1977 with the free market economic reforms and recently President Chandrika Bandaranaike Kumaratunga has very clearly stated that, if we had managed the free market open economic policy well by now our country would have developed to a greater extent, but unfortunately we always practised the negative side of the reforms. Government policies seem to be crucial. Countries with broad free- market policies in particular, free trade and the long term broadbased national policies have raised their growth rates. Open economies Open economies have grown much faster on average than closed economies. Higher public spending relative to GDP is usually associated with slower growth. Furthermore, high inflation is bad for growth and so is political instability. Developing countries like ours can indeed catch up and the chances of doing so are maximised by policies that give a greater role to competition and incentives, at home and abroad. At this crucial juncture our political leaders must realise the importance of having a clear economic and foreign policy and should not send mixed signals to the nation as we cannot afford to go completely against what we have already implemented and practised as free market reforms and the peace process with Northern rebels as our country's progress has slowed down significantly during the last two decades. Economic development We have our own unique problems that require different policy solutions from those offered by conventional developed-world economics as in reality, other factors are not constant (not all countries have the same level of human capital or the same government policies), absolute convergence does not happen. Spawned by the end of the colonial era the whole branch of economic theory grew up around the question of how to promote economic development in the country. The proposition on which developing countries was built was that poor countries were intrinsically different from rich ones and so needed their own set of economic models. Commodity exports The mere fact is that because many poor countries had large agricultural populations and were often dependent on a few commodity exports for foreign exchange earnings, economic policies that suited rich countries would not work for them. With hindsight, much of this was misguided, and policies based on it had disastrous effects. Fostering modernisation Development economists believed that the State had to play a big role in fostering modernisation. Instead, the result was huge, inefficient bureaucracies riddled with corruption, massive budget deficits and rampant inflation. Despite starting with a big disadvantage, there is evidence that our so-called Managers of this country do not help themselves because they squander the resources they have. Institutions that produce effective governance of an economy are crucial. Those countries that use their resources have grown quickly and Singapore always comes to our minds as we Sri Lankans messed up everything what we had when compared to development progress in Singapore today and soon countries such as Vietnam and Cambodia will overtake Sri Lanka if we do not act together. Doing the right things in the right order is crucial. |
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