New Sri Lanka leader must act on economy
By Anusha Attygalle
COLOMBO (Reuters): The winner of this month's presidential polls in Sri Lanka will have to take drastic decisions to revive the nation's flagging economy, regardless of the demands the long-running civil war makes on state finances.
With gross domestic product expected to be sluggish for a third successive year in 2000, Sri Lanka needs an investor- friendly leader who is willing to take on tough economic reforms and tackle an unexpectedly wide budget deficit.
"It is immaterial who wins the race. Whoever comes to power should be ready take drastic policy decisions," said Nouzab Fareed, head of research at MMBL Phillips Securities.
Thirteen candidates are in the fray for the Dec. 21 poll, but the main battle is between President Chandrika Kumaratunga and Ranil Wickremesinghe of the opposition United National Party.
Kumaratunga, who also holds the finance portfolio, was voted to power in 1994 on a platform of promising to end the protracted ethnic conflict in Sri Lanka's north and east.
Economists said Kumaratunga had focused heavily on the standoff with separatist Liberation Tigers of Tamil Eelam rebels, to the detriment of the economy.
In recent weeks, the rebels have regained most of the territory they had lost during an 18-month military campaign to open a land route to the northern Jaffna peninsula.
The escalation in fighting also means defense spending, at around five percent of GDP, is weighing on the fiscal deficit.
The ethnic violence was driving away foreign investors, whose funds were essential for growth, the chambers of commerce and industry of Sri Lanka said in a joint statement.
"We propose that a common and unified approach be taken by all political parties ... for the effective resolution of the northeast conflict," the chambers said.
Central Bank governor A.S. Jayawardena says the country is losing about two percentage points in growth annually because of the war for an independent Tamil homeland which has killed more than 55,000 people 1983.
The government has forecast 1999 GDP growth at around four percent. GDP grew 4.7 percent in 1998, sharply lower than the expansion of 6.3 percent a year before.
Sri Lanka's budget deficit was 9.2 percent of GDP in 1998 and is forecast to be lower at 7.9 percent this year, but still higher than the earlier target of six percent.
Industrialists also urged the main political parties to map out a set of common policy criteria for areas such as agriculture, industry and trade. The private sector has suffered due to long delays in passing legislation and political wrangling.
Analysts said Kumaratunga's government had done well on privatising state-run firms, but tougher reforms lay ahead.
"We are left with the reforms that are the toughest to implement and politically sensitive, whether they be public service reforms, financial sector reforms or tackling the budget deficit," said a leading businessman who declined to be identified.
Analysts said a faster depreciation of the rupee to stimulate exports was necessary, along with pension reforms, sharply cutting staff in the public sector and possibly allowing mergers in the banking sector.
Sri Lanka sold off part of its stakes in the main telecommunications utility and the national airline and privatised several other firms, but stopped short of selling the two main state banks, which unions say have bad debts totaling about 30 billion rupees (US$417 million).