President Rajapaksa Needs To Drop The SLFP’s Economic Legacy

By Arjuna Mahendran –AUGUST 21, 2020

Arjuna Mahendran

“Mrs. Bandaranaike angrily accused the American Government of trying to dictate terms and said, ‘Ceylon is not prepared to dance to the tune of the capitalist countries to obtain aid!’” ~The Observer (London), Feb.24, 1963

In January 2019, soon after his switching of Prime Ministers was deemed illegal by the Supreme Court, the former President made one of his regular trips to Singapore. His excuse was to attend a minor conference on the environment but he also made it a point to meet the PM of Singapore. Sri Lanka media carried a story soon thereafter stating that he had informed the Singapore PM that ‘Sri Lanka would be adding (sic) amendments to the Sri Lanka Singapore Free Trade Agreement’.

A year earlier, the highlight of the state visit of the Singapore PM to Sri Lanka was the signing of a free trade agreement between the two countries. The ink had barely dried on the agreement before it created a political storm within Sri Lanka’s then coalition government. Soon after that, the coalition fared badly at local government elections and the then prime minister almost lost a confidence vote in parliament.

A report published in late 2018 by a committee of experts (COE) appointed by the ex-President, to evaluate the Sri Lanka-Singapore free trade agreement (SLSFTA), went on to savage the entire process of negotiating the SLSFTA. Among other things, it said that FTAs were ‘of no use’ in the prevailing economic environment at the time, that the New Trade Policy of the previous government had failed to meet its goal as a national trade policy and further alleged that proper procedure had not been followed in the passage of the SLSFTA through the cabinet of ministers.

It was sad to see Sri Lanka airing very publicly the sordid details of internal bickering within the then government on the relatively dry technical issues of a trade agreement. The COE also made a remarkable statement to the effect that some infant industries in the country were expected to remain infants in perpetuity because of the adverse business conditions prevalent at home. That admission and the COE’s call for a comprehensive national economic plan was an echo of an oft-repeated theme which has regrettably never seen the light of day for over half a century.

In the near term the brute reality of the government’s stifling debt burden has pretty much shackled any form of trade reform. No trade promotion policy can be effectively articulated so long as debt service payments gobble up more than ninety percent of government revenues. Revenues of which the bulk are derived from taxes on trade. Any government attempting to liberalise trade barriers will face a corresponding disruption of these revenues and thus impair the government’s ability to repay its debts. Perhaps the dryness of the technical details of government debt management don’t make it an appealing subject for wider discussion in the media. Nevertheless it is surprising that this topic, and constructive proposals to address it, do not get more airtime in Sri Lanka considering the disproportionate impact it has wreaked on the lives of its citizens.

But there is also a political dimension to the crucial issue of refashioning the economic structure of the country which has to be surmounted if Sri Lanka is to face the coming challenge of growing the economy out of the debt-induced hole into which it has dug itself. A stark illustration of this was the opposition that the first Rajapakse administration faced in its plans to introduce world-class casinos and the port city in 2014. The defeat of that regime can be attributed in no small measure to the antipathy that those two initiatives elicited from the small but significant section of the intelligentsia.

The roots of that attitude which repudiates the introduction of ‘corrupting’ foreign influences into Sri Lanka have hoary antecedents. Mr Bandaranaike famously closed down the Colombo race course where his own father was a proud owner of several thoroughbreds that Bandaranaike père personally selected and imported from prized bloodstock stud farms in the UK.

The son went on to abruptly kick the British forces out of Katunayake airport and Trincomalee port thereby depriving the treasury of the valuable funding and technical inputs that flowed into those establishments from the UK. After his untimely death, his wife dutifully kicked out international petroleum companies operating in Ceylon thereby invoking the sanctions of the US Hickenlooper Amendment to the Foreign Assistance Act of 1962 which killed any investment and aid flows from the US to Sri Lanka for several years thereafter. Ceylon had the dubious distinction of being the only country to be sanctioned by this law.

In stark contrast over a decade later, Singapore lobbied hard to keep the main British naval base from leaving its shores, having already seen the damage done at Trincomalee. A key economic advisor to the Singapore government in the ‘60s, Albert Winsemius, persuaded it to not rename the streets nor tear down the statue of its modern ‘founder’ Stamford Raffles in order to make westerners still feel comfortable in the city and ensure that uninterrupted inflows of western capital and know-how continued to flow in.

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