The Sunday Times Economic Analysis

The Sunday Times Economic Analysis By the Economist

Post Geneva economic expectations, prospects
The holding of the Geneva talks generated new hopes for peace or at least the cessation of the fighting that had unsettled economic expectations. The government and LTTE agreed to uphold the Ceasefire Agreement. They also agreed to ensure that there would be no child recruitment, intimidation, violence, abductions and killings.

The country as a whole hopes that the government and LTTE would implement the agreements they have reached and ensure a period of peace. Even were they to not implement it fully it is most likely the levels of violence would be much less than in the last few months. It is further hoped that this initial reopening of a dialogue would be an important confidence building measure that would pave the way for an ongoing process of negotiations that would lead to a durable peace.

As to be expected in our divisive political context, the outcome of the talks is debated and disputed. The interpretations are somewhat confused. Yet a temporary truce appears to be in place till the next session of these talks at the end of April. In whatever manner the outcome is interpreted there could be some solace in the fact that at least relative peace is assured till this next session.

The security situation is likely to be better than in the recent past. The hope is that these talks would continue and lead on to the next stage of negotiations for a permanent constitutional settlement that would ensure an enduring peace. That is no doubt a bumpy long protracted road but even travelling some distance on it gives a measure of optimism for the economy.

Even a respite could lead to a better economic performance this year. Two sectors that were badly affected were fisheries and tourism. The destruction caused by the tsunami on the fishing fleet and fishery harbours and the displacement of those depending on fisheries were the causes for a significant decline in fish production.

The gains in fisheries after the CFA were dashed by the tsunami destruction. An improved security situation in the North and East would assist in the resuscitation of the industry. Without a secure environment there would be difficulties in developing the fisheries infrastructure, providing new boats and establishing satisfactory housing for fishermen. It is hoped that the peace moves would enable progress in these in the affected areas and tsunami reconstruction would be speeded up.

The tourist industry too was badly affected by the tsunami owing to the devastation and exaggerated concerns with the beach locations. This is clearly seen in the fact that while the number of “tourist” arrivals increased the earnings from tourism declined significantly. The occupancy of hotel rooms was low. This is the year when we should aim at an upsurge in tourism. That is only possible if there is sufficient confidence that the peace holds. Fortunately the growth of tourism in the short term is not dependent on a durable peace and final settlement, but only the realization of reasonable security in the country.

The industrial sector that began with a degree of anxiety owing to the relatively lack lustre performance in garments took a different turn at the end of the year.

This performance if continued could be a measure of the sustainability and competitiveness of the largest industrial export sector and indeed the largest export of the country. The performance of most industries in the country is however hardly affected as long as the insecurity is contained.
The continuing talks would no doubt ensure this. Similarly agriculture performed well. A growth of around 7 per cent in agriculture is estimated. Last year saw the highest growth in agricultural output in recent years. The performance in agriculture is only marginally affected by the security conditions.

However if the security situation deteriorates to the extent that farmers in the North and East and border villages face threats, then agricultural production could decline. After the CFA there was a boost in paddy production in particular owing to some uncultivated lands in the East being brought under cultivation. This has been sustained. The current negotiations are likely to contribute to this continuity in increased paddy production.

The immediate gains of the talks is that some sectors would continue to progress unhindered. As the country’s experience has shown the economy can perform at a moderate level if the security situation is contained and confined to limited areas of the country.

Terrorist activities that are aimed at economically sensitive targets such as hotels, airports and vital areas of business activity would have a serious impact on the economy. This has been averted for the present. However, for much higher inflow of tourists, larger and significant increases of foreign direct investment and higher rates of economic growth sustained year-in-year out, a more durable peace and settlement is needed than a mere fragile ceasefire agreement.

This should be the goal of achievement as soon as possible. Lingering peace talks would not achieve this. Let us hope that the next round of peace talks takes us closer to a final settlement.

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