Financial Times

Doing business with new leader
The narrow victory for Mahinda Rajapakse in the presidential poll means that to a large extent the uncertainty that has dogged the country in recent times is now over and it is time to get down to work.

Although some uncertainty remains over the future of the peace process and about the newly elected president’s economic policies, the smooth transition of power and the fact that the presidency and government both remain with the same party should ensure stability.

There are still doubts about the passage of the government’s budget when it comes up for debate once parliament resumes sittings, given the opposition UNP’s objection to it and the ruling coalition’s lack of numbers.

Most likely the government will be able to cobble together enough support to have the budget passed. What seems to be more pressing from a long term point of view are the huge challenges facing the newly elected president on the economic front. Rajapakse’s victory and the presence of leftist parties in his government would surely mean market reforms would not take place as fast as or as deep as the private sector would like it. Most likely the policies pursued by the UPFA alliance in which the JVP was a key member are likely to be continued.

This means a heavy emphasis on the rural economy and on small entrepreneurs, which in itself is not a bad thing considering the fact that ours is still a largely rural economy and that small and medium enterprises are important, albeit low profile, players.

Although Rajapakse’s alliance with groups like the JVP and JHU has led to fears especially in the business community of a hard line approach to the peace process and hostility towards the private sector, these fears seem to have been overblown. Deva Rodrigo, chairman of the Ceylon Chamber of Commerce, has made a valid point that Rajapakse, being a more earthy politician and now proved to be more popular than opposition leader Ranil Wickremesinghe in the south, might be in a better position to ‘sell’ to the southern polity any solution to the ethnic problem.

On the economic front, Rajapakse clearly has much more work to do than Wickremesinghe to convince the private sector and aid agencies that his regime will not be hostile to business and to win the confidence of local and foreign investors.

The stock market crash, although superficially indicating that investors are unhappy with a Rajapakse victory, is not really an accurate barometer of sentiment as such short term movements can be rigged.

Most analysts say the market will bounce back again. After all, the stock market boomed even when the JVP was part of the government. Among the biggest challenges facing Rajapakse will be the need to demonstrate that he will not go on a reckless spending spree that could blow a huge hole in the budget and thereby derail the economy. Certainly, if he tries to implement all that he promised he will soon bankrupt the Treasury. Wiser counsel is likely to prevail now that he faces up to the cold, hard realities of economic management.

The private sector naturally harbours fears that Rajapakse’s victory could mean further delays in market reforms, particularly those relating to labour laws, which they have said deters investment.

Rajapakse’s talk of a mixed economy has created confusion and fear in the private sector. He himself has tried to allay these fears. Now it is up to the business community to reach out to the new president and his allies and convince him about their own proposals or their ideas about what is good for the economy.

Back to Business