Financial Times

Now - an open, mixed economy

The new Freedom Alliance formed by the Sri Lanka Freedom Party and the Janatha Vimukthi Peramuna has dispelled some of the uncertainty surrounding its stance on the economy that had worried the business community. It spelled out its policies at the recent meeting with corporate and chamber leaders, saying that it has opted for an 'open, mixed economy', with the private sector still being given pride of place but the state continuing to play a key role.

The influence of the JVP in the formulation of the alliance's economic policy came out very clearly in the repeated emphasis given to encouraging domestic production and support for small and medium scale entrepreneurs, many of whom are said to support and fund the JVP. This itself is certainly not a bad thing as in many countries it is the SME sector that provides the bulk of the jobs, although the big corporations get most of the publicity.

Some sections of the corporate leadership have expressed disappointment with the outcome of the meeting, saying that many questions, such as those on privatisation, remained unanswered. They complained that what was revealed at the meeting was long on rhetoric and short on detail. They also fear that the alliance's stance on continued state intervention in key areas of economic activity, no doubt owing to the influence of the JVP, does not bode well for private enterprise. The private sector had long been waiting for the opening up of many of these sectors such as water and been getting ready to make investments, some with the support of foreign partners.

One of the reasons for our economic backwardness today is the lack of a consistent economic policy and regular tinkering with different models. This proved to be very disruptive and one can only hope that the latest model, if it does get implemented, would not be similarly disruptive.

A major problem area for the success of the alliance could be the current differences over devolution of power of the north and east. The business community's worry is that this could prevent a lasting negotiated settlement of the ethnic problem.

The snap poll could not have come at a worse time for the garments industry, our biggest gross foreign exchange earner. Almost one million families depend directly or indirectly on the garments industry. No government can afford to ignore the possibility of large-scale unemployment if garment factories are forced to close when they can't compete once the protection of textiles quotas is removed next year.

Preparations for negotiating a free trade deal with the United States, our biggest market, which would have given our exporters preferential access, have been disrupted. Industry officials say they face a bleak future without such a free trade deal. They warn that 40-50 percent of the factories could close resulting in massive lay-offs. It is particularly at a time like this that the country expects its political leaders to work together.

When quotas for leather products were lifted some years ago, three giant factories here were forced to close as they were unable to compete with low-cost Chinese exports. If that was the impact from the loss of a few leather products quotas what would happen when our exporters lose the protection provided by the 1,000 items under the Multi-Fibre Agreement?

In the heated on-going debate about the necessity of another election not many people appear to realise that another poll - the presidential election - is looming on the horizon in just one and a half years. This means the new government elected in April would have only a limited time to get down to work before having to face another period of disruption and uncertainty.

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