By Ameer Ali –
Students of macroeconomics would be familiar with the Keynesian national income equation, Y = C + I + G + (X – M), in which Y is income, C = consumption, I = investment, G = government, X = exports and M = imports. The last two variables signify the foreign sector. In an open economy, foreign sector plays a critical role in enhancing economic growth and national income. If one considers East Asia’s growth miracle after 1960 and China’s in particular after Mao, it was the vigorous expansion of exports and imports that made them Asia’s dragons. It was the growth of external sector that made China, according to one computation, the largest economy in the world today. Even though these economies are politically authoritarian in character, foreign policy of their governments was tuned to protect their international trade relations. Yet, text books on macroeconomics rarely discuss the close link or interdependence between a country’s foreign policy and its economy. It is assumed away under the all-inclusive phrase ceteris paribus. To go back to the example of China, that country’s foreign policy is driven by the twin objective, of making China another superpower geopolitically and workshop of the world economically.
When JR embraced the open economy paradigm after 1978, he might not have known at that time that very soon the whole world, including the former Soviet Union, would fall in love with Smithian markets and would therefore slash most if not all barriers against the flow of goods, services and production factors across national borders. There was even talk of the world becoming a global village. In a globalized environment therefore, the more countries a nation trades with greater would be the benefits accruing from openness. However, in a world of competing superpowers and regional hegemons winning trading partners is not simply a function of comparative advantage but more than that a matter of pragmatic foreign policies. If an open economy is small as that of Sri Lanka, then the importance of such a policy looms large.
Although JR was not a great admirer of the Non-Aligned Movement (NAM) and was called “Yankee Dick” by leftists, because of his pro-American stance, he did not openly demonstrate any sign of pulling Sri Lanka out of its NAM commitment. Even JR’s successor presidents, until MR was elected in 2005, adopted a foreign policy shaped largely by principles of non-alignment. The year 2005 changed all that. Dictated by a non-compromising resolve to destroy LTTE at any cost, and let down by US in providing armed assistance, MR and his then Defence Secretary GR turned towards China in haste. At a time when China was drawing its string of pearls geo-political strategy, aiming to gain strategic footholds along the Indo-Pacific oceanic trade route, MR-GR’s plea for funds and weapons was manna from heaven to the emerging giant. China’s financial largesse and arsenal of weapons are part of her foreign policy strategy to protect trade routes, win markets and earn allies. For Sri Lanka however, it marked a turning point in the country’s commitment to NAM, and MR-GR partnership pushed the strategic island into China’s geo-strategic power trap. China’s assistance to Sri Lanka, like its assistance to Africa was the dragon’s gift to a troubled nation. It was therefore not without substance when the former US Secretary of State, Michael Pompeo, dubbed China a “predator friend” of Sri Lanka, when he met GR in June this year in Colombo. That foreign policy shift by Rajapaksa brothers is now threatening to jeopardize the country’s post-Covid economic recovery. EU’s threat to withdraw GSP+ for Sri Lankan exports is clear evidence of the interdependence between foreign policy and national economy.
There had been a flurry of activities over the last few weeks to repair damages caused by irrational foreign policies. President GR’s trip to New York to address the UN, which, unlike his globe-trotting predecessor Sirisena, was only the second trip abroad since he was elected to office (first was to Delhi); Prime Minister MR’s controversial trip with his Foreign Minister Professor G. L. Peiris (GLP) to Bologna in Italy, to address the G20 Interfaith Forum while utilizing that opportunity, although denied by his ministry, to have an audience with the Pope to clear the air about Archbishop Cardinal Ranjit’s allegations over the regime’s “cover up” of the mastermind behind the Easter infamy; and GLP’ report to UNHCR in response to that council’s 2020 resolution; and his discussion with the Secretary of the Organization of Islamic Co-operation (OIC) – all within a matter of weeks, indicate the regime’s belated realization that Sri Lanka’s foreign relations need urgent reparation and without that economic recovery would become too painful if not impossible.
In spite of these efforts and realization the fact remains that there is a trust deficit from which GR-MR leadership suffers and which makes international bodies suspicious of Sri Lanka’s promises. For example, GR promised UN Secretary General in New York that he was prepared to meet expatriate Tamils to discuss solutions to Tamil issues. Could this President be trusted? Let the record speak. When he visited the Indian Prime Minister Narendra Modi in New Delhi in November 2019, GR promised the PM to implement the Indian inspired 13th Amendment to solve the Tamil problem. But when GR returned home, he went back on that promise and argued that the majority would not permit that to happen. Later, in July 2021, he sent invitation to leaders of TNA to initiate a dialogue, but withdrew that invitation almost immediately, because of opposition from his backyard. After that, the was news that talks would recommence once Basil Rajapaksa, SLPP’s chief strategist, returned from America. Nothing eventuated. How much trust should therefore one have on his latest promise? On a positive note, his promise showed that he had realized that expatriate Tamils are a force to be reckoned with.
Likewise, and in regard to the Easter Sunday infamy, the Presidential Commission of Investigation (PCoI) submitted its 22 volumes report to GR, but instead of carrying out its recommendations, he appointed a kitchen cabinet to pick and choose and suggest measures that could be implemented. One man who had studied the report, Archbishop Cardinal Malcolm Ranjit is now alleging that there had been a cover up. The entire exercise has turned into an expensive tamasha.
Similarly, on human rights issues, Prevention of Terrorism Act (PTA), war crimes and reconciliation, which were subjects of last year’s UNHCR debate and resolution, none of the measures stipulated for action by the regime had been accomplished. And finally, Foreign Minister GLP’s attempt to appease OIC is simply another public relations exercise, which that organization is well aware of. The sufferings inflicted upon the Muslim community under this regime had been indiscriminate, injudicious and ill-tempered. Hundreds of Muslims are reported languishing in prisons without facing any trial. Even now, the secretary of Bodu Bala Sena (BBS), Bhikkhu Gnanasara, has come out openly and warning the regime of an imminent attack from Muslim fundamentalists and extremists without any hard evidence, and the Minister of Public Security, Sarath Weerasekera, has already congratulated the monk for his warning. BBS was one of those organizations recommended by PCoI for proscription, but it is allowed to operate without any restriction. Thus, while GR, MR and GLP are busy repairing damages done to foreign relations, domestically, a security threat is being manufactured so that status quo could continue.
The country needs export markets and foreign investment. Arbitrary import restrictions to conserve foreign exchange may be helpful in short term but will affect exports in long term and cost more foreign exchange. Given these contradictions, and nexus between foreign relations and open economy, the so-called U-shaped or V-shaped economic recovery predicted by some pundits will remain no more than a statistical exercise. It is now clear more than ever that domestic policies affect foreign relations and they inturn affect the economy.
*Dr. Ameer Ali, School of Business & Governance, Murdoch University, Western Australia