Columns

President Anura Kumara Dissanayake, the ninth executive president of the Democratic Socialist Re-public of Sri Lanka, faces formidable economic challenges. The economic policies he pursues will be of paramount importance for the resolution of the country’s economic problems.

Pragmatic

The adoption of pragmatic economic policies that ensure economic stability and growth rather than ideological and populist policies is imperative.

It is also important that the next government has a long-term vision for transforming the economy to one of growth with equity. The improvement of living conditions for the poor must be a fundamental commitment. Can President Dissanayake deliver his promise of ushering in “a rich and beautiful life for all?”

Key concerns

In the short period after assuming the presidency, he has clarified his policies on some of the key con-cerns. In his brief eight-minute address to the nation on September 25, he clarified his position on several key economic policies. This was essential as there were some doubts about the JVP-led NPP government’s stance on several key economic issues, including its approach to the IMF’s agreement, privatisation, especially the loss-making state-owned enterprises (SOEs), its attitude towards the pri-vate sector, and its overall approach to economic policies.

Market friendly?

Will the NPP adopt market-friendly policies, encourage private investment, liberalise trade, and encourage foreign investment?

Economic policies

Although the NPP’s economic policies were spelled out in its 223-page manifesto and at TV discussions, neither manifestos nor election promises are taken seriously.

Often the policies pursued are different from those in manifestos and promises given. Therefore, the clarification of the government’s policies was especially needed, as the JVP was a leftist revolutionary party with statist economic policies.

Inaugural address

The president’s inaugural address and recent statements are a better guide to the economic policies and priorities of the government.

As we have pointed out in previous columns, the JVP-NPP economic policies have undergone several significant changes from that of a Marxist leftist party to a left-of-centre party.

Left of centre

Paradoxically, the NPP stance is similar to that of their rival SJB, which is for a mixed economy or a social market economy. Perhaps the NPP will rely more on state interventionist policies or a state-guided economy, somewhat akin to the Vietnamese economy.

Clarification

President Dissanayake has clarified his economic policies to some extent. He assured the country that private enterprise would be encouraged and sometimes assisted by the state. As expected, he emphasised the importance of the small and medium sector and the need to support it with financial and technical assistance. He assured the private sector that they would be an integral part of the economy.

Apprehensions

Nevertheless, some doubts persist owing to the party having prominent members who indulge in Marxist rhetoric. It is the unfolding of their policies that would be proof of their actual stance on private enterprise.

Stock exchange

The steep rise in prices of shares traded on the Colombo Stock Exchange (CSE) is undoubtedly a sign of private sector confidence. Furthermore, there has been an inflow of foreign investments to the CSE.

Advisors

The appointment of Ceylon Chamber of Commerce Chairman Duminda Hulangamuwa and Professor Anil Fernando of the Sri Jayawardena University as advisors to the President is an indication of the government’s private sector friendly approach.

IMF

An immediate concern is how the government would negotiate with the IMF on the conditions of the Extended Fund Facility (EFF) arrangement. Will the government be able to continue with the IMF agreement with some modifications that would give relief to the hardships people have experienced?

Difficulty

This is no easy task, as revenue would have to be increased to give relief to low income earners and the poor, who have been badly affected by price increases, reduced employment, and inadequate wages.

On the other hand, it is of vital importance to continue the EFF arrangement to bolster international confidence, attract foreign investments, and repay foreign debt.

If the President asks for more than what the IMF could agree to, there is a prospect of the IMF ar-rangement being discontinued.

Realistic stance

President Dissanayake and Prime Minister Harini Amarasuriya have adopted a realistic stance, and indications are that they will find ways to continue with the IMF arrangement, but not at any cost.

Two to tango

As the saying goes, it takes two to tango. This is especially so in respect of the IMF-Sri Lanka EFF agreement. In as much as the government must recognise the need to achieve the primary macroeconomic targets and undertake reforms and adopt good governance practices, the IMF too must recognise the social conditions of the country and adjust its reforms to ameliorate their living standards.

Geo-political factors

Although IMF actions are said to be devoid of politics, they may also be linked to the country’s strategic importance. All things considered, we could expect a favourable outcome for the continuation of the IMF arrangement with broader socio-political considerations.

Significant

In this context, the favourable message of the IMF that they expect to work with the new president and government may be of some significance. Although such a diplomatic response is to be expected, there are indications of both the President and the IMF working out a way of continuing the IMF’s Ex-tended Finance Facility (EFF).

The discussions the President had with the Governor of the Central Bank and Secretary to the Treasury would have convinced the President of the importance of the IMF relationship.

International responses

The response of foreign governments and multilateral organisations has been favourable. For instance, the Japanese government would resume 11 projects that have been suspended due to corruption. The resumption would not only contribute to the development of the country’s infrastruc-ture and development, it would enhance foreign reserves and boost international confidence. Similarly, there could be enhanced foreign assistance from India, China, and other countries.

Conclusion

The new government has moved towards a centre-left government from its earlier leftist ideology. It hopes to go ahead with the IMF’s Extended Finance Facility by negotiating conditions that make the burden on the poor much less. People have great expectations of a political, social, and economic transformation.