Economist ridicules previous regime’s trade policy and calls it ‘Stupidnomics’

Sri Lanka’s international trade policies hawked by the former Treasury Secretary Dr. P. B. Jayasundera were termed ‘Stupidnomics’ by a leading economist who has carried out extensive research on global trade policy.

“Let me just pick out two mercantilist fallacies. One is this; ‘We need an export strategy, but at the same time, we must curtail imports’. How many times did I hear P. B. Jayasundera say it in years past? That is not just counterproductive, it’s stupid...it’s stupidnomics,” National University of Singapore Lee Kuan Yew School of Public Policy Associate Professor Razeen Sally said.

Speaking at the Economic Summit 2015 organized by the Ceylon Chamber of Commerce, he noted that imports and exports are part of the same coin, and that protectionist measures would not boost exports.

“We have seen this in many countries. When imports rise, exports rise. When imports fall, exports fall,” he added.

He said that this is because imports bring in newer technologies and cheaper goods, which would motivate dynamic local manufacturers to adapt to such changes through entrepreneurship, increasing productivity and competitiveness.

This would automatically boost exports as the Sri Lankan domestic market is too small to cater to manufacturers.

Secondly, Prof. Sally added that raising import tariffs would also raise the cost of Sri Lankan export goods—reducing their competitiveness.

“A tax on imports is a tax on exports in a world of global supply chains. How can Sri Lanka become more competitive? Simplicity. Don’t overcomplicate tariffs. The government shouldn’t interfere,” he added.

He expressed that export tariffs should also be done away with completely.

“The cess on tea and rubber—which is implemented to promote value addition and export promotion—is stupid,” he noted.

Prof. Sally recommended that Sri Lanka reduce its import tariff averages from the current 10 percent to around 5 percent implemented across the board like in the East and South East Asian countries—which are fully integrated to the global supply chain—while doing away with the concessions culture for foreign direct investments.

“Concessions are a breeding ground for corruption,” he said, and added that a lack of integration into global supply chains is the reason for an anemic level of foreign direct investments.

“Trade and investment go hand in hand. There’s no use talking of one while ignoring the other,” Prof. Sally said.

Meanwhile, he called on the Sri Lankan people to rise up and make a persuasive case for free trade.

“That has seriously not been made in Sri Lanka. It was an argument which was passed by default in the past. We need free trade for the ordinary Sri Lankans and not just for the elite,” he said.

Prof. Sally, who is also the Chairman of the Institute of Policy Studies (IPS), recommended that Sri Lanka remove all para-tariffs and non-trade barriers to pursue exports outside free trade agreements, but also to negotiate FTAs with its main markets in the US, EU and India, as well as emerging markets in China and South East Asia.

“What I would like to see is a decisive, different, pro-market and pro-globalization economic policy for the country after the elections,” he said.

(CW)