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Open or closed is not the question

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Among the muddled themes on election platforms and press briefings is the confusion regarding what the Mahinda Rajapakse coalition’s position is about open economic policies. Although these meetings and press conferences are expected to clarify each candidate’s economic and other policy stances, they end up confusing the electorate. This confusion is an inevitable result of the incompatible policies of the SLFP-JVP-JHU coalition.

They proclaim that they are not opposed to open economic policies, but not the open economic policies of the past UNP and UNF governments. The question is not one of whether the policies are open economic policies or not, as there is no possibility of returning to a closed economy. The issue is the extent of liberalisation of trade and investment that they espouse and the internal consistencies of these problems.

What are these open or not so open economic policies? Open economic policies appear to mean different things to different people. In fact open economic policies appear to be a euphemism for any kind of economic policies with undefined restrictions. In fact open economic policies mean a liberal trade regime. It incorporates a minimum use of trade restrictions.

It also implies a low tariff regime and the jettisoning of non-tariff barriers to trade. This system of liberalised trade has been subscribed to by both SLFP and UNP led governments. The SLFP led government between 1994 and 2000 and the 2002-2004 government followed these policies with a few changes of no serious consequences to the broad framework of Open Economic Policies. Besides this, throughout this period the President subscribed to these policies and pursued them with vigour. The free trade agreements with India and Pakistan are instances of such a commitment.

Does the new coalition supporting Rajapakse have a different trade regime in view? If the answer is in the affirmative, he should make it clear what the changes are. Alternately he should make it clear that there are no substantial changes and that the coalition partners are agreeable to the continuation of liberalised trade policies.

It is mandatory to specify what controls the coalition intends to place beyond what are there already. It is also important to keep to the specified policies if returned to power. Both these are unlikely propositions.

The rationale for open economic policies is very clear. A small country with very little raw materials, inadequate capital and technology and a very small domestic market, cannot produce quality industrial products at competitive prices.

The rhetoric that Sri Lanka is blessed with natural resources is plain falsehood. We do not have petroleum, iron, coal or chemicals. In fact we do not even have adequate land and water resources with a population density of about 315 persons per square kilometre.

If our economic policies are based on fanciful ideas of non-existent bountiful natural resources, we are heading for an economic disaster. We have a very limited domestic market, as the purchasing power of the 19.7 million for many goods is extremely limited.

The attempt at widespread import substitution in the 1970s failed owing to the non-recognition of these facts. Today even big countries like China and India with a good endowment of some of the basic resources and a large domestic market have also adopted open economic policies as they realise the benefits of trade.

In Sri Lanka’s case, there is no option but to pursue a liberalised trade regime and be competitive in international markets. It is this need for greater efficiency and enhanced productivity that requires to be stressed, not the extent of openness.

The danger lies in the attractiveness of the political rhetoric that we must produce everything; that we must not waste money to import unnecessary things; that we must be self-sufficient in food; if translated into policies can only lead to slow economic growth and serious balance of payments problems. A liberalised trade regime is an essential regime for a small country in the present global context.

Some of the coalition partners are ideological in their economic policies and chose to largely ignore the changes within the Sri Lankan economy and in the global economic context.

If however the rhetoric we are hearing is only the stuff of electoral politics to gain votes and the policies they would implement, if returned to power, would be vastly different, then there is still hope irrespective of whoever may be elected President.

If however due to their beliefs or ignorance they think that a regime of trade controls in which the country can produce all it needs is the panacea, then we are in for a retrogressive period.

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