Political uncertainty and instability undermine economic development

Political stability and economic growth are inextricably interconnected. While political stability is a necessary condition for an economy to prosper, it is not a sufficient condition. There are many other conditions besides political stability that are necessary to spur economic growth. This includes good governance, the rule of law, law and order, guarantee of property rights, well defined pragmatic economic polices, good economic governance, certainty and predictability of economic polices and economic, social, administrative and educational reforms. Nevertheless political stability is a prerequisite to ensure these conditions.

Autocratic stability

Political stability can be achieved through noncompetitive political systems: dictatorship or autocratic rule. Such political stability could easily bring about a regime that breeds cronyism and large scale corruption with impunity, as has happened in many Asian, African and Latin American countries. The election of President Maithripala Sirisena on January 8 was a rejection by a majority of people of such a regime. Good governance that figured as the main election campaign of the President will continue to be an important issue at this election, too. Sri Lanka is committed towards achieving political stability through a democratic parliamentary system.

Investment

Political uncertainty is especially detrimental for attracting foreign direct investment that is vital for the country's economic growth. Foreign investors prefer a stable political environment, with less policy uncertainty and assurance of property rights. A high degree of political uncertainty created by possibilities of changes of government that may bring drastic economic policy changes is detrimental to investment. Risk-averse foreign investors may hesitate to take economic investment initiatives and prefer investing in other stable countries.

Economy affected

Political instability and uncertainty has slowed the country's economic growth many times since independence. Political developments this year hardly provided political stability. Never in the nation's history have there been such conjecture, confusion and uncertainty about the course of political developments over such a long period as since the presidential election. The interim coalition's inability to get parliamentary approval for its substantial constitutional reforms and financial requirements was not conducive for economic development.

Political uncertainty became widespread after the dissolution of parliament. Confusion was compounded by speculation on the composition and alignments of parties for the forthcoming parliamentary election. These political uncertainties have not been conducive to business confidence and the course of economic development. It is, therefore, essential that the August 17 election ushers in a stable government committed to good governance and pragmatic economic policies.

Despite 21 parties and 15 independent groups contesting the August 17 election, it is a two-party contest among the traditional political rivals. There is a coalescing of other parties with the UNP to fight under its "United Front for Good Governance" continued campaign. Several other small parties are likely to get perhaps more seats than they held before owing to the disappointment and disillusionment with the two main rivals.

No majority

There is every possibility that no single party would get more than 113 seats to form a majority government. This implies either a coalition among the two main parties or sections of them with support from the smaller parties, including the regional parties representing minority communities.

Alternately if one of the main parties gets a high proportion of seats, then coalescing with the smaller parties alone is likely. In the event of either party not getting more than 113 seats they would play an important role in enabling either party to establish a government. Such coalitions often lead to conflicts in economic polices within the government.

There is a possibility of formation of a coalition government as a "national government". If such a government commands a significant majority and its constituents are committed to the coalition, then there could be political stability. If, however, the constituent elements have violent disagreements on economic policies, as has happened with several coalition governments of the past, then a period of much political instability and economic uncertainty could be expected and essential and important economic policies and reforms would not be implemented. Coalition politics have never been conducive to economic policy formulation and economic development.

Crossovers

Another source of potential instability after the elections could be the fissiparous factions within the UFPA that could seek new alignments. This is a potent possibility as such crossovers are possible owing to the outrageous interpretation of the Constitution by an erudite former Chief Justice in violation of the fundamental principle of proportional representation in the constitution and the electoral system.

This interpretation that permits MPs to cross over to other parties from their party affiliations at the elections undermines the principle of proportional representation enshrined in the electoral system.

This destabilising feature will persist till the 20th Amendment is passed by a two third majority in parliament.

All these features do not augur well for political stability. The recent behaviour of politicians, their unprincipled manoeuvres and changing party loyalties are reasons for anxiety about the ultimate outcome of the election results and relative party strengths in parliament.

These political uncertainties as well as economic policies that have not been well thought out are not conducive to business confidence and economic performance. There is uncertainty about future economic policies as the composition of the next government remains uncertain.

National Government

The formation of a national government and measures towards national integration and national harmony would be conducive to longrun economic development and political stability. Yet some immediate measures are needed to ensure political stability and boost investor confidence to spur economic growth. The National Government or any government that is formed must devise a policy framework for a five-year period. However, a commonly agreed economic programme by a coalition with varied ideological commitments is likely to be second or third best policies rather than pragmatic and effective economic policies for the country.

Summing up

Political uncertainties have created confusion in the minds of the electorate and the investor community. Political stability, good governance and pragmatic economic policies are the need at this critical juncture in the country's history. Will the electorate respond to provide this stability?