The Sunday Times Economic Analysis

The Sunday Times Economic Analysis By the Economist

Another missed economic opportunity
When the political stability of a country is dependant on who controls a lotteries board, the business of economic management is likely to be ill done. For about one year the country has had relative political stability. Positive signals from the peace negotiations added to the confidence in an environment conducive to economic growth. Expectations of substantial aid were a decisive boost. Yet all these favourable factors are fast fading and business confidence is being eroded.

The enemy within can often be much worse than the enemy without. Unless we are able to repair the political controversies and the overhang of dissolution of parliament, it would be difficult to attract investments from abroad. In addition to a dearth of foreign direct investment, unstable political conditions could result in capital outflows as well. There can be little doubt that the high rates of economic growth of 8 to 10 percent that is much desired could be achieved and sustained only if we are able to attract much higher levels of foreign investment than at present.

The hardening position of the LTTE about attending the Tokyo Conference has further eroded confidence in the progression of the peace process. An erosion of confidence in the peace process would be a setback to business confidence. If the Tokyo talks on aid fail to provide substantial aid flows, then the damage to the economy could be still worse. That is the current backdrop against which the economy has to perform.
What then are the positive aspects of the current scenario? Despite the setback to the peace process there is a general consensus that the country would not go back to a war situation and terrorist attacks of any large magnitude. This view is based on a number of considerations.

There is a war weariness on the part of the state and the LTTE. The international situation, particularly the attitude of the US to terrorism, would make it difficult for the Tigers to get back to large-scale terrorist attacks. It is also the view of many that the Tamil people do not want the war-like conditions that they have suffered from for two decades. This dislike, it is argued, has been especially generated after the return to some sort of normalcy in parts of the North and East.

Whether the feelings of the Tamil people matter and is an important factor to prevent the resumption of terrorism is a moot question. So in spite of the unfavourable developments, the expected worse case scenario is not one of the pre-2002 situation. If the no-war-no-peace situation prevails some of the economic gains that have been realised recently could be consolidated to some extent. We would be sacrificing the potential gains of a permanent peace, but avoiding the worst ravages of war.

A continuation of the current situation would continue to be helpful to tourism, agriculture and fishing activities in the North and East. But the full economic potential of the North and East as well as the rest of the economy would not be possible. The Central Bank has projected a growth of 5.5 percent for this year.

Despite some unfavourable developments, the economy fared quite well in the first quarter of the year. However when the Central Bank projected this growth several preconditions were stipulated. These included the considerations set out earlier that have turned somewhat unfavourable as well as favourable global economic conditions.
It appears that the country has forsaken the best possible economic scenario owing to political wrangling and the stalling peace negotiations.

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