While President Anura Kumara Dissanayake and his National People’s Power (NPP) seem preoccupied with the task of scrambling together party administrations for as many local councils as possible following its obscure victory at the Local Government Elections on 6 May, the job remains a work in progress even three full weeks after the conclusion of the elections.
Even though the deadline for the first sitting of the 340 newly-elected local councils is technically due tomorrow (2), the Constitution does provide for first sittings to be carried out during the course of the week beginning tomorrow, which has offered the NPP in particular and the other Opposition parties in general somewhat of a breather, as they struggle to form administrations in 177 councils. However, the chaos is almost palpable, with backroom horse-trading to buy up members in full swing.
As per the Constitution, even if at the end of the week parties are unable to form administrations in these 177 local councils, then the Minister of Local Government is empowered to extend the period further, which means the state of limbo is likely to continue for some time. As of now, only 161 councils have been duly constituted and the relevant gazette notifications issued by the Election Commission.
However, what is cause for concern is not so much the tug-of-war that is taking place to wrestle control of the local councils, but the ruling party’s preoccupation with it, distracting its focus from the greater issues staring the nation in the face – foremost among which is the state of the economy and its outlook following the worsening unpredictability and general turmoil in the global economy.
Meanwhile, there are no signs that the author of that turmoil, Donald Trump, is anywhere close to being done with turning world trade on its head. Even yesterday (31 May), the US President announced a new tariff of 50% for aluminium and steel exports to the US. It was only in April that he imposed a 25% tariff on these specific items and yesterday it was doubled. The ad hoc nature of the imposition of tariffs, seemingly depending on Trump’s mood for the day, is probably the worst thing for business for the US primarily, which is dependent on policy consistency, but such profundity appears inconsequential to Trump.
For many years, one of Sri Lanka’s biggest drawbacks in attracting foreign investment has been its policy inconsistency, where every time there is a change in government, economic policies change, leaving investors in limbo. Now, the US, whose trading policies have long been benchmarked, has been dragged into the same predicament as little Sri Lanka and whether the economies of scale will cushion the country from the usual shocks is to be seen, but what is clear to the rest of its trading partners is that they should, at least for now, look elsewhere.
And that is exactly what America’s biggest trading partners like Mexico, Canada, China, and the European Union (EU) have already done or are in the process of doing. In triggering the trade war, Trump appears to have grossly miscalculated the odds, hoping that the big players will come on bended knee and acquiesce to his demands. Instead, they have come up with their own demands and thrown the ball back into Trump’s court, which is what compelled the US President to delay the implementation of the tariffs by 90 days, of which Sri Lanka was also a collateral beneficiary.
However, the entire tariff circus took a dramatic turn last week when the US Court of International Trade ruled that Trump had no authority to impose such tariffs, pointing out that that role was reserved for Congress. The ruling, which came into immediate effect, meant that the imposed tariffs would no longer be in operation, which led the trading world, Sri Lanka included, to heave a sigh of relief.
But that relief was short-lived. Within hours the Trump administration filed an appeal against the ruling, resulting in the Court of Appeals providing interim relief by declaring that the tariffs could continue until a final decision was reached on the matter at the next court hearing on 5 June. The on-off-on-again tariffs have predictably further isolated the US from the rest of the world, which has now been compelled to look elsewhere. The EU appears to be leading the way in this regard, with the bloc deciding to manufacture its own defence equipment and not depend on the Americans, pouring billions of dollars into new investment in arms manufacture. America’s loss is now the EU’s gain.
It is in this backdrop that the Government sent a high-profile delegation to negotiate tariffs with Washington last week. While that is well and good though late in the day, the Government must take a lead from the operating manual of the rest of the world and not put all its eggs in the US basket.
While little Sri Lanka, just recovering from bankruptcy to boot, can in no way match the trading firepower of the likes of the big boys like the EU, China, and Canada, the least it can do for its own good is to urgently explore alternate markets while also talking to the Americans. Doing one and not the other, as appears to be the case now, is unlikely to prepare the nation for the worst in an increasingly probable worst-case scenario.
Thus far, it is unfortunate that the role of finding new markets and product innovation to cater to those markets has been left exclusively in the hands of the private sector, with little to no intervention from the State, despite the dire urgency to shore up the nation’s Gross Domestic Product (GDP) in keeping with targets set out in the Economic Transformation Act (ETA).
It is to the credit of the previous Ranil Wickremesinghe-led administration that Sri Lanka experienced a relatively quick economic revival following bankruptcy and one of its last acts before the Presidential Election in September last year was the enactment of the Economic Transformation Act in August. This progressive piece of legislation set out the framework for Sri Lanka to continue its economic revival trajectory through sustained economic growth, attracting greater Foreign Direct Investment, and aggressive expansion of Sri Lanka’s global trading outlook.
The primary aim of the legislation was to attune Sri Lanka’s economy to the rest of the evolving world by creating greater competitiveness through an export-oriented economy. Towards that end, it proposed the setting up of new institutions like the Economic Commission of Sri Lanka replacing the Board of Investment and the creation of new investment zones. In addition, the act included contentious new legislation setting out targets for debt reduction and GDP growth up to 2028.
To the credit of the current regime, it resisted the trend whenever governments change to repeal what is not in keeping with its ideals. Instead, the new NPP Government introduced its own amendments in April with the aim of strengthening the institutional framework for accelerating economic transformation, including key export-oriented entities under the Ministry of Industry and Entrepreneurship Development.
However, despite all this, the country is now faced with the prospect of some key State ventures grossly underperforming, causing unnecessary ripples in the local economy. Local salt production has failed to meet domestic demand for the first time, compelling the Government to expend forex on salt imports, while another key local industry, sugar, is also facing the same predicament, leading to sugar imports.
These crises come amidst another brewing crisis at the Ceylon Electricity Board, which is caught in a catch-22 situation, where increasing rates once again will lead to the manufacturing sector taking a hit, leading to export competitiveness issues, while on the other, refraining from doing so will earn it the ire of the International Monetary Fund (IMF) and withholding of the next tranche of $ 344 million, which is already overdue.
The recent closure of two long-standing apparel manufacturing facilities located in export zones citing the inability to make ends meet is an emerging critical issue the regime must face head-on if it is to stay on course with export targets, without which the Government runs the risk of falling back on targets specified in the ETA, further jeopardising the IMF engagement.
Therefore, while the regime has every right to engage in politicking at the Local Government level, it must realise that this will not bring home the bacon. It must not lose focus of the bigger picture and the bigger issues that call for its urgent engagement. The art of moving on, be it from the Trump tariffs or Local Government, is something it must master sooner than later.