Warning bells and good advice
by Namini Wijedasa in London

A high-ranking London-based economist warned last week that Sri Lanka will not achieve its anticipated annual growth targets — eight to 10 per cent — if it did not urgently undertake economic reform, implement electoral change and take meaningful steps towards resolving the ethnic crisis.

Dr. Indrajit Coomaraswamy, a respected Sri Lankan professional who heads the Commonwealth Secretariat’s economic affairs division, also urged the public to take a proactive role in guiding politicians down the "correct path".

"I think the private sector, civil society and media can do more," he said in an interview with the Sunday Island. "The latter should focus less on personalities and petty conflicts within politics and look at the country’s big issues. They should investigate how these could be sorted out and what type of politics can resolve the problems."

"The media also needs to encourage people to apply pressure on politicians to address the challenges of the day in a constructive spirit."

Economic affairs

Coomaraswamy, who holds a BA (Hons) from Cambridge University and a DPhil from Sussex University, previously worked at the Central Bank of Sri Lanka (CB). He was seconded for service in the ministry of finance and planning. He first moved to the Commonwealth Secretariat’s London headquarters in 1989, as chief economics officer. In 2001, he was promoted to director of the economic affairs division. On two occasions — in 1995 and in 2003 — he worked on the economic reform programmes of incumbent Sri Lankan regimes.

The economist maintained that he was breaking one of his own rules by speaking out.

‘I have always felt that a public servant should not be seen or heard, but should work behind the scenes," he said. "But this seems to be a good time to express some views on the major challenges that confront us.’

He emphasised that Sri Lanka was at a crossroads. The building blocks were in place for the country to make rapid progress and several governments have aspired to achieve annual growth targets of eight to 10 per cent.

"In my opinion, however, we will not attain this growth rate if we don’t tackle three major issues," Coomaraswamy asserted. "The peace process, economic reform and electoral change. There’s plenty of understanding in terms of what has to be done. The problem is implementation."

He said nobody was off the hook: the government, the opposition, all other political parties, the LTTE, the media, civil society or the people.

"Sri Lanka has a lot of good people but we don’t have an overall political consensus that can enable us to take difficult decisions."

Commenting on the economy — his primary area of expertise — Coomaraswamy cited Sri Lanka as a good example of a country that had experienced sustained terms of trade decline over several decades.

Formal education

During the post-independence period, Sri Lanka had successfully injected money into the social sector — particularly health and education. The participation rate in formal education was impressive but the country was not able to create conditions for gainful employment.

There were reasons for this. At the time of independence, Sri Lanka had a population of about nine million. The country also had surpluses in the plantations sector. So, they taxed the surpluses and financed social sector investments.

But in the 60s and 70s, the country experienced a rapid population growth of three percent or more. Simultaneously, the surpluses in the tree crops sector got squeezed.

"The resources were sucked into the social sector investments," he explained. "We didn’t have enough left over for investment in capital stock, like infrastructure and equipment, which would have created jobs."

Sri Lanka’s performance in comparison with South East Asia was disappointing, he admitted.

"We could have done as well as them," he stressed. "By allowing this (civil) conflict to go on for as long as it has done, we really have not done ourselves any favours."

Meanwhile, current progress in India has now provided us with an economic opportunity. Sri Lanka must take advantage of the Comprehensive Economic Partnership Agreement. Coomaraswamy observed that we had already dropped a catch in the 1980s, when civil conflict prevented the country from capturing Japanese investment. During that period, countries like Malaysia, Thailand and Indonesia had significantly transformed their economies through Japanese business.

Cost of living

The cost of living is a problem for many Sri Lankans because the country was a low productivity economy and wages were low.

"We cannot significantly increase the overall productivity or competitiveness of the economy without tackling two very large wells of low productivity," Coomaraswamy explained. "The public service and the traditional agricultural sector."

Over the years, the public service has been used to meet the shortfall in sustainable employment.

"We now have a public service that is very large," he lamented. "On a per capita basis, it is one of the largest in the world and its absorbing a large amount of resources at very low levels of productivity. As a result, the overall competitiveness and productivity of the economy is getting dragged down."

Meanwhile, Sri Lanka also needs to raise productivity in the traditional agriculture sector. There has been considerable land fragmentation, resulting in a mass of very small holders with insufficient cash flow. Investments were needed and one of the options was to create farmer companies. Thailand’s experience is instructive in this area.

"These are not easy things," he acceded. "They can’t be done quickly. But we have to make a start. And for that, we need political consensus on a strategy."

Coomaraswamy said reform has to be managed carefully. One has to design well-targeted safety nets, to cushion people during the transition.

"The international community is willing to support such a process," he noted. "They have supported economic reform with safety nets in several other countries." Assistance includes generous severance or redundancy packages as well as re-training programmes for outgoing personnel.

Such safety

Such safety nets have been offered to Sri Lanka but reform has rarely progressed beyond a certain stage.

"It is easy to derail this process because of the time inconsistency between reform and the eventual benefits that accrue," Coomaraswamy explained. "Derailment happens consistently in Sri Lanka in an ever-repeating cycle."

Usually, a government comes into power and finds that the public finances are out of kilter. To stabilise the economy, it takes tough measures that soon become unpopular. Before its actions bear fruit, it gets voted out. Or it holds a luxurious bonanza on the eve of an election in order to mitigate unpopularity. The public finances go out of kilter again.

"Caught in a repetitions cycle we are not addressing the underlying structural problems," Coomaraswamy warned. "We must explain to the people that their standard of living will not improve unless we use resources more efficiently and that requires significant reform. Because this process is so difficult, we need cooperative politics that cuts across party affiliations."

However, economic reform cannot succeed without peace.

"It is not a good idea to embark on an ambitious public sector reform programme without removing the risks associated with the civil conflict," Coomaraswamy cautioned. "Labour displaced from the public sector must be diverted to the private sector. And peace is a prerequisite for a buoyant private sector."

"You just can’t crack this problem of low productivity and low wages without achieving peace."

Complex issue

The peace process, he asserted, was a complex issue. While there was some cause for optimism, it was a long, difficult road towards a final solution. Coomaraswamy said his main concern was inter-community relations.

"We (Sri Lankans) don’t seem to be developing the right mindset to create an enabling environment for a durable peace that is fair by all communities," he mused. "Every community is preoccupied with its own rights. It is almost a pathological condition."

Coomaraswamy is Tamil but married to a Sinhalese. "I should put myself into the shoes of a Sinhalese person and ask, what are his fears why does he have these fears and how can these fears be addressed while the legitimate aspirations of the Tamil community are also met," he explained.

"Similarly, each community must look at problems from the perspective of the other — Tamils, from the point of view of the Sinhalese; Sinhalese from the point of view of the Tamils. And both these communities must take the Muslim perspectives into account."

Coomaraswamy fielded a proposal, whereby small groups of people would be organised throughout the country and to explore issues from the viewpoint of other communities. The idea, he said, was to explore what compromises could or should be made to address each other’s concerns, without totally undermining one’s own position.

"It should be done in both government-controlled and LTTE-controlled areas," he said. "The LTTE must play its part. Civil society or the peace movement can take a lead. All stakeholders must be involved."

Sri Lanka’s large peace constituency was not "thinking through fully" how to propel the peace process forward; or how to create an enabling environment that is conducive to a durable peace.

Turning his attention to the electoral system, Coomaraswamy noted that the current arrangement ‘did not seem to give us outcomes that were conducive to effective governance’.

"We need to fine-tune the electoral system in a way that minority interests are taken into account while also having better (electoral) outcome in terms of governance," he concluded.


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