| The Assistant Director of the Department of Commerce said that that trade instruments alone are not enough to bring about economic growth. Saman Udagedara told the Island Financial Review that while trade instruments such as free trade agreements give greater market access to our exporters, an environment conducive enough to enable them to expand their production base was prerequisite for sustainable development of the export sector. "Our exporters are facing difficulties because of weak infrastructure facilities, a harsh investment climate where inflation and interest rates are high and high energy costs. The government is doing all it can to address these issues," he said. Udagedara pointed out that a major obstacle for the success of the Indo-Lanka Comprehensive Economic Partnership Agreement (ILCEPA) was high inflation rate and interest rates in Sri Lanka compared to India, which would make production costs in Sri Lanka high. Former Chairman of the Ceylon National Chamber of Industries, K. C. Vignarajah, said that the issues many industrialists had expressed with regard to ILCEPA were minor compared to the issues brought about by the country’s skewed macro economic fundamentals. "The added value and export industries and services are faced with tremendous disadvantages. Many factories have closed, and many more will closedown soon, unless the Macro Economic factors are corrected forthwith," he said. "The Macro Economic factors have to be correct and Good Governance Infrastructure structures in place before ILCEPA can be effective for Sri Lanka. ILCEPA is a great advantage if these are corrected," Vignarajah said. "ILCEPA is an endeavour to offer advantages to our industrialists and service providers by giving them easy access to an expanded market of 1 billion people, through liberalized tariffs." "However it is negated by the highly disparate inflation rate, interest rate regime, and the lopsided real exchange rate of the Sri Lankan Rupee which is over valued by about 12 to 13 percent," he said. "For example, an exporter adding value of US $ 300,000 a month is suffering a setback of about Rs. 4.5 million a month. This is a serious disadvantage," he stressed. "The forward exchange rate a few months ago per US $ 1 was Rs. 122 while the spot rate was Rs. 114. Now the spot rate is only 107. This amounts to a loss, at Rs. 7 per Dollar (spot), of Rs. 2.1 million, per month or if the natural rate was permitted a loss of Rs. 15/- per Dollar (Rs. 4.5 million per month)." "The intervention by the Central Bank was to borrow hundreds of millions of U.S. Dollars to boost the currency reserves, to artificially appreciate the Rupee, to make imports cheaper, to facilitate taking out Foreign Exchange, while paying much less to exporters who have to face highest rates of Inflation, Interest rates, Electricity, Transportations and Fuel costs all of which cost much higher than our competing countries," he said. Vignarajah went on to say that in the EU block, the Bundesburg and the Bank of England monitor the Macro Economic factors very carefully and are very sensitive to any slight changes in them and take immediate corrective action. "The strength and benefits of the EU are there for all to see. Ireland, the poor relation of Europe at one time is now one of the most prosperous nations with a high growth," he said. Commenting on the CNCI seminar on ILCEPA, Vignarajah said that the frequent comment of the industrialists were that while the Indians had leaders and officials who were really patriotic, the Sri Lankan counterparts were pathetically deficient, self centered and could not be trusted. "Too broad a brush has been used. But when you reflect on the larger issues, the lack of wisdom in our so called leaders and lack of civil society activism (admittedly a great society otherwise) to correct these errant, self centered power hungry coterie is evident over the last few decades," he said. When Sri Lankan exports lose its competitiveness the result is that workers are forced to seek jobs overseas. |
