Consensus on economic strategies vital for sustained growth

by Lloyd F. Yapa

The purpose of this article is to discuss the various choices before the nation in this moment of crisis.

There are a few clear choices. The first is whether we 'dance' according to the tune dictated by a gang of terrorists and continue retaliation and repulsing them or do we continue to talk to Prabhakaran's acolytes, who probably have instructions to drag on the talks, while the gang arms themselves to the teeth.

The third is whether we go for full devolution and good governance in consultation with moderate Tamils, leaving the terrorists the choice of abandoning the pursuit of 'Eelam' and joining it for the sake of the suffering Tamil population, especially in the North and the East.

Low intensity or full scale hostilities

President Mahinda Rajapaksa has announced in his second budget that the objective of his administration is to make the economy grow at an average rate of 8% per annum, so that the per capita income of the country could be raised to around US $ 3,000 by the end of a period of 10 years, [thereby reducing poverty to a great extent, if not achieving the UN's Millennium Development Goal of halving it by 2015, (the present level of destitution being 23% of the population)].

There may be a possibility of working towards this target if the country could invest about 35% to 40% in terms of GDP per year.

The country now invests around 25% of GDP per year of which the capital expenditure of the government on physical infrastructure and economic/social services such as transport, electricity, water supply as well as education and health is about 5% of GDP, instead of the required level of about 10%, because of budget deficits arising from unproductive and excessive current expenditure on defence, wages, pensions, servicing of the huge national debt, which is nearly 100%, could be more, if not for the appreciation of the currency in the aftermath of the tsunami.

In addition there is a huge subsidy bill for untargeted welfare on all and sundry (Samurdhi), irrespective of the fact, the households are destitute or not and for the resource guzzling multiplicity of State Owned and politicised trade union managed (sorry, ravaged) entities such as the CEB, CPC, CTB, CWE, the railways and so on.

It is very clear that the ambition of 8% economic growth per year for 10 years or more is impossible, if the first option is followed, not only because high defence expenditure, death and destruction of property could continue without a win for either side, but also due to the fact the country will never be able to attract the balance investment (including foreign capital) required, if an atmosphere of political instability and uncertainty continues in case of such a war.

This is a fact demonstrated by the failure of the most powerful nation on earth, the USA, in Vietnam, Iraq and Afghanistan. If hostilities between the government and the LTTE intensify our fellow Tamils in the country will then undergo immense hardship, while the other communities in the country too will fare no better.

In such an eventuality, poverty and destitution will be staring all the communities in the face instead of 8% economic growth per year and higher incomes envisaged; the target of US $ 3,000 per capita at the end of 10 years will then become a receding mirage.

Peace talks

The second option of talking to the terrorists has so far proved to be like waiting for Godot. What is the guarantee it will be otherwise in the future? However, a window of opportunity should be left for them to join the political mainstream in case they realise their folly, without rashly banning them, which will make them go underground and mount guerilla attacks interminably.

The local (especially the moderate Tamils) and international communities have a responsibility to persuade them to use this window.

Devolution, good governance and development

So we are left with the option of giving the fullest possible devolution to the areas in the North and the East, where the Tamils and Muslims live interspersed by the Sinhalese as well, in consultation with moderate leaders of the communities concerned, while welcoming the terrorists to join the process directly or indirectly.

In the meantime a well managed, well equipped, efficient, human rights sensitive multi ethnic security force should be established to maintain peace and security in the country. Though the defence expenditure could rise for some time, it will be part of the required investment for achieving stability for attracting investments, if undertaken in a professional manner.

This all important political stability could also be achieved, if the envisaged revisions to the Constitution address the need to establish good governance and an efficient, accountable, multi ethnic public service, without which implementation of development programs will be well nigh impossible.

This will need an overhaul of the irrational and highly politicised mess of central and local government institutions.

The latter were confounded by the 13th Amendment to the Constitution, which merely grafted the Provincial Councils on to a fairly effective and inexpensive existing set up, without due adaptation.

The job will be complete only if in addition there is consensus on practical and market friendly economic strategies and policies to be followed by the country to achieve sustained growth, as more than 85% of the economy is already dominated by a more efficient and resilient private sector, (although there is in existence side by side a very expensive, inefficient and rickety State oriented and political party cum trade union trammelled public sector, which needs urgent restructuring).

Fortunately despite the dark clouds looming in the firmament, President Rajapaksa and his government have pragmatically exercised much restraint in dealing with the crisis, while making an effort to build bridges with the Opposition/other political parties and commence an all party exercise to revise the Constitution mainly to work out the desired devolution.

In other words he has got the 'caravan' to move forward despite the incessant 'barking' in the background. The job will be complete, as stated earlier, only if these changes envisaged ensure in addition good governance, a more efficient central and local administration and consensus on economic strategies for sustained growth.

Goodwill

Goodwill for the purpose could be earned by earnestly caring for the communities affected, especially those in the North and the East. This is an important prong of the peace strategy that has been overlooked so far. In any case the entire population can be enrolled into the effort by introducing economic development programs to eliminate poverty, (which is the root cause of social tensions), especially in rural areas and the regions affected by conflict and the tsunami.

For this purpose the people in these areas have be to rescued from the clutches of poverty not only by developing infrastructure, as stated in the budget 2007, (continuously upgrading such facilities while setting up mega projects which involve long gestation periods), but also by introducing land reform, so that farm sizes could be increased for them be to run as viable businesses.

Urban services and supporting industries also could be set up in selected natural locations in these areas from which farmers could obtain inputs and to which their outputs could be sold. If appropriate educational centres of excellence are also set up in such locations, children of farmers could be enabled to obtain education in higher skills and proficiency in English in demand by the private sector.

This is one of the easiest ways of extricating a person out of poverty. In addition, if supporting industries and services were encouraged to be set up in them, employment could be provided for those who leave agricultural pursuits after selling their uneconomic lots.

Curbing inflation to protect the purchasing power of these people should also be part and parcel of such a program, especially since spending on mega projects with long gestation periods (and low commercial and environmental feasibility sometimes) could increase demand vis a vis supply of goods and services.

Calm/Strategic action

What is required in this moment of crisis is calm (all pros and cons considered) strategic and pragmatic action on the lines suggested above, similar to what has been commenced already by the Government to devolve power, to improve governance and undertake economic development as envisaged in the budget 2007, (with the co-operation of the Opposition, other political parties and all stakeholders concerned).

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