In search of economic leadership

Midst engaged in the final onslaught against the LTTE and battling the shocks of the global crisis, Sri Lanka today is in dire need of an able-lieutenant to command its economy, a leader with a sound strategy and mission to guide the country in these times of global stress.

The World Bank on Sunday gave what is probably the bleakest assessment yet, when it predicted that the global economy and volume of trade would shrink this year for the first time since World War II. The slowdown would not only hamper the growth of developed and developing nations, but it would also stifle the latter’s access to credit. This has prompted The World Bank chief to plead wealthy governments to create vulnerability funds to shield poorer nations. Smaller economies are left with not much choice but to seek desperate assistance, much like what Sri Lanka did with its USD 2 billion request from the International Monetary Fund.

Sri Lanka’s call for help comes as no real surprise, but it derives some attention for the Central Bank previously rejected suggestions of an IMF bailout, stating that the country was “managing alright”.

The Central Bank adds that what cannot now be a well-managed economy would benefit from the IMF package in the form of assistance from other development partners and improve investor confidence. IMF loans usually accompany a clause to float or devalue the local currency. Such a move would ideally shelter the country from a balance of payments crisis, with the export industry set to gain from upward movement in the currency.

Yet, the government is reluctant to float the currency in order to shield against short-term repayments on oil subsidies, which will result in failure to curtail domestic demand and imports which brings us back to a trade deficit. The Central Bank states that the IMF has not imposed any unfavourable conditions. What really is more undesirable? That government resorts to borrowings with no positive impact on the trade balance, or that it is diverting from fiscal prudence to cover misdeeds with oil hedging.

The economic challenges for Sri Lanka are four-pronged. It carries the pressures of mismanagement, global economic downturn, a domestic financial market in disarray (governance) and the need to map out a development process for the nation and rehabilitation in the North and East.

This four-pronged attack requires a well-coordinated and collective approach under an astute General. A leader who would consider the broad aspects of fiscal prudence with a view for the future, and put in place the measures to restore the lost confidence in spheres of governance and accountability – both public and private. Who will provide this critical leadership? Sri Lanka not only must find an early solution but an effective one and march on winning the economic battle sooner than later.