Economy
2005 in retrospect and hopes for the future
By Sunil Karunanayake
Our regular columnist on corporate and macro-economic issues argues
that while the country is getting over the tsunami shock, big challenges
lie ahead with the Tigers stepping up attacks and a looming power
crisis which could be handled only with good, honest political and
economic management.
If
2005 dawned on a grim note with loss of human lives, damage to property
and displacement of many causing irreparable damage to a nation
grappling with many man made disasters for the last few decades,
the ending of 2005 seems no different with escalating violence on
the north threatening the peace and stability of the nation. This
most disturbing news has shocked the business and investment community
and a bear run has pushed the Colombo stock market on a downward
slope.
These
signals clearly indicate peace is a necessary ingredient for economic
activity and we need foreign and local investor confidence in a
highly networked globalized environment. It is the investors who
create productive capacity for goods and services and generate employment.
This brings us back to square one - whether Governments have understood
the gravity of the main problems threatening our very survival.
The
country benefiting from worldwide sympathy and the large-scale inflow
of funds fared reasonably well to project a good economic performance.
The rupee strengthened, balance of payments turned positive, trade
deficit narrowed with sound performance for the export sector, though
the tsunami affected fisheries and tourism adversely. Paddy harvest
reached record heights, tea exports were steady, rubber prices improved
and the private remittances showed a steady increase. Colombo stock
market enjoyed a boom with IPOs registering record subscriptions
and the indices reaching highest levels. Corporate earnings soared
with good performance from the financial sector.
During
the year the Central Bank pursued an aggressive open market policy
to curb the rising money supply and was also forced to raise the
policy rates three times. The Central Bank also raised the minimum
capital requirements for licensed commercial banks and specialized
commercial banks and carried out a financial stability review to
enhance the confidence in the financial sector.
The 2006 budget recently passed in the Parliament focused on resurgence
of the rural economy and the growth of the SME sector with many
incentives and subsidies being proposed in this direction. Government
was also emphatic that they will not be pursuing a privatization
policy.
To
be in line with the expectations of this policy framework of non-privatization
and to fulfill its commitment to the public it is the duty of the
Government to appoint competent people to run state enterprises
and not reward party loyalists and confidantes with high positions
in the state sector. We have seen nearly a half a century of state
driven economy and also the effects of privatization since the 80s.
No
one would grudge state ownership as observed in the Singaporean
model but the issue lies with the appointees. Some years after the
nationalization the CTB did emerge as a efficient organization with
some of the best public sector officials being at the helm.
Sadly
this was short lived and politicization and trade union interference
made them depend on government revenue coming mainly from the tax
paying public. Plantations were no different with long term adverse
repercussions on an industry producing a global product for a global
market. On the other hand state pioneered ventures in tourism and
shipping turned out to be success stories.
The
other major crisis is the power crisis. With demand increasing year
by year and cost of fuel rising sharply even at this moment we do
not have a clear programme to enhance alternate power generation.
It is well known that the Ceylon Electricity Board is incurring
heavy losses and these losses are financed by state banks adding
more pressure on the monetary expansion threatening inflationary
trends.
Today
cost of electricity is exorbitant thus making our industrial goods
uncompetitive. Some industrialists have been forced to tie up their
capital in high cost power generators thus retarding investment
in productive sectors.
(The writer could be reached at - suvink@eureka.lk)
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