Financial Times

Privatisation about-turn?

Remarks by Finance Minister Sarath Amunugama indicate that already there has been some change in the government's policy on privatisation hardly a month into its term of office. He has spoken about selling off remaining government stakes in the national carrier Sri Lankan Airlines and in Sri Lanka Telecom and listing them in an overseas stock exchange. This, no doubt, would be welcome news to investors, particularly to foreigners who would prefer to invest in international businesses.

Investors have all along been pressing successive governments to list these big enterprises on the stock exchange as they represent key sectors of the economy and would add sorely needed liquidity to the market.

The SLFP and JVP had been strident critics of privatisation and pledged not to privatise key state enterprises. Mano Tittawela, senior advisor to President Chandrika Kumaratunga, told The Sunday Times FT soon after the poll that the new Freedom Alliance government would not privatise strategic state enterprises.

Instead, it would move fast to pass legislation to set up a new body to run these organisations more efficiently to compete effectively with the private sector. It was widely presumed that strategic state enterprises included public utilities such as the Water Board, as well as the former state telecom monopoly, SLT, and the national carrier, Sri Lanka Airlines.

Strategic state enterprises were to be brought under a Strategic Enterprise Management Authority and given full autonomy to ensure they are run free of political interference in competition with the private sector as viable institutions on the Singapore model. Now it seems the government is so desperately short of money that it is indeed going ahead with the further privatization of some strategic state assets.

The apparent about turn on privatisation should come as no surprise to those corporate leaders who at the very outset pointed out that pre-election rhetoric designed to woo voters might be different from post-election reality when the newly elected government is faced with the difficulties of raising the required revenue to fund its election promises.

It was Joint Business Forum chairman Mahendra Amarasuriya who pointed out that the new government might be forced to depend on privatization to fund the promised subsidies. "It is very difficult for the government to deliver on its promises and at the same time to curtail privatization," he was quoted as saying recently.

"Although the government has signaled that it is not interested in further privatization, they might do so if required because they are committed to reintroduce the fertilizer subsidy and give Samurdhi benefits to the needy for which they need huge funding." He pointed out that given the huge government debt burden, it might have to depend on privatization proceeds to fund these programmes.

There were question marks over some of the privatisation efforts of the UNP government, such as the Sathosa deal and the abortive attempt to sell bus companies to shady investors, just as much as there were question marks about the previous People's Alliance government's own privatisation deals.

If state enterprises were managed efficiently and they were making profits while providing a good service to the public, there is unlikely to be pressure from foreign lending agencies to privatise them. Even if there were it would be hard to justify such pressure.

Donor agencies and foreign aid donors today are much more realistic and more tolerant of the pressures governments face.

They are willing to give Third World governments more room to manoeuvre and are likely to give the UPFA enough leeway especially since they would not want to jeopardise the peace process by turning public opinion against it.

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