Financial Times

Elections and broken promises
The predictable routine of grandiose promises by election candidates has started but there is nary a word on how all these generous subsidies, handouts and incentives are going to be funded.

The voting public has long become accustomed to such promises and know better than to believe them. But that’s not the issue. What is of concern to readers of these pages is the utter recklessness and irresponsibility with which the two leading contenders for the presidency are making election pledges, many of which, it would be obvious to anyone with an iota of commonsense sense, cannot be fulfilled given the parlous state of our economy.

What is even more frightening, and this is where the business community would be most concerned, is the danger the economy would be placed in if the victorious candidate actually tried to implement these promises. For that would mean a further deterioration of our already weak economic fundamentals. Such tinkering with the economy is dangerous.

Both parties have said they support an open economic system and the differences between them appear to be mainly a matter of degree. But both the main candidates in the fray at the forthcoming presidential poll are offering voters a plethora of subsidies and floor price mechanisms that go against the tenets of free market capitalism.

The inflows and pledges of foreign aid and debt relief that came in the aftermath of the tsunami have helped hide the nation’s economic realities and lulled the public into a false sense of fulfilment.

The economy is likely to come under severe pressure due to mounting global oil prices, according to a recent report by HNB Stock Brokers. This may result in the deterioration of a range of economic indicators such as inflation, the fiscal deficit, balance of payment and foreign exchange reserves. Donor agencies have been critical of the govern ment’s inability to meet budget and revenue collection targets, and the manner in which it has overspent on subsidies as well as its reluctance to raise fuel prices.

The government recently, in what was obviously a desperate move, waived the VAT on diesel and milk powder in an effort to rein in inflation ahead of the presidential poll.

The government has said it would not raise fuel prices as doing so would mean inflation, which is already high, would go up further. But everybody knows that fuel prices are bound to be increased once the election is over, no matter who wins, because the fuel subsidy has become an intolerable burden on state coffers.

This is what happened at the last election. It is a pity that there is no mechanism with which to monitor election pledges made by candidates and force them and their parties to prove how such promises could be funded.
This is a lacuna that needs to be filled although how much political support the idea would get remains a moot point. It is up to civil society and particularly the business community which funds the parties and their candidates to push for such a mechanism or law.

The Fiscal Management Responsibility Act, enacted in 2002, which was welcomed with much enthusiasm in the belief that it would prevent reckless spending, has proved to be ineffective.

It does not have any way of compelling election candidates to say how their promises are to be funded, although it is certainly one step forward. The economic truth would be revealed once the poll is over. These election promises are therefore meaningless. It is best for voters to treat these promises for what they are – just promises - and judge the candidates on their track record and that of their parties.

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