Ex Treasury Secretary practised ‘Stupidonomics’

A Singapore-based economist lambasted former Treasury Secretary Dr. P.B. Jayasundera for promoting a vibrant export sector while downplaying imports which he said was ‘stupidonomics’ that does not help a country to boost trade.

Trying to boost exports while drastically cutting down imports is a stupid theory that does not work. When imports slump, exports too slide and a tax on imports is a tax on exports. There has to be a strong import-export link for sustainable trade, Associate Professor, Lee Kuan Yew School of Public Policy, National University of Singapore, Dr. Razeem Sally told the Sri Lanka Economic Summit 2015, organised by the Ceylon Chamber of Commerce on Wednesday.

He said Sri Lanka should benchmark economic indicators against South East Asian countries which have larger Gross Domestic Product (GDPs) and not be confined to South Asia which are yet to reach comparable economic growth.

“Certain indicators in Sri Lanka such as Ease of Doing Business, tariffs and trade to GDP are not bad compared to many countries in South Asia but not good enough in relation to growth figures in South East Asia,” Dr. Sally said.

Sri Lanka’s Ease of Doing Business ranking slid to the 99th position last year from 85 according to the World Bank. The trade to GDP growth in Sri Lanka is 53 percent while it is 160 percent in Malaysia and 140 percent in Taiwan.

Dr. Sally said January 8 brought about many positive moves for Sri Lanka with freedom and democratic rights but there should be economic reforms with more macro economic stability and education reforms which are vital to spearhead economic growth. Sri Lanka needs to build an export driven economy with Free Trade Agreements with larger markets such as the USA which is the future. It will be a hard agreement which needs domestic reforms. Sri Lanka would benefit immensely by joining the Trans Pacific Partnership (TPP), the largest trading bloc, this year. Sri Lanka should enter into an FTA with China. It needs to join forces that supports markets, he said.

Dr. Sally also stressed the need for Sri Lanka to set up an International Trade and Investment Ministry after the elections. Foreign Direct Investments and trade are not spoken in the same breath in the country.

A social market economy should be promoted with the government acting as a good umpire which is found in Germany, a model of a successful social market economy, he said. Responding to questions posed to the panel, Deputy Minister of Policy Planning and Economic Affairs, Dr. Harsha de Silva said we need to look at a new Sri Lanka with a higher quality of life. We need a structural shift from around 4.5 percent economic growth to a higher growth rate.

Exports should be over 100 percent of the GDP as in Singapore and Hong Kong.

The UNP-led new government after August 17 will develop a knowledge-based highly competitive social market economy. We will help the youth to realise their dreams. The Central Bank and the Employees Provident Fund (EPF) should be independent. The Central Bank will be de-politisised and will be independent from the Ministry of Finance. The EPF will be run by the Constitutional Council, he said.

Refuting allegations that the new government after January 8 manipulated interest rates, Dr. de Silva said interest rates must be determined by the market.With regard to the setting up of a Volkswagen plant in Sri Lanka he said the government was waiting for a major investor such as Volkswagen for a long time and added that it will certainly be a huge boost to exports.

The German car maker Volkswagen has shown interest in investing in Sri Lanka to manufacture vehicles for export.We need to look at CEPA in a positive light and see how best we could gain from the agreement. There are a lot of misconceptions that Sri Lanka will stand to lose heavily by being overcrowded with Indian service sector personnel. We need to look at it carefully sector by sector, Dr. de Silva said.Sally said he agrees that Sri Lanka should have a social market economy. However, the government must have flanking policies.

The theme of this year’s summit was ‘ Towards Exports of US$ 50 billion’.

-LF