26 October, 2021

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Troubled Foreign Relations Jeopardize Economic Recovery

By Ameer Ali

Dr. 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

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Latest comments

  • 30
    1

    Ameer Ali,

    I don’t need any theories to explain the economic downfall of Sri Lanka.

    First, inept, corrupt, racist scum has risen to the top and are ruling Sri Lanka for many years now.

    The educational, ethical or other abilities of the rulers are questionable.

    The Sinhalese ruling class cannot be trusted internally or externally because they are a cunning lot who can outwit anybody big or small. They may even think they can outsmart China at some stage to get out of the debt trap, or is it death trap.

    Most important of all productivity of the people after independence has fallen to fallen drastically just like what happened with the liberated slaves. If we don’t produce more than what we consume what can we export, other than maids for menial jobs abroad?

    • 14
      1

      “Economic Recovery”

      That’s a laugh!

      I spoke to Buddha on TikTok last night. I can tell you with the utmost certainty, there isn’t going to be a recovery …….. it’s downhill from now on.

      Pray to ye respective religions/Gods if ye have any ………. to save ye

      I’m praying to good ol’ Vellupillay Prabakaran ……. he’s the bastard who caused this by bringing the Rajapakses to rule.

      He’s the only one who can save us now!

      Bloody Monty Python couldn’t have written a better script!

      The whole country should be given an Oscar Nomination in the comedy category ………. hands down winners ……..not even a competitor in sight …..

      The only way now …….. we can earn the much needed $s …… at the box office ……..

      • 0
        2

        nimal fernando,
        Not that I do not see where your pessimism roots from, but, let me tell you, something. Water finds its own level. Blood may struggle at it, but eventually, it too does!

      • 6
        0

        nimal fernando

        “I’m praying to good ol’ Vellupillay Prabakaran ……. he’s the bastard who caused this by bringing the Rajapakses to rule.”

        He’s a bastard alright, however
        he was Hindia’s bastard
        he was USA’s bastard
        he was Premadasa’s bastard
        he was West’s bastard
        he was Rajapaksa’s bastard who won two elections and one war for the clan.

        That was VP’s cunning plan, to destroy Tamils if possible Sinhalese as well.

  • 14
    5

    SL was going downhill since 1940s. People are not united on any national matter.

    The only solution for islanders is to split the island into 3 equitable nations and relocate people based on ethnicity.

    Until then all islanders will suffer. Their suffering worsens every year.

    Look at countries that split. All of them are doing much better than they were together. Shame on Sri Lanka.

    • 4
      1

      This comment was removed by a moderator because it didn’t abide by our Comment policy.

      For more detail see our Comment policy https://www.colombotelegraph.com/index.php/comments-policy-2

  • 3
    2

    What if China itself is heading for a ‘China Crisis’, in terms of its economy – a slow-burn crisis? Should that happen, can Sri Lanka continue to rely on China’s financial support?
    ~
    Take a look at this article dated 24 September 2021:
    https://tinyurl.com/uzzh5hsv

  • 6
    0

    Dr Ameer Ali,
    The country’s internal policies have direct relationship with foreign policy and in turn with the import and export policy of a country.

  • 11
    0

    There must be a reason why C=Consumption is the first factor in the formula? In any country, if there is buying power – Consumption is high even X-M may not be that necessary unless that country has greedy growth targets. In a small country like Sri Lanka taking into account the landmass we have and the population we have we will never be able to survive and grow without a net export gain (X-M). Unfortunately, we do not have natural resources unlike the middle east, our exports are traditional export products (Tea, Rubber, Coconut, Gems), tourism, garments and labour. We do not have surplus budget, we do not even have adequate funds in the Treasury to service the interest and loan payments, we keep on borrowing. In such a situation for us to have a high growth rate there is only one option open, which is open the country for foreign investments in large money generating infrastructure and investment projects.
    Bandaranaike started Nationalist movement SLFP is the curse to the country. I am sure Banda never thought of the impact that his movement would create in the future, he wanted power and he found a nail head to beat on -Nationalistic Ideology.

    • 0
      5

      Buddhist 1,
      “Bandaranaike started Nationalist movement SLFP is the curse to the country.”
      —-
      The curse to Sinhale, the Land of Sinhalayo and Vedda Eththo is separatist Tamil politicians who refused to live with Native Sinhalayo peacefully in a Unitary State, wanted to create a separate State for the Dravidians who came to Yapanaya to work for colonial rulers grabbing land belong to Sinhalayo in NE using a bogus claim ‘Traditional Homeland’, passed Vadukkodei Resolution and declared war against the Government of Sri Lanka and Sinhala Nation leading to creation of Tamil terrorist outfit LTTE that massacred Sinhalayo for three decades.

    • 2
      1

      It was not Banda but those racist like Rajapakshes misled the people. Sirisena and Mahinda are cancerous to the nation. I REALLY dont know why Dittadammaweedaneeya wait that long to see it right. They hide their medicine from people. They take dangerous decisions only by taking within their family. That so called powerful leftist Wasidewa behaves as if his head is taken away by stupid men. ☹☹☹☹☹☹☹

      • 1
        0

        leelagemalli,
        Vasudeva is a man of no principles; he is an insult to Left-wing politics.

  • 6
    1

    This comment was removed by a moderator because it didn’t abide by our Comment policy.

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  • 1
    16

    “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,…”
    —-
    I do not know whether Ven. Gnanasara has warned the regime of an imminent attack from Muslim fundamentalists and extremists. But during a discussion in ITN (Theeranaya) on 12 September 2021 he told that the possibility is there for attacks to take place because there are a large number of Muslim youths who have been brainwashed by Wahhabi Muslim preachers and there is a large number (3000?) of swords imported by Muslims hidden somewhere in this country. I think his argument is valid given the recent incident in NZ and incidences in few European countries.
    —-
    It is the responsibility of the Muslim community to make sure that attacks will not take place. Can the Muslim community give an assurance that such incidences will not take place?

    • 11
      0

      How do you treat the same citizens,call them Thambias,Para Demulo….who makes them to be terrorists,you EE ,HDLM,our head army deserter he is so greatful for green card system ,
      Am so greatful for our future leader Lohan didn’t pull the trigger this is coward boys country,hope his resigned post of prison goes to great Duminda
      I knows very well my English is so bad but effect of Sinhala only………

    • 3
      1

      Eagle Eye,
      “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,…”

      Why should Muslim community take responsibility for the bombs planned and executed for the master mind? Islamic Terrorism by ISIS is nothing new to the world but I doubt the bomb planted in NZ by a Sri Lankan Muslim may be the work of the Easter Bomb Mastermind.
      This itself proves that Sri Lankan military intelligence service are not capable of gathering information on terrorist threat Sri Lanka because they are interested in only collecting information about the threat to Rajapaksa family or to carry out similar attack like Easter Bomb .
      So, Gnanasara Bhikkhu and his buddhist gangs work to gather information and probably executing based on the information.

  • 2
    16

    Any country need political stability in addition to right foreign policies to promote domestic and foreign investors which is essential for economic development. After Sinhale/Ceylon gained Independence, there was no political stability in the country. One of the reasons why this country did not have stability is democracy imposed on people in this country by British. Using the freedom that came along with democracy, several groups played hell in this country ruining stability.

    • 5
      1

      Eagle Blind Eye

      All countries need not only political stability but treat its citizens equitably, respectfully, democratically, justly, …. guarantee security, safety, equal opportunity, level playing field, deal with racist severely, (example lock up you, HLDM, Weerawansa, Asgiria, ….. Gota, …. and throw away the keys) ……………………………..

      Ceylon/Sri Lankan foreign policy was/is to invite every Tom, Dick and Harry to grope men and women of this island. Some of you are prepared to place yourself in pivotal positions pleasing every foreigner who passes by.

      Sinhala/Buddhist majoritarianism has destroyed this island.

  • 7
    1

    Ameer Ali says, ‘It is now clear more than ever that domestic policies affect foreign relations and they in turn affect the economy’.
    On economic matters Ameer Ali is a giant. It is by our shortsighted domestic policies that we have lost our once prosperous economy.

  • 4
    0

    At the UN High-Level Dialogue on Energy, President Gotabhaya Rajapaksa has pledged to decarbonize Sri Lanka by 2050 which will save the Mannar basin from oil exploration and drilling.
    Gotabhaya has further said his target is to obtain 70% of the country’s energy requirements through renewable sources by 2030.
    Well, as per Gotabhaya’s above-mentioned international pledge, he should immediately TERMINATE the preliminary agreement said to have signed between his government and the US based New Fortress Energy to build a new offshore liquefied natural gas (LNG) terminal in Sri Lanka.
    As everybody knows, LNG is NOT a renewable energy which has a massive greenhouse gas footprint.
    As apparent, Gotabhaya’s agreement with the New Fortress Energy hinders his own renewable energy plans big-time.
    Same as coal, LNG also destroys mangrove forests, corals, ocean habitats, endangered species, forests and ecosystems.
    It should be noted that many LNG gas line projects in the US and elsewhere were abandoned in recent years. Eg: Atlantic coast LNG pipeline in the US, Ireland and another between France and Spain.
    In a country like Sri Lanka where renewable energy is in abundance, transition from one non-renewable energy (coal) to another non-renewable energy (gas) shows that decisions are made based on bribes and commissions, not science.

  • 1
    0

    The present government promotes export and at the same time restricts imports. We could look back international trade in a historical perspective.
    The General Agreement on Tariffs and Trade (GATT), signed in 1947 soon after the second world war, was a legal agreement minimizing barriers to international trade by eliminating or reducing quotas, tariffs, and subsidies.
    In 1995 GATT was replaced by WTO – World Trade Organization. With the similar objectives to facilitate international trade,
    Globalization further strengthened international trade without barriers.
    If individual governments restrict imports and it will definitely discourage exports.
    Sri Lanka is in a suicidal mission, have not learned any lessons from similar polices followed during the closed economy era of United front government 1970-77.
    If you do not learn from history, history will apt to repeat itself first as a tragedy and then as farce.

    • 1
      0

      Srikrish,
      Sorry to say, the brains needed to understand this “complex” trade with GATT and WTO, is not available anymore. They have been misplaced after the 2019 and 2020 elections.
      That’s why, orders were given to clear the 600+ containers from the Colombo Port, without the Dollars to pay fro the discharge of the LC and obtain the Bill of Lading!!?
      Small and simple mistake by the Hoi Polloi. Please excuse them!
      Do they know what they are doing?! Or what they ought to do??!!
      Pardon them!!!
      If the Banks released the Bill of Lading on the Ministerial directive without dollar payment, then it would be “Mungkolla wedak”, worse than “Humbantota Fund” disbursed in Nawala, instead of SE and SW coastline!.
      Lucky it did not.
      In SL everything everybody acts on Political Diktat only!
      Like IG waiting for instructions from the Minister or PM, because he has a lapse of memory, how he earns his bacon! I mean the pay check!!
      Very P(F)unny n? But not that P(F)unny, when it is millions of dollars, which is hard to find these days to meet essential Imports, such as Vaccines, including westernised ‘Amude’
      What, oh What is happening in ol’ SL?!

  • 1
    0

    It’s beyond to up keep of 225 stop paying salaries and replace with Samurdhi,recover the vehicles put them on auction gives them motorcycles,gives them tablets and gather in zoom for stunt winds ups,convert the parliament to technical institute for youngsters,courses like IT,engineering,nursing,medicine,etc
    Close all the international schools bring English medium for all govnt schools in all provinces,surely we can find teachers locally or can hire from big brother,also lot of unemployed youngsters we have can trained them and gives opportunity.

    • 1
      0

      Have lot of English teachers, well trained and qualified, will teach students to become top and elite persons to lead the country No?”
      Then we solve problems all and become the best country in the world to slaughter the Queens’ English and make it Siri Lankan style aney!
      Very very good effort, why speak and use western, neo colonial English, Far better we speak Singlish, the indigenous way no?
      Local always better, even they cannot understand that Singlish, they enjoy!!
      Kaduwa is no good. So we use Singlish instead. Suddha and Suddhi will understand little, little!!
      See all the tourists and ‘Beach Boys’ understand each other and have good Bonhomie to survive!!
      If can’t express in English, give direction, ‘Go, Go’ 2 miles, turn right next junction, go straight and next junction “NO junction”, ‘Go Straight another mile’
      Next junction ‘Junction, Junction’ turn left and 100 yards Jothipala will be waiting with String Hoppers.
      See, how well direction given in English after studying English, from an English Teacher, who unfortunately did not have any English teacher, but a Vernacular pundit to teach him English!!
      Anyway he learnt English, high marks and is the Suddha tourist director of SL!!!

  • 1
    0

    Even a student of Economics would know that domestic policies affect Foreign relations and they in turn affect the Economy……..

    I am reminded of that famous quote by Poet John Donne…….No Man Is An Island…………

    • 0
      0

      Unfortunately, absent minded Professors do forget and when they are installed at the helm of foreign affairs they cannot see what their ‘Shadows’ cast?!

  • 1
    0

    One everyone seems to agree is that as a result of gross mismanagement economy of Sri Lanka is in the doldrums. You have implied that Sri Lanka will not get the most important support from the Western countries because Sri Lanka had tilted strongly towards China in the geopolitics of the Indian Ocean.
    It appears that after the visits of Basil Rajapapaksa and Gotabhaya Rajapaksa to USA this tilt may have been rectified. Sri Lankan public will never come to know what exactly happened in the USA. My guess is that the Rajapaksas have made some geopolitical concessions to win this truce with the USA. Therefore you can expect that powerful countries will save Sri Lanka from defaulting on the loan repayments.

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