| The Sunday Times Economic Analysis By the Economist | ||||||
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War and peace: Three economic scenarios By the
Economist We have gone
through the first scenario and are fully aware of the damage that
has been done to the economy. Yet we must remind ourselves of it
to appreciate the relief that has come about to the economy with
the cessation of hostilities. The second scenario of no war no peace
that we are experiencing is a limited economic gain. It is also
a period of uncertainty. And we all know that uncertainty is not
conducive to economic decision making, particularly investment decision
making. The question
is when would the country move into the third phase of a durable
and lasting peace? It is then and only then that the potential of
the economy can be realised. Till then the economic engine will
be firing only with some of its pistons. The impact of the war on
the economy has been horrendous. It is not only the unbearable direct
costs of the war that has eroded the public finances and crippled
the government form meaningful economic action. The huge government
expenditure has also had indirect impacts through inadequate funds
to the private sector, high interest rates and inflation. Besides these
several sectors of the economy could not perform to their potential.
Tourism is a clear case of a sector in the economy that had a serious
set back. Agriculture in the North and East and in the border areas
was jeopardised. Fish production in the country is estimated to
have fallen by about 40 per cent as a consequence of some of our
best areas for fishing not being accessible. Foreign investment,
so vital for our economic expansion and economic diversification
could hardly be attracted in the needed amounts in an environment
of uncertainty, terrorist attacks and insecurity. The security situation
accounted for many investors foreign as well as domestic withholding
their investment. Even this list
does not adequately cover the full economic and financial impact
of the war. The second scenario that we are currently experiencing
has ridden the country of some of these ill effects, at least to
a fair extent. Once again there is a revival of fisheries and agriculture
in the North and East though not by any means to their full potential.
The improvement on the security situation is bringing a larger number
of tourists and a revival of the hospitality trade is imminent.
Foreign investors are still to flow in any significant manner, though
some foreign investment has come in. Overall the
investment climate has improved though global conditions continue
to pose a constraint. All these are limited gains. Substantial economic
gains require evidence of a durable peace with a sustainable political
and constitutional settlement. We are told that this cannot be expected
in a short period after a war that lasted nearly two decades. Yet
the peace process appears to be only partially convincing. There
is the whole question of the LTTE actions making it difficult for
the government to gain the vital support of the required majority
in the South. The uncertainty
of a settlement of the core issues is unfortunately limiting the
gains that could come from a durable and sustainable peace. The
potential gains from a durable peace are considerable. The reconstruction
of the North and East with substantial promised aid from abroad
would in itself be a much-needed boost to the economy. In fact such
reconstruction could compensate for the current slow growth in consumption
demand of industrial countries that is holding back our industrial
exports. There would also be considerable new foreign investment
once there is clear evidence of a durable peace. The potential for
the improvement of the East and the North on non-traditional lines
are substantial. These areas provide opportunities for new industries,
commercial agriculture and tourism on a larger scale, as some of
the best beaches are in these locations. These of course are in
addition to the traditional areas of economic activity such as agriculture
and fisheries. Regrettably
the discussions of the peace process ignores the economic realities
and the need for forward-looking policies. Modern Tamil youth, like
their counterparts in the South, are not yearning to churn mud in
their span clothes to grow paddy in small plots. They are looking
to modern agriculture and the vistas that information technology
and high industrial technology could provide. They are not looking
to be locked up in their traditional homelands. Their potential
cannot be achieved by their access to jobs through their knowledge
of Tamil, rather through the acquisition of knowledge and skills
through English and science. It is a tragedy of Sri Lanka that we
are all burdened by history rather than forward looking to achieve
greater heights in a globalised world where knowledge skill and
technology rules the world. We are looking back to avenge the injustices
of the past without hitching our economy to bright future prospects
that lie ahead. The economic future of our people depends on whether
we could attain a durable peace with a sustainable constitutional
arrangement. Without it the economy would continue to perform below its potential. The negotiation process and the final settlement could be expedited if only the negotiators look at the potential economic gains for those in the North and South. If these gains are not a vital consideration in the talks, we will continue to be guided by antiquated concepts that look backward rather than be futuristic and pragmatic.
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Copyright © 2001 Wijeya Newspapers
Ltd. All rights reserved. |
There can be no doubt that the country's economic performance
would depend very much on whether we have war or peace or a condition
of no war no peace. Each of these scenarios will have their counterpart
economic scenarios. 
