Economic Review

US economy recovers:

Energy crisis and emerging nations

by Sunil KARUNANAYAKE

The sudden price escalation in global fuel supplies and consequent upward price revisions in petrol, diesel and electricity did bring about some sort of disillusionment among the public. Adverse effects of the disposable income certainly affects the people and particularly the poorer.

The cost of fuel and electricity issue has been an irritant due to the high dependence on imported commodities. Sri Lanka has made a valiant effort over the years to develop non hydropower sources such as coal power to generate electricity but due to the development-based increase in consumption, supply has fallen short of the demand.

Since mid 1970's successive Governments have invested in oil explorations but have failed to obtain the desired results. The sudden rise in global fuel prices has been a major dilemma to all Governments with lightning strikes and street protests.

On such occasions the state must also be prepared with relief measures prior to announcing the price hikes to put the vulnerable sectors at ease and not become pawns of political elements. No country is immune from the current global turmoil', the worst affected countries must restore confidence and provide for sufficient protection.

One also must come to terms that the world economy that was hit by the global financial crisis in 2008 is yet in turmoil causing much hardship to poor countries. The prevalent debt crisis in the European Union and the somewhat depressed momentum in US markets did cause much damage to poor countries whose export markets being badly hampered.

Singapore has decided to further control the inflow of foreign workers. This change is expected to restructure the economy to grow income steadily among locals.

"No one is immune to the current situation. It's not just an euro zone crisis. It's a crisis that could have collateral and spillover effects around the world.

To get beyond the crisis, Europe must address three key issues-lack of growth, reduced competitiveness, and the need for greater integration. To restore confidence more quickly, the euro zone must develop a strong firewall to protect its members.

It is critical that the euro zone members actually develop a clear, simple, firewall that can operate to limit the contagion and provide this sort of act of trust in the euro zone so that the financing needs of that zone that can actually be met. In addition the IMF's resources should be built to help protect other countries," - said Christine Lagarde, Managing Director IMF.

Road to recovery

According to the latest information the United States economy is on the road to recovery with strong job growth expected this year, but the income inequality and Europe's debt crisis could still pose challenges, say latest reports.

President Barrack Obama's Council of Economic Advisors said that the action taken to prevent a deeper recession and strengthen the recovery has made a difference. The nation is still recovering from that profound crisis and the problems that led to it. President Obama's Economic report outlines a plan to "recover, rebalance and rebuild" focusing heavily on income equality and building an America where everyone gets a fair shot.

One option is to enhance job creation. While 1.8 million jobs were created last year, the economy still needs to add about 5.6 million to reach 2008 levels. This concept is perhaps a good model for Sri Lanka too.

In the early seventies during the premiership of Ms Sirima Bandaranaike the country faced a major economic crisis following the sudden increase in petroleum products by oil producing countries that formed the cartel OPEC causing a foreign exchange crisis in developing countries and a consequent shortage of essential goods. This scenario too caused much unrest in the country.

Food production

However, the Government though with limited options put the nation on a warfooting to enhance food production and promote austerity and one such measure was to restrict the number of participants at weddings. Even leading hoteliers used Kurakkan as a substitute for imported wheat flower to make cakes.

No one would want to be in such a scenario at present. In the late eighties during the Presidency of J R Jayewardene too, a fuel crisis hit the economy and one measure adopted was a total vehicle ban for three hours on Sundays.

At present thanks to the fertiliser subsidy food production has increased tremendously with an abundance of vegetables and fruits being made available to the consumers. Paddy production too has increased considerably. Given the current scenario every effort must be made to maximise food production and give priority to exports.

Even though Garment exports did well to manage without GSP+ many other exporters in Europe such as vegetables, fruits and live fish are yet struggling for survival.

The flexible exchange rate regime could boost exports to enhance much needed foreign exchange. The Government must now take steps to conserve energy, eliminate unnecessary expenditure and make the public aware of the need to conserve energy. These are hard measures but the returns are worth the effort.