MILLENNIUM CHALLENGES, ECONOMIC ISSUES AND INTERNATIONAL POLITICS IN SR LANKA PART 1
Posted on July 18th, 2019

BY EDWARD THEOPHILUS

Recent political analysis of Mr. C.A Chandraprema in Sunday Island on 14.07.2019 allowed understanding the truth about the achievement of millennium goals in Sri Lanka as it has been quite closed information that most of the population in the country including politicians have no idea about this test performance.  I associated with university students in Pacific countries to discuss UN millennium goals after the year 2000, however, I didn’t know that Sri Lanka also was a country covered by UN Millennium goals as the official statistics published by the Central Bank of Sri Lanka showed that it should not include achieving millennium goals as the economic status of the country was in above level than the targeted level of the united nation.  I critically discussed economic issues and related social cultural and education issues with students and understood that skills development was a key factor in achieving millennium goals in developing countries of the Pacific region.  I believed that Sri Lanka was a country with reasonably economic achievements and a country where was not expecting economic supports from developed nations to get out of poverty. The analysis of Mr. Chandraprema changed my assumption and encouraged to rethink about the original discussion as UN focus on the Millennium Goals and the views of Millennium Corporation seem to be contradicting or different from the original UN goals.  The UN discussions on the millennium goals strongly focused on debt reduction in third world countries and did Millennium Challenge Corporation support to debt reduction or to write off Sri Lanka’s debt to International Financial Organizations is not clear.

Inflation in Sri Lanka

Theoretically, inflation is defined and explained as cost-push or demand-pull, and in early 1950s Prof Milton Freedman added monetarists view on inflation that the increase in money supply (M1+M2) would impact on the increase in inflation. The traditional instruments of the monetary regulator and the authority, the Central Bank of Sri Lanka is to use interest rate as a controlling measure of inflation  with other controls such as open market operations and reserve ratio, however, they are not effective in Sri Lanka as they are working well in developed countries where have a higher level of access to formal financial markets. Sri Lanka is not such a developed financial market with information and information management. Other credit control measures such as selective controls used in Sri Lanka, but deregulation of financial markets had to put them away. Since the late 1980s printing money for fiscal purposes badly affected on inflation because treasury bonds issued to find funds for budget purposes were invested by the Central Bank of Sri Lanka printing money.  I don’t really know whether Sri Lanka had passed the test for inflation, but ordinary people especially rural poor states that they are facing economic predicaments because prices of goods and services are increasing day by day.  It is seen that the government has failed to control inflation and the general price level going up and up every day.

Inflation is a highly argumentative economic issue in developed countries as well as in developing countries. When we were learning macroeconomics in universities, it said that one person’s spending today would be a revenue of another in tomorrow and spending would be supported to increase in aggregate demand and Inflation is good for a certain extent.  Theoretically, it may be true or false, but need to ask poor people as they are practically suffered day by day and engage in never-ending hard work to cope with inflation. In this situation, it is quite difficult to believe that the Millennium Challenge Corporation’s view that Sri Lanka has passed the test for inflation.

In developed countries also produce prices have gone up and the prices of many electronic items have gone down when consider the average situation economists conclude that inflation is lower and successful in the management of the economy.  About to Sri Lanka also it is a truth that from the point of views of economists’ Sri Lanka may have passed the test of inflation, however, practically ordinary people cannot enjoy the pass of the test they cannot see any benefit.

When talking about inflation it needs keep in mind that declining the exchange value of the monetary unit in Sri Lanka has been contributed to increase in price level of Sri Lanka. The government has failed to control the declining Rupee value.  It is an internationally concerned issue and Sri Lanka has no economic power to control it.

Regulatory Quality

Deregulation was the popular idea since late 1980s and the idea has been accepted by Sri Lanka since the beginning of market economic system in 1978, however, it is questionable whether Sri Lanka has been maintaining a purely deregulated economy or an economic environment with regulatory quality.  The assessment of the quality of regulation management is a difficult task and the way of regulation management is also not acceptable to everybody.  Sri Lanka has appointed authorities for regulation management in various market areas such as health, education, finance, agriculture, technology and many others. The current problem is whether the regulatory authorities discharge the functions prudently and independently without political influences.

There is clear weakness in many areas and it seems that regulators have become market operators in Sri Lanka.  For example, Central Bank of Sri Lanka is the regulatory authority of the financial markets, but it is performing market operations about to superannuation and rural credit management.  I informed the president of Sri Lanka this late 1990s, the president acknowledged my points, so far nothing has been done.  The Central Bank allowed to market economic system and operations without quality regulations in various markets and it was the major reason for people to make negative criticism on the market economic system, which created many problems in the economic system of the country as well as benefits to poor people finding a right price for their produce. 

The main purpose of the regulator is to protect consumers in the trade or market operations.  I have a reasonable question, has regulatory authorities in various trade areas in Sri Lanka are successful in protecting consumers?  When I talk with ordinary people in the country the answer of them was that regulatory authorities have been unable to protect consumers and market operators have taken the power to their hand and consumers became slavers of market operators.  In this situation how can say Sri Lanka has a regulatory quality in market operations

This is a macro style issue and the response of public is that regulatory quality is not up to the expected level.

Trade Policy

Trade policy concerns with domestic trade policy and international trade policy.  Sri Lanka has no power to successfully make policies for international trade consistent to trends but it can make or adapt to trade trends developing responsive trade policies.  When developing trade policies Sri Lanka has not totalitarian style power like America or China has and it should act within the authoritative framework.  Many people and politicians in the country have no idea about this and they think that the country can change trade policy overnight. Domestic trade policies are also not open and the country needs a concrete domestic trade policy which means that what should do.  I haven’t seen a trade policy manuals and procedures manuals to pass a test for trade policy in Sri Lanka. What should be the trade policy for the country should be determined by practical outcomes and for this purpose, it needs continuous research on trade policy matters.

Business Start-Up

This is also a quite complicated area as an investor has many loop holes to go through to investment decision and corruptions are main constraints to business start-up. From the side of Sri Lanka allowing for investments should be made after careful consideration of investment projects, especially after 9/11 and the Easter Sunday attacks Sri Lanka must consider allowing for investment either domestic or foreign investments should be after intelligence analysis and sometimes, consultation with several countries.  Investments in modern era concern with many issues not just the returns   Honestly speaking I have no personal experience in business start-up, but I heard various complaints from potential investors. A significant constraint is investors or business people must go from one place to other compile to regulation and they must face with crooks.

It is indicated that Sri Lanka has failed the test on fiscal policy, land right and access to credit. These are highly complicated issues as they are involved in politics. The confabulation on three items is vital for policy makers in the country and they are broader area cannot discuss in a short paper. There may be thousands of papers written on these matters including thesis of university students.

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