I think the topic that we are addressing today is of undoubted importance not only to Sri Lanka, but to the whole region, in terms of our current priorities and complex problems which we are all facing. I think the point of departure for this discussion which is going to take place over two days is the global economic meltdown and its repercussions for the South Asian region. This has called for a variety of responses on the part of the countries in this region. In our own country today, there is a debate, not at all times well informed, but it is a volatile and vigorous debate on the proposed agreement with the International Monetary Fund.

The first point to note, is that the crisis that we are facing in the South Asian region is qualitatively different from the typical situation in which countries have had to seek assistance from multilateral institutions, in particular, the Bretton Woods institutions. The typical scenario is that a country has got into difficulties because of perceived distortions or shortcomings inherent in the fiscal policies it has pursued over a certain period. They then go to institutions such as the International Monetary Fund, and negotiate what is, in essence, a bailout. Then the IMF can say, "Yes, we are ready to help you, but you must agree to the following conditions".

This was the kind of scenario which I had to deal with when I was handling matters in the Sri Lankan Treasury, during the government of President Chandrika Kumaratunga. I was the Deputy Minister of Finance, in addition to holding several Cabinet Portfolios during the years 1994 to 2000. Very often, about twice a year, I had discussions with Michel Camdessus, the Managing Director of the International Monetary Fund at that time. They would impose certain conditionalities, such as rigid control of the budget deficit, exchange rate, public spending, Appointment of teachers and welfare measures. In those days, there was also a certain amount of pressure related to divestiture of public assets.

The situation now is fundamentally different from then. It is because the crisis has nothing to do with economic policies which had been pursued in any country of this region. On the contrary, the crisis is a direct product of phenomena which have manifested themselves in the developed world. I will illustrate by taking the example of Sri Lanka, and then show how the kind of integration that you are discussing during these proceedings wit[ be of great practical value in mitigating or extenuating the consequences of the global economic meltdown.

Sri Lanka basically has an economy that is export oriented. One of this country’s most distinguished economists, Dr. Gamani Corea, submitted in the mid fifties, his Doctoral Thesis at the University of Oxford, the University from which both Saman and I obtained our Doctorates - mine is not in economics, his and the other was in economics - and Gamani entitled his thesis, "The vagaries of an export oriented economy.

Take our own situation. Our export incomes are falling, but not alarmingly. They are falling by 10 to 11%. The lifeline of Sri Lankan exports is, of course, the apparel sector. Our principal market even today is the United States of America, closely followed by the European Union. The reasons why our exports to the United States are coming down, have nothing to do with Sri Lanka. They have absolutely nothing to do with the quality of our product. The quality is absolutely satisfactory, and the virtues of what we export are being constantly extolled by clients. Some of them are Marks and Spencer, Tesco and Next of the United Kingdom, Abercrombie and Fitch and Anne Taylor in the United States of America. There is delivery on time, meticulous standards with regard to quality, the highest possible ethical standards which have been universally recognized in our garment factories and also unwavering adherence to the most rigid environmental criteria. All of that continues.

The problem has nothing to do with us. It has to do with the importer, the consuming public of the United States and Western Europe. Why? It is because their incomes are dwindling. The Bloomberg records show that since 1964, the lowest amount which has been spent in the United States of America on Christmas shopping was in December 2008. People do not have money in their wallets. So they are cutting down on expenses. This has impacted necessarily and inevitably on the export of our products. A family that bought five suits is now content with one or two suits. One of Sri Lanka’s richest men told me recently, that he had made a decision this year, not to buy shirts or clothes. He can afford it. So it is really two things. One is the dwindling income and the other is the psychological factor. You don’t want to spend money, the money you have. You impose upon yourself some degree of self restraint and self abdication, because of anticipation of the future.

Take Sri Lanka’s ceramic industry. We produce some of the world’s finest ceramics. Companies like Noritake, Royal Fernwood, Dankotuwa Porcelain produce world standard products. These companies have an agreement with the Board of Investment of Sri Lanka, in terms of which they can sell up to 20% of what they produce, in the local market. They did not use this facility because they did not need it. There was a constant external demand for their products, and of course, serving the external orders was much more lucrative. So they did not need to fall back upon the contractual right they had with the Board of Investment of Sri Lanka. They are now coming to me saying "Can you please talk to the BOI and get this threshold elevated up to 30% ?" They also raised a series of issues regarding the price of furnace oil, gas and so on. These have now been largely resolved.

In all these cases, the central problem has to do with the circumstances of the importing countries, not what is happening in the exporting countries in this region.

What is the solution? Of course, there is no watertight solution. The present Managing Director of the International Monetary Fund, Mr. Dominique Strauss-Kahn is a very perceptive man, who has a socialist background. He was a Cabinet Minister in France, and he has an ideology that is very different from that of some of the senior officials of the Bretton Woods Institutions, that I had to deal with during the period 1994 to 2000.

Anyway, as far as your theme is concerned - the debate in depth today and tomorrow - how can a collective response on the part of South Asia help us, at least in relative terms, to tide over this crisis? You are talking of the broadening economic integration in the South Asian region, with a particular focus on the liberalization of services. I think that is certainly going to provide us with a powerful lever which will help us to control some of the more harmful and deleterious consequences that could potentially emanate, and in fact, are actually emanating to some extent, from the current global economic meltdown.

What we need to do is to strengthen the linkages in this region. I will give an example. I accompanied President Mahinda Rajapaksa on his State visit to Nepal. In discussions with the President of Nepal, the Prime Minister, and the Leader of the Opposition, several issues which are relevant to your deliberations came up,. For example, the Minister of Tourism, a very distinguished lady, whose husband happens to be the Minister of Finance of Nepal, had an innovative approach. It is a situation where tourism from the West is taking a direct hit - if you have to control expenditure, then you cut out things that you can dispense with - one of the things that you will eliminate is foreign travel. So the airlines are affected and the tourism industry is very deeply affected. The Nepal Minister of Tourism suggested to us "Why don’t we package in the West, something joint, where people stay one week in the Himalayas, one week near the blue waters of the Indian Ocean?"

This is related to another matter - that is connectivity. It is to develop these linkages and to face this crisis together. One has to necessarily place emphasis on issues relating to connectivity. We are shortly going to have a flight from Colombo to Kathmandu via Delhi. We have been advised that a direct flight between Colombo and Kathmandu will not be financially viable, so we have to negotiate with India. The Kathmandu- Delhi Sector is very lucrative, but the Government of India has now conceded these fifth freedom rights. There used to be a flight a long time ago operated by Royal Nepal Airlines - we are going to do that now. So we can took at what Nepal can offer - its mountains and valleys and what we can offer - the jungles, historical cities, beaches. Combine them, and we can package something very attractive to customers in the continent of Europe.

They also told us that Nepal today, is commercially exploiting less than 2% of its water resources. That is the wealth of the Kingdom of Nepal - hydropower. They can sell this hydro power and enormously strengthen their economy, which requires conjoint action among the countries of South Asia. Girija Prasad Koirala, the former Prime Minister of Nepal, who is now the Leader of the Opposition, had a fascinating discussion with the President. He supported those plans of the Prachanda administration unreservedly.

At the SAARC Summit held in Colombo in November last year, the general message was that we have to move from policy formulation to pragmatic implementation. And certain priorities were indicated. One was food security, the other was energy security. Countries which have a surplus of a particular grain can share it with other countries, and reduce the degree of tension that we are all experiencing in consequence of the global crisis.

One of the reasons why Sri Lanka has been able to reduce that impact is the intrinsic strength of our agricultural economy. In 2009, we are very proud to tell you that we will achieve self sufficiency in rice, the staple diet of our people. We are therefore able to conserve a large amount of foreign exchange which would otherwise have to be expended on the import of essential food items.

In that area there is plenty of scope for productive collaboration among the nations of South Asia. And it is two way - take for example, our relationship with India. Investment is no longer one way.

It is a matter of justifiable pride and deep satisfaction that leading Sri Lankan companies are now investing substantially into the Indian economy. My counterpart in the Government of India, Sri Kamat Nath, paid handsome tribute to the Vishkhapatnam Project, that is a flagship project of one of our large apparel companies, Brandix. Both Sri Kamal Nath and his Deputy Jairam Ramesh told me that they are very proud of that project - because it has provided opportunities to no fewer than 40,000 Indian women to graduate out of poverty.

Companies such as MAS, Brandix and companies in the hospitality sector like Aitken Spence and John Keells are investing massively in India. What I am telling you is that this type of conjoint action, the nurturing and strengthening of these linkages will certainty help us to soften the impact of the crisis. Not to escape from its consequences altogether - that is not a practical proposition - but to deal with it in a meaningful and pragmatic manner.