Ending war, flow of foreign aid crucial for stable economy - Dr. Kelegama

By Uditha Jayasinghe

Crucial economic issues including free trade agreements with new markets and exchange rate revisions must be looked into by the government, if Sri Lanka is to strengthen its vanguard against global recession, according to a top economic expert.
Delivering a public lecture titled the, “Global Economic Crisis and Sri Lanka,” Institute of Policy Studies (IPS) Executive Director Dr. Saman Kelegama insisted that it was imperative for the government to think innovatively to strengthen economic opportunities by seeking new avenues. He pointed out that new trade agreements or even broadening existing ties with trade partners, as was the intention of the now shelved CEPA, should be revisited.
“In any country economic decisions are joined with political ones: that is the nature of the game and it is impossible to separate the two. It is commonly known that the exporters are requesting a revision of exchange rates, but this has other repercussions that must be considered. Also one must remember that exporter volumes have dropped in the world market, so even if we depreciate the rupee, that may not have as strong an effect as expected. Under these circumstances and the looming considerations of an International Monetary Fund (IMF) loan, it would be prudent for the government to consider alternatives to strengthen regional trade,” he said.
Maintaining that a country’s chances of riding out the global crisis, depends much on keeping internal structures in order, he added that Sri Lanka too must face the regulatory issue that has rocked the finance companies. Maintaining that strict regulatory frameworks were essential to ensure that investor confidence was restored, he maintained that this should be one of the pivotal points of the Central Bank’s strategy.
Switching to bail out packages given to local industries, Kelegama noted that there was much criticism on the amount which is only 0.06% of GDP. But he was quick to balance out the allegation by arguing that “the fiscal situation is so tenuous that it cannot allow more.” He expressed hope that international assistance packages would not move towards protectionism, as that would darken the already bleak picture for developing countries such as Sri Lanka. He however emphasised that it was too soon to predict what the outcome of these packages would be for the world at large.
“The best that we can hope for, is a World Trade Organisation (WTO) revival. The G7 have nominally agreed to move against protectionism and there is little to indicate protectionism in the initial formulations of the bail out packages. Nonetheless it is too early to see where this would head. Ideally search for new markets would result in a de-coupling of markets that might be beneficial to emerging markets.”
Ending the lecture on a positive note, Kelegama stressed that a successful end to the conflict and the resulting aid that would flow into the North and East, would be crucial to the country at this juncture.