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Economic Reforms Sri Lanka needs now

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A view from independent economic development consultant

By Asita De Silva

The task ahead for Sri Lanka is to transform its economy from an inward-looking, public sector driven, debt dependent one into an export-driven, private sector-led economy that a broad share of the population can participate in and benefit from. A set of “structural” reforms based on global best practice can be undertaken unilaterally by Sri Lanka to begin to set its economy on this path without waiting for externally imposed “conditions”. Proactive steps in this direction can send strong positive signals to international creditors and development partners that Sri Lanka has a path to recovery, hasten the debt restructuring process, and unleash the potential of Sri Lanka’s economy to achieve rapid and sustainable economic growth that can improve the lives of all Sri Lankans.

At present, Sri Lanka’s economy is undermined and vulnerable to shocks from a range of underlying weaknesses, including limited growth potential due to its inward orientation; dependence on rolling over unsustainable levels of external debt; public expenditure dominated by debt service and maintenance of a unnecessarily large public sector that leaves inadequate room for investment in productive infrastructure and human capital; and suppressed potential of the private sector to create jobs and income-earning opportunities by unwarranted regulatory restrictions. As a result, Sri Lanka has seen continuous challenges in maintaining macroeconomic stability; is uncompetitive in the global economy; and has been unable to generate sufficient broad-based income-earning opportunities to substantially raise the living standards of all Sri Lankans. In the last few years, these weaknesses were aggravated by imprudent revenue and monetary policies that led to the current extreme crisis and hardships among the people. A basic reform agenda to address these underlying weaknesses and shift Sri Lanka to a sustainable economic growth path would comprise the following steps:Restore macroeconomic stability. Key measures would include (a) maintaining prudent monetary policies to contain inflation and ensure a stable, market-determined exchange rate; and (b) reducing the fiscal deficit and thereby the need for government borrowing by increasing government revenues through tax reform and reducing unnecessary government expenditures. Tax reform can involve broadening and simplifying the tax system rather than just increasing tax rates on a narrow tax base. Expenditures can be contained by reducing unnecessary or wasteful spending, such as on maintaining a large public sector or supporting loss-making state corporations, rather than by reducing essential expenditure on public infrastructure, health and education services, or the social safety net.

Remove unnecessary obstacles to private investment and business activity. A range of unnecessary rules, laws, licenses, permits, fees, documentation and other obstacles exist that inhibit private sector economic activity that can create employment and income earning opportunities. Steps are warranted to rationalize the regulatory environment so that it enables and encourages private sector investment and business activity while protecting core public interests. Increased private sector activity during the current crisis can help deliver basic goods and services; generate export earnings; maintain and increase employment; and expand income earning opportunities.

Enable market signals. A wide range of state directives distort market signals and mis-direct investment, including price controls, tariffs, subsidies, interest rate controls, and other state directions. Steps to remove these barriers to market signals are warranted in order to channel economic activity into the most efficient and competitive areas and thereby enhance the prospects of rapid, sustainable economic growth.Ensure a competitive environment. A range of sectors are dominated a single or a few public or private sector firms that undermine the benefits of a market-driven economy, such as lower prices, higher quality products, customer-orientation, and innovation. Efforts are warranted to ensure a competitive environment, dismantle monopolies, and identify and break up any cartel-like behavior.
Maintain and improve essential infrastructure to the extent possible. Within the constrained fiscal environment, priority may need to be placed on ensuring adequate basic infrastructure services that support increased economic activity, including reliable electricity, water, transport, and communication services. Some public infrastructure development can also serve as a safety net transfer measure through temporary employment generation.Ensure financial sector stability. Although the financial sector has been relatively well-performing to date, is likely to be under increasing stress in the current environment. Close monitoring and timely intervention may be warranted to avert major instability in the financial sector that can severe adverse implications for recovery of the economy.

Enhance the efficiency of the justice system to support economic activity. Continuing deficiencies exist in the capacity of the legal system to support strong private sector-led growth, including inefficient enforcement of contracts and resolution of insolvency. Steps are warranted to address these weaknesses and ensure that the legal system fully supports rapid growth in economic activities.Develop “smart” industrial policy. When markets are enabled, restrictions on private sector activity removed, and a level playing field established, then selective interventions to enable or encourage the development of specific industries might be considered. Such interventions need to have a clear rationale, be transparent, time-bound, and firm-specific rather than sector wide.
Enhance and target social safety net transfers. The current crisis requires a substantially enhanced safety net system to avert extreme deprivation among population. Given the need for prudent fiscal management, these transfers would need to be managed carefully. At present weaknesses exist in the safety net system, with benefits leaking to those not in need; many of those in need being left out; and the prevalence of untargeted measures such as subsidies and price controls that are inefficient and distort market signals. Use of modern technologies can improve the accuracy of targeting, reduce leakage, and reduce fraud. Steps to enhance the quality and efficiency of the safety net are therefore warranted, including through removal of indirect transfers such as untargeted subsidies and price controls in favor of direct cash transfers; and use modern technologies to identify, target, and transfer resources to the vulnerable population.

Begin reform of the higher education system. The higher education system represents a bottleneck to progress toward rapid economic growth. Limited opportunities deprive many young people of the ability to fulfill their potential and the commercial sector has little use for skills imparted by the system. Steps are warranted to broaden and expand access to higher education; enable private tertiary education provision; and improve the quality and relevance of tertiary education.

Begin reform the civil service to create a lean and dynamic public sector. As the current crisis has revealed, Sri Lanka cannot afford to maintain such a large public sector as the large wage bill increases the need for unsustainable government borrowing. Extensive public sector involvement in commercial activities and in regulating private sector activity also inhibits growth in private sector economic activity that can create employment and income earning opportunities. Steps are warranted to reduce the size of public sector and contain the wage bill; reorient the public sector toward objective-based management; and encourage a behavioral change in the public sector on enabling rather than obstructing private sector development and a market economy as best means to improve the lives of the people.
Inform the public of the costs they are bearing under the current economic structure to build a consensus on the direction of reforms. Reforms to change the structure of Sri Lanka’s economy offer the potential to create broad-based income-earning opportunities and improved living standards and are thereby in the best long term-interests of the people. The public can be informed of the costs and lost opportunities they are bearing under the current economic structure, including the costs of unnecessary regulations that benefit the few over the many; state directives that distort markets and suppress investment, exports, and job creation; and public funding of loss-making state enterprises that serve no essential public interest. Narrow vested interests in resisting change would also need to be systematically identified and overcome. Strategies would also need to be developed to systematically identify and overcome narrow vested interests in both the public and private sectors that will seek to resist and obstruct change.

The agenda above reflects global best practice in enabling a market economy to work to generate income earning opportunities for the population and supplementing this with public sector interventions to support human development and a social safety net. Proactive implementation of these measures will greatly enhance the prospects of a faster recovery and alleviation of the extreme hardships being endured by the people; support timely debt restructuring and access to international sources of finance; and set the country on the path to rapid, sustainable economic growth and improvement in the living standards of all Sri Lankans.
For further discussion of these issues, see: http://ardesilva.com/2022/06/07/slstrategy/Asita De Silva is an international development consultant, former staff member of the World Bank Group, and former executive at Hayley’s Group. The views expressed in this article are the writer’s own and do not reflect the views of any institution or agency.

The writer can be reached on asitadesilva11@gmail.com



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Features

The Division Bell Mystery

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Tales of Mystery and Suspense 3

The murder, in a private dining room in the house, is of a financier with whom the government was negotiating a loan. When this seemed difficult the Minister of Home Affairs agreed to lead discussions, since he had known Mr Oissel the financier when they were young. Hence the private dinner, but when the Minister stepped out for a vote, Oissel was shot just as the Division Bell rang.

The Brahms and Simon detective novels, the first of which I wrote about last week, were amongst several books by the pair that Robert Scoble gave me when I was in Australia towards the end of last year. Amongst them was another thriller of a very different sort, though that too was written and set between the wars.

Called The Division Bell Mystery, it was set in the House of Commons, the first such book I believe, and was by Ellen Wilkinson, a Labour MP who became Minister of Education in Attlee’s government after the war, having served previously as Parliamentary Private Secretary to several ministers. Her hero Robert West is also a PPS, but a conservative, and his Minister, of Home Affairs, is an old style aristocrat, not much loved by the less orthodox Prime Minister, who nevertheless needs his support on many occasions.

The murder, in a private dining room in the house, is of a financier with whom the government was negotiating a loan. When this seemed difficult the Minister of Home Affairs agreed to lead discussions, since he had known Mr Oissel the financier when they were young. Hence the private dinner, but when the Minister stepped out for a vote, Oissel was shot just as the Division Bell rang.

West was just outside the door when the shot was heard, and when he opened it saw only the dead body with a revolver beside it. The assumption that this was suicide was however challenged by Oissel’s grand-daughter Annette, who was his heir, on the grounds that he would never have killed himself. But her view was given greater credence by the Inspector put in charge of the case who said there were no burn marks on the body which would have been the case had Oissel fired the pistol himself.

Matters are complicated by the fact that Oissel’s flat had been burgled while he was at dinner, and Jenks the policeman allocated to him, who had served the Home Secretary and seemed more acceptable to Oissel than someone from the Security Service, had been killed. Matters get even more complicated when Annette says her grand-father’s notebook in which he wrote his secrets in cipher was missing.

That was found in Jenks’ pocket, and then a photographer came to West to say he had been asked by Jenks to photograph this. More worryingly for West, he finds in the Home Secretary’s drawer a few pages from the notebook with what appears to be an interpretation of the cipher.

Ellen

Overwhelmed by all this he confides in a recently created peer who knows all about the business world, who insists that they leave the house party at which they had met over dinner and discuss the matter with the Prime Minister who promptly summons the Home Secretary.

But the Home Secretary had gone to Scotland to launch a ship over the weekend, so the meeting could take place only on the morning of the Monday, when difficult questions were expected on the adjournment motion. He admits at the meeting that he had got Jenks to take the notebook, and also that he knew the code since it had been created by him and Oissel when they were young.

He thought he should resign, and even contemplated suicide, but the Prime Minister told him that that would be even worse for the government, and that he should go home to bed. The Prime Minister said that he himself would handle the question, which he did with aplomb, insisting that confidentiality was needed until the inquest. What had happened would be made clear then, he declared, leaving West and Inspector Blackit and Lord Dalbeattie what seemed the impossible task of solving the murder.

Dalbeattie had suggested that West ask a female Labour MP who was very fond of him to get what information she could from the staff. That there was some involvement there had become clear when West, going back late one night to collect a briefcase he had left in a dining room, found someone lurking in the dark in the corridor outside the private rooms. Room J, where the murder had happened, was meant to be guarded throughout by a policeman, but he had left the room having felt dizzy, and it seemed that his coffee had been drugged. West’s sudden appearance however had prevented anyone else getting into the room.

Dalbeattie decides to recreate the scene of the murder and has a dinner party in Room J on the Tuesday night, inviting West and Annette and the society hostess at whose house he had met, and also Patrick Kinnaird, an MP who was engaged to Annette, as well as the Permanent Secretary to the Home Ministry.

After coffee Inspector Blackit comes in with Grace, the Labour MP who had got the confidence of the staff, and a journalist who had also been helpful, and just as they say they think they are on the track the division bell rings. Grace jumps up and tells the Inspector that that provides the solution and they get a ladder, and sure enough find the revolver in the space where the bell is. Directed at the place where Oissel had sat, it had been primed to go off with the ringing of the bell. The waiter who had helped to set things up made clear who the murderer had been.

The reason for the murder and the confused motives of all those involved made for a fascinatingly intricate mix. But also impressive in the book were the descriptions of the isolation possible in the crowded premises of the house, the forceful characterization of the members – Grace based on the writer, the society hostess based on Nancy Astor, the first female MP – and the laid back nature of senior politicians which West realized had to change in the brave new world of high finance.

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Features

The challenge of keeping value-based politics alive

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Anti-migrant protests in Durban, South Africa. BBC

The current outbreak of anti-immigrant protests in Durban, South Africa is bound to have taken many a subscriber to value-based politics or political idealism quite by surprise. After all, this is evidence that despite the historic accomplishments of nation-builders of the stature of the late President Nelson Mandela it cannot be taken for granted that identity politics, including racism in its worst forms, is no more in South Africa.

At the time of this writing details are scarce on the substantive root causes of the protests but it could very well be that economic grievances, particularly on the part of the majority community in South Africa, are contributing considerably to the disaffection. Shrinking employment and material prospects are likely to figure majorly among the factors igniting the unrest.

Fortunately, the local authorities in Durban are losing no time in calling for peaceful co-existence among the relevant communities and are pointing to the vital importance of stepping-up national integration processes. Apparently, immigrants in sizable numbers from neighbouring countries are present in Durban. However, international TV footage of the protests quoted some local authorities as saying that the majority of the immigrants in some centres that housed them were not illegal migrants and had the documents that entitle them to be in Durban.

In the Durban protests the world has fresh proof of the socially divisive consequences of the gathering globe-wide economic disaffection, touched off particularly by the continuing crisis in West Asia. Going ahead, the world would need to brace for increasing identity-based unrest of the kind it is just witnessing in South Africa.

Considering that the material lot of ordinary people everywhere could only aggravate progressively, with the US and Iran showing no signs of negotiating an end to their confrontation any time soon, it will be left to the more democratic and progressive sections of the world community to initiate positive measures collectively to bring a measure of relief to the discontented.

The swiftness with which such relief will be provided would depend crucially on the importance those sections taking up these undertakings attach to value-based politics as opposed to Realpolitik of power politics.

Going by these yardsticks, Italy could be considered to be moving in the right direction. Recently Italy came to the fore in initiating the collective named, ‘Rome Coalition for Food Security and Access to Fertilizer’, which has as one of its aims the swift provision of fertilizer to economically weak African countries.

In a recent statement Italian Minister of Foreign Affairs and International Cooperation, Antonio Tajani, said that a principal aim of the project was to ensure that the farmers of Africa gained easy access to fertilizer, considering that food security is a growing concern among some of Africa’s economically vulnerable countries.

The statement went on to mention that some 30 countries hailing from the Mediterranean region, the Middle East, the Balkans as well as the FAO had been invited to join the coalition. The venture is far-seeing in that food security is main among the reasons for social discontent which in turn could degenerate into endemic political turmoil and bloodshed. Separatist violence and geographical fragmentation of countries wouldn’t be too far behind these developments, as Africa itself has often proved.

It is hoped that more G7 countries would take the cue from Italy and do what they could to ease the hardships of economically distressed countries, particularly of the global South. In these efforts they would need to break rank with the US, which is today brutally indifferent to the consequences of its policy of making ‘America First’, come what may.

Going by current developments, the Trump administration seems to be blithely oblivious to the wider, deleterious effects of its policy course in West Asia. Besides rendering Iran militarily and otherwise impotent nothing else seems to matter to Washington, as regards West Asia. This is policy short-sightedness of an extreme kind. After all, right now West Asia could be said to be sitting on the proverbial powder keg.

On the other hand, Iran is not giving the world the impression that it is doing anything constructive to get out of the policy straitjacket that it wove for itself decades ago. Rather than enter into a policy of ‘live and let live’ in relation to Israel in particular and initiate a process of reconciliation with the latter, it has chosen to operate within policy parameters that continue to damn Israel. This has put Israel always on the ‘defensive’ so to speak and prevented the opening up of space for meaningful dialogue.

That said, Israel is obliged to explore the possibilities of entering into a negotiatory process with the Arab-Islamic world that could lead to a de-escalation of tensions and bloodshed. It cannot continue to look at its neighbours through lenses that distort them as archetypal enemies who should be ‘wiped off completely from the face of the earth.’

In other words, the need is urgent for Realpolitik to give way to value-based politicks. Italy is beginning to prove that the latter approach could be pursued with some success. May be the EU and the UK could throw their weight behind these initiatives as well and establish that international politics could be refashioned on the basis of humane, civilized norms. The UN would need to be fully supportive of these moves and prove an organizational nucleus of the operations that follow.

In fact the time is ripe for people of conscience to collectively stand up on the side of peace and say ‘No’ to war and violence. Organizations such as the ICRC, the WHO and Medicines Sans Frontiers have already taken up this call. Referring to the widespread destruction of health facilities and their dehumanizing results these organizations have said, among other things, that ‘This is not a failure of the law. It is a failure of political will.’

True, ‘failure of political will’ among those powers that matter accounts for the runaway, uncontrollable nature of war and destruction in contemporary times, but more fundamentally it is a failure of the human conscience. It could very well be that the phenomenal levels to which violence and war have been unleashed today have had the effect of deadening consciences. This is a matter for urgent study and wide discussion.

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Features

Vesak celebrations … with Cuteefly

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Perfect for celebrations, gifts, and meaningful occasions // Gift pack

I would describe Indunil Kaushalya Dissanayaka as innovative and creative, and she operates under the name of Cuteefly.

Indunil always comes up with something novel to celebrate special occasions, and she does it with candles … and that’s her profession.

She was in the spotlight when she created a happening scene, with candles, for Christmas, Sinhala and Tamil New Year, and Valentine’s Day.

As lanterns light up Sri Lanka for Vesak, the Colombo-based candle maker is quietly turning wax and wick into little pieces of the festival.

Candles reflecting Vesak themes

Her candles reflect Vesak themes – light, peace, remembrance, giving, etc., to enable you to fill your Vesak celebration with devotion and beauty.

Among her Vesak creations is a lotus-shaped soy candle, scented with sandalwood, lavender, etc., meant to burn during this Vesak Poya Day.

Indunil Kaushalya Dissanayaka: Customers
praise her for her creativity

These handcrafted Vesak candles are perfect for offering at the temple, she says.

What makes her creations so novel is that they come in different shapes, scents, themes, and all are handmade.

What’s more, her customers have heaped praise on her for her creativity.

According to Indunil, her creations are perfect as a thoughtful gift … to bring beauty, unity, and light into every moment.

Says Indunil: “Our beautifully handcrafted Unity candles are designed with premium detail and love, making them perfect for celebrations, gifts, and meaningful occasions.”

Cuteefly, says Indunil, is available online.

Readers could contact Indunil on 0778506066 for more details.

He Facebook Page is: Cuteefly.

Handmade with love

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