Harsha reminds Rajapaksa Govt. of Sirimavo’s fall after nationalisation

UNP MP and party’s chief spokesman for the economy Dr. Harsha de Silva this week reminded the Government of the fall of Sirimavo Bandaranaike’s regime after her unprecedented nationalisation failed to achieve desired benefits.

“The original nationalisation effected in the early 1970s by the then Premier Sirimavo Bandaranaike didn’t bring about the expected economic benefits. This, protectionist policies, over 25% inflation and other factors saw economy suffer. This Government has come up with a similar move with disastrous implications,” Dr. de Silva said.

The infamous Business Acquisition Act No 35 was first presented in 1971 by the Sirimavo Bandaranaike regime which eventually was voted out of power. In deed Sirimavo wanted to give effect to the Land Ceiling Act from the date of Cabinet approval as well as revealed in Parliament by Economic Development Minister Basil Rajapaksa in the course of his speech during the debate.

UNP MP lamented that the Government has lost direction whilst there is “lot of noise” in the mixed signals emanating from the Rajapaksa Regime.

“On the one hand Government is inviting foreign investors such as Shangri-La whilst at the same time resorting to nationalisation,” Dr. de Silva added.

According to him, to justify some of its actions, the present Government has been pointing to the Singapore model where state ownership has worked. “It must be understood that in Singapore enterprises though with state ownership are professionally run by highly qualified and well paid professionals. There is no political interference. That apart, the Government is blind to the numerous failures of a state-driven enterprises model elsewhere in the world,” said Dr. de Silva who is also a Consultant Economist.

He viewed with suspicion the Government’s rush to pass the Revival of Underperforming Enterprises and Underutilised Assets Bill before the 2012 Budget presentation. “It appears that the Government in a desperate move may show up proceeds from the so-called restructuring and re-divestiture of assets taken over as a revenue item,” he opined.

Dr. de Silva pointed out that protectionist policies can serve largest domestic-market driven economies such as China, India, Russia and Brazil though even these countries are reforming and liberalising fast.

He warned that with growing negative sentiments over the Revival Bill which was vehemently criticised by the private sector, major national and district business chambers, clergy and lawyers apart from the Opposition, will have an adverse impact on the outlook of the economy in 2012. “The country has to aggressively increase investments from both local and foreign companies but this is unlikely to happen in 2012 with the Government having destroyed business confidence via the Bill and other measures,” Dr. de Silva said. He cited that despite a fast tracked approval process, Shangri La even after one year, is yet to cud the first sod for its luxury hotel in the city.

He emphasised that a private sector-driven economic growth policy is critical to generate jobs for 200,000 youths entering the job market annually. Boosting state jobs is not a prudent policy.

Analysts said whilst the Government has trumpeted single digit unemployment by mid this year, with slowdown in new investments by the private sector, failure to come up with business friendly policies would mean a restless unemployed youth base of 600,000 within the next three years. The rising per capita income touted by the Government is also having other implications on the labour market with many wanting better paid jobs whilst the other catch 22 situation is upward pressure on inflation has fuelled trade union agitation for wage hikes.

In a related development to the Revival Bill, at least two rating agencies Moody’s and Fitch have sounded warnings over its impact on future investments as well as sovereign credit outlook.

Fitch warned the new law that enables the Government to take control of businesses could hinder investment in the country, although much will depend on the scope of the law.

“There is a risk that it will set a precedent for further expropriation and will be applied to a broader range of businesses and asset. “This would be a disincentive for both local and foreign investors,” Fitch said in a statement.

It pointed out that the ability to attract non-debt capital inflows, specifically FDI, would help reduce Sri Lanka’s reliance on external debt and could improve the overall competitiveness of the economy

Moody’s said: “Despite authorities’ statement that this is a one-off move and that further expropriation will not occur, the measure may undermine the predictability of future policies and increase investor uncertainty, which would make it credit negative for Sri Lanka. The Government’s seizure of assets creates ambiguity around the protection of private property in Sri Lanka.

“An unintended consequence of this expropriation measure may be that it casts a cloud over the investment climate: if so, it would be credit negative for Sri Lanka,” Moody’s added.