Higher economic growth next year - Dr. Sarath Amunugama

by Uditha KUMARASINGHE

Public Administration and Home Affairs Minister and Deputy Finance Minister Dr.Sarath Amunugama, in an interview with the Sunday Observer, said the country’s foreign direct investments have shown a four-fold increase. The next year the Government targets to attract US$ one billion. The Minister said the Government is hundred per cent confident of its victory at the forthcoming polls.

Q: lot of Opposition politicians and even many economists said this Government would not be able to manage the economy well. Now they have been proved wrong. What was behind the Government’s economic success?

A: This Government faced many difficulties. These difficulties were largely global in origin. Our exports suffered due to the global financial downturn. We suffered a lot because of the ongoing war. Investors were not willing to bring money under war conditions. So all these added up to a big challenge. Notwithstanding the Government was able to proceed with its own programs. Firstly the public sector was safeguarded. The President was adamant that there should not be privatisation of any state assets. We managed because of our traditional sources of foreign exchange, mainly foreign remittances, garments and tea.

So we were able to sustain basically 5 to 6 per cent growth over a period of five years. It was a good performance. Many of the leading countries of the world like US, UK, Japan and Singapore, went into negative territory. But Sri Lanka retained around four per cent growth which is considered as a very good performance.

Q: What is the economic outlook for next year? Will there be better growth than this year?

A: Certainly. The next year should be a better year. Because we don’t have a war. We can expect many more immediate benefits like the reduction of freight rates, reduction of risk insurance, reduction of better ratings. So this will give us a bigger impetus. A large amount of money was invested in infrastructure for the past six years. Phase one of the Norochcholai project has already been completed. The Upper Kotmale project is now on stream. All development projects will begin to pay off in 2010.

If we had not made that investment four years ago, we would have had power cuts by now. We are one of the few countries in the world which doesn’t have power cuts. That is because of the far sighted policies. Our power sector and agriculture will be self-sufficient in the next couple of years. We are deficient in milk production, fisheries, sugar production. We have to catch up in those areas.

Q: The Opposition says the Government wanted to hide the conditions imposed by the IMF for the loan through passing a Vote on Account. Did the IMF impose any conditions?

A: That is absolute bunkum. If we look at India, they also had a Vote on Account before the election. After the results of the election and the new Government was formed, we will present the budget. This is the 11th time that a Vote on Account has been presented. I don’t think it is reasonable to think that there was any skulduggery. If I may come out with a secret, actually the IMF suggested that we should have a budget. If the IMF was given a chance to decide, they would have decided to have a budget. That is the reality. So I can tell quite honestly, the Opposition is talking nonsense.

Q: What led to the presentation of a Vote on Account and what will be the main thrust of a post-election budget for 2011?

A: The main reason is that the present Parliament stands dissolved by April 2010. Once the new Parliament comes, it will have its own Cabinet and that Cabinet and the new Parliamentary party will decide on the budget. That was the idea of presenting a Vote on Account. The thrust of it will also be decided by the members of Parliament and the Cabinet representing the new Parliament.

Q: The IMF review team which visited Sri Lanka has commended Lanka’s economic outlook. Is this a positive sign of the confidence placed in the Government’s economic management by the international community and lending agencies?

A: Of course. When we were negotiating with the IMF, the Opposition particularly the UNP said that we will never get this money. They also tried their level best through their various contacts to prevent this US$ 2.6 billion stand by arrangement. But finally we prevailed. The IMF Board decided to go ahead with the stand by arrangement. Firstly they recommended US$ 2.6 billion stand by arrangement and recommended the first tranche of about US$ 320 million. That was given. In spite of the opposition from the Opposition parties, the second tranche was also given. Now we are negotiating for the third tranche. What did the IMF say ? They said that all the targets have been achieved. When we discuss with the IMF, we agreed on certain targets such as the exchange rates, budgetary gap, interest rates, inflation rate. Now we have achieved all those set targets.

Some of the arguments put forward by the Opposition were highly contentious. When we discussed with the IMF, the Opposition was talking about the depreciation of the rupee. Now the Opposition is not talking about that. None of the Opposition arguments has come true. The experience have shown that what we said in Parliament and to the country is hundred per cent correct.

Q: What are the projects or areas for which the Government is using the IMF funds?

A: IMF funds are stand by arrangements. The idea of the IMF stand by arrangement is to strengthen our foreign exchange reserve. When we were holding these discussions, the Government was investing its scarce Dollars to keep the rupee from depreciating. That was to help particularly to prevent a large outflow of money for debt repayments.

So we had depleted our foreign exchange reserves. That was not only due to our intervening in the foreign exchange market but also largely because many of the funds that has been invested in Sri Lanka were taken away. About US$ 600 million left the country due to the global downturn.

Now all that money has come back. We have now five to six months reserve which is a historical high. The question is what are we going to do with such a large reserve. On one side we are buying gold and on the other side we are trying to encourage our big companies to go abroad and start business abroad.

Q: What is the Government doing to attract more foreign investments now that peace has been restored?

A: Last year was the highest recorded foreign direct investments of US$ 800 million.

The next year our target is one billion US Dollars. We are hoping that more foreign investments will come particularly through the BOI. Already there is a lot of interest to invest in tourism, fisheries, construction, communication and tea sectors. Therefore we should be able to reach to US$ one billion next year.

Four years ago, we had only US$ 250 million investment. At present our foreign investments have shown a four fold increase. Even that may not be enough. We can think of much more.

Q: Will the Government begin the economic war in earnest after the elections? Is there a strategy to reduce waste and corruption?

A: Of course. That is why we want to have this election and be done with it. Otherwise, the President and the Cabinet is always held hostage by various interested groups such as backbenchers and various groups that won’t allow the pursuit of a common policy. One strategy is to have this election so that the next six years will be peace and quiet and we can continue with economic growth.

Q: Will the Government announce more sovereign bond issues in the international market?

A: That depends on the situation. Now we are very comfortable with our foreign exchange situation. But it may be better in certain cases depending on interest rates where we have borrowed on high interest rates and better to discharge those debts and undertake low interest commitments.

We can restructure these loans if we can get funds coming in at lower rates of interest.

Q: Is there already an impact from bringing down the interest rates?

A: Already there is an impact. It is meant to support local small and medium scale investors. I think there will be many more middle class and lower level entrepreneurs who will avail of this opportunity for the expansion of the economy.

Q: The Central Bank has bought 10 tons of gold from the IMF for US$ 375 million. What do you think the advantage of gold over the US Dollar at this point of time? Is it a more solid investment?

A: India has purchased gold. We have purchased gold because as China has clearly shown the dollar is under attack.

The dollar is not only reserve currency of the world it is the national currency of the US. So they can print any number of dollars. China has 1.6 trillion US dollars in American bonds. The Middle East also has over trillion dollars in bonds. The Americans are having a good time because these dollars are coming in. But this basically affects the value of the dollar.

Now they are managing entirely on foreign reserves which are flowing into the country because of the dollar’s position. Countries are trying to find hedging this in different ways. One way is to having gold and reduce our dollars and have more gold. That is to strategies to see the best results from our existing dollar piles. So already by buying those 10 tons of gold, we have made about US$ 13 million.

Q: There is a proposal of oil being found and extracted soon. How could this impact on our economy?

A: It is very vital for our economy. We can’t say next year or year after oil will come. But oil exploration has begun. If it comes, it will be great relief because our main outflow and hard earned foreign currency is oil. So this takes out a lot our hard earned savings. If we can have our own oil, apart from that attracting investors we will be able to manage our financial status.

Q: The Government is facing two elections in just six months. Is the Government confident of gaining an even bigger mandate?

A: The Government is hundred per cent confident. Otherwise the President won’t have a Presidential Election two years before his time. Our idea is once the Presidential Election is over with an outstanding victory we would get even a two thirds majority in Parliament. Then the next six years the country will be spared regular elections. Having elections all the time prevents the implementation of a sensible economic policy. After that economic policies can be formulated on rational grounds.

Q: How do you view the decision taken by the UNP and the JVP to put forward a common candidate?

A: They have taken poor General Sarath Fonseka for a ride. Everybody who knows the history of this country understands that the JVP and the UNP can never come together on any policy. One of their key slogans is to abolish the Executive Presidency. This Executive Presidency was set up by the UNP under the regime of late President J.R.Jayewardene. Now they have even ditched that. Even if they want to abolish the Executive Presidency, nobody elected President would want to ditch it. There will be amendments brought and some transformation. All the losers are asking to abolish the Executive Presidency.

If anybody wants to abolish the Executive Presidency, it will be President Mahinda Rajapaksa. Because he will finish his two terms.

He can easily abolish the Executive Presidency. Any other person who is coming, will he want to abolish the Executive Presidency? It is against logic.

On the abolition of the Executive Presidency, I think there will be a split between Sarath Fonseka and supporters. On every other subject, the two parties have different views.