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.

Senior Minister of International Monetary Cooperation and
Deputy Minister of Finance and Planning Dr. Sarath Amunugama
called on the President of Asian Development Bank Takehito
Nakao in Astana, Kazakhstan during the 47th Annual meeting
of Asian Development Bank from May 2-5, Dr. Amunugama
discussed important matters of the Sri Lanka Economic
Development with the ADB President. |
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. |