Political stability is crucial for economic recovery | Print edition

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People spoke loud and clear. They want the president and the government gone. The country is in political crisis. It is time for a multi-party national government to be formed. Yet there are no signs of such a positive political development. We are a people who united to oppose but opposed to unite.

The right decisions

The decision to seek assistance from the International Monetary Fund (IMF), the appointment of a capable and independent Central Bank Governor and a three-member professional advisory board are important positive developments. However, a stable and credible government is essential to obtain immediate assistance from the IMF for an orderly debt restructuring and the implementation of the necessary economic reforms.

Political stability

Political stability is a prerequisite for resolving the economic crisis. We cannot solve economic problems without a stable and secure government. Hopefully, at the beginning of the new year, we will resolve the political crisis.

As justified as they are, social upheavals are detrimental to the economy. They are another setback for the economy. They worsen economic conditions by reducing tourism revenue, disrupting economic activities and increasing government spending.

Crises

The severe economic crisis cannot be resolved without the formation of a competent, honest and dedicated national government. The final outcome of the current political and social upheavals is uncertain. What is certain is that the serious economic crisis cannot be resolved without a stable and credible government.

Recent changes

The recent political upheavals and cabinet changes will only have consequences if the government pursues the correct economic policies towards economic stabilization and growth. What matters is the pursuit of correct policies.

Significant change

The appointment of a competent and experienced Governor to the Central Bank is an important turning point. Dr. Nandalal Weerasinghe pledged to guarantee the independence of the Central Bank. He brings a wealth of central banking knowledge and experience to senior office.

Political will

Do we have the political will, the determination, the courage and the capacity to undertake a serious program of economic stabilization and economic reforms? This is the relevant question.

IMF

The gravity of the economic crisis is such that there is no other alternative than to seek assistance from the International Monetary Fund (IMF) and embark on a structural adjustment program. The delay in seeking such assistance has aggravated the problem and made remedial action more difficult.

hard times

The road ahead is difficult. It is not possible to continue our recent policies of excessive consumption, wasteful government spending, bad policies, and inefficient haphazard economic management, nor to be able to alleviate the hardships that people have suffered in a short time. People will have to bear the hardships until the government is able to solve the shortage of essential commodities.

Immediate

Immediate help should come from foreign aid for food, diesel, petrol, gas and pharmaceuticals. Several countries and international organizations have pledged such assistance. These must be obtained quickly.

Electricity

Minimizing power outages and the availability of diesel, gas and gasoline are vital to most economic activities and livelihoods. Manufactured goods and services are affected. Therefore, exports are down. These shortages must be resolved quickly. Hopefully this would be possible with the foreign help we receive, especially from India and other countries as well. Recent rains in the watersheds could also increase hydropower generation.

Palliative

This relief is an essential and yet short-lived palliative. It is the pursuit of correct economic policies and a long-term program of debt repayment and liberalization of trade and payments that could redress the situation. This is the reason for an IMF assistance program that has been unduly delayed due to misguided advice.

Difficulties

Despite these measures, the burdens on the people by the sharp devaluation of the Rupee and its depreciation of more than 50% against the US Dollar being above Rs. 300 will create severe hardship for the people.

This change in policy, along with pricing policies reflecting higher import costs, have caused serious hardship to the people. It cannot be avoided. In fact, the costs of such a readjustment of the exchange rate and the price policy are likely to increase the burden of the populations.

Relief

This implies and highlights the need for policies aimed at relieving low-income groups through effective safety nets and subsidies. For example, as fuel prices rise, public transport should not be expensive. There should be methods to subsidize diesel and ensure that rail transport for ordinary daily trips remains at previous prices. The rail fare structure should be readjusted to increase premium and luxury travel to reflect more than rising costs. Likewise, there should be other policies that provide relief to low-income families. This would require higher taxation of the wealthy.

Structural adjustment

The inevitable structural adjustments for economic recovery should be accompanied by relief programs for the most affected low-income people. It should be a “structural adjustment with a human face”.

Summary and conclusion

The belated decision to seek IMF assistance to restructure foreign debt and obtain financial assistance to alleviate the country’s financial distress is an important and inevitable decision. The appointment of a competent and professional staff at the head of the Central Bank and the Ministry of Finance as well as a corps of highly competent and experienced advisers are also important developments.

Nevertheless, the road to economic recovery is long and painful. Difficulties will fall on all, but the wealthy must bear much of the burden. Political unrest and social upheaval will undoubtedly weaken economic stabilization and recovery. The inability to mount a united national effort is a serious weakness of the republic.

A quick resolution of the political impasse, a stable government and the easing of social upheaval are imperatives for an economic recovery. The lack of national unity is indeed a serious obstacle to economic recovery.

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