Political stability will lead to economic growth - Dr. Sarath Amunugama

By Uditha Kumarasinghe

Senior Minister for International Monetary Cooperation and Deputy Finance and Planning, Minister Dr. Sarath Amunugama said if we continue to be rational and sensible and reform our economy, Sri Lanka will be recognised as one of the best success stories in growth particularly under the leadership of President Mahinda Rajapaksa. We have a very good future and it is globally accepted that Sri Lanka is one of the leading frontier economies.

The Minister in an interview with the Sunday Observer said unless we have political stability, we cannot have economic growth. The President has provided this stability. What the Opposition is trying to do is to destroy that stability which in the long run will prevent us from being a growing market economy.

Dr. Amunugama said we have good relations with America and the West. We have different opinion on certain issues. But there is no big threat or conflict to Sri Lanka. For the last ten years, I have gone twice a year to Washington for IMF and World Bank meetings. Every year, I have had meetings with high American officials together with our Ambassador there.

They have issues and we also have issues. In global foreign policy, there are issues based on national interest and these are negotiated across the table. But we are creating this by unnecessarily hyping on these so- called differences. It is utter foolishness to demonstrate against the United Nations, US or anybody for that matter ? These are called 'rent-a- mob' factions and some small political parties and religious groups come under this category.

Small political parties are renting people to protest against certain issues. We can’t decide policy with this 'rent-a- mob' mentality. That is all political theatrics. But serious business is done between Governments. We have serious business with the US and the West. We can discuss and negotiate and we have an External Affairs Minister who is capable of handling that.

Q: What are the pros and cons of the Government’s move to consolidate the financial sector by mergers and integration of finance companies. There is speculation that the banking sector is not in favour. Could you elaborate ?

A: During the last few years, attention has been focussed on the performance of financial institutions throughout the world. Following the downturn in the US economy and European Union, people analysed reasons for this failure. They found that the main cause was a weak banking structure.

The safeguards that should normally be there in the banks were not followed. For a example, the housing bubble had been financed by American banks and not only finance, debt was packaged and resold to other banks. Then again they sold it to a third party. Because of the possibility of earning big bucks by financial transactions which were far removed from ground realities, the world nearly ended up with a new economic depression. After that study, people have been trying to reorganise these financial institutions because they are dealing with public money. If there is a demand what is called a run on a bank or a financial institution, they cannot meet obligations. Then they turn to the Government as a last resort and ask to bail them off. For example, all those people who gave money to Sakvithi, Ceylinco or various other people, they don’t divulge the fact that they have signed saying that they were undertaking the risk. Sometimes they don’t know because of the attractive interest rates.

But this can’t last. Because these are sometimes called ponzi schemes. That is new fellows give the money, older fellows collect money, but at one stage there is a crunch. The financial sector has to be supervised carefully. Otherwise it comes back to the Government, not only the Sri Lankan Government, it can be Indian or the US Government they had to fight against their principles, they have to give money to some other banks.

In the US, the state and private sector operations are different. But this time they broke all those rules and bailed them out because of the bigger implications to society. As a result, all Central Banks are looking into the stability of financial institutions not because the Central Bank has nothing else to do but finally they have to guarantee the health and viability of the financial system. What they are called is ‘stress test’. Stress tests are to test the viability of banks and one thing that they have found is that most of the banks are undercapitalised. They don’t have enough reserves in case of a problem.

The solution is to merge these banks and keep enough reserves so that in case of any eventuality they can face that problem as they see it. The Central Bank has moved into this matter because they have been given time. Then banks of course don’t like to change these things because they think things are going well.

They are earning a lot of money and mergers with others creates administrative and other problems. But they also agree that the financial sector must be consolidated and made safe. This step is being taken in the interest of the people who deal with money. This is a move not only in Sri Lanka, they are doing this all over the world.

Q: Sri Lanka’s apparel exports to the EU are reported to be further declining during the past few years compared to India and Bangladesh market shares. Would you analyse its implications?

A: Bangladesh is a different case. Because their labour costs are very low. What we pay a single garment worker here pays for the wages of three Bangladeshi workers. Naturally since there is severe competition on the cost of production, they rush to places where it is cheaper to manufacture. What Sri Lanka must learn is whatever political rhetoric and whatever we may say on public platforms, basically business people invest in a country because they have to be competitive in the cost of production. No consumer is going to pay for a product which costs more if he can get the same product in some other place at a lower price. So business people find the cheapest place. They all went to Bangladesh because of several things.

One is cheap cost of production. Secondly they had got concessions as a Least Developed Country (LDC). Globally Bangladesh is known as a poor country. The world projected Bangladesh as a basket case. But that is not so. They are developing. So they targeted the garment sector because it is labour intensive and it doesn’t need much educated people. We must say, that Sri Lanka also under the late President Ranasinghe Premadasa grabbed that opportunity. I think it was a good move though we criticised it at that time. I boldly say we were wrong because that suited our mass scale employment, regional employment and less educated people found jobs. We did well in the end. Even now, in my opinion Sri Lanka is competitive.

Recently I and Finance Ministry Secretary Dr. P.B. Jayasundara were in Bangladesh. We found that the exchange rates in Bangladesh is 85 Taka to a Dollar, in Sri Lanka it is Rs.126 to a Dollar. So an exporter here gets much more than a Bangladesh exporter by way of local currency for their Dollars.

Bangladesh is also becoming a middle income country so that they won’t have concessionary facilities that they get. I don’t agree that our garment industry has collapsed. What has happened is some garment industries that were inefficiently run and earned money by selling clothes to the domestic market have put up shutters. Companies that reinvested in their business are doing well. At least 10 companies which used this money to reinvest, developed them.

Many people in Sri Lanka don’t realise that today we must have multinational companies. We have companies that are now operating in Bangladesh, India, Africa and the Maldives. We must encourage our companies to have a multinational brand. Today branding is the name of the game. We are quite happy because our garment industry has shed the inefficiencies and concentrated on branding and our remittances from garments have gone up.

This is an area which gives opportunities to the least educated people. But today living conditions are improving and they don’t want to work in factories anymore. They are expecting other jobs. Partly maybe because we are giving too many Government jobs. So that crisis is there. That is a policy difficulty which we must settle.

Q: Last year the economy registered a growth of 7.3 percent in all sectors while increasing domestic and foreign debt poses a threat to stability. What is the position?

A: Who says that our domestic and foreign debt have increased. Our increased debt is in absolute terms. But you have to look at the debt as a ratio of your GDP. Then debt has come down. Secondly, we must emphasis growth not debt. Most countries realised that today without borrowings you cannot rapidly develop an economy.

The biggest debtors in the world are the leading nations such as America, Japan and UK. Because in advanced countries, people are coming and putting their money like America in Dollars. That is technically a debt. America is borrowing from all over the world and people are willingly giving that money. But nevertheless it registers as a debt.

The high standards of living are largely because of the money that is flowing in from all over the world. So the debt per se is not a problem. In Sri Lanka, we are very lucky that we have used our debt to develop our economy and infrastructure.

We have to address the question of whether Sri Lanka was justified in borrowing or not. We could not develop the country because of the 30 years terrorist war. We had to urgently develop infrastructure. There is nothing wrong in borrowing to develop what we had lost for 30 years. All the countries in the world are clamouring to borrow. If we take India or any other developing country, they are pleading for money from other countries.

Traditionally money that came from multilateral agencies called concessionary credit had two problems. One is the amount was very limited. Former President J.R. Jayewardene faced this question when the Mahaweli scheme was started. He wanted to develop it quickly but there was no money from multilateral agencies. He was forced to go to commercial banks to get money. Concessionary credit is severely limited.

The UNP is querying why we don't get concessionary credit. Concessionary credit is given through multilateral agencies for very limited amounts. Even that limited amount is not coming because we are now a middle income country. That is basically given to what are called LDCs.

Only Sri Lanka had the opportunity of borrowing from China and this is a rare opportunity.

We can't do huge infrastructure development with money from the World Bank and the ADB. That is not possible. The best example is what the Chinese Finance Minister said in Astana. He said all the money given by the World Bank, multilateral regional banks like ADB, Africa Fund, all that put together is very little compared to what one regional Chinese bank lends to the world. So you can see the proportions. The UNP's so-called economists are talking rot when they ask why we should borrow from China. We are borrowing because multilateral and concessionary loans are limited in number.

I think Sri Lanka and the President were lucky because we grabbed this rare opportunity while money was available for infrastructure development coming from China. Today countries are asking for trillions of Dollars which are necessary for economic growth and that is not forthcoming. Those countries can't go forward because they don't have money for infrastructure. Sri Lanka has an abundance of riches that way. We should not be criticised and but complemented for grabbing this opportunity.

Q: How do you explain Canada's suspension of voluntary contribution of US$ 10 million to the Commonwealth. There is a school of thought that the Commonwealth has outlived its usefulness. Your views?

A: No it has nothing to do with the Commonwealth outliving or anything like that. I have lived in Canada for two years. So I can tell what it is. The Canadian political system is subjected to electoral pressures. Diaspora groups are strong in certain electorates particularly in Ontario and they can exert pressure. They even have a MP. US$ 10 million is nothing and it is just a symbolic gesture to appease the diaspora. I think we also made a mistake. Because we have been concentrating only on Ottawa and Ontario. Canada is not Ottawa and Ontario. It has Winnipeg, Saskatchewan, Alberta and British Columbia. So we should make an effort there.

The Tamil diaspora cannot do what they want there. I think we have followed a wrong strategy by trying to concentrate our efforts only on the capital city and its environment. With the new ambassador, we should follow a strategy of trying to go to the hinterlands and give a point of view.

Q: It was reported that Norway has opened its GSP plus market worth over billions for Sri Lanka’s selected exports. Can you enlighten us on this?

A: I really think that GSP is not a big issue. Because GSP was meant for LDCs who get on the path of growth. Norway opening this up is not such a big thing because they don’t buy anything. When you look at the terms of trade what we sell to Norway and what Norway sells to us is limited.

I think sometime ago, one of the Minister’s called Norway, the country of ‘salmon eaters’. They may be exporting some salmon to us and we may be exporting some dry fish to them. Why should politicians and Sri Lankans worry over this because they are such a small market. GSP is important when there is a big foreign market for our products.

We have to accept that America and the European Union are big markets for garments. So their GSP matters. But Norway's GSP has no impact at all.

Q: The US and Canada have begun to entertain reservations on Sri Lanka’s banning 16 LTTE front organisations despite the US Counter Terrorism Report confirming diaspora activities in the US, Europe and Asia. Is not the powerful Tamil vote behind these machinations?

A: Banning organisations or not is a matter for the Government of Sri Lanka. The US also bans various organisations. They banned some Jihad organisations recently. That is their lookout. This is within our purview.

Q: Economic sanctions by the West against developing countries on baseless evidence of human rights violations amount to splitting countries and paving the path for anarchy. Your views?

A: It is the media and Opposition politicians who talk about bans. At present America has clearly said that they are not considering any bans. Banning is a serious decision. They brought sanctions against Russia. It is under debate because even the American press is saying that it has had no effect. In the long run, it is helping Russia. I think banning and sanctions is only being spoken of here but it is furthest from US thoughts.

Recently I had discussions with the Deputy Secretary of the Treasury in Washington. They don't talk of bans. This is some fantasy of the Tamil diaspora and Opposition political parties here. That has never been on the agenda and the US is careful and they are not going to impose any ban. They have selective and high foreign policy requirements for that, not day-to-day operations.

Q: The human rights lobby is dominated by the US and the EU, while the International Criminal Court (ICC) prosecutors, judges and even the jury are from among them. What is the justice respondents could expect from them?

A: We need not even talk about this. Because these are non-issues. We have nothing to do with the International Court of Justice and nobody even suggested that. I think all these are cooked up by the Opposition and sections of the local media.

Q: The current Western political vision is “ If you are with us you are safe, if not always danger looms over your head”. How could an independent developing country survive against this political climate?

A: I want to say something. All this is absolute nonsense. We have good relations with America and the West. We have different opinion on certain issues. But there is no big threat or conflict to Sri Lanka. For the last ten years, I have gone twice a year to Washington for IMF and World Bank meetings. Every year, I have had meetings with high American officials together with our Ambassador there. There is no such thing. They have issues and we also have issues. Sri Lanka’s problem is that we have never had any issues in the past. But in global foreign policy, there are issues based on national interest. So these are negotiated across the table. But I must say one thing that we are creating this by unnecessary hyping these so called differences.

It is possible in the global scenario to create problems that are not there by hyping this and setting up small minority groups to oppose the people. What is the utter foolishness to demonstrate against the United Nations, US or anybody. These are called rent-a-mob. All these people that I don’t want to mention names, some are minor political parties and some are religious groups and they come under the category of rent-a-mob.

Tomorrow I can bring 10,000 people for any issue if they are given a packet of lunch and a bottle of arrack. We can’t decide policy with a 'rent-a- mob' situation. Small political parties 'rent'[ people. One day they will wear red shirts, the next day they will wear green and the following day yellow. This is political theatrics.

But serious business is done between Governments. We have serious business with the US and the West. We can discuss and negotiate and we have a very good External Affairs Minister who is capable of handling that.

Q: How would a seasoned administrator, social scientist and literary critic and political analyst such as you visualise Sri Lanka’s future?

A: More than all these things, I have been in the financial sector for 10 years. I can say that we have a very good future and it is globally accepted that Sri Lanka is one of the leading frontier economies. If we continue to be rational and sensible and reform our economy, Sri Lanka will be recognised as one of the best success stories in growth particularly under the leadership of President Mahinda Rajapaksa. Because unless we have political stability, we cannot have economic growth.

President Mahinda Rajapaksa has provided that political stability. What the Opposition is trying to do is to destroy that stability which in the long run will prevent us from being a growing market economy.