The Sunday Times Economic Analysis                 By the Economist  

The "unethical" economic conversion of the JVP
The JVP's change in heart about its economic policies should have sounded sweet music to the business community and investors. In fact it had the opposite effect.

In the current parlance, it was deemed an "unethical conversion". Only a strategic opportunistic move rather than a real change of heart based on conviction. The sudden U turn in JVP policies has no credibility, given its historical record, recent utterances, vague generalisations, inconsistencies and contradictions.

Time alone will be the test of whether they have in fact espoused new economic policies or have announced such changes to merely make themselves politically acceptable to the SLFP and the people at large. If they are convinced that Marxist economic policies are outdated and impractical in the current global economic context, it is indeed a good foreboding.

If this were so, then the alliance between the JVP and the SLFP would be truly historic, especially for the future economy. There is considerable difficulty in believing the JVP's sincerity regarding their new economic policies. For one, till the eve of the alliance they spoke in derogatory terms of the market economy and its constituent components. Although the JVP speaks of the private sector not needing to fear their policies, they do at the same time speak of certain sections of the private sector that they are opposed to.

This may in fact turn out to be a large chunk of the modern capitalistic enterprises. There is clear evidence of their hostility to privatisation, when they speak of the sale of " viable state ventures political favourites". The economic policies enunciated in the agreement are vague generalities except for their clear opposition to lending agencies on which the Sri Lankan economy is highly dependant.

There is a strong opposition to foreign direct investment and collaboration with foreign entrepreneurs. The JVP speaks of a national interest in economic policies and the encouragement of local industry, agriculture and enterprise. These areplatitudes meant to please the masses rather than specific directions in policy. Basically the economic programme is unrealistic, and if implemented, there is little prospect of rapid economic growth.

It is a set of policies that would return the economy to the pre-1977 inward-looking controlled economy. Such policies have been proved inefficient, both by our own experience and that of other countries in the region. The Sri Lankan economy, owing to its smallness and underdeveloped nature, requires foreign capital and skills.

It is not, as the Alliance statement's preamble states "rich in natural resources". It has hardly any resources required for industrialisation. Sri Lanka would always remain an export-import dependent economy.

The moot question is whether the alliance with the JVP is a reversion to state dominated economic policies or has the JVP accepted the broad framework of capitalist policies. Most people think that the latter is very unlikely and that the rhetoric is only a means to forging the alliance. The actual policies of the new alliance could be one of a state-controlled economy that would no longer be export-oriented or dependent on foreign capital.

Regular changes of governments and drastic changes in economic policies impeded post-independent Sri Lanka's economic progress. These reversals in economic policy were to a large extent responsible for the lack of confidence of foreign and local investors and the low levels of economic achievement.

The election of the People's Alliance in 1994 was a noteworthy event in the economic history of the country. It marked a watershed in economic policies. The PA government on assuming power enunciated a set of policies that were broadly the same as that of the previous UNP government.

The President's Statement of Policy on the economy and the subsequent Budget Speech made this clear. There was a reversal of the previous policies of the SLFP- led coalition and for the first time there was continuity in economic policies. The PA government was responsible for some of the most significant privatisations such as Sri Lanka Telecom, NDB and the plantations. For the first time, the two main political coalitions pursued similar economic policies. Is the new alliance a further broad consensus in economic policies or retrogression to diametrically opposite policies?

There are in fact two critical ways in which the new alliance could spell disaster to the economy. This is through the responses of the LTTE and Tamil parties to the alliance.

Given the antecedents and the recent stance of the JVP on the peace issue, the LTTE may refuse to continue the negotiations. A reversal of the peace process would indeed be a deathblow to the economy. There is hardly any need to spell out the consequences of such an eventuality.

The other economic concern is that the multilateral agencies and donors, who are deemed hostile to the country by the JVP and now the alliance, are not likely to be forthcoming with aid and assistance.

These two factors are likely to put back the economic advancement of the country once again. The country requires giving the JVP a further probationary period in opposition to allow them to articulate their policies clearly and fashion them in a consistent and pragmatic manner. Then we can test out the sincerity of their economic conversion.

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