BY EDWARD THEOPHILUS

An economic symposium conducted in Colombo a few years ago especially focused on vital issues related to the country. The issues discussed were foreign debt, regulation, export performance and attracting foreign investment also included. Sound advice and views of economists were encouragement for competition, reducing the cost of debt service and promoting exports to achieve a higher volume of foreign reserves. The major issue relating to the foreign exchange has been an inability to balance the incoming and outgoing foreign exchange flow.

After the COVID-19 pandemic, Sri Lanka and other countries of the world encountered significant economic backwardness and many countries show reluctance to talk about it. For example, lockdowns harm the economy because movements of people contributed a considerable volume of value to the circular flow, and COVID-19 and associated virus control measures limited the contribution to the economy. Employment opportunities have been limited and people are scared to go to market and spend. The World Bank (IBRD) recently mentioned the situation. Developed nations show apprehensiveness to talk about the outlook, most probably, investors would have considered that economic backwardness might create an unexpected risk to the world economy through stock markets. Economic policymakers have no answers, but the reality is they need to adapt to the environment, especially taking steps to control spending instead of sticking to Keynesian theory. Spending controls are admissible to Sri Lanka because the linkage of spending has no positive link back to the economy. The funds for government spending find from borrowing and such a process blows many macroeconomic disadvantages.    

The issues focused on the conference were significant issues not only in Sri Lanka alone but also in many third-world countries. Common people have less understanding of the issues they could understand from popular news in print and social media. The political motivation of the country has been aligned to spending without discipline since the 1960s. The major macroeconomic attention of the conference was based on three vital aspects: competitiveness, government fiscal stability, and maintaining long-term sustainable economic growth. These three aspects were interconnected with economic reforms, which stuck to the general rhetoric of the international financial institutions such as IMF, World Bank, and Asian Development Bank towards developing countries since the ending of the cold war in the early 1990s.

Sri Lanka already identified several issues related to economic competitiveness during the 1977 general election and the government budget presented for 1978 by Ronnie de Mel highlighted some of these issues in the budget speech with complicated corruption in the country. Corruption in the country has been a factor that affects the cost of investors and the complexity of corruption becomes a hard task to eliminate during the past several decades. The vicious aspect of corruption is politicians and public bureaucrats with politicians involved in corruption.

Corrupt practices of bureaucrats and politicians have no party difference and all are equally corrupt. The right of the universal franchise is used by political parties to work against the economic rights of the public and capitulate the rights of ordinary people and the free investment capabilities of entrepreneurs. The elected government in 1977 started several policy measures for trade liberalization and market-oriented economic policies, as they were essential conditions under the environment of that time. The liberal policy initiation of Sri Lanka and radical changes intended in the economy in Sri Lanka were kicked off before Australia introduced such competitive measures into the economy. However, today Sri Lanka is behind all other countries, two major reasons for the situation were corruption and the population policy that has not been implemented with a clear prognosis to maintain 15 million population in the country like in Singapore and ethnic issues massively contributed to an increasing population when the economic contribution has been stagnated. If the size of the population is 15 million, the value of per capita GDP would be more than the US $8000 and it might be $15000 to purchase power parity.

There were many criticisms against Sri Lanka’s policy initiatives and later rapid economic progress achieved in the country found out that the market economic policies were the right strategies to the country despite much criticism made by left political parties for purely political advantage misleading the public. The advantage of liberal policies was opening the market for investment, and the response from the political sector did not provide measures for controlling corruption from the operation. The difference between Singapore and Sri Lanka has been this factor to achieve international competitiveness. Economic and social policy markers did not motivate to eliminate vicious corruption and explain the situation to the political administration. The total value of corruption in Sri Lanka could estimate to be US $100 billion or more and if the value of corruption adds to the economy, it would be competitive beyond the Indian region and the productivity from debts would add a massive value. If the market policy was implemented without corruption, the per capita GDP could have been counted as US $ over 20000 and more investment would have come to the country as a competitive state in Asia. The other vital point is if the value of corruption in the country after the independence added to the foreign reserves Sri Lanka rupee would have a strong monetary unit in Asia and the foreign reserve volume in the like in Taiwan would be more than the US $100 billion.   

Although Sri Lanka started a competitive policy framework, it was lacking positive controls for good governance and economic disciplines when compared to Singapore, Malaysia, or Australia, there should have been undertaken market economic system with strong economic disciplines. The elected governments since 1990 have not been attempted to abolish the fundamental policy directions of the economy started in 1978 despite the market economic system rhetorically used as a feature to blame in the political platforms by opposition political parties before electing them to office. The backsliding of open economic policies was a major challenge and the hardest task for elected governments since the 1990s.

Contrast the politically motivated propaganda in public meetings and newspapers and social media, the government with leftist ideology will continue market policies in the country as it appeared such policies generated economic benefits to the country. The public of Sri Lanka did not want to go back to the inward-looking policies of the so-called Bandaranaike era, which created queues and black markets for each essential item. Although the prices were higher under the market economy, scarcity was not an issue and the producers too gained the right price for their products at an open market.

The trade competition of Sri Lanka involved many sectors of the economy supporting the market-oriented equilibrium rather than an artificial counterpoise maintained by the Bandaranaike regime with a massive scarcity. Deregulation of several key markets was the initial requirement of beginning market policies to give support for efficient operation. The major market was the financial market, which comprises trading banks, non-bank financial intermediaries, investment banks, stock markets, and superannuation markets. The regulatory authority in the financial system is the Central Bank and practically, it has not been operated as a regulator and it was forced to participate in market operations such as superannuation, rural credit and development financing. In contrast to this, the regulatory authority (Central Bank) works as a market player in the superannuation market with a monopoly and it should have done to maintain a strong regulation system with good supervision. The weak market operations have been involved with a heavily regulated labour market and a rigid trade union system in the country, the government has failed to crack down the trade union system which operates as a barrier to investment and maintaining product quality. 

The budget speech of 2015 and the government policy initiatives of the good governance regime reflected a tiny attempt to deregulate the financial system, but it has appeared that the effort was becoming purely unsuccessful because the contract between the president and the Prime Minister concerning policy implementations and crooks associated with market operation stole the system for personal advantages. This situation gave a powerful push to the election of Gotabhaya Rajapaksa in 2019 and the minister of finance in the new government has not taken effective steps to eliminate corruption and open for competitiveness. Many so-called educated guys who showed the ability to run the operation proved that they are highly corrupt personnel with a mask to show off.