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Excellent publication on local economy

Sri Lanka, State of the Economy 2002

A 2003 publication of the Institute of Policy Studies (IPS) Colombo, Sri Lanka

Review by Dr. Wickrema Weerasooria

Recently a few of us were at a morning until evening "Retreat" at a hotel finalizing some of the Administrative Sector Reforms which are being led and chaired by Bradman Weerakoon, Secretary to the Prime Minister. At that meeting Treasury Secretary, Charitha Ratwatte was seated next to me and I saw Charitha engrossed in a book. Later he showed me the book. It was Sri Lanka, State of the Economy 2002 by the Institute of Policy Studies (IPS) issued in January 2003.

Next day, I telephoned the head of IPS Dr. Saman Kelegama and he sent me a copy. Having read it and finding it most useful I decided to do a short review so that others will also value the book and use it. Since then I noticed that on March 6, 2003, the book was officially launched by IPS Executive Director Dr. Kelegama handing over a copy of the book to Minister Keheliya Rambukwella.

'Sri Lanka, State of the Economy 2002' is an excellent publication of a total of 200 pages including useful appendices and tables. The main contents are: (i) Policy Perspectives and Performances (38 pages) (ii) Agriculture Policy Review 1995 - 2000 (29 pages) (iii) Leading Issues in the Development Process (40 Pages) and (iv) Policy Briefs (32 Pages).

From 1992, the IPS has selected a major theme to underpin its annual State of the Economy Report. For example in 1992 it was Macroeconomic Policy. In 1999 it was Private Sector Expansion. All the different themes selected from 1992 - 2002 are found in the inner back cover of this current publication. For the 2002 report, the theme is the Agriculture Sector. Accordingly, the book contains an in depth review of agriculture policy in Sri Lanka during the period 1985 - 2002.

The first section on Policy Perspectives and Performance, contains an outline and review of the several policies implemented in Sri Lanka in the period 2000 - 2002. It also analyses the macroeconomic performance and includes a discussion of the development in the international environment that naturally impacted on the Sri Lanka economy during that period.

The section on 'Leading Issues in the Development Process' contains useful data, views and opinions on Small and Medium Enterprises, Poverty, Wage Bargaining in the Plantation Sector and Effective Governance such as the role of the State/Civil Society and the Private Sector. The next section on Policy Briefs discusses issues on carefully selected topics of current importance such as Sovereign Ratings, Indo-Lanka Free Trade Agreement, War Risk Insurance, Tradable Environmental Credits, the Sinharaja Forest, the need, if any, for a Multi-utility Regulator and the Value Added Tax (VAT). This last topic has an amusing chapter heading "VAT it was and VAT it is".

In the Agricultural Policy Review (1995-2000) which is the major theme of this book the following are outlined:

(i) a profile of domestic production and imports such as paddy and other crops.

(ii) the regulatory environment such as import policy, credit, fertilizer and irrigation subsidies, seed policy, investments & agricultural marketing.

(iii) Infrastructure, legal and regulatory constraints.

The agricultural review also contains an excellent critical case study of Sri Lanka's Coconut Industry including coconut oil, edible oil and desiccated coconut with policy recommendations for future improvements.

In the recent past, I have accepted invitations on a selective basis to speak at seminars and to serve on panel discussions and give individual talks. In that context, I found the Appendices in the IPS publication extremely useful as a quick reference guide and source material.

Here I refer to the Diary & Events (July 2001 - June 2002), the Microeconomic Indicators and the Capital Market.

Also of great source value were the List & Figures and the List & Tables. The only other publication that one can find such information is the Central Bank's Annual Report and some of the Bank's other publications.

I like to highlight four matters that are discussed at length in this publication. Firstly, the review quite rightly emphasizes that while the government is identifying our private sector as the future engine of growth, there is a need to substantially improve and strengthen the public sector. As the review says (at pp 6-7) it is not simply good enough to make a few appointments of leading private sector individuals to key public sector positions. Here I may state that there is now an ongoing Administrative Sector Reform Committee (ARC) under the Prime Minister which is chaired by Mr. Bradman Weerakoon, the Prime Minister's Secretary. Much work has been done by the ARC as urged by the IPS Review. Perhaps the ongoing reform package of the ARC needs to be publicized.

Secondly, the Review critically examines the issue whether Sri Lanka should go for a Sovereign rating (at pp 116-118). According to the Review the lessons for Sri Lanka may be that:

* While getting a sovereign rating is good, the Government's priority should not be on getting an investment - grade rating in credit markets at the expense of the obligations to its domestic constituencies.

* Credibility with international creditors and local constituents comes from effective governance and not from reducing the capacity of the Government to act, and, as such, reform in the public sector continues to be a priority.

Thirdly, the Review highlights the double standards relating to the applications of War Risk Premiums (WRP) to Sri Lanka after the LTTE attack on Katunayake Airport and the September 11th attack on New York (see page 128 - 129). The review urges the Government to lobby and remove Sri Lanka from 'excluded' area on an official level from the London based underwriters and thereby remove the WRP completely if it exists today.

Fourthly, the Review suggests that Sri Lanka's debt problem is not as serious as has occurred in other countries such as Argentina (pp 144-152). The Review states:

"In terms of absolute levels, the Sri Lankan debt of US$ 16 billion is paltry compared to say Argentina's US$ 144 billion prior to default. However, with a public sector debt of 104 percent of GDP, it is substantially larger (relative to GDP) than the Argentine debt of 55 percent of GDP at the end of 2001 when the country defaulted on its debt in January 2002. However, the debt situation in the two countries varies significantly in a couple of ways. First, the majority of Sri Lanka's debt is domestic, and much of that is taken from sources of public capture (like national retirement schemes), and, thus, interest rates have been below market rates. Further, the external debts mostly on confessional terms to the Government, with an average interest rate of less than 2.0 percent. Second, two thirds of the debt has a medium to long-term maturity. In contrast, the Argentine debt was mostly secured at International market rates, with a short-term maturity. Beyond the nature of the debt, the two years of recession in Argentina made repayments not feasible".

"This highlights the fact that growth slowdowns are a major contributing factor to debt crises. Thus, in trying to address the debt problem, the government must not pursue myopic fiscal adjustment programmes that reduce growth enhancing public expenditures".

In conclusion I would like to pay a well deserved tribute to the excellent work that is being done at IPS by Dr. Kelegama and his dedicated team. Recently, portraits of the founder members of the IPS were unveiled.

The Chairman of IPS is Dr. Gamini Corea. Other members are also well-known - Dr. Godfrey Gunatilleke, Professors Buddhadasa Hewavitharana and U.D. Lakshman. In recognition of its quality work, the Prime Minister has brought the IPS under the purview of his own Ministry of Policy Development and Implementation, where the Deputy Minister is Mr. Milinda Moragoda. IPS has also recently helped the Government to set-up the National Operations Room.

As the Executive Director Dr. Kelegama has stated in the IPS Annual Report for 2001, "since December 2001, the Institute has got actively involved in policy development and dialogue. Consequent to this, IPS is gradually acquiring the vision it set, that is, becoming a Policy Advising Institute of Sri Lanka".

In this context also IPS publications justify a place in any ministry library as excellent research that can be relied on and quoted when appropriate.

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