Athukorala today is a globally renowned economist whom Sri Lanka has produced
An economist par excellence
Prema-chandra Athukorala who held the position of professor of economics at the Amdt-Cordon Department of Economics of the Crawford School of Public Policy, Australian National University, celebrated his 70th birthday last week. Coinciding this, he went into retirement as a listed don on the payroll of the university. But given his crave for knowledge, and the inner fever for disseminating the same, he will never retire from academic life. He has been a paper mill publishing more than 550 quality papers in journals, book chapters, occasional papers, and manuscripts. The total citations he has received number more than 11,000 so far. These are in addition to the numerous newspaper articles he has penned.
Why Sri Lanka should seek IMF support
Most recently, when Sri Lanka’s new administration has stubbornly taken a hard position not to seek IMF assistance to come out of the country’s chronic as well as acute balance of payments crisis, in a long article published in three parts in Daily FT, he took the readers through Sri Lanka’s history of seeking IMF assistance and recommended the following.
Athukorala said: “There is convincing evidence that the growth rate of the economy was significantly higher during the years of fully-implemented IMF stabilisation programs. However, the long-standing fundamental macroeconomic disequilibria of the country has persisted despite the repetitive reliance on IMF programs. This simply reflect policy failures of the country to use the breathing space provided by the programmes to undertake the required structural adjustment reforms: the ‘repetitive client status’ of the country does not, therefore, make a case for rejecting IMF support.
“Borrowing from the IMF is much cheaper than raising funds through sovereign bond issues and borrowing from other commercial sources. Unlike other donors, the IMF always lend funds to the Central Bank of the country strictly for meeting external payments. Therefore, IMF programmes do not have a direct impact on the domestic money supply and hence domestic inflation. More importantly, entering into an IMF program acts as a catalyst to generate additional financial assistance”1.
Delaying seeking IMF support is extremely costly
His final recommendation should be an eye-opener for Sri Lanka’s authorities: “Delaying the inevitability of approaching the IMF can be costly in the form of more stringent conditionality. The IMF team that visited Sri Lanka in February 2020 to meet with the new administration and discuss its policy agenda has pre-warned about Sri Lanka’s formidable macroeconomic adjustment challenges: ‘Ambitious structural and institutional reforms are needed to anchor policy priorities, buttress competition and foster inclusive growth. Fiscal prudence remains critical to support macro-economic stability and market confidence, amid high level of debt refinancing needed. Given risks to debt sustainability over the medium term, renewed effort to advance fiscal consolidation is essential for macroeconomic stability’.” But this sound advice has gone unheeded in Sri Lanka with catastrophic results waiting for the nation.
|The quality of a good economist is to change his views when more data, information, and experiences are gathered over time. Athukorala possessed this quality abundantly, and I have observed his transformation into his present role as a global economist in the subsequent years
To celebrate his 70th birthday, his colleagues, friends, and students from all the five continents had published a felicitation volume that has included contributions by more than 100 of his well-wishers. The felicitation volume titled ‘At 70: Affectionate Reflections from Friends Across the Globe’ was a surprise birthday gift to him. Deeply moved by the unexpected honour afforded to him, Athukorala, a farmer’s son from a remote hilly village in Sri Lanka, thanked his father for what he has been today.
After passing his Advanced Level, due to economic hardships he had decided to join the Government’s service as a clerical officer. It was his father who had prevented him from doing so pledging his full support for his continued education at the university. If that support had not been given in that crucial hour, said Athukorala, he would have ended as a senior clerk in a government department2. But given his inner drive for continuous innovations, even as a government clerk, he would have made a difference in the way the country’s bureaucracy is functioning.
The following is my contribution to his felicitation volume:
How Athukorala joined Vidyodaya Campus
It was July 1973. The location was the Garden Pavilion of the University of Ceylon, formed newly by integrating all the local universities. The occasion was to recruit assistant lecturers for the management stream of the Vidyodaya Campus of the University of Ceylon. An important attendee at the interview for the commerce stream was the young first-class graduate in commerce from the Peradeniya Campus. I too appeared for the interview for the public administration stream. Both of us were selected. Athukorala joined the Vidyodaya Campus, but I chose to remain in the Central Bank. That day, it was a brief encounter between Athukorala and me. But we soon became friends, and it is continuing to date.
First publication on banking
Later Athukorala left Vidyodaya Campus for La Trobe University in Australia. But whenever he came to Sri Lanka, he made it a point to meet me at the Central Bank. On one occasion, he presented to me a copy of his book on banking which he had written for students in banking at universities and other professional institutions. We used that book as the textbook for students reading for elements of banking at the Institute of Bankers of Sri Lanka.
Testing export led growth strategy for Sri Lanka
I met him in 1986 in Colombo at the Second Annual Sessions of the Sri Lanka Association of Economists. Athukorala presented a paper titled “Export Performance of ‘New Exporting Countries’: How Valid is the Optimism?”3. This was a time when mainstream economic thinking was shifting from inward-oriented growth to export-oriented growth. Sri Lanka had followed the former for decades and shifted its policy stance to the latter in late 1970s. But many local economists had still upheld the inward oriented growth models and were sceptic of the ability of a small country like Sri Lanka to penetrate large export markets.
Contrary to this view, global data on export-oriented industrialisation had shown a success story creating optimism among its proponents. Athukorala in his paper argued that that success story was confined only to the four East Asian Tigers and, hence, cannot be taken as the general trend. His data analysis relating to newly industrialised countries during 1970-83 had confirmed the optimism stance. But it was not so relating to other developing countries which had shown mixed results.
That was because there had been increased protectionism in developed countries, and as a result, the developing countries had failed to reap the full potential of the export-oriented industrialisation to maintain a continuous high economic growth. Hence, the general optimism of export-oriented industrial growth was an overplay for developing countries. This had led Athukorala to conclude that developing countries, instead of choosing solely an export-oriented industrialisation policy, should go for a mixture of a policy package that contains both the export-oriented industrialisation and import substitutions industrialisation.
Transformation into a globalised economist
This was a hard-held view on the part of an economist who later became a leading advocate of export-led economic growth for all the countries. The quality of a good economist is to change his views when more data, information, and experiences are gathered over time. Athukorala possessed this quality abundantly, and I have observed his transformation into his present role as a global economist in the subsequent years.
FDIs need much more than tax incentives
In a paper4 he contributed to the volume released by the Sri Lanka Association of Economists to mark the fiftieth anniversary of the country’s independence, Athukorala argued that tax incentives are a poor inducer of foreign direct investments to a country. Instead, a more appropriate policy strategy should be the maintenance of an investment climate conducive for foreigners to enter the economy supported by comparative advantage in international production. The incentive climate, Athukorala had further elaborated, includes both policy-induced incentives and the general business environment.
In the absence of these two important factors, a country is unlikely to attract foreign direct investments. In this paper, while endorsing the export-oriented growth, he had qualified the conditions under which such growth could take place. The implication of this is that Sri Lanka’s limited success of export-oriented growth is not due to the failure of the policy per se, but due to the failure of authorities to create the business environment conducive for such growth.
Industrialisation of Sri Lanka
In 2006, Athukorala delivered a public lecture at the Central Bank of Sri Lanka on outward-oriented policy reforms and industrialisation in Sri Lanka5. He has argued in this paper, following the economic reforms of 1977, Sri Lanka had transformed its primary product exports-based economy to a manufacturing exports-dominating economy. There have been significant gains in terms of trade, output increases, employment generation, and increased labour absorption from low-income families. But two pitfalls for the economy had been the long-drawn civil strife and macroeconomic imbalances that had acted against the growth momentum.
He has, therefore, made two conclusions: one is that the success story has made a strong case for a firm commitment for an export-led growth strategy. The other is that Sri Lanka should guard against the possible policy backsliding emanating from the expansion of the state activism. In hindsight, I may conclude that Sri Lanka lacked both. Its corollary has been the low performance of the economy even after it was opened in 1977.
Pioneer in global production sharing networks
Athukorala has been a pioneer in promoting global production sharing networks as a strategy for linking the entire globe as a single production unit. I have covered his contribution in this area in several articles in this series6. In a presentation me made at the Institute of Policy Studies, he had offered that Sri Lanka did not have a choice except joining the global production networks7. Otherwise, Sri Lanka will remain eternally a middle-income country.
I have further elaborated on this as follows: “Production sharing is a term coined by management guru Peter Drucker to describe a situation where components of a final product are being supplied by many manufacturers. What is known as production sharing today is a hybrid of the already known economic policy strategy – regional or global value chain. However, according to Athukorala, values can be created by enhancing the value added of the same product. For instance, value added in cut flowers can be increased by undertaking the packing part of cut flowers within the country before being exported. Thus, the country in question joins the value chain of the same product.”
Sri Lanka’s small way of joining the production sharing network
“Production sharing, on the other hand, involves producing and supplying different components of a single product. For instance, Toyota cars are manufactured in Japan; but the parts for same are supplied by a variety of suppliers who have manufacturing facilities in different countries.
In the case of Toyota, air bags are manufactured and supplied, noted Athukorala, by a factory in Sri Lanka. That factory is, therefore, sharing the production of Toyotas with the original Japan based company. The profits to be earned from a single part may not be that much; but, when you produce for a massive global operation, it will come to billions of dollars.”
Economist Sri Lanka produced to the world
Athukorala today is a globally renowned economist whom Sri Lanka has produced. He is in the same calibre as Sri Lanka’s globally renowned other economist Gamani Corea who served as the first Secretary General of the United Nations’ Conference on Trade and Development, better known as UNCTAD. I have watched Athukorala with admiration growing, maturing, excelling, and finally making a name for him as well as for the country as a leading economist. For me, it has been a privilege as well as an honour to be one of his acquaintances for the last so many years.
|Given his crave for knowledge, and the inner fever for disseminating the same, he will never retire from academic life. He has been a paper mill publishing more than 550 quality papers in journals, book chapters, occasional papers, and manuscripts. The total citations he has received number more than 11,000 so far. These are in addition to the numerous newspaper articles he has penned
3. Athukorala, Premachandra, 1988, “Export Performance of ‘New Exporting Countries’: How Valid is the Optimism/’, in Lakshman, W D and Kerkoven, Celonia, (eds), Sri Lanka in the International Economy, Sri Lanka Association of Economists, Colombo, pp 56-78.
4. Athukorala, Premachandra, 1997, “Foreign Direct Investment and Manufacturing for Exports” in Lakshman W D (ed), Dilemmas of Development: Fifty Years of Economic Change in Sri Lanka, Sri Lanka Association of Economists, Colombo, pp 386-422.
5. A paper based on this public lecture has been published in Economic Papers; see Athukorala, Prema-Chandra, 2007, “Outward-Oriented Policy Reforms and Industrialisation in Sri Lanka, Economic Papers, Vol 26, No 4, December, pp 372-391.
(The writer, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at firstname.lastname@example.org.)