The Kandy News Online Edition
July / August 2005
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EDITORIAL

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The Economy and Political Instability

The political instability that exists in the country is palpable, the pronouncements to the contrary from the president and government notwithstanding. The Chandrika Kumaratunga presidency has entered its "lame duck" stage even if the tenure ends only in 2006 December. This relative draining of power and influence from that theoretically all powerful office was evident a few weeks ago when the candidate for the key position of lay custodian Diyawadana Nilame - of the Dalada Maligawa that the president openly backed lost badly in the election.

The government, reduced to a minority position of about one-third of the total House, too is a lame duck in parliament. This means its legislative program has to be limited per force to those that meet with the approval of the opposition. This may promote a certain type of consensus politics. But the trade off is lack of strong government.

The P-TOMS mechanism that was supposed to deliver tsunami assistance to the north and east is in a state of suspension following the Supreme Court verdict that found two of its provisions to violate the Constitution. More generally, there is a widely held view that the highly centralized Colombo-based tsunami mechanism that the government set up has denied the district and sub-district administrations the required decision making power and flexibility to craft assistance programs to suit local community needs.

The World Bank (WB) whose views are key to understanding the attitude of the donor community in general has voiced its concern over the political instability eroding business confidence. A few weeks ago WB published a report that reviewed Sri Lanka's prospects for attracting foreign direct investment (FDI). It pointed out that this country in recent years has received around 1.0% to 1.5% (US $200m to 250m) of GDP as FDI when many of our Asian neighbours were receiving 3.0% or more. There are several reasons including poor infrastructure, especially bad roads, for this comparatively poor performance. But one of the principal factors that discourages FDI is political instability and attendant uncertainty of economic policy.

The World Bank representative in Colombo Peter Harold stressed the latter point when he recently addressed a group of industrialists in Colombo. He called for a discourse on industrial policy that would lead to a framework that the left, right, centre and all others could agree upon.

The country will have to pay dearly in terms of lost investment, jobs, and incomes for the failure to have a stable political environment and agree on the basics of economic policy broadly defined to include not only FDI but also taxation, power, transport, and financing of education, health and social welfare.

India's Congress-Communist coalition government is busy building bridges to Washington, DC. This policy is no different to that followed by the "ultra nationalist" Bharatiya Janatha Party (BJB) when in power. "Communist" China is such a haven for capitalist exploitation of workers that it now annually attracts over $50 billion in FDI. That is about one-third of all FDI that goes to all countries outside the industrialized western nations. More than 400 of the world's top 500 multi-national companies have operations in China. With such policies China has also lifted at least 400 million of its poor above the poverty line.

Viet Nam which is another nominally communist country is effecting major economic reforms and assiduously wooing foreign investors. In 2003 the country got $1,450m in FDI when we got only $229m. Our politicians and political parties are in a dog fight to gain and retain power on the pretext of saving and serving the nation. Indeed when one listens to some of the fiery speeches that our politicians deliver one wonders whether they have any real clue as to what is actually happening in the rest of the world.