Economic potential
of historic consensus
By the Economist
The agreement reached by the two main political
parties is of utmost significance and importance to the country's
future and would unquestionably have an impact on the economy. This
agreement that is to be signed tomorrow is indeed historic. Some
of its details may be even beyond the expectations of most readers
of this column. The consensus on several national issues augurs
well for the country. This is especially so with respect to the
agreement on the devolution of power. If a durable peace were achieved
soon, then the much expected peace dividend would materialise. Without
it the economy would keep wobbling along.
Some economists have attributed the alternating
economic regimes from liberal ones to socialist ones as one of the
prime reasons for the slow growth of the Sri Lankan economy. There
was a break from this pattern in 1994 when the SLFP led government
declared an economic policy of continuity with change. For the first
time since independence there was a degree of continuity and certainty
in most economic policies and consequently there was confidence
in the basic economic framework continuing. In fact the SLFP government
not only adopted the broad framework of a liberalised economy, but
also continued the programme in some instances more vigorously than
the UNP government. The SLFP that had previously nationalized many
ventures, as well as opposed privatisation when in opposition, did
some of the more important privatisations, such as of the estates
and telecommunications. It is this degree of continuity in economic
policies that has been the reason for confidence of investors even
in the face of an escalating war situation and a high degree of
insecurity in the country. The economy has demonstrated resilience
in spite of threats of terrorist activities and a continuing war
owing to the continuation of the economic policies introduced in
1977.
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History in the making: The delegations from
the two main parties meeting last week to reach a consensus
on important national issues. |
The current consensus between the two main political
parties could strengthen and consolidate this confidence in the
continuity of economic policies. One of the areas of suspicion of
the Mahinda Rajapaksa government's economic policies was the inclusion
of the JVP as a partner in the election agreement. There were strong
elements of disagreement in economic policies between the two parties
that deterred implementation of many reforms. Therefore this agreement
is particularly important at this juncture to restore the confidence
that had been eroded by the SLFP alliance with the JVP that had
totally opposite views on many economic policy issues. One of the
consequences of this alliance with the JVP was one of change and
modification in the SLFP economic policies.
Now that the UNP is in alliance with the SLFP
there should be a greater consensus on economic policies. The obstacles
to the implementation of several economic reforms may now be removed.
The privatisation of some enterprises may also be possible now.
These policies could change the attitude of the multilateral agencies
that have withheld assistance that has made the government seek
commercial loans at high rates of interest. Foreign assistance too
could be more forthcoming. If the consensus turns out to be durable,
then foreign direct investment flows that are very inadequate at
present could increase substantially. This could bolster the rate
of economic growth.
The most important impact of the agreement on
the economy is however through the attainment of a durable peace.
For the first time the two parties have come to a historic agreement
on the parameters of a constitutional settlement. The lack of a
consensus on the constitutional arrangement has been the most serious
obstacle to achieving any progress on the national question. Now
that there is such agreement we must move on to get an agreement
with the majority of moderate Tamils and Muslims to allay their
fears. Then there is the need to get international agreement that
the envisaged constitutional arrangement is fair by the minorities.
These steps would be crucial to a settlement of the so-called ethnic
issue. This does not mean that the road to the attainment of peace
would be a smooth one. No doubt there would be parties, a minority
though they may be, that would oppose the proposed solution. These
elements, including some in both of the main parties, would object
to it on grounds that it is in effect granting Eelam or federalism
or that it would lead to the division of the country.
An expectation of agreement by the LTTE is futile.
Their agenda it is blatantly clear is a different one. It is however
now very clear that they do not represent the Tamil people. There
interests are diametrically divergent from those of the peace loving
Tamil people who desire peace and equal opportunities in all spheres
of national life. That must be the objective of government policy.
Pursuance of such a policy is less costly than the war and provides
what economists call a "Paretto Optimum" solution, one
that benefits all and there are no losers.
Now that the government has a substantial majority
behind it, it must act boldly and decisively. If they do not seize
the opportunity accorded by this agreement, then there is little
doubt that the economic consequences would be dire for a long and
foreseeable future. A permanent peace by creating a climate conducive
to investment would have the beneficial economic consequences that
we have mentioned. Pragmatism must override extremism on both sides
of the divide to ensure a durable settlement of the problem that
alone can propel the economy to greater heights.
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