Impending gloomy economic probabilities
There are several likely economic outcomes following the post electoral political changes. The two most significant among them arise from an unstable government and the postponement of the peace process. The economic consequences of the election results not ushering a stable government are many. The likely postponement of the resumption of the peace process could be costly.

There are other consequences that would flow from the policies pursued by the new government and the perception of what the government's economic policies are likely to be. Apart from these, is a rather gloomy picture of rising oil prices in the international market that would have crushing adverse impacts on the country's economy.

Without a stable government there would be a lack of confidence in the policies of the new government. Such uncertainty would lead to a postponement of decision making that would slow down investment. The government itself would face difficulties in pursuing policies that are needed but unpalatable to the mass of people. The constant reminder that the opposition could get together to defeat the government in parliament is a most unsatisfactory overhang for a government to implement corrective economic policies.

A lack of clarity in the economic policies that would be pursued by the coalition government could slow down economic activity. What is best for the country is for the President to lay down the framework of policies and the principles of the government's economic policies in the same manner that she did in 1994, when the PA government was elected. Broadly this statement should stress the degree of continuity of economic policies on the one hand, and the differences in policies on the other. Certainty and clarity are vital in economic policies. Equally important would be pragmatism that takes into account the trade and aid dependency of the economy, the international environment and the international economic order that is now pervasive. This does not however mean the uncritical acceptance of policies laid down by international agencies and their pressures.

The economic policies should be in the long-run national economic interest. Clarity in economic policies and a consistent pursuance of them will greatly assist in developing a much-needed confidence in the government's policy. The breakdown in the peace talks has already had an adverse impact on the economy. Resumption of war would of course be disastrous to the economy.

Delays in resuming the peace process would also affect the economy adversely. Much was expected from the committed foreign aid mainly for the reconstruction of the North and the East. The suspension of this aid implies a weakening of the balance of payments and foreign exchange reserves. This together with a possible flight of capital and a deteriorating trade balance could pose serious problems.

Any erratic response to a weakening of the balance of payments could be counterproductive. Departure from free trade and liberal exchange policies could aggravate the flight of capital in various innovative ways. Unfortunately, in the past responses to financial crises have been capricious. Such responses have eroded economic confidence and led to a spiralling of the adverse developments. Wise counsel of economic experts must avoid these. The increasing trend in oil prices would affect the economy in many ways.

Already both the Petroleum Corporation and Electricity Board are incurring losses. An upward revision of petroleum prices would affect the cost of living immediately and erode the promises made at the polls by the Alliance. On the other hand, losses would affect the government finances.

The promise of increasing fertiliser subsidies would be even more difficult with the rise in international oil prices. These would also raise international prices of fertiliser as well. The increase in Samurdhi beneficiaries would also mean dire consequences to the public finances.

Keeping to the election promises would have strained the public finances of the country even without adverse developments in the international economy. With the new developments it is vital for the peace process to be resuscitated in earnest and the prospect of peace made more certain. Else the further adverse impacts from deterioration in security conditions would be disastrous to the economy.

What we must wish for the new government in the interests of the economy is a reduction in international prices of oil, the commencement of the peace process, the enunciation of clear and consistent economic policies and good economic management. These are vital to ensure that the economy would not slide. Pragmatism in economic policies is the need of the hour.

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