Talking Economics Digest - Jul-Dec 2013

Talk ng Econom cs Digest
July to December 2013
Managing the Middle
Income
Transition
Research. Inform. Impact.
A Publication by the Institute of Policy Studies of Sri Lanka
P2 Economic Outlook For 2014 In the Global Economy and Sri Lanka P4 How large is the Sri Lankan global middle class?
P14 A comment on New educational policies and proposals for general education in Sri Lanka
P26 Reforming a post-war economy in four years?
P39 IPS Auditorium Ideal Venue for Your Next Event!
P7 Europe at the crossroads: Pulling back money, putting off reforms
P16 Tourism and Water management: Is Sri Lanka paying enough attention? P18 Panda- Huggers vs. Dragon-Slayers: Debating the china growth slowdown P40 IPS NEWS P42 EDITORS PICKS: Journal Articles on the Middle Income Transition P43 EDITORS PICKS: Books P29 Fighting for the poor: Strengthening antitrust regulations P32 WTO Bali Ministerial: Issues and the challenges P21 Dying to work? : Why health and safety in the work place is an important economic issue For Sri Lanka P23 Sri Lankas Middleincome transition: Thinking beyond the Optics, to the Mechanics P34 A closer look at the fiscal dynamics of budget 2014 P36 Sri Lankans and irregular migration: A journey to die for? P39 Large Volume of IPS Research Made Available for Free Download P43 Latest Publication: State of the Sri Lankan Alcohol Industry and Analysis of Governing Policies P44 South Asia Economic Summit
P10 Can people in Sri Lankas estate sector break away from poor health and poverty? P12 Shaping up the future: Can Sri Lanka set an example achieving MDGS for youth?
P45 Fast Facts
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The Institute of Policy Studies of Sri Lanka (IPS) is an autonomous institution that aims to promote policy-oriented economic research and to strengthen the capacity for medium-term policy analysis in Sri Lanka. Its mission is to contribute to the socio-economic development of the country through informed, independent and high quality research that seeks to influence the policy process. With over two decades of substantial research expertise, IPS has emerged as a regional centre of excellence and the most influential think tank in Sri Lanka.
Editors Desk
March 2014
TALKING ECONOMICS www.ips.lk/talkingeconomics
Middle Income
Transition
The Sri Lankan economy has made a firm transition into a lower middle-income economy. Now, the challenge on the minds of policymakers and the private sector alike is whether the country can sustain high growth rates and position itself to leap into upper middle-income. The classifications of countries along these lines are not as clear-cut as government pronouncements may suggest. As an article in this Digest demonstrates, the ways in which different international agencies classify countries in income brackets, and annual changes to this, means that the goal posts are continually shifting. This then means that countries like Sri Lanka should focus not on the optics of being middleincome, but rather on the mechanics of how to sustain growth. Growth continues to largely be driven by two Cs Construction and Consumption. The latter is possibly being driven by the expanding middle-class in Sri Lanka. This is a new area for economic research and an article in this edition provides the first look on the size of the global middle-class in Sri Lanka and explores the implications of a growing middle-class on the wider socio-economic landscape of a country. It draws from analysis presented in the Sri Lanka: State of the Economy 2013 report, which was published by IPS late last year. This edition of the Digest discusses critical topics that have raised public interest in the past year and relate to the mechanics of a new growth trajectory, such as the New Educational Policies and Proposals that were presented in September 2013, the 2014 Budget proposals presented in November 2013, and the WTO Bali Ministerial proposals and outcome in December 2013. IPS hosted a unique regional consultation prior to the WTO meeting, and developed a common position for South Asia which was then presented to the Minister of Industry and Commerce. Meanwhile, economic cooperation with China continues to grow, and knowing more about the dynamics of the Chinese economy will be important for all stakeholders in the country. As China rebalances its economy towards domestic demand, access to the evolving Chinese market will be an important step in Sri Lankas export expansion to new markets. An article in this edition looks at this issue the emerging growing pains China is facing and its impact on the global economy. As IPS Executive Director pointed out in an article at the start of year, In 2014, Sri Lanka will show all characteristics of growth of small developing countries [] with IT services exports, tourism and remittances playing a role in overall growth. This edition of the Digest sheds insights on the new challenges that are emerging in two of these areas tourism and migration. Better management of migration and sustainable management of the tourism sector are the underlying messages of these articles. These areas, as well as others like youth development and poverty, are tackled in this issue of the Talking Economics Digest and we hope you write to us with your feedback.
Managing the
EXECUTIVE DIRECTOR Saman Kelegama, DPhil (Oxon) DEPUTY DIRECTOR Dushni Weerakoon, PhD (Manchester) TALKING ECONOMICS TEAM Anushka Wijesinha Editor Kaushalya Attygalle Deputy Editor Savani Jayasooriya Communications Officer DESIGN/LAYOUT Shafraz Farook Consultant Designer (Kalambo Active Pvt., Ltd) CONTRIBUTING AUTHORS Nisha Arunatilake Kaushalya Attygalle Raveen Ekanayake Priyanka Jayawardena Chandana Karunaratne Sunimalee Maduruwala Nipuni Perera Chatura Rodrigo Kanchana Wickremasinghe Anushka Wijesinha IPS
Institute of Policy Studies of Sri Lanka 100/20, Independence Avenue Colombo 07, Sri Lanka Tel: +94 11 2143100, +94 11 2665068 URL: www.ips.lk Blog: Talking Economics www.ips.lk/talkingeconomics Twitter: www.twitter.com/TalkEconomicsSL
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Anushka Wijesinha Editor Talking Economics (Research Economist, IPS) anushka@ips.lk
Copyright and Disclaimer All material published in the Talking Economics Digest are the copyright of the Institute of Policy Studies of Sri Lanka (IPS), unless otherwise specified. It cannot be quoted without due acknowledgement to the IPS and the author. It cannot be reproduced in whole or in part, without the written permission of the IPS. The content, comments and posts of the Talking Economics Digest and the IPS blog represent the views of individual authors and do not necessarily represent the views of the IPS.
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Economic Outlook For 2014 IN THE GLOBAL ECONOMY AND SRI LANKA
Interview with Dr. Saman Kelegama
Q: Dr. Kelegama, what is your overall take on the economic prospects for 2014, globally? Its difficult to forecast global economic growth in contemporary times because of the high volatility and uncertainty in an inter-connected world. Slow recovery from the 2008/2009 global economic crisis and external shocks has further aggravated the situation. Even an international institute like the IMF keeps changing their global economic forecasts every quarter. What is stated in their World Economic Outlook in April 2013 changes in the October 2013 report. Any prognosis on the global economic outlook and its implications need to be interpreted with caution. Q: Based on the data available, what are your views on how 2014 will pan out for developed countries in particular? The IMF expects that global economic growth in 2013 would be recorded at 2.9% and this will increase to 3.6% in 2014. Both forecasts are down by 0.3 and 0.2 points respectively, from the last prediction made by the IMF in July 2013. These latest predictions were made despite the signs of recovery in the Euro area in the third quarter of 2013. In the EU, business confidence indicators suggest that activities are close to stabilising in the periphery and recovering in the core economies. But the worrying public debt level and the fragmented financial system are issues in the EU. The Japanese economy recovered from -0.6 per cent growth in 2011 to stable 2 per cent growth in both 2012 and 2013 after a quantitative easing policy pursued by the new government of Prime Minister, Shinzo Abe. As a large sum of the quantitative easing money are flowing out or leaking from Japan, the impact of this policy will gradually diminish in 2014 indicating a lower growth in the Japanese economy. Meanwhile, the US economy is expected to recover from 1.6% growth in 2013 to 2.6% in 2014. Q: Lets stay with the US for a minute what are the key developments in the US economy to look out for? After the financial crisis in 2008, US used several rounds of the bond buying strategy, known as quantitative easing,
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to pump credit to the US economy to revive it. Further to the announcements in June 2013, on 18 December 2013 it was announced that monthly bond purchase will be reduced by US$10 billion, which will amount to $75 billion with effect from January 2014. So there are very clear signs of a tapering off of quantitative easing and the US Fed making a permanent exit from low interest rates. The impetus for stronger global growth will as usual come from the US economy. Q: What about the prospects for emerging markets, particularly China, India and ASEAN? Chinas growth moderated in 2013 due to the re-balancing policy of focusing more on the domestic market. China is gradually shifting from the export-oriented and investment dominated economic model to a somewhat domestic-oriented and consumption dominated economic model. The 7.6% growth in 2013, although less than the 9.3% growth recorded in 2011, remains high by international standards. China is expected to maintain this growth rate for 2014 with 0.3% lower than 2013. India, the other major market in Asia has shown much slower growth during 2012 and 2013, 3.2% and 3.8%, respectively. This has happened due to low business confidence resulting from policy uncertainty, double digit inflation caused mainly by deregulating administrative prices and depreciating currency, rising current account deficits, etc. The Indian case clearly shows that rising external account deficits cannot be solved by shortterm foreign capital inflows. Measures to enhance exports by addressing deep seated structural problems in the economy are essential. With currency depreciation and other measures taken in recent months, India will show a growth revival to 5.1% in 2014 but elections related uncertainty in mid-2014 could dilute growth prospects. Q: To what extent are developments in the West, for instance the Fed taper, having an impact on these emerging markets? After June 2013, with the signals of US gradually ending its quantitative easing policy, we saw some funds exiting from
developing countries back to the US. It is estimated that countries such as Malaysia and Thailand lost close to 1.2 per cent of GDP growth due to such pull-out of funds. Some East Asian countries saw an increase in portfolio inflows from Japan consequent to the Japanese stimulus which compensated for some of the capital outflows to the US. These developments in the global market have created volatility in Asian financial markets. Meanwhile, EU austerity is having an impact on ASEAN exports to EU. Overall, ASEAN countries will show a marginal improvement in their growth rates from 5% in 2013 to 5.4% in 2014. Q: What are the prospects for global trade in 2014 will there be a notable impact? Yes, all of these developments means that there will be a weak recovery of global trade. This will be also due to some emerging protectionist forces by the limited progress of the WTO Doha Round (although the WTO Bali Ministerial was successful) and growing space of negotiations of mega regional initiatives like the Trans Pacific Partnership and Trans-Atlantic Trade and Investment Partnership. Of course, there will be better growth in 2014 compared to 2013 in overall global trading. In contrast to 2013 where a lower growth of imports and exports were seen compared to 2012, in 2014 there is estimated to be acceleration of import growth by 5.9% and export growth by 5.8% compared to lower growth for both in 2013. Q: What about oil and commodity prices? As estimated by international agencies, there will be a decline in both oil and food prices in 2014 and this will ease pressure on the foreign reserves of developing countries and support inflation management policies. The consumer price increase at 5.7% for emerging and developing countries estimated for 2014 clearly shows that maintaining inflation at the single digit level will not be a major problem for most developing countries although the case may vary from country to country. Q: How are small developing countries coping with these changes? Despite volatility, the developing
Posted in January 2014
economies have shown promising growth in services exports, tourism and remittances. The services export growth has been mainly driven by the IT Sector. In Sri Lanka, for instance, IT exports that amounted to less than $50 million in 2001 have reached close to $500 million in 2012. The growth in tourism is a result of the growing income levels, spread of Internet, etc., and this too was seen in Sri Lanka in the post-2009 period at a rapid rate. People travelling overseas for jobs are also showing an increase. Remittances now exceed overseas aid and FDI in many developing countries. In Sri Lanka, remittances exceed 8 per cent of GDP and are an important source of support to the balance of payments. With male migration for jobs now exceeding female migration, Sri Lanka is gradually moving towards exporting semi-skilled and skilled labour. Remittances and tourism have been significant sources in sustaining the economic growth momentum is some developing countries and we will see the same trend in 2014. Q: Lets focus a bit closer on Sri Lanka now. What is your overall assessment of Sri Lankas economic prospects for 2014? In 2014 Sri Lanka will show all characteristics of growth of small developing countries as I mentioned above with IT services exports, tourism and remittances playing a role in overall growth. With close to 6% GDP public investment in physical infrastructure as announced in the 2014 Budget, the debt financed government-led growth with some spillovers to private sector activities like construction will be visible in the economy. Overall, Sri Lanka will also show a slight improvement in growth in 2014 compared to 2013 but the improvement may not manifest in full if 2014 is going to be an election year. Perhaps the growth rate will be between 7 per cent and 7.5 per cent a reasonably high rate from an Asian perspective. Q: You mentioned debt-financed growth. There are many questions regarding the sustainability of this strategy. How do you see it playing out in 2014? We may see the end of global easy money in 2014 with the tapering off of quantitative easing in the US. Short-term foreign capital inflows to Treasury bonds/ bills cannot be relied upon as an assured source of foreign exchange to boost up reserves in the coming years. LIBOR rates will grow at a faster rate in 2014 relative to 2013. This in turn means that international commercial borrowing is going to become costly in 2014. Sri Lanka has already seen
these tendencies in the second half of 2013 in its pursuit of borrowing from the global market where the $750 million bond issue of the NSB carried 8.87% interest rate and the bond issue of the DFCC carried 9.62% interest rate and the bank settled for $100 million instead of going for the desired $250 million. Already the government has announced that it will go for a $1.5 billion sovereign bond in 2014. Presumably, part of it will go for infrastructure development work and other part for debt/ interest repayment. What interest rate it will carry with the current BB- Sovereign Credit Rating will be an important issue in the context of overall management of the economy. Q: Do you see any significant developments on the international political economy and trade front? During the last four years Sri Lanka has been hit by two sanctions, viz., the GSP-Plus removal in August 2010 and US sanctions on Iran starting July 2012 that diminished crude oil imports from Iran at a concessional rate. The GSP-plus removal led to Sri Lanka losing over Rs. 780 million from ready-made garments the largest export item of the country as was reported in Parliament in October 2013. In 2014, Sri Lanka will embark on the China-Sri Lanka FTA. Will Sri Lankan ready-made garments gain in the Chinese market what it lost in the EU? Will the China-Sri Lanka FTA give duty free market access to key exports from Sri Lanka like ready-made garments, tea, gems and jewellery, rubber products, IT, etc? If generous market access to Sri Lankan active exports is offered by China it will also give a boost to the overall exports that is much needed at a time when the export share in GDP has declined.
Likewise, the US sanctions on Iran will hit Sri Lankas oil imports the largest import item of the country in 2013 since Sri Lanka had to opt for some spot market purchasing from Oman, Saudi Arabia, Singapore, Vietnam, etc., instead of the earlier arrangement of 93 per cent dependence on Iranian crude oil at a cheaper rate. Before the sanctions, the oil bill was 25 per cent of the overall import bill of $20 billion; i.e., close to $5 billion. In 2014, there are reasons to believe that the oil bill might be more than $5 billion if the price factor dominates over the volume. Given the improving relations between US and Iran there may be a possibility of removing these sanctions, and in that case, with overall global downtrend in oil prices in 2014, Sri Lanka will be a beneficiary. Two important global political events to watch in the context of the Sri Lankan economy would be the March 2014 UNHRC Session in Geneva outcome and the May 2014 Indian Elections outcome and their implications for the economy. Q: What are some of the key ongoing policy issues facing Sri Lanka that need to be tackled in 2014 and beyond? Global experience shows that debt financed consumption and investment led growth does not necessarily improve market sentiments and is not sustainable. Sustainable growth requires real sector growth with exports taking the lead and increased inflow of FDI. So it becomes all the more important to build on the export pick up seen in Sri Lanka in the months of September and October 2013 and also create a consistent and predictable policy environment to attract more FDI to ensure sustainable high growth in the coming years.
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LARGE
How
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is the Sri Lankan Global Middle Class?

By Nisha Arunatilake
In Sri Lanka there is evidence of a growing middle class. The incidence of poverty in the country has sharply come down over the past decade. There are indications of growing demand for advanced services and luxury products. Car sales have risen markedly over the past decade. A growing number of newspapers are available online and they interact with their readers through social media, indicating a large and growing customer base with access to mobile phones and computers.
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These are luxuries that the poor or the near poor cannot afford and the level of this demand is too large to be driven only by the rich. These clearly indicate that the middle class is growing in Sri Lanka. The influence of a growing middle class on an economy and its people depend on particular country contexts. It also depends on the size, the growth and the purchasing power of the middle class and the preparedness of the country to deal with the demands of a growing middle class. The middle class consumers have received greater attention in recent times
due to the belief that a strong and large middle class is a prerequisite for sustained economic growth and development. Demand led growth; as opposed to export led growth has also been seen as a means of steering an economy out of the middle income trap, the phenomenon of an economy stagnating in the middle income level. The size and the wealth of the middle class determine its power over the economy and governance structures. As such, the size of the middle class has become an important indicator signaling growth and development of an economy. The growing middle class wealth and its size are key factors that are steering the changing global economic landscape to be Asiacentric. In 2012, China surpassed the US as the worlds leading market for personal computers (PCs); 69 million units of PCs were shipped to China, 3 million more than the number sold in the US. China and India are also the worlds first and second markets for mobile phones. These are only some examples of the growing middle class market power in China and India in particular and Asia in general. The middle class is credited for stimulating growth in several ways. Primarily the middle class drive economic growth through shifting aggregate demand. But that is not its only channel for promoting growth. The middle class, primarily depending on labour for their incomes, promotes values such as savings and human capital accumulation which are beneficial for growth. The middle class consumers are also credited for supporting meritocratic systems of governance which allows them the opportunity for promotion and selfimprovement through hard work. Those in the middle class being more selective consumers have fostered innovation in affordable but efficient products. These products range from service goods such as insurances and banking to manufacture goods such as hygiene products. What is different about this new wave of innovations trends is that it caters to a more fastidious set of consumers who are harder to please. Examples of innovations spurred by this growing lower middle income classes abound. Some examples include the US$ 2,200 and fuel efficient Nano car, and the US$ 70 battery-operated refrigerator. These attributes of the middle class are considered to be valuable for sustainable market oriented economic growth and poverty reduction.
What is the Middle Class? The literature defines the middle class in a variety of ways. Historically, the middle class was a social class characterized by intellectuals that were neither capitalists nor workers. They were the well-educated service providers and small scale entrepreneurs, who were hard working and had relatively secure and substantial incomes that allowed them to own houses, demand better quality services, and enjoy comfortable lifestyles. Despite its initial classification on social terms, in recent times, economists have chosen to define the middle class using economic terms such as income or consumption, in order to better quantify its size. These definitions mainly take two approaches: the relative approach, and the absolute approach. Those using the relative approach use two main means of defining the middle class. In one relative measure, the middle percentiles of the income distribution are used to measure the middle class. For example, using this approach Easterly (2000) defines the middle class to be those between the 20th and the 80th percentile in the consumption distribution. One major shortcoming in this approach of measuring the middle class is that the size of the middle class is fixed by definition. In the second relative approach, the middle class is defined relative to the median per capita income. For example, Birdsall, et. al. (2000) define the middle class to be those earning 0.75 to 1.25 times the median income of an economy. In both these relative approaches, the yard stick for defining the middle class changes from country to country. These relative measures of defining the middle class are sometimes referred to as the developing middle class as these are consumers who are middle class according to the standards of the developing world, but not necessarily according to that of the developed world. The literature defining the middle class using an absolute approach defines the middle class as those earning some benchmark income range. For example, Bhalla (2007) defines middle class to be those earning more than US$ 3,658 (in 2006 prices) a year or US$ 10 a day, in purchasing power parity terms. Kharas and Gertz (2010), taking an absolute approach, defines the middle class as those households with daily expenditure between US$ 10 and US$ 100 per person per day in purchasing parity terms. Since this definition of middle class is common to all individuals across countries, the mid-
Those in the middle class being more selective consumers have fostered innovation in affordable but efficient products. These products range from service goods such as insurances and banking to manufacture goods such as hygiene products. What is different about this new wave of innovations trends is that it caters to a more fastidious set of consumers who are harder to please.
dle class defined this way is also referred to as the global middle class. There is much interest in the size and growth of this global middle class, as they are the consumers who influence global demand through their taste for branded goods such as designer clothes, latest technical appliances, and education and health services. The Size and Trends of the Sri Lankan Global Middle Class For ease of exposition, those individuals living in households spending $2 to $10 (not including $10) will be referred to as the local middle class, those individuals living in household spending less than $2 a day per person will be referred to as the poor and those individuals spending $100 or more per person per day will be referred to as the rich.
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Table 1: Distribution of Population Across Different Income Classes
Total Proportion of Year Population Population Population (Mn) (Mn) (%) Sri Lanka India China Bangladesh Sri Lanka India China Bangladesh 2002 19.13 0.6 04/05 1122.99 6.2 02 1280.4 26.5 2000 129.59 0.4 09/10 20.67 0.8 09/10 1207.74 9.5 09 1331.38 122.8 10 148.69 0.6 3.28 0.55 2.07 0.31 3.98 0.79 9.22 0.43
Source: Own calculations based on PovocalNet data. Provcalnet: the on-line tool for pverty measurement developed by the Development research Group of the World Bank. http://iresearch.worldbank.org/PovcalNet/ index.htm?2#
As seen in Table 1, the global middle class in Sri Lanka amounted to 4 per cent of the population in 2009/10. The majority of the Sri Lankan population belongs to the local middle class. Also, the proportion of population in the global middle class has changed slower in Sri Lanka compared to China and India. For example, the population in the global middle class has increased from 26.5 million to 122.8 million in China from 2002 to 2009 (a more than fourfold increase), but it has increased by only 0.2 million (a less than two fold increase) in Sri Lanka over the same period. Looking at it another way, on average the number of global middle class individuals in China increases by 13.8 million a year; this increase is 0.7 million for India, 0.03 million (or about 30,000) for Sri Lanka and 0.02 million (or 20,000) for Bangladesh. However, given the different population sizes in the countries under consideration, it is more useful to look at these increases as a proportion of population. On average, the size of the global middle class increased by 1.02 per cent of the population a year from 2002 to 2009 in China. In comparison in Sri Lanka the global middle class increased by 0.09 per cent of the population a year from 2002 to 2009/10. In Bangladesh and India, the yearly increase of the global middle class as a proportion of the population was 0.01 per cent and 0.05 per cent a year, on average. Concluding Remarks The global middle class in Sri Lanka has increased over time. But the rate of this increase is marginal compared to
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China, although it is better than that of India and Bangladesh in terms of increase of the middle class individuals as a proportion of the population For determining market power, sometimes, what matters is the absolute size of the market, not its relative size. In this regard, Sri Lanka with only 0.8 million global middle class individuals commands only a fraction of the global market power compared to India (with 9.5 million global middle class consumers) as well as China (with 122.8 million global middle class consumers). As shown in the earlier discussion, global middle class is influences economic growth not only through its market power. The literature shows that a large middle class can influence governance structures and improve the provision of public services in the country. However, given the small size of the global middle class, it is unlikely that the global middle class in Sri Lanka will have a substantial influence on the governance and institutional structures of the country. Literature shows that expanding global middle class will open avenues for new businesses. For example, unlike the local middle class, the global middle class is seen to spend money on travelling overseas (e.g, expenditure on airplanes and ships) and new technology (e.g., computers). The global middle class demand for private medical facilities and professionals, as well as private education facilities, is also higher. There are signs that this is happening in Sri Lanka already. However, along with these positive aspects, a growing global middle class can put pressure on existing social infrastructure
as well. This will be partly due to rising taste for better quality and more convenient services. Literature shows that the demand for electricity, water, roads and other infrastructure are higher amongst the global middle class consumers. Already, there are signs that improving living standards in Sri Lanka are putting pressure on the physical infrastructure and natural resources of the country. The demand for electricity and energy in the country has increased in recent decades. The demand for electricity has grown at a much higher rate than envisaged. To avoid constraints on economic development, the country will have to carefully study the increasing trends in demand for infrastructure and plan well ahead to meet this demand in the most effective manner. Sri Lanka has a small but growing global middle class. Its size is too small to make a dent in the global consumer patterns. But, it can influence the local economy positively in several ways. The global middle class will open avenues for new markets, such as in entertainment, travel and transport. There are already indications that there is pressure to improve the quality and coverage of education and health services in the country. However, an expanding middle class will be a strain on the existing physical, social and environmental environment in the country. If these infrastructure constraints persist possible economic benefits of an expanding middle class can be dampened. This article is based on the comprehensive chapter on the Middle Class contained in the Sri Lanka: State of the Economy 2013 report
References Kharas, H., & Gertz, G. (2010). The New Global Middle Class:A Cross-Over from West to East.Washigton, D.C.: Wolfensohn Center for Development at Brookings. Shaver, S.,(2013), China Passes the United States as Worlds Biggest PC Market http://www.upi. com/Science_News/2013/04/29/China-passes-theUnited-States-as-worlds-biggest-PC-market/UPI75121367281194/#ixzz2TcN2nByv , http://www. upi.com/Science_News/2013/04/29/China-passesthe-United-States-as-worlds-biggest-PC-market/UPI75121367281194/ [accessed on 20th May 2013]. ADB (2010), The Rise of Asias Middle Class: Key Indicators for Asia and the Pacific, Asian Development Bank, Manila. Birdsall, N., C. Graham, and S. Pettinato. Stuck in Tunnel: Is Globalization Muddling the Middle? Working Paper 14, Washington, DC.: Brookings Institution, 2000. Bhalla, S. Second Among Equals:The Middle Class Kingdoms of India and China. Washington, DC: Peterson Institute for International Economics, 2007. Kharas, H., & Gertz, G. (2010). The New Global Middle Class: A Cross-Over from West to East.Washigton, D.C.: Wolfensohn Center for Development at Brookings.
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Pulling Back
By Anushka Wijesinha
Europe at the Crossroads:
Money,Putting Off Reforms

Tax payers in Europe won a groundbreaking victory last week. According to new measures just passed by the ECB, albeit yet to be ratified by the European Parliament, the idea of banks being too big to fail is being reigned in. The onus on bank failures is to be shifted away from the sovereign, essentially the tax payers, and on to bank owners. If the new rules are finally passed, funds of the exchequer will only be allowed to be used to rescue banks in exceptional cases, while the burden is largely on the banks themselves.
While many have questioned the lack of consensus and integration in Europe in recent years, it must be recognized that this is the first set of countries globally to adopt such rules after the dramatic 2008/09 crisis and generous bank bail outs that followed. Irish Finance Minister Michael Noonan called this new set of rules bail-ins. This move is seen as significant in preventing a heavy debt burden on governments in the event of future financial collapses of the scale seen in 2008/09. This is one of many new developments currently taking shape in Europe, as people, politicians, governments, firms, banks and pan-European institutions begin facing new realities an era of subdued growth combined with high youth unemployment; the prospect of reduced competitiveness unless important structural reforms are made; and a struggle to commit to more Eurozone integration on the institutional and fiscal front, while managing the tensions that this raises with national politics and laws. Doing Whatever It Takes The lattermost is playing out right now. This is the clash between German courts and the European Central Bank (ECB) on the constitutionality of the ECBs Outright Monetary Transactions (OMT) programme announced last year in which the Bank pledges to buy, unlimitedly, sovereign bonds of troubled Eurozone economies, conditional on their fulfillment of certain fiscal conditions. Why is the OMT seen as unconstitutional? It is argued that the European Treaty provisions do not permit the ECB to engage in such monetary financing of Eurozone members. The real political-economy issue, though, is that through the OMT scheme the ECB has committed German and other northern European taxpayers to unlimited bail-outs without the concurrence of their own parliaments. The line between the fiscal and the monetary has become increasingly blurred as the financial crisis, and subsequent debt troubles, unfolded. Especially in Europe. Yet, economists in Germany seem to be dead set on the principle that the sovereign debt issues of troubled Eurozone economies are matters of the fiscal, and monetary policy (run from Brussels) should not come in the way. The ECBs OMT is essentially a monetary policy act. However, the positive effect on markets of the mere announcement of the OMT scheme by the ECB cannot go unnoticed. It calmed financial markets by affirming the ECBs readiness to do whatever it takes and buy sovereign debt before a country goes bust. ECB President Mario Draghi called it probably the most successful monetary-policy measure undertaken in recent times. As the OMT scheme was announced mid last year, interest rates for firms and governments came sharply down, helping the flow of credit to the private sector in many crisis-hit states, and bringing confidence back into the viability of the Eurozone. Yet, in the same way markets reacted positively to this, the flip side is that if the German Constitutional Court rule that the OMT contravenes with national laws and impose some limits on it, the markets could react equally negatively. Fears that surrounded the same period one year ago could resurface. As the ruling would essentially make the ECBs commitment to do whatever it takes ineffective, policy would be in limbo and countries like Spain and Italy may be sent into a panic-induced insolvency.
Posted in July 2013
Pump Now, Reform Later? In the midst of all this, however, what is getting sidelined is the question of how to get growth and a real recovery back on track in Europe. It is now widely acknowledged that the answer to this question largely lies with the two words structural reforms. Sounds simple enough, but implementation is far from it. Deep reforms are not easy in times of economic uncertainty, but without them the long-term outlook for Europe is bleak. Along with structural reforms come a need for a reinvestment in real growth drivers like infrastructure and connectivity. While it is understandable that in these times of fiscal restraint the European Commission (EC) had to cut the latest EU budget by 3.4%
for the rest of the decade, it is surprising that the cuts came in what can be easily described as growth-promoting sectors like cross-border infrastructure, including high-speed broadband, transport and energy. These could determine the longer-term competitiveness, and hence future growth prospects, of Europe. Yet, the critical area of youth unemployment has been taken notice of and got increased budgetary attention. In the new budget the EC introduced an innovative package called the Youth Guarantee Scheme to ensure that young adults receive a quality job offer, continued education, an apprenticeship, or an internship within four months of leaving formal education or becoming unemployed.
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July - Dec 2013
A young Italian cycles past the Duomo in Milans city centre. Italys younger generation is at risk of entering a decade of high unemployment as European economies continue to falter
Image Anushka Wijesinha (2013)
severe opposition to austerity. At the release of the report, Chief Economist of the BIS noted, It is others that need to act, speeding up the hard but essential reform and repair work to unlock productivity and employment growth. Continuing to wait will not make things any easier, particularly as public support and patience erode. Timing the Pull Back Meanwhile, there are growing calls for central banks in crisis-hit countries to begin a timely pull back of cheap money that they pumped in to calm markets during the crisis. Central banks in these countries slashed interest rates and hugely expanded their balance sheets in response to the crisis. The US Federal Reserve is the first of the worlds central banks to indicate that it is planning a gradual pull back of its 3rd tranche of quantitative easing (QE3). But the Fed can afford to as the US economy is seeing signs of a real recovery. Europe isnt there yet. European governments, especially, are hoping for prolonged expansion so that growth can pick up without the need for the tough reforms, including cutting deficits. The biggest challenge facing both the central banks and the governments in these countries is finding the right timing and balance in pulling back the current accommodative monetary measures before it becomes harder to do so, while simultaneously not spooking the markets. The dramatic market reactions across the developed as well as emerging world to the US Feds announcement on QE3 pull-back was indication of how sensitive markets are right now. Longer-term View and Implications for Sri Lanka While the short-term uncertainty is in markets, the longterm uncertainty is in the Eurozones institutional make-up. Institutional integration and institutional strengthening will be critical to the longevity of the Union and the currency, because as one analyst put it, [its] weakness derives from its unfinished construction. Either way, the challenge for Europe over the medium- to longer-term is one of growth and job creation without which many of its countries (especially in the South) risk a lost decade. With the Euro area entering into its sixth consecutive quarter of recession, and youth unemployment hitting 60% in Greece, 55% in Spain, and 39% in Italy, Sri Lanka will have to watch how Europes economic fortunes evolve over the next few years. Prolonged unemployment in Europe will depress wages and reduce purchasing power of the regions people. It will have a significant impact on not just how much of Sri Lankas exports would be demanded there, but also who will buy them and what type of products will be demanded. Because the new European generation may not be as rich as the generation before it.
The debate on the question has Europe pushed austerity too far and is the tightening choking off growth?, continues apace. But the calls for structural reforms to put post-crisis growth on a sustainable path have been echoed by many. Releasing its Annual Report last week, the Bank for International Settlements (BIS, a grouping of fifty-eight central banks) said that the worlds central banks have done their job in offering breathing space during the financial crisis and it is now time for national governments and the private sector to undertake essential reforms to boost productivity and competitiveness. Governments of crisis-hit countries have shied away from labour and product market reforms, amidst public sentiment that is dominated by
COMMENTS:
Nisha Arunatilake Interesting article Anushka. Wonder if we can come up with policies to make institutions accountable for their actions? Harsha de Silva good analysis anushka and a meaningful conclusion. but why worry? we were told yesterday by a senior minister that srilanka is entering in to a FTA (among others) with china and at the recent meeting MR had with the Chinese president he (MR) was told we (china) will buy everything you produceso what is the problem?
July - Dec 2013
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Can People in Sri Lankas Estate Sector Break Away from

While Sri Lankas overall health indicators are on track to achieve the 2015 Millennium Development Goals(MDGs), malnutrition continues to be a serious concern in the country. Certain population groups fare worse than others. Priyanka Jayawardena discusses the causes of undernutrition in one of the least developed sectors of the country, the estate sector based on her recent study. By Priyanka Jayawardena
People in Sri Lankas estate sector are one of the most marginalized groups in the country. Because the majority of them descended from indentured labour brought from India in the early 1900s and they were not granted citizenship status, they lived for decades without state provision of social services. Large inequalities exist in their access to and the utilization of, health services. Estate workers are largely dependent on the estates management for their basic needs housing, health, and education. Families working on estates are among the countrys poorest in terms of nutrition. About 30% of children under the age of five are underweight, nearly 1 in 3 babies have low birth weight, and one-third of women of reproductive age are malnourished (see Figure 1). This is a serious issue as it leads to a possible vicious cycle. The intergenerational cycle of malnutrition (see Figure 2), as established in Jayawardena (2012), is deeply embedded in the estate sector. A recent study by the author identified what factors influenced estate sector child and maternal malnutrition important empirical insights in addressing the intergenerational cycle of malnutrition in the estate sector. Debilitating Poverty Prevails In the estate sector, households socio-economic status is considerably lower than in the rural and urban sectors. Almost 61% of its households fall into the poorest category, while in the urban and rural sectors this was at 8% and 20% respectively (see Figure 3). Households poor socio-economic status affects the health and
Poor Health and Poverty?

welfare of people in the estate sector adversely. For example, as revealed in Jayawardena, (2012), a child belonging to the poorest socio-economic quintile is three times more likely to be underweight than a child in the richest quintile. Eating Smart A significant reason for child and maternal malnutrition in the estate sector was intake of the wrong kind of foods, specifically those lacking in protein. Consumption of nutritious food was much lower among children and mothers in the estate sector. In terms of food consumption by children aged 1-3 years, the estate sector demonstrates the lowest levels of consumption of proteinrich food (meat, fish, poultry, eggs, and cereals) , when compared to urban and rural areas (see Figure 4). Similarly, mothers in the estate sector consumed fewer protein-rich foods when compared to their peers in the other two sectors. Consumption of other essential nutrients, such as fruits and vegetables that are rich in vitamin A, were much lower among the estate sector children than the country average. Estate Sector Alcoholism The study revealed that regular alcohol consumption in the estate sector significantly increased the prevalence of malnourished women. Alcohol consumption was extensively higher among estate sector people. According to DHS 2006/07 data, 40% of the estate sector families were regular users of alcohol; whereas in the other Figure 2: Intergenerational Cycle two sectors it affected of Malnutrition around 17% of families (see Figure 5). Although the estate sector recorded the highest poverty levpoorly nourished Malnourished els (11.4% of people mothers give birth Children grow compared to 8.9% at to babies with low up to be under national level), they birth weight nourished adults spend Rs. 1,216 per month on alcohol, toLow birth weight bacco, etc., which is infants are likely to roughly double that be malnourished in of the average housetheir childhood hold-level spend on
Posted in August 2013
Figure 1: Nutritional Status of Mother and Child Lowest in Estate Sector 30 30 20 21 10 17 13 16 10 Maternal Malnutrition 16 Urban Rural Estate 33
Figure 3: Socio-economic Status of houseolds

Poorest Poor Middle Richer Richest
31
Estate
61
30
Rural
20
22
23
21
14
10
Urban
0%
Underweight Child
Low Weight Births
12
15
20
45
0% 20 40 60 80 100
Source: Authors calculations using DHS 2006/07 data
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July - Dec 2013
alcohol in the rest of the country (Rs. 665). Educated Women Hold the Key Evidence suggests that women are critical in ensuring good nutrition for the family and household food security. Women have the greatest potential to make decisions that positively affect childrens health, how household income is spent, the quantity and quality of food, and in health-seeking behaviour. In the estate sector, the level of womens education is much lower than in urban and rural areas. The studys findings reveal that the education and knowledge of women have a strong impact on their nutritional status, as well as on the nutrition of her children. Poor education makes it difficult for women to take full advantage of the awareness raising campaigns on family health and hygiene practices offered in their localities, either by the government health service or by the estate management. Addressing a Critical Concern The causes of malnutrition are clearly multi-faceted and so actions to reduce it require interventions at different stages of the life cycle. It also requires that nutrition considerations are incorporated in to all sectoral policies. Sustainable nutritional interventions should be aimed at enhancing food security at the household and community levels as well as at schools in the estate sector. Nutrition education programmes should be strengthened to inculcate better consumption habits what foods to select; how to prepare and feed children; and the hygienic and nutritional value of food. Strong national programmes on nutrition counselling and programmes that promote positive health practices and curb negative ones like alcoholism programmes can be useful in improving awareness among women in the countrys estate sector, and break the cycle of poverty and poor health.
Figure 4: Estate Sector Children Consume Fewer Foods Rich in Protein Estate
Meat & Fish Beans, peas, green beans, gram, dhal, etc...
Urban 0% 20 40 60 80
Rural
Figure 5: Estate Sector Alcohol Users and Smokers Alcohol Cigarette

36% 28% 26% 39% 17% 17%
0% 10 20 30 40 Estate Rural Urban

Dilshani Dear Priyanka Your study is very interesting but cud you tell me why the estate sector is so poorly developed despite decades of targeted aid and support? I understand there is a body called the PHDT that overlooks the sector welfare and there is local and foreign funding going into the sector. How much has been spent on the sector since independence and what is the level of improvement from then to now? Priyanka Thanks Dilshani for your interest on above. As I have mentioned in my article there are interrelated factors which affect the poor health and poverty of the estate sector. One main reason is that these people have been living in isolation from the rest of the society socially as well as economically. Socially they were backward as they are largely dependent on the estates management for their basic needs. They suffered from low level of education, unhygienic housing, poor health facilities, poor infrastructure etc.
There are several government programmes targeting Education and Health sector of the estate sector. But there are some targeting issues. When targeting these people there should be inter sectoral policies health education, infrastructure . Because poor education makes it difficult to take full advantage of the awareness raising campaigns offered in their localities. Also roads and other infrastructure should be developed to provide access to government hospitals, schools etc. Jana This is a very interesting article that allows one to peer into the difficulties that are faced by some of the most hardworking people in our country. I agree that the mothers should be educated so that they may be able to get their families out of these predicaments. The women still holds a high place in Sri Lanka society and they should be assisted through group programs that will allow them to talk bout their problems with others and find solutions.The other factor is the involvement of the private sector that makes millions off of
these people work, they should institute a mechanism to help the estate sector as they would rather have a motivated workforce rather and an unmotivated one. Determinants of Nutritional Status of Children under Age Five: Modeling Nutritional Status of Children under Age Five | WWW.JUSTINFOHUB.COM- August 15, 2013 [...] Can People in Sri Lankas Estate Sector Break Away from Poor [...] ruwan there are many ways of helping poor. i can guide these poor families to earn, work , provide jobs free of charge and they can free from debt. pls write. harsha nadeeshani This is a very interesting document. we can recognize what are the current situation in the estate sector.poor health facilities,poor contraception methods,increase maternal & mortility death are the main problems in estate sector.that is reason for low develpoment progress.
household socio-economic status. Jayawardena, Priyanka, 2012, Socio-Economic Determinants and Inequalities in Childhood Malnutrition in Sri Lanka, Well-Being and Social Policy Journal, Vol. 8 Number 1, pp. 1-22. Haddad, L., 1999, Womens Status: Levels, Determinants, Consequences for Malnutrition, Interventions, and Policy, Asian Development Review, Vol. 17 Nos. 1,2, : pp. 96-131
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End Notes: This article is based on recent IPS study done by the author on Socio-economic Determinants of Child and Maternal Malnutrition in the Estate Sector of Sri Lanka. The study uses the nationally representative DHS (Demographic and Health Survey) conducted in 2006/07. All the estimates of this paper are based on DHS 2006/07 unless otherwise mentioned. Anthropometric index weight-for-age (underweight) is considered
according to the WHO Child Growth Standards adopted in 2006, as a measure of underweight children. Low birth weight is defined as a birth weight of less than 2,500g. Body Mass Index (BMI) classification is employed for identifying mothers nutritional status. Household socio-economic condition was defined based on the dwelling characteristics, ownership for assets, sanitation facilities and other characteristics which were related to
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SPECIAL FEATURE ARTICLE MARKING INTERNATIONAL YOUTH DAY (12TH AUGUST)
Shaping Up The Future:
Can Sri Lanka Set an Example in
Achieving MDGs for Youth?
By Chatura Rodrigo
Youth Policy in Sri Lanka Whatever the political regime, youth and their development have always been a priority of the Government of Sri Lanka (GoSL). During the post-conflict development efforts, the GoSL has made provisions for special institutional setups to help develop youth, and allow them to actively participate in the policy development processes. The mandate of the ministry is rooted in the Mahinda Chinthana: Vision for the Future, which is the main policy framework of the GoSL. The ministry is empowered with several other institutions that look at different aspects of youth development. In materializing its main objective the Ministry of Youth Affairs and Skills Development (MYASD) was successful in finalizing the draft youth policy for Sri Lanka. Sri Lanka national youth policy is drafted with the vision to develop the full potential of young people, to enable their active participation in national development for a just and equitable society. In achieving its policy objectives, the MYASD initiated the Youth Parliament in 2011. It was set up to enable youth to actively participate in policy debates, and to groom future political leaders. The second term began in 2013. Youth Employment and Poverty Over the years, the unemployment rate, youth labour force participation rate and poverty among youth, reduced and number of youth in wage employment has barely changed. The youth unemployment rate was recorded at 17 % during the year 2006, and was reduced to 15 % by the year 2010.
For the same periods, the youth unemployment rate was reduced in the estate sector, and in the rural sector. However, the youth unemployment rate rose in the urban sector. Regarding the youth labour force participation rate, it declined from 51 % in 2006, to 44 % in 2010. This trend extends across the sectors also. Youth at wage employment however has not changed significantly over time. A slight increase is evident in the rural sector. Small and medium scale enterprises are one of the main employment generators for youth in the urban, rural, and estate sectors. Today there are better opportunities for youth to start up their own businesses than before, especially since the end of the war. There is much assistance extended towards improving the Small and Medium Scale Enterprise (SME) opportunities for youth. The government has begun initiatives to start up new industrialized zones, such as the Achchuveli Industrial Zone to facilitate SMEs in the Northern Province, and these efforts will be expanded in to the Eastern Province also. There is an influx of educated youth starting own enterprises. Vocational training related to SMEs is mainly given through the Vocational Training Authority (VTA) through the National Vocational Qualification (NVQ) qualification, and youth can even earn a degree from University of Vocational Technology (UNIVOTEC). Youth play a significant role in the broad discussion of poverty in Sri Lanka. Approximately 14.6 % of Sri Lankan youth were below the poverty line during the period of 2006/07. This figure reduced to 8.9% by 2009/10, reflecting the overall poverty reduction in the country between these two periods. Therefore, income pov-
erty among youth has reduced overtime in all the sectors. These results are attributable to the governments attempts to reduce poverty in the country as a whole, and it is satisfactory to see that the youth of the country also receiving the benefits of these efforts. Youth and Education Career guidance and counseling at school level is a necessity. Sri Lankas educational policies are quite comprehensive. The O-Level and A-Level examinations are very competitive and they are set to high standards. Each year, about 200,000 and 90,000 students leave the school system without succeeding at the O-Level and ALevel examinations, respectively. The OLevel and A-level dropout rates and the provision of vocational education to cater to this segment is a major challenge for Sri Lanka. The possible avenue for these fallouts is the Technical and Vocational Education and Training (TEVT) sector. However, the general acceptance of the countrys TEVT sector has been low due to poor recognition of the qualifications, low employability of graduates, and the ineffectiveness of the course in catering to the demands of the market. The government, especially the MYASD and the Ministry of Education (MOE), are doing quite a lot of work on promoting the vocational education, allowing students to acquire even bachelors degrees in technical and vocational education and training. The MYASD and Ministry of Education (MOE) recently introduced vocational education to A/L stream. Approximately 244 schools were selected for the initial programme and will be expand-
Posted in August 2013
ed to reach 1000 schools in the near future. Approximately 300 teachers for these programmes are being trained at the moment under the guidance of the UNIVOTEC. Youth and Health Female youth malnutrition, teenage pregnancies, awareness on HIV/AIDS and other sexually transmitted diseases, suicides and smoking and use of alcohol and other drugs, are the major youth related health concerns for Sri Lanka. Further illustrations on these concerns are as follows: (1) According to the Demographic and Health Survey (DHS) carried out in 2006/07, one in six women of reproductive age (15-49 years) was malnourished. The highest proportion of malnourished women was observed in the youngest age group of 15-19 years (40 per cent), followed by the second lowest age group of 20-29 (22 per cent). Nearly one-third of female youth were anemic. Nutritional deficiency among young girls has an adverse effect on reproductive outcomes, as well as on the continuation of the life cycle of malnutrition in Sri Lanka, (2) According to the DHS 2006/07 survey, 6.4 % pregnancies in Sri Lanka were teenage pregnancies. Further, teenage pregnancies were highest in the estate sector (9.6 %) whereas child malnutrition and low weight births were also highest in this region when compared to urban and rural sectors. Poor knowledge on reproductive health among adolescents could be a major reason for these teenage pregnancies, (3) Knowledge on sexually transmitted disease and HIV/AIDS among adolescents was also found to be poor, (4) Smoking and alcohol use among youth is significant, and need careful attention. According to Alcohol and Drug Information Centre (ADIC) in 2012, among current smokers and alcohol users in the 15-24 year age group, the majority reported that the main reasons for use of substances are to be social with friends and to enjoy themselves, (5) Deaths due to suicides were highest among females in the 21-30 year age group. There were more than 500 deaths due to suicides, with nearly one-fourth of them being young males.
References: Department of National Planning (2010), Mahinda Chinthana:Vision for the Future, Ministry of Finance and Planning, Colombo. . Ministry of Youth Affairs and Skills Development, 2013, http://www.youthskillsmin.gov.lk, visited online 5th May 2013. Institute of Policy Studies, 2013 Youth and Development: Realizing the Millennium Development Goals (MDGs) for Sri Lanka Youth, unpublished report prepared to the Ministry of Youth Affairs and Skills Development, Sri Lanka.
Way Forward Sri Lanka is a working example of youth development in the region especially when the unemployment and poverty conditions of youth are looked at. Even though the youth unemployment rate has decreased overtime, the current rates are still high. Furthermore, the decline in the youth labour force participation rate is also a major concern. Youth are more concerned about job security. Majority of private sector jobs are on contract basis therefore the job security is low. Even though the pay is less, government jobs are relatively secure. Therefore, majority of youth are looking for public sector jobs. However, the job market is dominated by the private sector jobs. Hence it is utmost important that the attitudes of the youth and job market characteristics are harmonized. One suggestion is to make the private sector jobs more sustainable, while making the public sector jobs more challenging and rewarding. Basically public as well as private sector jobs should give the same set of incentives to youth, so that the differences are indistinguishable in between. In Sri Lanka, there seems to be more unemployment among educated youth because they are holding out for better employment opportunities. Spending more time in education is an investment for the future however youth have to be certain that what they are acquiring as education is what the employers are looking for. Youth increasingly use SMEs to come out of poverty. While banks need to be encouraged to help young entrepreneurs with financial assistance, one way to tackle this issue is to encourage youth to develop partnerships. However, more government involvement is needed to make these efforts sustainable, and government institutions can take the lead role in training youth in these aspects. While Sri Lanka has achieved so much in addressing youth issues of employment and poverty, there are lingering issues in the education and health sector that needs careful attention. This is quite challenging since education and heath are determinants of employment and ultimately, poverty. Therefore sound youth related education
and health policies are needed so that Sri Lanka can be an example to the region in all aspects. Youth in Post-2015 Development Agenda The Sri Lankan post-2015 agenda puts special emphasis on further reducing unemployment, eradicating poverty, increasing employability, promoting the entrepreneurship, and eradicating issues such as substance abuse and teenage pregnancy. All these issues have relevance for the youth of the country. However none of these can be achieved without an effective institutional setup and a solid policy framework where monitoring and evaluation are part of the structure. Constant monitoring and evaluation are essential in order to make sure that youth are been given the necessary access to the infrastructure they need to contribute towards growth and development of the country. While there are many evaluation frameworks in place to look at these, the MDGs collectively stand as a popular and globally accepted measure. Youth are represented in many of the MDGs, however, the most important are the ones that cover unemployment, poverty, education, and health. While the United Nations Development Programme (UNDP) releases a MDG report for each year, achievements of the indicators are not specifically targeted towards youth. Therefore, in order to fill this research gap, the Institute of Policy Studies of Sri Lanka (IPS) in collaboration with the Ministry of Youth Affairs and Skills Development (MYASD) analyzed some of the important youth related MDGs as highlighted above. Clearly, Sri Lanka provides a good example of placing youth in the global post 2015 development agenda.
Imaduwa Chaminda Dear Chathura The pirticular article is very relavance for my post gratuate diploma subject as stratagic management. if you have any idea could you please let me know that how state universities change there stratagies for post 2015 agenda?
Institute of Policy Studies, 2013 Youth and Development: Realizing the Millennium Development Goals (MDGs) for Sri Lanka Youth, unpublished report prepared to the Ministry of Youth Affairs and Skills Development, Sri Lanka. Ministry of Economic Development, 2013, http:// www.med.gov.lk, The Main Poverty Alleviation Programme in Sri Lanka, visited online 19th April 2013 UNICEF (2004), National Survey on Emerging Issues among Adolescent in Sri Lanka, UNICEF, Colombo. Jayawardena, P., (2012), Socio-Economic Determi-
nants and Inequalities in Childhood Malnutrition in Sri Lanka, Well-Being and Social Policy Journal,Vol. 8 No. 1, pp. 1-22. Ibid. ADIC (2012), Spot Survey on Tobacco Use, July 2012, Alcohol and Drug Information Centre, Colombo. Institute of Policy Studies, 2013 Youth and Development: Realizing the Millennium Development Goals (MDGs) for Sri Lanka Youth, unpublished report prepared to the Ministry of Youth Affairs and Skills Development, Sri Lanka.
COMMENTS:
July - Dec 2013
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A Comment on
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New Educational Policies and Proposals for General Education in Sri Lanka
By Nisha Arunatillake
July - Dec 2013
Posted in September 2013
Despite impressive performance in access to education, issues of quality of education, access to higher levels of education and relevance of education has challenged the education sector in the recent past. In this regard, the initiative proposed in the New Educational Policies and Proposals (NEPP) to modernize and energize the sector by rectifying the weaknesses is most welcome. These proposals and polices are the result of a long process of expert views and public consultations involving most stakeholders in the education sector. This is apparent in the comprehensive treatment of issues ranging from governance to curriculum development to capacity building. Rather than critiquing the proposals, in this article I wish to reiterate the importance of three key proposals for making the education sector a dynamic and vibrant sector that caters to the education needs of the country: professionalizing teacher service, teacher deployment and curriculum development.
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Professionalizing Teacher Service One main proposal in the document is to professionalize the teacher service. This is a change that should be implemented immediately. Education is a service. The quality of the teaching process is highly dependent on the skills of the teachers. In the recent past, there have been several instances where teacher appointments were made with the main objective of providing employment, rather than with the objective of finding the best skilled to fill teacher vacancies. Making it necessary for all teachers to hold a degree and a teaching qualification and experience will help to professionalize the service. This is practiced in most developed countries. In these countries, there are strict qualifications criteria for different types of teachers. For example in Florida, individuals are required to have either a bachelors degree in education or pass three teacher qualification exams relating to subject, general knowledge and teaching to become a certified teacher. In UK too, an individual needs a degree in education or a general degree with a teaching qualification to become a qualified teacher. These proposals well understand the importance of making the educational officials, from teachers to education administrators, professionals. It calls for degrees for all teachers by 2025, and a special diploma in education for all teachers. These recommendations are in line with what is practiced in most developed countries, as elaborated above. The NEPP also calls for timely revision of curricula and allowing teachers the freedom to introduce new areas to the curriculum. To effectively implement such changes, the teachers should be educated, creative, skilled and flexible. Proper recruitment of teachers is one main means of ensuring that these proposals are implemented. Teacher Deployment Improper appointment of teachers holds back progress in the sector for years to come. For example, recruiting a person not qualified to teach mathematics to fill a vacancy for a mathematics teacher will affect the mathematics education of children, not only in the year the appointment is made, but for years to come. For, when the vacancy is filled, the school is not able to get a mathematics teacher; even when suitable teachers are available. The NEPP recommends that vacancies should be school based and subject based. When recruitments are subject based, only persons qualified to teach a relevant subject will be recruited to fill vacancies for that subject. School based recruitments will help to alleviate another pressing issue in the sector: the inefficient placement of teachers. At present, urban schools are overstaffed, while schools in difficult areas are understaffed. This is partly due to the fact that teachers are recruited at the center. Many teachers, who start their teaching careers in remote rural schools, transfer into more facilitated urban areas as they mature. Sometimes such transfers take place taking into account the interest of the teacher, rather than the interest of the children. When recruitments are school based, a teacher wishing to transfer out of a school will need to wait for a vacancy before transferring out. Also, as recruitments
Syllabus developers should be aware of the time taken to teach different modules in the syllabus, so that when new items are added, existing items are adjusted to ensure that there is sufficient time to properly teach each module, according to the prescribed methods of teaching.
are subject based, only teachers who are qualified to teach the subject for which there is a vacancy, will be able to apply for the job. Education and Content and Progress A principal of a leading private school that prepares children for both the local and London O-levels once stated that the local O-level syllabus is much lengthier than the London O-level syllabus. Many teachers have also reiterated that the syllabuses are very lengthy. As a result, teachers tend to rush through the syllabuses so that they can be covered during the school year, rather than allowing students the time to ponder and reflect on different teaching units before moving on to the next unit. In 2006, the Ministry of Education introduced the 5E learning cycle, an activity based students centered learning method. One reason why the implementation of this method of teaching was delayed, among other things, is due to the lack of time for conducting activities. Syllabus developers should be aware of the time taken to teach different modules in the syllabus, so that when new items are added, existing items are adjusted to ensure that there is sufficient time to properly teach each module, according to the prescribed methods of teaching. The NEPP proposes effective means of developing, revising and updating the curriculum to keep the curriculum modern and relevant. It also asks to minimize the home work given to children and to ensure that the learning teaching process is more interactive and fun. It calls for amendments to give space for children to observe, critique, reflect, question and overall be more engaged with teachers and their environment in their learning process. All these proposals if implemented would result in energizing the class room activities. The successful implementation of these proposals will depend on two key elements: time availability and competence of teachers. Hence as elaborated above, professionalizing the teacher service and freeing up the syllabuses to allow time for self-learning will be essential to improve the teaching and learning process to improve the quality of education and make it more relevant in the country.
Nithershini Hi, Well analysed the problem and the concerns are really worth to think about the healthy learning environment, which is currently missing in the system. Well said about the teachers recruitment, policies need to be refined to practicality. Thanks for this awakening article.
COMMENTS:
Mohamed Niyas The new educational policies and proposals put forwarded here was really useful. as a teacher and a patriotic Sri Lankan I welcome your ideas and insight to the subject and hope practical measures to enliven them. Nisha Arnatilake Thank you for these comments Mr. Niyas and
Mithershini. I am just highlighting the importance of some of these proposals here. These education proposals resulted from consultations for developing a new Education Act for Sri Lanka. I do agree with you, there should be an action plan to implement these proposals according to priority.
Comment
July - Dec 2013
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Is Sri Lanka Paying Enough Attention?

By Kanchana Wickremasinghe
Tourism and Water Management:
Posted in September 2013
World Tourism Day 2013 was marked on 27th of September on the theme this year is Tourism and Water: Protecting Our Common Future
Tourism has become one of the largest and fastest growing economic sectors in the world. It contributes to 9% of worlds GDP and 6% of worlds exports. According to the UNWTO Tourism Highlights 2013, it is forecasted that international tourist arrivals, which currently stands at 1.035 million, will increase up to 1.8 billion by 2030. Tourism is an industry which is heavily dependent on the natural environment and its resources, raising concerns regarding the impact that such growth will have on the environment specifically on natural water resources.
Image phelle 2007 | sxc.hu.
Water consumption, per guest, in a hotel can be around three times that of the average consumption of a person staying at home. In this scenario, the relationship between the tourism industry and water resources becomes a key area of concern for sustainable tourism development. Sri Lanka has witnessed a significant growth in the arrival of tourists from all around the world, with more investments taking place in the hotel sector to cater to this demand. Consequently, the demand for water resources has also increased in this process. It is, therefore, imperative that the hotel sector pays adequate attention to the importance of water conservation. Environmental sustainability is a key factor which determines the success of the tourism industry. Therefore, in order to achieve sustainable water management, the tourism sector provides strong incentives for adopting green practices in water and other environmental management aspects. Further, there are a number of parameters that can be used to measure the level of adoption of water conservation/management practices by hotels. Maintenance of proper records on water consumption is an important indicator in this regard. Adoption of specific water conservation/management techniques, allocation of funds for water conservation activities, and the proper management of waste water, can also be considered tools of sustainable water management in the tourism sector. Have Sri Lankan Hotels Paid Enough Attention? An on-going IPS research study on Environmental Management Practices in the Hotel Sector in the Western Province shows that most of the hotels do not maintain monthly records of their water consumption. In the cases where hotels obtain water from the Water Supply and Drainage Board, water bills can be used to monitor the water consumption patterns. However, the data is not properly recorded, as hotels have not assigned specific employees for the task. Further, many of the hotels do not maintain data in the event of ground water extraction for hotel usage. Specific water conservation practices adopted by hotels include dual flush toilets, linen and towel reuse, low flow showers and taps etc. Data from 56 registered hotels in the Western Province shows that around 82% of the hotels have dual flush toilets and 57% of the hotels practice linen and towel re-use. Nearly 45% of hotels have established low flow showers and taps in order to conserve water. It is important to note that more
than half of the hotels use treated waste water for gardening purposes. A very small proportion of the hotels (nearly 5%) are practicing rain water harvesting in order to meet some of their water demands. Around 23 hotels have allocated funds for water, as well as for other environmental management practices related to energy and waste. Most of the hotels (nearly 82%) are encouraged to adopt above water management practices as a measure of cost reduction. In addition, gaining a marketing advantage through the adoption of sustainable water management practices has provided the motive for nearly 25% of the hotels. Only a few hotels are adopting water conservation practices, solely due to their concerns on the natural environment. Responsible management of waste water is also an important factor in sustainable water use. Around 43% of hotels have established sewerage treatment plants. Also, 43% of the hotels use septic tanks to discharge their waste water. Only a few hotels (around 9%) have established bio-gas plants, which enabled them to contribute to energy mix of the hotels, while managing their water responsibly. Crucial Gaps The on-going IPS study shows that a lack of data on water consumption remains a barrier in assessing actual water consumption per guest night, which is important in taking necessary water management decisions. This situation is more prevalent in cases where the source of water is ground water. While there are issues with regard to the allocation of staff for maintaining water related data, hotels also do not have an incentive for maintaining data, as water can be obtained at a fairly low price (and in the case of ground water, it comes at a zero price, when extraction costs are excluded.) In addition, data shows that not all hotels are adopting water conservation practices, which highlight the importance for raising awareness on this issue. However, it is noteworthy that a significant proportion of hotels are motivated to adopt water conservation practices as a measure of reducing cost and gaining a marketing advantage. As there have been new investments in the hospitality sector, it is important to make industry stakeholders aware of the win-win benefits of adopting water and other environmental management practices from the very beginning. One of the significant shortcomings of the present star classification system of
The on-going IPS study shows that a lack of data on water consumption remains a barrier in assessing actual water consumption per guest night, which is important in taking necessary water management decisions. This situation is more prevalent in cases where the source of water is ground water.
hotels is that proper recognition is not given to those that maintain better environmental management practices. It is important that the hotels that are adopting good water and other environmental management practices are acknowledged for their service. Introduction of a certification system would be vital in this regard. This will provide strong incentives for the hotel sector to be more environmentally oriented, creating opportunities for themselves to reap the economic benefits of being green.
References: Barbern, R. P. Egea, P.Gracia-de-Rentera, M. Salvador (2013), Evaluation of water saving measures in hotels: A Spanish case study, International Journal of Hospitality Management, vol 34: 181 191 Funded by the South Asian Network for Development and Environmental Economics (SANDEE)
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PANDA-HUGGERS VS. DRAGON-SLAYERS:
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Debating the China Growth Slowdown

Growth rates in emerging markets in the last 2 years havent been less than 5%, unlike in the developed West. These markets helped to keep the world economy afloat in the post-crisis era. Exports by Indonesia, Vietnam, and Thailand have in fact grown, not declined. But all is not well everywhere in the emerging markets, and China is one of the first to show the signs of this.
Posted in October 2013
Chinas record has been nothing short of exemplary. It demonstrated the fastest and most sustained economic growth performance in human history. Driven by globalization (manufacturing) and infrastructure investment, Chinas economy soared. Over last 20 years, it plowed 8.5% of GDP each year into infrastructure twice the level of India and more than four times of Latin America. In the past 15 years, China built 90 million new homes enough to house the entire populations of UK, France and Germany combined. But now, the likelihood of a growth slowdown in China appears inevitable. The question is how deep or shallow will it be? Manufacturing activity fell to an 11month low in July and the HSBC Purchasing Managers Index (PMI indicating changes in industry confidence) fell to 47.7 in July from 48.2 in June (but picked up to 50.2 in September). The PMI being below 50 on the 100 point scale indicates a decline. Growth has slowed in 9 out of the last 10 quarters a first for the Chinese economy. The Chinese leadership is clearly worried. In August, Chinese Premier Li Keqiang announced a 7% floor for economic growth and said that growth below this threshold will be treated as unacceptable and the government will take various actions to ensure this. Two schools of thought have emerged on the prospects for the Chinese economy in light of this slowdown those who believe that this is a serious slowdown in which China will see lasting repercussions the dragon slayers, and those who believe that this is a benign phenomena and theres little to worry about the panda huggers. Panda-huggers Inevitable, But Manageable Rebalancing It is widely believed that this slowdown is part of the inevitable Chinese rebalancing. Rebalancing on two fronts rebalancing of growth drivers from investment to consumption and rebalancing of growth poles from the coastal regions (mainly in the South-East like Shenzhen and Zhengzhou) to inland areas. The former is probably the most critical. Growth in China over the last decades has been driven by an aggressive investment drive investment in factories and investment in infrastructure to support those factories. The rebalancing that needs to take place is away from an investment-led growth, to a more domestic consumption-led one. Economist and Nobel Laureate Paul Krugman suggests that the Chinese model is about to hit its Great Wall because of this rebalancing. To understand this Chinese model,
we must go back to revered economist Arthur Lewis. He suggested that countries in the early stages of development typically have a small modern sector alongside a large traditional sector containing huge amounts of surplus labour. This has two effects. The first is that the country can keep plowing in capital in to new factories, construction, and so on, without running into diminishing returns on that capital. It can also keep drawing on surplus labour from the countryside to keep fuelling growth. The second is that as there is ample rural to urban migration of workers, competition among labour is high, and so wages are low. But now, China has hit its Lewis Point, where that seemingly unlimited flow of labour at cheap wages is rapidly waning. Krugman, explaining his viewing on hitting the great wall, notes that all successful economies devote part of their current income to investment rather than consumption, so as to expand their future ability to consume. China, however, seems to invest only to expand its future ability to invest even more [] Investment is now running into sharply diminishing returns and is going to drop drastically no matter what the government does. Household consumption accounts for less than 40% of Chinas GDP. Put differently, the Chinese consumer has not begun picking up the economys slack caused by the countrys investmentled model reaching its limits. Chinese household consumption as a proportion of GDP is barely half that of USA which is at around 70%, and significantly less than other large economies like France, Brazil, Germany and India which are hitting around 60% in recent years. Dragon-slayers China Slowdown Hits Global Economy Hard How will this impact the world economy? Some economists like Paul Krugman argue that the fallout for the world economy of the China slowdown is big but not that big hes a panda-hugger. Others, like Michael Spence, author of the 2008 Growth Commission Report, are more worried. At a recent programme in Italy where five Nobel Laureates delivered a series of lectures, Spence observed that China is increasingly more systemically important than ever before. Why does he believe this? Its probably because of Chinas insatiable appetite for commodities. China accounts for 25% of global steel demand, and determines the prices of copper, iron, and coal. Any slowdown in China would mean a slowdown in the global commodities trade, and some countries in particular would be
all successful economies devote part of their current income to investment rather than consumption, so as to expand their future ability to consume. China, however, seems to invest only to expand its future ability to invest even more [] Investment is now running into sharply diminishing returns and is going to drop drastically no matter what the government does
Paul Krugman
hit hard. For Australia, one fourth of its exports are to China (mainly commodities). For South Africa, 45% of its exports are to China, mainly in platinum group metals, gold, coal, and iron ore. A China slowdown would reduce its commodity demand and push down global oil and commodity prices. Meanwhile, one of the main reasons why Chinas slowdown is troubling many is the timing of it. China hitting its Lewis Point and this slowdown is coming at the same time as Western economies are at their Minsky Moment when Europe and US are pulling back their loose monetary policies. The compounded effect of these two events is what economists are most concerned about.
With a booming Chinese middle-class, there could be niche markets available for Sri Lankan exporters. Overall, it will be interesting to see how Chinas rebalancing pans out. The global economys reaction to it will certainly give a good indication of to what extent Chinas economy is now systemically important than before.
Tackling the Rebalancing Yet, all is not lost. China, unlike its companion in slowing growth (albeit of a different magnitude), India, is doing something about it. Just last month, China announced a series of small stimulus measures. This includes temporary tax cuts for businesses with sales less than 20,000 Yuan, ensuring that businesses contemplating closing down will survive the downturn and thereby protect jobs. There has also been simplifying of procedures for exports, a cutting of administration fees, encouraging bank lending to exporters, and committing to greater spending on railway infrastructure of around 10.7 billion Yuan. Meanwhile, over the last few years, China has been allowing wages to rise, especially on the coastal manufacturing belt. Unheard of less than a decade ago, Chinese authorities easily gave in to worker protests over higher wages in factories along the coastal belt at the Foxxcon factory, for instance, wages rose by 70% following the protests. For the longer-term, China is putting in place structural reforms that are likely to improve its competitiveness. Long perceived as the imitator, copier, and low-cost follower of other countries products, China is determined to break away from that and move towards greater innovation and value-addition. Chinese universities are globalizing and Chinese researchers are publishing in international journals. China has 16,000 PhDs in Science and Engineering and filed 250,000 patents. In 2011, it filed more patents at the US Patent Office than the US itself! Chinese households and firms are adopting ICTs in all spheres of economic activity. E-commerce and e-tailing (online retail) are now key tech-driven growth areas.
China now has the worlds secondlargest e-tail market, with estimates as high as US$ 210 billion of revenues in 2012 and a compound annual growth rate of 120 per cent since 2003. Of course, tackling issues of Intellectual Property and cyber-security remain a significant challenge in all this. Clearly, however, China would need to get on to a more sustainable growth trajectory, of around 5-6% growth per annum in order to move up the ladder and breach middle-income. As Ruchir Sharama argues in his book Breakout Nations, chasing higher rates of growth through excessive investment in infrastructure can carry the risk of a bust that could see the economy yo-yoing in a middle-income trap. Keeping an Eye on China Chinas rebalancing towards consumption will have positive impacts for those looking to sell into the Chinese market, with the right products at the right price. With a booming Chinese middle-class, there could be niche markets available for Sri Lankan exporters. Overall, it will be interesting to see how Chinas rebalancing pans out. The global economys reaction to it will certainly give a good indication of to what extent Chinas economy is now systemically important than before. But whichever side youre on the pandahuggers or dragon-slayers, one thing is clear the Sri Lankan private sector and policy planners must keep a close eye on the developments in the Chinese economy. Shynnen Sri Ranjan (Project Intern) contributed to this article
Ddm important risk in china is debt. official debt:gdp figures are fairly healthy. but during the global financial crisis, china boosted the economy with substantial monetary and fiscal stimulus leading to high levels of credit growth. as a result there has been a large increase in debt at the municipal level and company level much of it through the shadow banking channel, and not all of it in productive sectors. in a worst case scenario, if the economy slows down in the process of adjustment, there is a risk of more of these loans going bad and possibly triggering a financial crisis as NPLs rise hitting bank balance sheets. a glimpse of this was seen in june this year, July - Dec 2013
with a cash crunch causing a minor panic until pboc stepped in with liquidity. a financial crisis in china would exacerbate the growth risks highlighted in the article, with very material implications for the global economy. this risk underlines the importance of managing chinas growth transition. but it wont be easy. Anushka Wijesinha ddm, thank you for your comment. I fully agree. Shadow banking in China is going to be one of the biggest challenges in the coming years. As you rightly point out, the local government debt is worrisome. Between 2007 and 2012, local government debt in China rose from just under RMB 5,000 billion to RMB
15,000 billion! Increases in private mortgages also went up during this time, from around RMB 2,500 bn to over RMB 10,000 bn. Meanwhile, the recent unofficial stimulus by premier Li is putting funds into key lagging provinces through huge bank loans (through state banks) for those municipal authorities. Bad debt in Chinas banks is clearly its emerging Achilles heel. I saw a report this week that Chinas leading banks have written off about $ 3.6 billion debt in H1 2013. Anushka Wijesinha For anyone interested in more on that last point on China bank debt write-offs http:// www.bloomberg.com/news/2013-10-22/ biggest-china-banks-triple-debt-write-offs-tobrace-for-defaults.html
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TE DIGEST
Dying to Work?:
Why Health and Safety in the Work Place is an Important Economic Issue for Sri Lanka
By Sunimalee Madurawala
This week ten workers in Bangladesh lost their lives in a deadly fire at a garment factory, another in a series of incident ranging from building collapses to fires that have claimed over 1,500 lives in the past year alone. This has brought new attention to working conditions in the garment industry in Bangladesh and has got everyone from policymakers and industrialists to human rights organizations and Western clothing brands very concerned. Sri Lankan stakeholders reading news of these incidents, however, can be content that such deadly working conditions do not exist here, and rightly so. Nevertheless, thinking more comprehensively about safety and health in the wider Sri Lankan work place context should be an important ongoing agenda. As Sri Lan-
ka enters its middle-income transition, these issues become increasingly more relevant. Recognizing this, the Cabinet of Ministers in Sri Lanka has designated the second week of October as National Occupational Safety and Health Week. In this context, this article discusses the importance of occupation health and safety in ensuring a productive labour force in Sri Lanka and the public policy issues that must be addressed. The Hidden Epidemic Globalization, demographic change, and technological advancement, have witnessed a significant change in work environments around the world. These changes have resulted in a heightened need for proper health and safety at the
workplace as it is important for moral, legal, and financial reasons. Ultimately, a healthy workforce will lead to enhanced social welfare and in turn, higher productivity. Around the globe, every 15 seconds, a worker dies from a work-related accident or disease and every 15 seconds, 151 workers have a work-related accident. ILO estimates that over 2 million people die annually from work-related diseases and 321,000 people die each year from occupational accidents. Furthermore, 160 million non-fatal work-related diseases and 317 million non-fatal occupational accidents are recorded every year due to poor and inadequate Occupational Safety and Health(OSH) measures. The statistics are truly alarming. Occupational diseases
remain largely invisible compared to industrial accidents. In rapidly changing working environments occupational diseases continue to increase as a hidden epidemic. The other side of the story is the economic loss due to occupational illnesses and diseases. The annual loss due to occupational illnesses and accidents is estimated to be 4% of global GDP (ILO, 2003). Estimated total cost of occupational injuries and diseases was US$ 250 billion for USA in 2007 (1.8% of GDP), AU$ 60.6 billion for Australia for the financial year 200809 (4.8% of GDP) (Yun, 2012) and US$ 4.9 billion for New Zealand (3.4% of GDP) in 2004-05 (Access Economics, 2006). The total cost of occupational injuries mainly consists of non-financial human costs, costs of the lost production, medical costs, compensation for lost wages, production disturbance and administrative and legal overheads. It is not only the employers, workers and the governments who bear the costs of occupational injuries and diseases but also society as a whole as the financial and non-financial costs and negative consequences of occupational injuries and diseases ripple out. Occupational Safety and Health in Sri Lanka: Critical Gaps At present, OSH issues are mainly legislated under the Factories Ordinance No. 45 of 1942, which has separate provisions for health, safety and welfare of the employees. Workmens Compensation Ordinance Act No. 19 of 1934, Shop and Office Employees Act No. 15 of 1954, Municipal Councils by-laws and regulations also cover OSH related matters. Though the Ordinance has separate provisions for health and safety, it is quite obvious that the law has to be updated in response to the changes that have taken place over the last few decades in Sri Lanka. For instance, the construction industry in Sri Lanka has developed significantly in recent years and construction has transformed into a significant contributor to the national economy. Globally, this industry has been identified as one of the most hazardous among all industries, with the highest rate of accidents including deaths and disabling injuries. Despite this, the safety and health aspects of the construction industry remain at an unsatisfactory level in Sri Lanka (Halwatura and Jayatunga, 2011). The country also does not have a formal reporting system to capture workrelated injuries and diseases. Thus, statistical information related to OSH is less available and severely under reported. Inadequacy of information about occupational hazards is one of the major ob22 TE DIGEST July - Dec 2013
stacles to prevent occupational fatalities and diseases effectively. However, with the available data, Ministry of Health estimates that nearly 15% of the total admissions due to injuries at the Colombo National Hospital in 2011 were work-related. The prevalence of occupational diseases could be much higher but they are hardly recorded as work-related diseases. It is estimated that only 1% of the estimated work-related accidents are reported in Sri Lanka in contrast to countries like Australia, New Zealand and Malaysia where the percentages of reported vs. estimated are as high as 89%, 88% and 79%, respectively (Wickramatillake, 2011). In addition, at present, 60% of the countrys labour force is employed in the informal sector a sector which is considered to be more difficult to regulate and monitor. Poor working conditions and capital limitations which lead to the importation and use of obsolete machinery and equipment, poor machinery maintenance, limited access to material and limited information on physical and health risks caused by their occupation are some OSH issues related to the informal sector in the country (De Silva, 2003). Creating awareness and building capacity on OSH among the stakeholders (employees, employers, government officials, etc.) also remains a challenge. OSH should be viewed as a shared commitment of all concerned parties and an investment for a healthier and productive labour force. Tackling the Problem: New Initiatives In response to these concerns in ensuring safe work places in Sri Lanka, some promising initiatives on OSH are taking place at the moment. A separate unit of the Ministry of Health Environment and Occupational Health Unit has been established to work on matters related to OSH. The unit is responsible for the establishment of occupational health units at district level and awareness and training programmes for targeted high-risk groups including the industrial sector. Public Health Inspectors (PHIs) under the Ministry of Health maintain an OSH Register and carryout walkthrough surveys (physical inspections) to evaluate the environment, welfare facilities and waste disposal measures by using simple methods and techniques. Apart from these steps already taken by the Ministry of Health, establishing a good surveillance system to capture work-related diseases would definitely help to bridge the data and information gap on OSH in Sri Lanka. A new piece of legislation titled, Oc-
cupational Safety, Health and Welfare Act is already being drafted with the intention of ensuring safety, health and welfare of all persons at work, protecting against risks to safety or health, promoting a safe, healthy and decent working environment and providing consultation and co-operation between employers and workers on OSH. The proposed Act will be applicable to all places of work, including the public sector. Though the enactment of the new Act has been delayed for several years now, it is expected to become a reality soon. However, addressing the concerns of all parties involved should be done as OSH is a cross-cutting issue which encompasses many disciplines. Examples and evidence from other countries which have strong OSH policies and laws (e.g., Japan, Malaysia, Singapore, and New Zealand) prove that the number of work-relates fatalities and diseases can be reduced significantly with such policies and laws. Steps have been taken to develop a National Occupational Safety and Health Policy for Sri Lanka by the Ministry of Labour and Labour Relations and the National Institute of Occupational Safety and Health. A National Steering Committee and seven Working Groups on Occupational Safety and Health Policy Development are currently working towards formulating a national policy on OSH. OSH is a cross cutting issue which needs everyones contribution and it should be considered as a shared commitment. It is true that much has to be done to promote OSH knowledge and culture in Sri Lanka but it is also true that there are several concerns that should be addressed. On the other hand, OSH measures should not be a burden to the employers. However, just because the problem is difficult to tackle it cannot be ignored. OSH is about human lives. It is about creating safer and healthy working places for the 8 million people employed in the country. It is about productivity enhancement through a healthy workforce, and ultimately it is about higher social welfare. Sri Lanka may be far ahead of Bangladesh. But aspiring to even higher standards, above our developing country peers, must be our goal. Note: The author acknowledges the insights by Dr. Inoka Suraweera, Consultant Community Physician, Environmental and Occupational Health Unit, Ministry of Health, and Mr. Dittha de Alwis, Assistant Director General of the Employers Federation of Ceylon shared at an in-house discussion held at the IPS.
Sri Lankas Middle-Income Transition:
The middle-income transition is a challenge that dozens of countries are grappling with and, as of late, is increasingly being spoken about in Sri Lanka as well.
A recent business forum (by LBRLBO) was one of the first private sector forums to initiate a discussion on this in the country, and this article captures some thoughts that were presented in my opening presentation. This article takes an initial look at what this middle income transition (or middle-income trap as sometimes referred to) means
and puts forward some ideas drawn from the increasing body of literature on the subject. It explores what factors contribute to economies ending up in this trap as well as some of the ingredients that help get out of it. It does not particularly put forward any policy prescriptions for Sri Lanka but in exploring the ideas drawn from that literature, a reader will
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Optics to the Mechanics
Thinking Beyond the
Why does this slowdown occur? We have what economists call a Lewistype development model. It simply means that factors and advantages of a country which had helped to generate high growth during the initial phases of rapid development disappear when middle- and uppermiddle income levels are reached.
notice that there is a lot of resonance with Sri Lanka, Sri Lankas current context and the challenges it faces. Middle-Income Transition:Why Does Growth Slow? In the post-world war era, the 1950s onwards, many economies managed to rapidly reach middle-income status but few went on to become high-income. A very comprehensive study led by the World Bank estimated that out of 101 middle-income countries in 1960, only 13 had graduated to high-income status by 2008. It is argued that this was essentially due to a slowdown in productivity growth, and therefore getting out of that situation also depended on productivity growth. The estimates showed that around 85% of the slowdown in output experienced by those countries was explained by a slowdown of growth in Total
Factor Productivity (TFP), and not merely a slowdown in returns to physical capital. Why does this slowdown occur? We have what economists call a Lewis-type development model. It simply means that factors and advantages of a country which had helped to generate high growth during the initial phases of rapid development disappear when middleand upper-middle income levels are reached. For instance, cost advantages in manufacturing that once drove high growth rates start to decline. The economy gets squeezed between low-wage producers on the one hand and high-skilled fast-moving innovators on the other. So, economies in this transition or trap get squeezed between these two and do not have the critical ingredients to edge out of it. Relate this to Sri Lanka low wage economies like Bangladesh or Vietnam squeezing from one end and another like Malaysia, which is more innovationdriven, squeezing from the other. In such a situation what becomes critical for an economy is to be able to unleash new sources of growth to maintain a sustained increase in per capita income not just 8% over 2 years but 8% plus over a much longer period. A busy street in downtown Seoul. South Korea was one of the handful of countries that succesfully breached middle-income and became a developed country in a relatively short period of time. Middle-Income Transition: The Optics The optics of this challenge refers to what we see in the headlines, the pronouncements and the press releases by a Central Bank of a country or by donors who announce that a country has reached or breached a certain GNI per capita threshold. The optics certainly do matter and provide a powerful signal domestically and internationally. Yet, it is first important to understand what this entails and ask the question what are these thresholds of lower-income, middle-income, and high-income?. Different institutions have different ways of looking at it. The leading indicator many refer to is composed by the World Bank using the World Bank Atlas Method. Table 1 indicates at which GNI per capita income levels that the transitions happen. But you will notice some differences, for instance, between the ADB and World Banks classifications. You will also notice that each year the World Bank would revise the thresholds, in keeping with global price levels. So for instance, if a countrys economic authorities announce in 2010/11
that the economy is going to reach middle-income status and go beyond the US$ 3,975 per capita to become upper middleincome, in two years time that goal-post will shift because the threshold to breach lower middle-income to upper middleincome has been revised. So in Sri Lanka, for instance, as it stands now we have to breach US$ 4,085 to reach upper middleincome, not US$ 3,975 that we thought of before. Organizations like the ADB Institute (ADBI) analyze from the perspective of the number of years that a country is in middle income. Beyond a certain threshold numbers of years in that group, and an economy is said to be in a trap. It is very relative and historic. For example, it could be that country A is in a middle income trap today, if A has been in that group longer than the historical experience of a set of countries. According to the ADBI literature, a country is in a lower middle-income trap if it has been in that category/group for 28 years and in the upper middle-income trap if it has been in that group for 14 years. Going by this, Sri Lanka should only worry about being stuck in the middle income category/ group if it is still there in 2053! So, codifying the trap is not easy and can be contentious. This is probably why Nobel Prize winning economist Michael Spence prefers to call it the middle income transition rather than focus on the specific thresholds of a trap. His idea of a middle income transition refers to that part of the growth process when a countrys per capita income gets into the range of US$ 5,000-10,000. Meanwhile, the IMF looks at the classification slightly differently it is based on a set of criteria. In January 2010, Sri Lanka was graduated by the IMF out of what it calls the Poverty Reduction and Growth Trust set of countries essentially the low income category into middle income emerging market status. In Sri Lankas reclassification, the IMF indicated the combination of factors it considered firstly, the World Banks classification, but also whether there has been no declining trend in GNI per capita over the previous 5 years, whether the country can access international debt capital markets, and whether the country faces serious short-term vulnerabilities on the macro front. Middle-Income Transition:The Mechanics As has become evident from the preceding discussion above, the definitions of middle-income (the optics of the thresholds, etc.) are clearly in debate.
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Table 1: Country Income Classifications

Institution Low Income Lower Middle Upper Middle Income Income High Income
ADB <$2,000 $2,000 to $7,250 to $7,250 $11,750 World Bank 2012 <$1,035 $1,035 to $$4,085 to (WB Atlas method) $4,085 $12,615 World Bank 2011 <$1,005 $1,005 to $3,975 to $3,975 $12,275
>$11,750 >$12,615
>$12,275
Source: www.adb.org and www.worldbank.org
Even if one really thinks of the development process, it is a continuum rather than an event that takes place in discrete jumps through thresholds. Therefore, the argument being made here is that we should not get too preoccupied with the optics, but rather focus on the mechanics of dealing with the challenges that arise. The question to focus on is what are the drivers of sustained high growth?. Reviewing the literature on the international experience of middle income transitions reveal the answers to this question the mechanics of the middle-income transition challenge. The three key factors that determined the trajectory of countries that did or didnt breach the lower to upper middle income or upper middle to high income categories can be put down as: 1) better talent, 2) better products, and 3) better institutions. The Mechanics: Better Talent As the middle income transition involves losing initial labour cost advantages, a country needs to go beyond. Better talent would mean higher productivity of labour not just getting workers to work more but ensuring that those workers are getting better at what they do. Striving for higher productivity of labour is especially important for a country like Sri Lanka whose demographic dividend is waning. Basic skills are adequate in a countrys labour force if it is in the business of producing final goods basic or light manufacturing. But in the middle income transition what matters is to shift from this to advanced skills and innovation- and knowledge-driven activities like design. In Sri Lankas apparel industry, companies like Brandix, MAS and Hirdaramani can attest to this. Better talent would mean a stronger focus on higher education and training. When you look at countries like South Korea, Taiwan, Singapore and others that breached the middle income trap, these were key pillars of their success.
The Mechanics:Better Products The second element of better products refer to producing innovation-driven products that are globally competitive and not easily imitated. It requires a combined focus on of Information Communication Technologies (ICTs) and Research and Development (R&D). When looking at countries in East Asia that successfully breached the middle income trap, they moved from importing and imitating to innovating technologies of their own. A major part of this came from investment in what is called advanced infrastructure like high-speed broadband and satellite connectivity, beyond the connective infrastructure like ports, roads, and railways. Governments in these countries also focused on investment in R&D through a combination of investment directly in national R&D centres and fiscal incentives like tax breaks to stimulate innovation. Another element was strong Intellectual Property (IP) protection. During the middle income transition of East Asian economies, IP protection helped stimulate a lot of local innovation and even generate patents at the same rate as advanced economies. The Mechanics:Better Institutions The third element is better institutions. Some argue that in the early stages of development sophisticated institutions are not necessary. Policy formulation would be fairly simple; the development trajectory is less complex and more linear as the country develops steadily beyond being agriculture-based. But for sustained growth towards high income, a country needs to move beyond crude institutions as they are no longer fit-forpurpose. In his work on how institutions matter for growth, Dani Rodrik notes that these new institutions high quality institutions are required for high quality growth. Often, people assume that countries in East Asia, with strong state roles
in the economy skipped through this process or decided to ignore them. But even countries like South Korea, Taiwan, Hong Kong and Singapore did battle the institutional challenges, overcame strong political and bureaucratic forces to unleash new waves of dynamism. We may think that concepts like good governance and better dialogue between government and business are just cosmetic feel good factors, but as has been very clearly shown in countries that breached the middle income transition, these ideals mattered greatly to their core economic performance, especially in realizing the potential of their private sectors. A Known Recipe: Time for Everyone to Focus We must bear in mind that middle income challenges do not manifest overnight and do not come by surprise. Looking at what countries like Korea did 15 years before they became high-income provide instructive lessons. But the recipe to tackle the challenge is not really an enigma. Many forums that are being held in Colombo have argued along similar lines. What is the recipe? Invest in higher levels of human capital, invest in advanced infrastructure, innovation and R&D, build institutions that promote dynamism and help unleash private sector potential not institutions that promote political capture and stagnation. In fact, IPSs latest Sri Lanka: State of the Economy 2013 report themed The Transition to MiddleIncome Economy emphasizes many of the very same issues. While the recipe may be clear, getting there requires work and focus. As is clear from other countries, it requires a long-term view of economic strategy. A strategy that keeps evolving as needs change and as we learn what is working and what is not. All of us must look at the 88 (out of 101) countries that hadnt been able to breach middle-income status as well as look at the experience of the 13 countries that did make it, to distill the key lessons. This is not just a task for a government, but rather all of us. We must all look beyond the optics of being a middle income economy the headline numbers and target thresholds and focus on the mechanics of getting there.
COMMENTS:
Ravi Ratnasabapathy A very useful analysis. Policy makers should take heed of the need for the right types of investment if we are not to stagnate at this level. July - Dec 2013
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REFORMING A POST-WAR ECONOMY IN

By Kaushalya Attygalle
FOUR YEARS?
eign investment by an impressive magnitude and an important aspect of this challenge lies in creating a climate conducive for private initiatives to thrive. In the latest Doing Business 2014 Report prepared by the World Bank and the International Finance Corporation, Sri Lanka has slipped down the rankings to 85 this year. In the four years following the end of the armed conflict, Sri Lanka jumped substantially in the Doing Business Index (DBI) rankings from 102 in 2009 to 81 in 2012. While the country has made reforms and improvements in the areas of obtaining construction permits, getting electricity, paying taxes and trading across borders over the last year all reflected in the DBI with an increase in the ranks it hasnt fared so well in areas like starting a business, registering property and protecting investors. Yet, as the speaker at the earlier mentioned forum remarked, an argument can be made that it is not realistic to expect a government to get all its policies right in such a short time. Perhaps what we need is more time to bring about a more significant change in the economy? This article does not answer this question for Sri Lanka. Rather, it examines the development process of another country that also emerged from a conflict era and made significant transformations within a short time span Georgia. This article is not intended to be a comparative study between Sri Lanka and Georgia, though, but merely an exploration of the businessoriented reforms that took place in that country in the span of four years. The Georgian Case Under Soviet rule, the sole purpose of Georgia was to produce goods and services for the consumption of the Soviet Union. After gaining independence, like many of the countries that were previously a part of the USSR, Georgias economy struggled to stay afloat despite the shutting down of many factories, widespread unemployment and hyperinflation. Soon after independence (with the breakup of the Soviet Union in 1991), Georgia underwent several civil wars that resulted in the Georgian economy contracting to 10-15% of its pre-independence condition and left over 300,000 people displaced. These internal conflicts also caused the resident Georgian population to shrink by 30% due to outward migration. The Georgian government attempted to stabilize the economy for over a decade but the ineffective policy measures only heighten the burdens of the country. The rapid transformation of the Georgian economy that we see now took place with the beginning of the Rose Revolution in 2003. The revolution brought about a public demand for rapid economic change along with the election of a new President Mikheil Saakashvili. Since the start of this new government in 2004, the Georgian economy saw rapid progress. In 2006, Georgia was ranked 112 among 185 countries listed in the DBI, but in just one year the country turned its economy and business environment around and improved its ranking to 37th (see Figure 1). The rankings continued to improve and in 2008 Georgia became one of the top 20 easiest countries in the world to do business, with a rank of 18. The World Bank named Georgia the number one economic reformer in the world as a result of its achievements. In the latest DBI (2013/14) Georgia holds strong by being ranked among the top 10 easiest countries to do business (ranked 8). Getting the Basics Right When the Saakashvili government took over, the country underwent extensive developments in less than four years. Like Sri Lanka, the Georgian government began by ensuring that the basic infra-
Posted in November 2013
It has only been four years since the end of the armed conflict in Sri Lanka. The government needs more time to provide a businessfriendly climate that would attract more investment. This was a remark by a panelist from a leading Sri Lankan corporate at a recent private sector forum titled Creating Future-ready Enterprises. This is an argument one hears often, at both formal events like this one, and at informal gatherings among professionals and friends.
The argument often goes unchallenged as the countrys post-war track record has been impressive the improvement of city infrastructure, building of new connective infrastructure like ports, airports and highways, and steady growth spurred mainly by construction, consumption and tourism. Yet, four years since the end of the war Sri Lanka appears to be struggling to boost domestic and forJuly - Dec 2013
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The Bridge of Peace in Georgias capital Tbilisi is a symbol of the countrys postwar modernity and progress.
(image courtesy http://500px.com/roliketto)
structure needed to build the economy was in place. Heavy emphasis was given to providing stable electricity, construction of roads and buildings, improving communication networks and other areas of infrastructure development. This proved to be extremely beneficial to the Georgian people who had experienced difficult living conditions for over a decade. Reforming the education system and the healthcare system were also primary policy priorities of the government. Healthcare was made accessible to low-income households and those living below the poverty line. Primary education enrollment rates increased significantly after education was made mandatory to all children aged 6-14. Admission into higher
education institutions was more transparent and competitive. Strengthening Revenue Fiscal policy reform was another significant focus of the post-war Georgian government. With the assistance from the IMF and a few other institutions, Georgian government officials identified that one of the main issues in relation to estimating the potential tax revenue was the lack of reliable data. The inaccurate projection of tax revenue was a huge burden on the actual tax collection process. State officials were educated on estimating government revenue and given special training on estimation methods. Tax rates were reduced and ineffective taxes were removed the
Figure 1: Ease of Doing Business Ranking - Georgia and Sri Lanka (05/06 to 13/14) Year 0 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14
40
80 Rank
120
Source: The World Bank & International Finance Corporation, Doing Business,Various Years
number of taxes was reduced from twenty to six. Effective advertising that portrayed the importance of paying taxes as means by which to improve public goods for all proved to be successful in encouraging the public to fulfill their civil duty. After various extensive reforms, tax revenue increased by 450% in 2008 and tax revenue amounted to 25% of GDP (see Fig.2). This was an impressive achievement given that the government actually increased tax revenue despite the reduction of tax rates. Attracting FDI Inflows The Georgian government then focused on improving the business climate of the country and to enhance local and foreign investment. Policy reforms based on research findings steered the government towards deregulation of the economy. The number of licenses and permission needed to start or run a business was reduced from 944 to 150. Businesses only had to visit one counter to complete all procedures which drastically reduced the time required to start a business. Employer employee relations were strictly confined to contractual agreements ensuring protection to both parties. In response to these and many other measures, investment in the country increased within the span of just two years. By 2006, FDI inflows had soared to 158% over the previous year and by 2007 FDI inflows amountJuly - Dec 2013
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Figure 2: Georgian Tax Revenue as a % of GDP 30
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*In 2012 the Saakashvili government lost the parliamentary elections to the Georgian Dream party. Mikheil Saakashvili ended his two term presidency in October 2013 when he was constitutionally barred from running for a third time. Last month, Giorgi Margvelashvili, won the presidential elections with 62% of the vote. Background research by Dulara De Alwis (Project Intern) contributed to this article.
10
0% 1999 2001 2003 2005 2007 2009 2011

Source: World Bank Databank
ed to 18.6% of GDP from 8.4% in 2003. In just four years (2004-2008) FDI net inflows increased from USD 4.9 million to USD 15.1 million a threefold increase in FDI. Weakening Governance? Fighting corruption came under the spotlight of the Georgian government as well, and an Anti-Corruption Interagency Council was established to develop a new national anti-corruption strategy. Both active and passive bribery and corruption was criminalized, particularly in the public sector. But one of the main complaints against the Georgian government was that the relationship between the government and the business community was strained due to the government ordering businessmen to make payments that were not included in government accounts, violating the property rights of owners and intimidating and arresting businessmen. The government claimed that these measures were taken to correct the mistakes made by previous governments that allowed for large-scale corruption and exploitation within the business community. However, the unconstitutional nature of these acts cannot be overlooked. The government also took measures to weaken the local governments by centralizing power at the centre. While the intention behind this to ensure easier implementation of reforms and new policies can be argued as necessary for faster results, it made local governments less accountable to its population. Had the measures improved efficiency of local government this would have been justified but no conceivable improvement was seen. Meanwhile, in 2004, the President was able to enforce certain constitutional amendments that drastically increased the power of the executive presidency and the judiciary was made overly dependent on the Executive President.
The Government of Georgia has undoubtedly made significant improvements in terms of economic and social reform to transform its economy in a short time span. But unfortunately in this reform process it has also weakened important independent bodies like the judiciary and has alienated the business community. As a result of these shortcomings, there have been various mass protests by the public against the undemocratic actions of the government. While efforts to ensure much needed economic reform is highly commendable, the decisions made by the Georgian government have intentionally or unintentionally sacrificed democracy in the name of nation-building. Lessons for Sri Lanka Much like any country emerging out of conflict, the issues faced by post-war Georgia with regard to finding the right balance between economic development, peace building and preserving democracy are delicate and challenging. While Georgia still has more to do before it can be considered a developed country, in the two significant four year time spans of both Sri Lanka (2009 2013) and Georgia (2004 2008), unlike Sri Lanka, Georgia has been exceptionally successful in transforming its business environment through extensive economic reforms. While a direct comparison between Sri Lanka and Georgia would be unfair, the story of Georgia provides instructive lessons. While circumstances differ from country to country, the Georgian case demonstrates that coherent and focused efforts can bring about significant transformation and it can in fact happen in just four years. But it also demonstrates that sustaining the positive trajectory requires a focus beyond aggressive reform to also include important elements of economic governance and institutional strengthening.
Good Decisions, Better Results | Dulara de Alwis [] that my work has been developed further by a current intern and published on the IPS website: http:// www.ips.lk/talkingeconomics/2013/11/ reforming-a-post-war-economy-in-fouryears/ What a pleasant surprise just when I thought that my research was lost and [] Udesh Fernando Hi Kaushalya Prof Paul Collier covers an in depth analysis on post war reconstruction specially on economics in play. His resources can enrich your research Kaushi Thanks Udesh, will be sure to read some of Prof Colliers work. And thanks for the contribution Dulara.
COMMENTS:
References: Jandieri. G (2009) Economic Reforms in Georgia: Their Relevance to Africa? Brenthurst Foundation. Johannesburg. Lanksoy, M. & Areshidze, G. (2008) Georgias Year of Turmoil. Journal of Democracy.Vol. 19. John Hopkins University Press. Torosyan, K & Filler, K. (2012) Tax Reforms in Georgia and the Size of the Shadow Economy. Institute for the Study of Labour. [Online] Available from: <http://ftp.iza.org/dp6912.pdf>. [Accessed: 14th October 2013] Ibid. Jandieri. G (2009) Economic Reforms in Georgia: Their Relevance to Africa? Brenthurst Foundation. Johannesburg. Ibid. The World Bank, World Databank [Online] Available from: <http://databank.worldbank. org/data/home.aspx> [Accessed: 7th November 2013] Lanksoy, M. & Areshidze, G. (2008) Georgias Year of Turmoil. Journal of Democracy.Vol. 19. John Hopkins University Press. Jandieri. G (2009) Economic Reforms in Georgia: Their Relevance to Africa? Brenthurst Foundation. Johannesburg.
ANTITRUST REGULATIONS
by Raveen Ekanayake and Kaushalya Attygalle
Fighting for the Poor:
STRENGTHENING
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Posted in December 2013
Special feature article marking World Competition Day, 5th December
Cartels areAmongUs In 2013, it was found that brand-name drug manufacturers in the United States were paying their competitors generic drug manufacturers, to keep their products off the market shelves. In a case that was presented before the Supreme Court, Solvay Pharmaceuticals had paid a generic drug manufacturing company named Actavis close to 30 million US dollars each year to delay making a drug that could compete with Solvays product, and thus, allowed the brand name company to sell their product at significantly higher prices. This pay-for-delay agreement deprived consumers of their right to choose and their right to fair pricing of the product. In a country that is trying to make healthcare more accessible to disadvantaged communities, such anti-competitive
business practices have become a huge impediment to reducing healthcare costs. This incident is an ideal case in point to highlight the existence of cartels and their adverse impact on the poor. Cartels occur when companies stray away from operating within the usual competitive market system and opt to work together instead. These agreements often take place behind closed doors. They serve no legitimate purposes, rather they only serve to rob consumers of the tangible blessings of competition and are viewed as a side-on attack on free market fundamentals. History has elucidated us to the fact that great economic harm and largescale competitive disadvantages suffered by modern economies are a result of cartel mentality. Cartels inflate prices, restrict supply, inhibit efficiency, and reduce the scope for innovation (Pate 2003).
In the words of widely respected American jurist, legal theorist and economist, Richard A Posner criminal sanctions are not prices designed to ration the activity; the purpose so far as possible is to extirpate it.
Types of Cartels Anti-competitive business practice can occur in various forms that affect both buyers and sellers. Price fixing is the most common form of cartel conduct where a group of companies that are considered to be competitors agree on the pricing of their goods or services. Another form of cartel occurs when competitors agree to share the same customer base, suppliers and even divide certain geographic areas among themselves. Such cartels even go to the extent of agreeing not to produce the others goods and services or expanding to produce the competitors goods and services. Bid rigging, or collusive tendering, is another form of anti-competitive cartel behavior that ensures that bids received for a tender notification are submitted in a manner agreed upon by the members of the cartel. Cartels also tend to have restrictions on output which the member companies enter into agreements that limit supply. It is also important to note that cartels can occur both from the sellers side as well the buyers side. Impact on the Poor While the above mentioned anticompetitive practices can have adverse impacts on consumers in general, the impact of cartels is more severe on the poor.
July - Dec 2013
Cartels can impact the poor as both a consumer and a small business owner. Cartels can affect the poor consumer when price fixing, bid rigging, output restrictions, and shared information occur in industries producing essential goods and services such as basic food, medicine, fuel, transport, and water. For example, as a result of price fixing, a poor consumer will no longer be able to enjoy the benefits of prices that are based on competitive markets but instead, be forced to reduce their consumption as the good or service may no longer be affordable to them. Similarly, small and medium enterprises are affected by cartels as these small firms face major difficulties in entering or even surviving in a market that has a few strong firms operating within a cartel. In a cartelized market, small business owners face many difficulties in selling their goods and services at competitive prices as the cartelized firms will be able to dominate market prices. In addition to this, small firms will also have to succumb to higher production costs and lower revenue as they may also have to purchase inputs at higher prices. While seller cartels are often in the forefront of the discussion on cartels and anti-competitiveness business practices, buyer cartels could also negatively impact the poor. If a small firm is a supplier to a cartelized market, this will have adverse impacts as the supplier will be forced to sell their products at the price set by the cartel. For example, commodities such as coffee, cotton, tea, tobacco and milk, which are often supplied by small farmers, are known to have buyer cartels that do not allow these farmers to receive the best possible price for their goods. Thus, effective implementation of competition laws that severely penalize such practices is undoubtedly essential to ensure that markets operate in a fair and just environment but above all, these laws are essential to protect poor communities from being further disadvantaged. Anti-trust Enforcement With cartelization on the rise, governments across the world are scrambling to regulate markets in the bid to safeguard the interests of consumers, especially the poor. Antitrust legislations in this light are viewed as the most effective brake against the cartelization of industry (Arnold 1951). Almost all countries in the world now have some form of antitrust legislation and have established dedicated agencies armed to enforce them. The United States (U.S) is at the forefront of the battle against cartelization; both at home
and internationally. It is said to have the toughest and most advanced set of antitrust regulations in the world, hence drawing lessons from the U.S would come a long way in assisting emerging economies such as Sri Lanka draw up similar frameworks. At the very core of the contemporary U.S antitrust legislation framework is the landmark federal statute the Sherman Antitrust Act of 1890. The Sherman Act prohibits certain business activities that federal government regulators deem to be anticompetitive, and requires the federal government to investigate and pursue trusts, companies, and organizations suspected of being in violation. The Antitrust Division (ATD) of the United States Department of Justice is at the frontlines of antitrust enforcement. Deterrence and Detection The fundamental objective of any antitrust legislation is deterrence and detection of cartel formation. In pursuit of this objective, an array of tools and sanctions are at the disposal. In the U.S, participation in a cartel is viewed as a property crime, akin to burglary or larceny and thus is dealt with accordingly as a criminal offence. In the words of widely respected American jurist, legal theorist and economist, Richard A Posnercriminal sanctions are not prices designed to ration the activity; the purpose so far as possible is to extirpate it. Thus in addition to civil action for damages (up to treble damages and attorneys fees) and class actions, the Antitrust Division, through the criminal justice system are able to prosecute culpable individuals, who are subject to imprisonment. Under legislation in effect since 2004, corporations could be fined up to a maximum of US$ 100Mn under the Sherman Act. Fines could be further extended under a provision of federal law allowing, in the alternative to the statutory fines, a fine equal to either twice the gain from the illegal activity or twice the loss to victims. Individuals convicted of Sherman Act violations can also be imprisoned for up to ten years. Compared to other crimes, cartel activity is easily concealable, and cartel participants have a strong interest in concealing their unlawful activity, hence, deterrence alone would not suffice, detection plays a pivotal role. Detecting cartels requires enforcement agencies be armed with powerful tools. As such the U.S antitrust division is vested with the power to carry out grand jury investigations of cartel activity. The division is endowed with powers to ob-
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tain search warrants and seize relevant documents. With court order, the Division can record conversations without consent. The divisions criminal investigations are supported by other government agencies, such as the FBI and various offices of inspectors general. Agents from these agencies assist in locating and interviewing persons of interest, executing search warrants, or conducting surveillance. Detection of cartels through leniency programmes is also a powerful tool in the arsenal of most antitrust enforcement agencies. Leniency programmes affect deterrence in a number of ways; firstly they directly increase the expected probability of being detected. Secondly, leniency programmes have a destabilizing effect on potential cartels because the first participant to apply for leniency can escape sanctions that are then imposed on the other cartel participants. Thirdly, through participating corporations provides access to evidence that otherwise might be unavailable (e.g., documents and witnesses located outside the United States). Whilst leniency programmes across the globe have been instrumental in assisting enforcement agencies detect cartels, they have inherent limitations owing to their narrow focus on those at the very heart of cartels. They fail to incentivize people who are aware of but not complicated by cartel operations, they provide no protection for those whistleblowers that are at the periphery of a cartel hence much activity goes unreported. In response to these limitations, the past decade has witnessed four jurisdictions namely, South Korea, the United Kingdom, Hungary and Pakistan expanding their leniency programmes to incorporate antitrust informant or whistleblower reward programmes which incentive whistleblowing through monetary rewards and protect whistleblowers identity from disclosure. The reward program administered by the UK office of Fair Trading of-
Way Forward In Sri Lanka, antitrust legislation is provided through provisions under clauses 34 and 35 of the Consumer Affairs Authority Act, No.9 of 2003. The Consumer Affairs Authority (CAA) is the sole agency tasked with enforcing these regulations. Antitrust legislation and enforcement is still at its infancy. A collaborative study carried out by the Institute of Policy Studies of Sri Lanka (IPS), the Law and Society Trust and the Consumer Unity and Trust Society back in 2003[11], shed light on the possibility of cartel mentality prevalent in the cement and shipping industries in Sri Lanka. A decade-on since the publishing of findings, the question still remains, as to whether regulatory authorities have been able to detect such operations and have taken necessary measures to deal with them. The CAA has been alleged of not being proactive enough, placing too much emphasis on investigation matters relating to pricing and the protection of consumers as opposed to carrying out investigations into the more pertinent area of anti-competitive practices, thereby allowing cartel operations to largely operate unfettered. In this light, a good first step would be to enhance detection measures by way of arming the CAA with corporate leniency programmes and whistleblower rewards schemes details earlier, whilst at the same time strengthening deterrence by way of criminalizing cartel operations. In drawing up such framework Sri Lanka should draw upon lessons/experiences of other nations such as the US, EU, Australia and Canada which are at the frontlines of the battle against cartels.
References: Robbins, R., 2013. Court decision on antitrust lawsuits is tough pill to swallow. [Online] Available at: http://www.chron.com/news/health/ article/Court-decision-on-antitrust-lawsuits-istough-4827254.php [Accessed 1 December 2013]. Werden G.J, Hammond S.D And Barnett B.A 2012, Deterrence and Detection of Cartels: Using All the Tools and Sanctions, Paper Presented at The 26th Annual National Institute On White Collar Crime, Miami, Florida United Nations Conference on Trade and Development, 2013, The impact of cartels on the poor. [Online] Available at: http://unctad.org/meetings/en/SessionalDocuments/ciclpd24rev1_en.pdf [Accessed 29 November 2013] Ibid Antitrust Division 2005, An Antitrust Primer For Federal Law Enforcement Personnel, United States Department of Justice Posner R.A 1985, An Economic Theory of Criminal Law, 85 COLUM. L. REV. 1193, 1215 Werden G.J, Hammond S.D And Barnett B.A 2012, Deterrence and Detection of Cartels: Using All the Tools and Sanctions, Paper Presented at The 26th Annual National Institute On White Collar Crime, Miami, Florida Ibid Corporation accepted into such programs avoid the stigma of a criminal conviction, pays no fine, and has limited liability in any follow-on civil litigation. Qualifying executives avoid the stigma and risk of a criminal conviction, fines, and imprisonment Koury M 2012, Making It Easier to Whistle While You Work, Law360.com, viewed 2 December 2013. <http://www.constantinecannon.com/pdf_etc/kouryart02162012.pdf> Knight-John M, Wasantha P.P.A, Perumal A, Rupasinghe P.A and Gunatilake A 2003, Cross-Border Competition Implications for Sri Lanka, Institute of Policy Studies and the Law & Society Trust, Colombo Sri Lanka.
COMMENTS:
fers monetary rewards up to US$ 157,000 depending on the value of information, harm to the economy and consumers and the effort and risk involve in providing the information.
Malathy Knight Raveen and Kaushalya, Thanks for a comprehensive piece on the contours of cartels/their impacts on the less-privileged in the international space. Unfortunately, the presence and effects of cartel activity have largely been ignored in Sri Lankas policy discourse. As youve pointed out, the last in-depth analysis was the one that we carried out on the pharmaceuticals, cement and shipping sectors a decade ago. We need to ask ourselves the question: why is antitrust accorded such low policy priority? Is it because cartels and such activities that come under the antitrust umbrella do not exist in Sri Lanka? Is it because of political capture? These questions are closely related to the institutional framework for antitrust in Sri Lanka. Sri Lanka no longer has a competition law. The Fair Trading Commission of Sri Lanka, which had the mandate to deal with monopolies, mergers and anti-competitive practices was stripped of its powers over monopolies and mergers in 2003. Representations and recommendations made by various experts to retain these powers were ignored and a Consumer Affairs Authority (CAA) with a narrow mandate focusing largely on consumer protection as opposed to competition law and policy was established. Studies done on CAA also pointed to huge capacity/technical skills issues; given that the salaries of CAA staff were less than those of other employees in the public sector, these capacity issues come as no surprise. Antitrust is a critical issue as you have rightly pointed out in this piece. The question that needs more policy research is how to get to the right institutions and tools in Sri Lanka. Ten years on and we are still in the same place. Is this a portent for the next decade?
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A Closer Look at the Fiscal Dynamics of
2014
Increased Reliance on Foreign Financing A key feature of Budget 2013 increasing the reliance on domestic borrowing while lessening the reliance on foreign borrowing - seems to have been reversed in Budget 2014. Estimated foreign financing which was 1.7% of GDP during 2013 is estimated to shoot up to 2.4% according to Budget 2014, while domestic financing which accounted for an estimated 4.1 % of GDP in 2013 seemed to have declined to an estimated 2.8 % in 2014 (Table 2). Thus, the emphasis placed on foreign financing in bridging the budget deficit seems to be greater in 2014. Though lower reliance on domestic borrowing in financing the budget deficit will limit crowding out of the private sector, greater reliance on foreign borrowing brings forth issues of its own. Exports as the Game-Changer for Sri Lanka Given the tilt toward foreign financing in bridging the budget deficit it is essential that the country strengthens its nonborrowed official reserves position in line with the growing foreign debt burden. This requires that Sri Lanka focuses on strengthening its foreign exchange earnings capacity through the export of goods and services. However, Sri Lankas export performance in recent years has been a cause for concern, given that exports as a percentage of GDP has declined from 22 % in 2010 to 16.4 % in 2012.1 Promisingly, several key export promotion efforts have been proposed in Budget 2014 as highlighted below (Figure 2). As can be observed from Figure 2, though Budget 2014 places much emphasis on improving services exports, the promotion
By Nipuni Perera
Sri Lanka stands at important crossroads as it makes a decisive transition into a middle-income economy. With GDP growth targeted at 7.5 8% over the medium term, the need for effective fiscal consolidation cannot be overemphasized.
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In this light, recent budgets have shown concentrated efforts to address fiscal management by pursuing the commendable strategy of cutting down on recurrent expenditure while maintaining higher capital expenditure. Contracting current expenditure from 18.2% of GDP in 2009 to an estimated 14.1% of GDP in 2013 and shrinking the budget deficit from 9.9% of GDP in 2009 to an estimated 5.8 % of GDP in 2013 have been successful outcomes of recent fiscal consolidation efforts (Table 1). Following this trend, Budget 2014 too seems to place due emphasis on fiscal management as it targets reducing the budget deficit further to 5.2% of GDP in 2014. Thus Sri Lanka seems to be moving in the right direction in addressing fiscal consolidation. However, several issues still exist.
BUDGET
Table 1: Summary of Key Fiscal Indicators

(% of GDP) 2009 2010 2011 2012 2013
Revenue 14.5 14.6 15.2 13.9 13.6 Tax 12.8 12.9 13.6 12 12.1 Current Expenditure 18.2 16.7 16.1 14.9 14.1 Public Investment 6.8 6.4 6.5 5.9 5.8 Budget Deficit 9.9 8 6.8 6.4 5.8
Source: Budget Speech 2011 and Budget Speech 2014, Ministry of Finance and Planning
Table 2: Trends in Deficit Financing

% of GDP 2013 2014
Total Foreign Financing 1.7 2.4 Foreign Borrowings-Gorss 3.0 3.3 Debt Repayments -1.2 -1.0 Total Domestic Financing 4.1 2.8 Non-Banking Borrowings 3.3 1.3 Foreign Investment in T/Bills and Bonds 0.7 0.5 Bank Borrowings 0.8 1.0
Source: Central Bank of Sri Lanka, 2013 Annual Report 2012 and Budget Speech 2014, Ministry of Finance and Planning
of goods exports has been given less attention. Apart from some measures to improve the exports of selected products including apparel, handloom and rubber products, export promotion efforts of Budget 2014 seems to be rather subdued. Although the tea sector has been given attention in Budget 2014 (see Fig. 2), the response from industry sources on such measures has been somewhat negative.2 Selective protection provided to domestic industries is another striking feature of this years budget. For example, only permitting the duty free importation of ceramic/porcelain wall tiles, floor tiles, marble floor tiles, and granite and quartz tiles and several other selected construction related products if such items are not available from local suppliers and the maintenance of high taxes on imported dairy products, fish stocks including dried fish/Maldive fish/ canned fish/ fish food, etc., may result in reducing the efficiency of local industries due to the absence of competition. A Lackluster Revenue Thrust Additionally, fiscal consolidation efforts of Budget 2014 on the revenue front seem to be rather weak. Tax revenue as a percentage of GDP has remained stagnant at around 12 % since 2009. Hence increasing revenue remains imperative for the country to strengthen the fiscal management process. Budget 2014 offers several proposals in order to strengthen the countrys revenue base such as the increase of the income tax rate applicable to SMEs (with an annual turnover less than Rs. 500 million per annum) from the concessionary rate of 10 % to 12 %, reduction of the threshold for chargeability of VAT for Wholesale and Retail Traders from Rs.500 million per quarter to Rs.250 Million per quarter, the upward revision of the Telecommunication Levy from 20 % to 25 %, imposition of a 2 % Nation Building Tax (NBT) on financial services etc. However, it appears that Sri Lanka continues rely heavily on indirect taxation measures which are inherently regressive in nature and works against equity considerations. On a positive note, the automation of the Inland Revenue Department (IRD) with the introduction of the Revenue Administration Management Information System (RAMIS) that will facilitate online tax payments may help in improving tax administration thereby leading to positive spillovers on the revenue front. Conclusion Overall, it is clear from Budget 2014 that Sri Lanka is has taking noteworthy steps in improving fiscal consolidation. However, the quality of fiscal consolidation still remains to be improved in the context of increased reliance on foreign borrowing in the face of a weakening export earnings position and sluggish revenue growth. However, the country seems to be steering in the right direction with determined efforts to cut back on current expenditure while raising capital expenditure. Nevertheless, Sri Lanka must make more concentrated efforts to promote its export sector, as building a strong reserve base through increased export earnings remains the linchpin of the countrys overall fiscal consolidation process.
Figure 1: Trends in Deficit Financing (2009-2014) 400 300 200 100 0

Total Foreign Financing Total Domestic Financing
2009 2010 2011 2012 2013 2014

Source: Central Bank of Sri Lanka Annual Report, various years. Note: *Based on Budget Speech 2014, Ministry of Finance and Panning
Figure 2: Key Export Promotion Efforts of Budget 2014

Improving Services Exports Promoting a professional Services Hub - Five year half-tax holiday for the formation of new partnerships by professionals to provide ineternational services to BPOs - 10% discount on the total tax payable on the importation of a motor vehicle by any such professional who earns foreign exchange in excess of US$ 100,000 per year for a consecutive period of 3 years Promoting a Shipping Hub - Declaring the 12 per cent tax rate applicable for export income earnings to services related to the shipping industry - Tax credit to local ship operators as well as shipping agents for foreign ships who engage in training and professional development activities in the shipping industry
Improving Goods Exports - Apparel Industry:Triple deductions for research and innovation , 7 year tax holiday on Royalty Income derived by any company on international brands acquired - High Value tea (securing prices in excess of US$12 per kg made using 75% homegrown tea): permitted to import any specialty tea free from restrictions References 1 Calculated based on Central Bank of Sri Lanka, Annual Report,Various years. 2 http://www.nation.lk/edition/biz-news/item/23439-budget-snub-for-tea.html
Source: Budget Speech 2014, Government of Sri Lanka
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WTO Bali Ministerial:
Issues Challenges
and the
This article was written by IPS Executive Director Dr. Saman Kelegama and published in several local newspapers prior to the Bali talks in 2013.
The Bali Ministerial of the WTO will commence on 3rd December 2013 and will go on for three days. The Ministerial is taking place at a time when there is a struggle to complete the WTO Doha Round agreed in 2001 where for the first time an attempt was made in the WTO to mainstream development into trade policy.
The twelve year wait (2001-2013) without a completion of the WTO Doha Round has made many countries of the 159 member organization to lose confidence in the WTO as the main rule making body for international trade. The situation was well summed up by the US Trade Representative, Michael Froman: in its nearly 20-year history, the WTO has never once produced a new, fully multilateral trade agreement. The Bali meeting will be the 9th Ministerial and will be the first under the new Brazilian Director General of the WTO, Roberto Azevedo, who took office in September 2013 from the outgoing French Director-General, Pascal Lamy. As usual, the WTO Secretariat has been involved in last minute consultation and negotiations to work out a deal before the Bali Ministerial so that Bali only becomes a formality to the already worked out deal. WTO news reports indicate that a deal has still not been reached and a 53 page draft accord with an array of bracketed options, which over the recent weeks had been cut down from close to 100 to 65, has been
prepared for ratification. Will there be a breakthrough in Bali? This is the vital question. The situation remains uncertain but it is worth quoting the Mexican trade envoy to the WTO, Fernando de Mateo, who said; Hope is the last thing you lose. We are so near that it is not impossible. WTO Bali Agenda Unlike in previous Ministerials, the Bali agenda is not overloaded with the entire gamut of the WTO Doha Round is-
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sues, i.e., the Doha Development Agenda (DDA). It is focused on three selected areas of the DDA, viz., Trade Facilitation, Agreement on Agriculture, and Duty-Free and Quota-Free status for LDCs. Needless to say, there will be other issues such as tariff rate quotas on the Table including an item which is not part of the DDA, i.e., an International Technology Agreement, but the three issues are the key. Trade facilitation was not an area of the original DDA of 2001 but came into the DDA under the July 2004 framework of the WTO. As studies showed that trade facilitation has the same effect or if not more, than lowering tariffs to move trade among nations there was a compelling case for bringing it as a single item to the DDA. Trade facilitation appears to be the key component of the WTO Bali package and it is estimated that the gains from implementing it would be close to US$ 1 trillion enhancement of global annual GDP. Trade facilitation involves reducing the cost of moving goods via customs and this in turn, involves digitalizing customs
procedures and interconnecting customs to key government agencies and departments. Unlike tariff reduction, trade facilitation is easy to implement as there is little resistance from vested interests. However, LDCs and some developing countries find it difficult to implement trade facilitation measures due to lack of technical expertise and high costs. Thus, requests have been made to the WTO to: (a) increase technical and financial assistance to implement, and (b) provide special and differential treatment for LDCs to implement them, as these countries need more time to do the necessary changes. Although WTO is not a funding agency, these concerns seem to have been accommodated in the WTO Bali package where WTO will facilitate the individual countries to mobilize funds for implementing such measures. It is reported that the IMF, the World Bank and the regional development banks like the ADB have already announced that they would cooperate with the WTO to ensure that developing countries would receive assistance to meet the new trade facilitation commitments. The next issue is agriculture, where two key issues are on the Table. It is a known fact that many developing countries provide food subsidies by procuring grains at minimum support price from producers and selling them at a subsidized price to consumers through a public distribution system. Under the WTO Agreement on Agriculture (AOA), such support cannot exceed 10 per cent of the value of agricultural goods. This has become a problem for some developing countries like India where under the new Food Security Act, the country has asserted its right to subsidize grain stockpiling to help low income farmers and poor consumers. Thus, an attempt has been made to work out a peace clause that will prevent any WTO member from seeking penalties against countries for breaching the permissible limits (a temporary waiver from being challenged under the Agreement). It is reported that US is showing
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some flexibility on agriculture subsidies and stockpiling but the final outcome is far from clear. Indian Trade Minister, Anand Sharma was quite emphatic when he said: As far as what we give to our poor people, that is our right, that is insulated in its entirety from any multilateral negotiations or WTO discussions. That is the sovereign space, and for India it is sacrosanct and non-negotiable. The proposal which is pushed by India has the full backing of the G-33 countries. Another issue that will be addressed under agriculture is on imposing restrictions for food exports. There is evidence to show that the food price escalation during 2006-2008 was exacerbated by food export restrictions imposed by some countries. In order to prevent such occurrences in the future, the WTO Bali Ministerial plans to work out a multilateral agreement on such restrictions. The third issue is extending duty-free quota-free (DFQF) status to LDCs. This offer was first made at the 5th WTO Ministerial in Hong Kong in the year 2005. The status was offered to 97 per cent of tariff lines which enabled developed countries to restrict key exports from LDCs such as ready-made garments, manufactured products, and agricultural items from the DFQF scheme thus preventing them from taking full advantage of duty free market access. There is a request to extend this scheme to all tariff lines because whatever existing duty free market access schemes there are for LDCs, have problems. Two examples may be highlighted the Everything-But-Arms (EBA) scheme for the EU has strict rules of origin that prevent full exploitation of the scheme for market access and the African Growth Opportunities Act (AGOA) for US market access is confined to Africa and also has rules of origin. It is due to these problems of the existing schemes that the LDCs are making a clear case for more market access for their popular exports. These three issues are under one package and if there is no agreement in one of the items, the entire package will fail to go through at the Bali Ministerial. In other words, it is a single undertaking for the three items which is a departure from the usual practice of the WTO going for a single undertaking for the entire DDA. According to Chakravarthi Raghavan of the TWN, the single undertaking of the WTO was allowed to lapse in previous occasions by Pascal Lamy to fulfil political imperatives. The Director General of the WTO is empowered to do so but the exercising of this flexibility is subject to debate. Be that as it may, the departure from
single undertaking to all DDA items and confining it to selected issues needs to be welcome. If a breakthrough is worked out in Bali, it could lay the foundation to completely break the single undertaking policy of the WTO and confine it to selected items. It will allow the finalization of other parts of the DDA in a similar manner and expedite the much needed completion of the DDA. Challenges Whether or not a deal is made in Bali, the WTO has many challenges in the coming years. Three areas may be highlighted, viz., trade in services, exchange rate management, and the need to recognize the key countries of the developing world. Trade in services under GATS is a key agenda item of the WTO. There are now increasing signs of liberalization in services trade taking place under plulrilateral arrangements among a selected group of countries. For instance, a new group of Really Good Friends of Services (RFGS) promotes Trade in Services Agreement (TISA) as a separate plurilateral agreement. This is occurring outside the WTO framework and making WTO less relevant for services liberalization. This fallout needs to be addressed as progress in services under the WTO is a key factor for many stakeholders, especially, developing countries. Secondly, the exchange rate management may also make inroads to the WTO agenda as some developing countries are becoming concerned about the excessively under-valued Chinese Yen (pegged to the US dollar). These countries argue that there is undue pressure on their domestic industries from Chinese imports and as a result, they find it difficult to reduce tariffs as agreed with the WTO multilateral liberalization framework. Brazil, in particular, is pushing this issue in the WTO taking into account a cue from US Congress including currency management provision under the Trans Pacific Partnership negotiations. As the IMF still remains the key international agency which overlooks exchange rate management in member countries, this area will be an unchartered territory for the WTO and will remain a challenge. Thirdly, the WTO future decisions can no longer become a fait accompli as the Uruguay Round in 1994 as developing countries are becoming more assertive in international fora, in particular, China, India, South Africa and Brazil. They are no longer lite forces and their voice needs to be heard and accommodated in setting the global trade agenda. The US becoming flexible on Indias concerns on agriculture
If a breakthrough is worked out in Bali, it could lay the foundation to completely break the single undertaking policy of the WTO and confine it to selected items. It will allow the finalization of other parts of the DDA in a similar manner and expedite the much needed completion of the DDA.
food subsidies and stock keeping is also a positive sign in this context. Moreover, the presence of a Brazilian Director General may ensure that the voice of the developing world will be heard loud and clearly. Prospects Failure to take these challenges by the WTO and member countries will make it difficult to complete the DDA. A stasis after Bali meeting will lead to consolidate alternative international rules on trade and investment such as what has already taken place under the Trans Pacific Partnership and Trans-Atlantic Trade and Investment Partnership. Such deals among rich countries will sideline poor nations and once again make might the right. Thus preserving the WTO is all the more important for developing countries than for developed countries. According to Pascal Lamy, successful completion of the Doha Round will add US$ 130 billion to global trade. The main beneficiaries will be the developing countries and Bali provides an excellent opportunity to find a way forward.
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Migration
A Journey to Die For?

By Chandana Karunaratne
Sri Lankans and Irregular Migration:
Special Feature Article Marking International Migrants Day, 18th December
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On the 3rd of December, 2013, the Australian government announced new policy that aimed to further discourage the arrival of irregular migrants in Australia. Immigration Minister Scott Morrison announced that, effective immediately, the government has put a cap on permanent protection visas for asylum seekers arriving by boat. This means that those asylum seekers who are already in Australia will be left in a state of limbo with no prospects of obtaining work permission until the cap is reset in mid-2014. Critics have labeled the move brutal, but the Tony Abbott-led government insists that this is a necessary move to combat the activities of people smugglers and discourage the dangerous sea voyage that many, including Sri Lankans, have unfortunately attempted.
Current Situation During the period 2011-2012, there were 825 recorded cases of Sri Lankan nationals attempting irregular maritime arrivals (IMA) in Australia. This constituted approximately 11% of all IMAs in the country during that period. As IMAs from Sri Lanka clearly constitute a significant portion of the total, the Australian Customs and Border Protection Service has begun issuing Sinhalese and Tamil notices in the form of radio and TV advertisements and flyers in Sri Lanka that discourage the dangerous maritime journey, featuring case studies and information on the consequences of attempting the voyage. Australia is among a handful of countries that draw irregular Sri Lankan
Image courtesy www.significancemagazine.com
lar migrants in the EU, which constitute between 7 and 13 per cent of the overall migrant population. Canada is another popular destination for irregular Sri Lankan migrants, particularly for those traveling by boat. The extensive coastline enables people smugglers to target several points of entry, but a primary hotspot for irregular maritime arrivals is off Vancouver Island on the western coast. In one welldocumented incident that occurred in October 2009, Vancouver Island played host to 76 irregular maritime arrivals of Sri Lankan nationals. In another incident, one which helped change Canadas refugee policy, 492 Sri Lankan nationals arrived off the coast of Victoria, British Columbia in August 2010. However, the total number of IMAs could be much higher, as official sources in Canada indicate there were 635 recorded cases of Sri Lankan nationals seeking asylum in 2011. The United Nations Office on Drugs and Crime estimates that the predominant nationality of maritime arrivals on the western coast of Canada, after having crossed the North Pacific Ocean from South East Asia, is Sri Lankan. A common practice is for these IMAs to use Bangkok, Thailand as a transit point, oftentimes temporarily residing in safe houses until they make their journey to the southern part of the country where they board fishing vessels ready to take them across the Pacific Ocean. Dangers of Irregular Migration In many cases, migrants who make the payment prior to being smuggled by sea have done so by selling property and other assets, or borrowing extensively from family members and friends. These lenders may have given up a substantial portion of their savings to finance the migrants journey. By doing so, communities may lose valuable financial assets and economic empowerment to a cause which may ultimately not be successful, given that the migrants journey is fraught with danger and a high degree of risk. Even if the migrant is successful in reaching his destination, he still faces the difficult task of finding work and a sufficient source of income. Given the fact that the fee that many migrants have to pay to be smuggled is several times their annual income in Sri Lanka, it is clear that there is an enormous amount of pressure on the migrant to find work and earnings that are sufficient enough to cover any debt they may have incurred. However, a lack of employment opportunities in the host country and
migrants to their shores. In the European Union, the most popular destinations for undocumented Sri Lankan nationals seeking residency and/or work opportunities through irregular means were the UK, France, and the Netherlands, as of 2010. The most number of cases of undocumented Sri Lankan nationals who have been ordered to leave was recorded in the UK, and out of the 1,685 undocumented nationals, only 46 per cent departed the UK of their own free will. Likewise, in France, a total of 1,080 undocumented nationals were ordered to leave, out of which a mere 10 per cent departed of their own free will. Taking into account all nationalities, it is estimated that there are between 1.9 and 3.8 million irregu-
desperation to pay back these debts may force migrants to undertake illegal activities, further implicating them in a life of crime and risking serious consequences if caught by law enforcement authorities. Those who do manage to make these payments are usually transported to safe houses that act as pre-departure points that temporarily house these migrants. But these safe houses are rarely safe. In many cases, migrants waiting to travel by boat are crowded into squalid premises and are forced to wait up to several months before making their sea voyage. They may be confined to these premises by armed guards in order to maintain secrecy and order, and may be mistreated and suffer from physical and emotional abuse as well. In some cases, migrants are forced to work for their smugglers before continuing their journey in order to repay them for the food and lodging provided in these safe houses. This work could entail recruiting other migrants but could also involve smuggling drugs across oceans and through borders, jeopardizing their safety and implicating them in particularly serious criminal offenses. After the transit period in these safe houses, the migrants are transported to sea vessels. Oftentimes these vessels are overcrowded and are lacking in basic sanitary requirements. Some of those who do survive the sea voyage have reported a severe lack of hygiene and the presence of faeces, urine, and vomit during the journey, potentially leading to the spread of disease. There may also be scarce supplies of food and water; in May 2011, severe dehydration and starvation led to 61 deaths on board a vessel in the Mediterranean Sea. Life vests may not be provided, and in many cases are an additional expense; for poorer migrants these may be a luxury item they cannot afford. Overcrowded and rough sea conditions can lead to migrants falling overboard, and without any safety equipment, often perish at sea. Physical and sexual assault are not uncommon on these journeys. In particular, women may be subjected to systematic rape and abuse, and in some cases may be forced to carry out sexual favours for their smugglers in order to complete their journey. The treatment of migrants by their smugglers can reach levels of criminal assault, but their irregular status means they are often reluctant to report these crimes to law enforcement authorities. The cause of death of migrants en route to their final destination are often unknown, as bodies may be lost at sea.
However, some estimates indicate that over 2,000 irregular migrants perish at sea every year. In October 2013, over 350 bodies were recovered after a boat carrying asylum seekers caught fire and capsized off the coast of Lampedusa in Italy. In another well-documented case, approximately 350 individuals died when an unseaworthy vessel sank off the coast of Indonesia on its way to Australia in 2001. A further 50 lives were lost when a ship crashed into rocks off Christmas Island in Australia in 2010. In fact, between October 2009 and June 2012, 605 irregular migrants died at sea while attempting the perilous journey to Australia. A report carried out by the Australian Crime Commission and published in 2013 states that Sri Lanka is among the top four source countries of asylum seekers arriving by boat. As border protection measures are strengthened, as is the case in Australia and Canada, smugglers are undertaking increasingly risky methods of transporting migrants, thereby endangering their lives. As border control measures become more stringent and the dangers of sea voyages become more apparent, there is a need to question what policy measures can be put in place to deter individuals from undertaking irregular maritime migration, including mechanisms implemented by both source countries and destination countries. Methods of Curbing Irregular Migration Among the most pressing concerns related to curbing irregular migration is addressing the root causes of such ac-
tivities. Lack of socio-economic development and widespread poverty in certain parts of the country are key push factors that force individuals to undertake the dangerous maritime journeys to other countries. As of now, there are very few mechanisms the government of Sri Lanka (GoSL) has put in place that aim to deter its countrys nationals from attempting these life-threatening voyages. Potential migrants may be ill-informed about the dangers of people smugglers and the risks associated with traveling in their company. Awareness campaigns about these potential dangers with case studies placed in newspapers, local television channels, and radio stations could benefit potential migrants in allowing them to make more informed decisions prior to attempting these journeys. The GoSL could also enlist the cooperation of local community leaders to inform their followers about the dangers involved, particularly leaders of religious and ethnic communities in areas that have high rates of irregular migrant departures, thereby tapping into key information channels through which potential migrants may be influenced. Apart from these mechanisms related to raising awareness, there is limited evidence of other effective means of discouraging migrants from first attempting the journey. However, there are methods that can be implemented to deter repeat offences of irregular migration, with destination countries playing a potentially important role. For example, these countries can introduce reintegration programmes for migrants upon returning to their home country. Such
programmes aim to deter individuals from making repeated attempts by helping provide them with a livelihood and a sustainable source of income upon their return. One such programme is provided by the Australian government, with the collaboration of the International Organization for Migration (IOM), and involves a six-month reintegration programme that aims to provide returned irregular migrants with the means to develop their skill sets and obtain employment locally. The programme involves creating a personal profile with a potential skill set for each individual and subsequently matching their profile with specific occupational areas. Funding is then provided to develop these skill sets through the purchase of physical capital, such as tractors, livestock, or three-wheelers, or through support for vocational training programmes so that migrants may acquire new skills. Doing so could help ensure that these individuals have a sustainable income stream and are not forced to resort to repeated incidences of illegal migration. Other destination countries can adopt similar approaches, thereby easing pressure off the source country to curb irregular migration on its own. As the dangers of these journeys are becoming increasingly apparent, it is imperative that both source countries and destination countries engage in cooperative measures to help discourage these high-risk and potentially life-threatening activities. Doing so will not only help ensure the safety of these migrants, but could also provide them with a renewed sense of socio-economic empowerment.
References: Immigration Minister Scott Morrison Freezes Visas for Refugees, 2013, The Telegraph News, available [http://www.dailytelegraph.com.au/news/nsw/ immigration-minister-scott-morrison-freezes-visasfor-refugees/story-fni0cx12-1226774624590]. Rogers, Simon, 2013, Australia and Asylum Seekers: The Key Facts You Need to Know, The Guardian, available [http://www.theguardian.com/news/datablog/2013/jul/02/australia-asylum-seekers]. Australian Customs and Border Protection Service YouTube Channel, accessed December 2013, available [http://www.youtube.com/auscustomsnews]. Australian Customs and Border Protection Service, 2013, Operation Sovereign Borders Communication Material, available [http://www.customs.gov.au/site/ offshore-communication-campaign-people-smuggling. asp]. Karunaratne, Chandana and Ashani Abayasekara, 2012, Managed Migration: Review of Readmission Agreements and a Case Study of Sri Lanka, Institute of Policy Studies of Sri Lanka. ibid. United Nations Office on Drugs and Crime, 2011, Smuggling of Migrants by Sea, Issue Paper. DeRosa, Katie, 2012, Special Report: An Investigation of Canadas Refugee Policy, Times Colonist, available [http://www.timescolonist.com/human-smuggling/ special-report-an-investigation-of-canada-s-refugeepolicy-1.7689]. ibid. OECD, 2013, International Migration Database. United Nations Office on Drugs and Crime, 2011, Smuggling of Migrants by Sea, Issue Paper. ibid. United Nations Office on Drugs and Crime, 2011, Smuggling of Migrants by Sea, Issue Paper. ibid. ibid. ibid. Siegfried, Kristy, 2013, Migrant Deaths in Mediterranean Spark Debate, But Little Action, IRIN, available [http://www.irinnews.org/report/98963/ migrant-deaths-in-mediterranean-spark-debate-butlittle-action]. The Guardian, 2013, Asylum-Seeker Deaths at Sea Total Nearly 1,000 in Just Over a Decade, available [http://www.theguardian.com/world/2013/jul/30/ asylum-seeker-boat-deaths-decade]. ibid. Karunaratne, Chandana and Ashani Abayasekara, 2012, Managed Migration: Review of Readmission Agreements and a Case Study of Sri Lanka, Institute of Policy Studies of Sri Lanka. ibid.
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Large Volume of IPS Research Made Available for Free Download
IPS Auditorium
Ideal Venue for Your Next Event!

The IPS auditorium, located in the green surroundings of Independence Avenue, offers a state-of-the-art venue for conferences, seminars, workshops and training sessions and we are pleased to announce that it is now available for outside bookings. The unique design of the auditorium enables seating for up to 100 people while still providing a sense of closeness to audience members seated even in the furthest rows. Every seat is equipped with a writing slate for note-taking or typing on a laptop, and an in-built microphone for easy audience interaction with those at the head table.The sound system, multimedia projection and lighting can be customized to suit different requirements. The whole auditorium is covered by the IPS wireless internet network, and access can be easily provided. Facilities are also available for simultaneous translation in three languages. Meanwhile, the adjoining Executive Lounge offers an ideal location for serving mid-morning or afternoon tea, or a lunch buffet for participants of an event. With plenty of natural lighting, the Lounge provides a vibrant venue for evening refreshments or a drinks reception, at the conclusion of a conference or seminar. With ample parking and convenient location, the IPS auditorium is the perfect venue for your next event. For inquiries and reservations, contact Jayani on jayani@ips.lk or 0112143100.
In the effort to inform and influence public policy debates on socio-economic development in Sri Lanka, the Institute of Policy Studies of Sri Lanka (IPS), the countrys apex economic policy research think tank, has now enabled free access to a large volume of IPS research and analysis. IPS has released online the Policy Briefs of 5 years of its annual flagship publication - Sri Lanka: State of the Economy (SOE). Close to 40 Policy Briefs covering socio-economic analysis, policy discussion and insightful commentary are now available for free download and sharing, which were earlier available only in print version, for sale at the IPS and leading bookstores. The primary objective of the IPS is to inform and shape the policy debates in Sri Lanka with high-quality independent research. With this latest effort to make IPS research more freely available to the wider public, we believe that anyone, anywhere can easily access our work. We hope it will stimulate new discussions and also bring forward new partnerships and research collaborations, announced Dr. Saman Kelegama, the Executive Director of the IPS. Opened up to a greater audience, this collection of independent analysis would be invaluable resource material for economists, researchers, public and private sector officials, students interested in socio-economic issues, country analysts, foreign and domestic investment advisory firms, foreign diplomatic missions, local and international development agencies, and development practitioners. The freely available Policy Briefs cover a wide array of policy issues and challenges in the country including inclusive economic growth, infrastructure development, emerging challenges in the health sector, migration and development, food and agricultural challenges, enterprise development, environment and climate change, and sustainable tourism. Marking this release, Anushka Wijesinha, Research Economist at IPS observed that, This research content spanning five years, looks into the socioeconomic policy challenges in the years before, and immediately after, the end of the war. So it provides an interesting and informative historical backdrop against which the current scenario on each of these key policy areas can be explored and debated. But this is just the first step. We are working to make more and more of our research available freely online. Readers can easily read online or download the e-version of these publications by following this link - http://www. scribd.com/IPS_SriLanka
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IPS
Regional Consultation on the Sri Lanka National Human Development Report Bridging Regional Disparities for Human Development Launch of the Asia Pacific Trade and Investment Report (APTIR) 2013 The Conference & Launch of the Asia Pacific Trade and Investment Report (APTIR) for 2013 themed, Turning the Tide: Towards Inclusive Trade and Investment was held at the IPS Auditorium on November 26, 2013. The conference was organized by IPS together with the AsiaPacific Research and Training Network on Trade (ARTNeT). Hon. Dr. Sarath Amunugama, Senior Minister for International Monetary Cooperation and Deputy Finance and Planning was the Chief Guest at the event. South Asia Policy Dialogue on Regional Cooperation for Strengthening National Food Security Strategies Dr Nisha Arunatilake, Research Fellow, IPS, presented the findings of the Sri Lanka National Human Development Report 2012, which was compiled by a team of IPS researchers at the Regional Consultation on the Sri Lanka National Human Development Report Bridging Regional Disparities for Human Development. The event took place on 3rd December, 2013 at the District Secretary/ Government Agents Auditorium, Batticaloa, amidst elected and Government Officials from across the Eastern Province, together with NGO partners and UN representatives. Workshop on Frontiers in Development Policy: Innovative Development Case Studies Executive Director, Dr. Saman Kelegama, was a member of the High Level Panel on Regional Cooperation for Food Security in South Asia and made a presentation on National Food Security Strategies and Pathways to Increased Regional Cooperation at the South Asia Policy Dialogue on Regional Cooperation for Strengthening National Food Security Strategies, organized by the ESCAP Sub Regional Office, South & South West Asia, New Delhi, India, during 13- 14 August, 2013. The Dialogue was convened as part of the United Nations Development Account project entitled Strengthening Regional Knowledge Networks to Promote the Effective Implementation of the United Nations Development Agenda and to Assess Progress, which ESCAP is implementing in Asia and the Pacific. Commonwealth Business Forum 2013 The Commonwealth Business Forum (CBF) commenced on 12th November 2013 at Cinnamon Grand, Colombo in conjunction with the Commonwealth Heads of Government Meeting (CHOGM). Dr. Saman Kelegama, Executive Director, IPS, Chaired a session on Sri Lanka:Trading Hub for the Indian Ocean and SAARC.The Forum was the premier business event in the Commonwealth bringing together Heads of Government, Ministers, and top business leaders from around the world and was attended by over a thousand delegates.
Dr. Gamani Corea, Former Chairman of the IPS Dr. Gamani Corea, former Chairman of the IPS (1989 2006) passed away on 2nd November, 2013. Dr. Corea was the founder Chairman of the Institute and played a key role in steering the IPS in its formative years. He strongly believed in intellectual dialogue and wanted IPS to keep promoting the economic policy dialogue among the professionals and other stakeholders to bring about necessary policy changes in the Sri Lankan economy. IPS Research Economist Anushka Wijesinha participated in a workshop in the above workshop organized by the World Bank Institute and KDI School of Public Policy and Management, held at the Shilla Hotel, Seoul, 21-22 November 2013. The workshop brought together academics, public officials and practitioners from around the world to discuss innovative case studies in economic development and how they can be used to formulate better strategies in individual country contexts. Anushka was part of the group that discussed Promoting Industrial Competitiveness and Innovation. IPS 2nd Retreat - Growing Together The 4th Biennial International Conference on Evaluation for Change IPS Research Economist Chatura Rodrigo made a presentation on Evaluation of Public Interest at the 4th Biennial International Conference on Evaluation for Change, Mt Lavinia Hotel, during 24 27th July, 2013. The Conference was organized by the Sri Lanka Evaluation Association (SLEvA) in collaboration with the Drpt. of Project Management and Monitoring of the Ministry of Finance and Planning in partnership with the UNICEF.
IPS 2nd Retreat, a full day interactive programme with activities/games focusing on the importance of team work and personal leadership to achieve our Vision, Mission and Strategic Objectives for the next five years, took place on Friday, 20th December at Hotel Club Dolphin. The programme was attended by all IPS staff.
13th Council of Ministers Meeting of the Indian Ocean Rim Association in Perth, Australia Dr. Saman Kelegama, Executive Director of the IPS represented Sri Lanka as the spokesman for the Indian Ocean Region Academic Group (IORAG), at the 13th Council of Ministers Meeting held in Perth, Australia during 29th October to 1st November 2013. The Sri Lankan delegation was headed by the Minister of External Affairs, Hon. G.L. Pieris and consisted of: High Commissioner of Australia, Tissara Samarasinghe; Economic Affairs Division of the Ministry of External Affairs, Deputy Director, Gihan Indragupta; and the Executive Director of the IPS. Sri Lanka Economic Summit 2013 Several members of the IPS research staff participated at the Sri Lanka Economic Summit 2013, which took place at the Cinnamon Grand Hotel during 09 11 July. The theme of this years summit was Re-balancing the Economy. Dr. Saman Kelegama, Executive Director, IPS, made a presentation in the Session Export Strategy: Time to re-think and re-focus. His presentation was on Trade Agreements as a Tool to Access Markets.Dr Nisha Arunatilake - Research Fellow, IPS, made a presentation on Meeting the Human Resource Challenges in the session on Meeting the Challenges of Demographic Changes and Skills Gap.A number of IPS research staff members participated in various sessions of the Summit. Symposium on Coping with Climate Change: Sharing Experiences and Challenges from Rural Sri Lanka
Special Lecture at KDI School of Public Policy and Management, South Korea IPS Research Economist Anushka Wijesinha delivered a Special Lecture on Postwar Growth and Tackling the Middle-income Transition: New Miracle in the Indian Ocean? at the KDI School of Public Policy and Management, Seoul, South Korea, on 14th Nov 2013. He made the presentation to coincide with the CHOGM 2013.
National Workshop on Reform and Development of Public Enterprises The National Workshop on Reform and Development of Public Enterprises was held at the Grand Monarch, Talawatugoda during 21-22 October 2013. Chairman, IPS, Prof. W.D. Lakshman and Executive Director, IPS, Dr. Saman Kelegama, chaired two sessions.Prof. W.D. Lakshman Chaired the Group Presentation and Panel Discussion and Dr. Saman Kelegama Chaired the Session on Motivation of Employees of State-Owned Business Enterprises for Productivity Improvement.
IPS Research Economist Chatura Rodrigo presented a paper on Fighting Climate Change through Community Based Adaptation (CBA): Assessment of the Factors that Determine the Peoples Willingness to Take Part in CBA in Agriculture Sector at the symposium on Coping with Climate Change: Sharing Experiences and Challenges from Rural Sri Lanka organized by the Global Environmental Facilitys Small Grants Programme (GEF/SGP) of UNDP on July 16 and 17 at the Sri Lanka Foundation Institute. Hon. Mahinda Amaraweera, Minister for Disaster Management was the Chief Guest at the event.
Regional Consultation on Road to Bali: South Asian Priorities for the ninth WTO Ministerial and Regional Training of Economic Journalists
IPS Annual National Conference 2013 The IPS Annual National Conference on the theme Sri Lankas Transition to a Middle Income Economy, took place at the IPS Auditorium on 15th October 2013.At the National Conference, IPS released its flagship report: Sri Lanka State of the Economy 2013. The Theme for this year is Sri Lankas Transition to a Middle Income Economy.Hon. D.E.W. Gunasekera, Senior Minister for Human Resources was the Chief Guest at the occasion. Dr. Kelegama, delivering the opening remarks stated that this report argues that rising socio-economic prosperities in Sri Lanka, if fostered skillfully and inclusively, with progressive public policy can spur economic dynamism, innovation and social progress and place the country on firmer grounds as it makes a decisive transition into the middle income economy and beyond.
The coastal town of Marawila played host to a congregation of the regions brightest and most prominent economists and trade experts from 2nd to 3rd July. Road to Bali conference is an effort to provide an expert voice that will contribute to a common regional position, in time for the 9th Ministerial Conference of the WTO MC9. A variety of stakeholders, including think tanks, private sector, public sector, and the media came together with the aim of creating an input document of recommendations that would serve this purpose.This consultation was organized by IPS and South Asia Watch on Trade, Economics, and Environment (SAWTEE), and was supported by OXFAM, UNESCAP, and the Commonwealth Secretariat. Subsequent to the two day Consultation a two-day regional training programme of economic journalists from South Asian countries, jointly organized by South Asia Watch on Trade, Economics and Environment (SAWTEE), Kathmandu, and IPS, took place at the same venue.The broad theme of the training programme was Trade, Climate Change and Food Security. Sixteen journalists from Bangladesh, India, Nepal, Pakistan and Sri Lanka are participated in the training programme.
Editors
Journal Articles on the Middle Income Transition
MAKING THE TRANSITION FROM MIDDLE-INCOME TO ADVANCED ECONOMIES By Alejandro Foxley and Fernando Sossdorf Carnegie Endowment for International Peace, September 2011 Few middle-income countries have successfully transitioned into advanced economies in the past twenty years. As the world struggles with a new economic slowdown, middleincome countries should look at the lessons from the economies that successfully made the jump. The more successful countries in the bunchparticularly Finland and South Koreaset themselves apart from the rest by investing early in improving the quality of education and inducing high investment in research and development. By opening up to world trade and using tax incentives and access to subsidized credit, successful countries were able to attract foreign direct investment in hightechnology sectors. But not every newly developed economy enjoyed this level of success, notably Spain, Portugal, and Ireland. Domestic demand led to phases of high growth, but these werent accompanied by countercyclical fiscal and monetary policies and effective regulation of the financial sector.With these experiences in mind, there are four lessons that middle-income countries should learn to increase the probability that they will break through the so-called middle-income trap and successfully maintain strong economic growth rates. 1) Good macroeconomic management during crises is not enough. 2) Rigid exchange rates and labor markets make it hard to maintain competitiveness. 3) Investments in education and innovation are essential for long-term growth. 4) Political and social agreements are critical to avoid stagnation. http://carnegieendowment.org/files/making_the_transition.pdf
MIDDLE-INCOME GROWTH TRAPS By Pierre-Richard Agnor and Otaviano Canuto The World Bank, September 2012 This paper studies the existence of middle-income growth traps in a two-period overlapping generations model of economic growth with two types of labor and endogenous occupational choices. It also distinguishes between basic and advanced infrastructure, with the latter promoting design activities, and accounts for a knowledge network externality associated with product diversification. Multiple steady-state equilibria may emerge, one of them taking the form of a low-growth trap characterized by low productivity growth and a misallocation of talent - defined as a relatively low share of high-ability workers in design activities. Improved access to advanced infrastructure may help escape from that trap. The implications of other public policies, including the protection of property rights and labor market reforms, are also discussed. http://elibrary.worldbank.org/ doi/book/10.1596/18139450-6210
WHAT IS THE MIDDLE INCOME TRAP, WHY DO COUNTRIES FALL INTO IT, AND HOW CAN IT BE AVOIDED? By Homi Kharas and Harinder Kohli Emerging Markets Forum SAGE Publications, November 2011 The risks of falling into the Middle Income Trap have increasingly become a focus of discussions on the long-term economic and social development prospects of developing countries. These risks, and how to minimize them, are being debated at the highest levels of policy making in some of the fastest growing emerging economies, even while these countries remain a source of envy to the rest of the world. The term Middle Income Trap is by now also being widely used in economic literature as well as business-oriented media. We draw satisfaction from the fact that some of our previous writings (Gill and Kharas, 2008; Kohli et al. 2009) (co-authored with other colleagues) seem to have helped popularize this term.At the same time, we realize that some have interpreted and used the term quite differently from what we had in mind when we first introduced the term Middle Income Trap in our writings and presentations.This article offers our perspective as to what the Middle Income Trap is, why so many countries fall into it, and the key challenges involved in avoiding the trap. http://eme.sagepub.com/content/3/3/281
TRACKING THE MIDDLE-INCOME TRAP: WHAT IS IT, GROWTH SLOWWHO IS IN IT, AND WHY? DOWNS AND THE MIDDLE-INCOME TRAP By Jesus Felipe, Arnelyn Abdon and Utsav Kumar By Shekhar Aiyar, Romain Levy Economics Institute of Bard College, April 2012 Duval, Damien Puy,Yiqun Wu, and Longmei Zhang This paper provides a working definition of what the middle-income trap is. We start by defining four income groups of GDP per capita International Monetary Fund, in 1990 PPP dollars: low-income below $2,000; lower-middle-income March 2013 between $2,000 and $7,250; upper-middle-income between $7,250 and $11,750; and high-income above $11,750. We then classify 124 The middle-income trap is countries for which we have consistent data for 19502010. In 2010, the phenomenon of hitherto there were 40 low-income countries in the world, 38 lower-middle- rapidly growing economies income, 14 upper-middle-income, and 32 high-income countries. stagnating at middle-income Then we calculate the threshold number of years for a country to levels and failing to graduate be in the middle-income trap: a country that becomes lower-middle- into the ranks of high-income income (i.e., that reaches $2,000 per capita income) has to attain countries. This study examan average growth rate of per capita income of at least 4.7 percent ines the middle-income trap as per annum to avoid falling into the lower-middle-income trap (i.e., a special case of growth slowto reach $7,250, the upper-middle-income threshold); and a coun- downs, which are identified as try that becomes upper-middle-income (i.e., that reaches $7,250 per large sudden and sustained decapita income) has to attain an average growth rate of per capita viations from the growth path income of at least 3.5 percent per annum to avoid falling into the up- predicted by a basic conditionper-middle-income trap (i.e., to reach $11,750, the high-income level al convergence framework. It threshold). Avoiding the middle-income trap is, therefore, a question then examines their determiof how to grow fast enough so as to cross the lower-middle-income nants by means of probit resegment in at most 28 years, and the upper-middle-income segment gressions, looking into the role in at most 14 years. Finally, the paper proposes and analyzes one of institutions, demography, possible reason why some countries get stuck in the middle-income infrastructure, the macroecotrap: the role played by the changing structure of the economy (from nomic environment, etc. low-productivity activities into high-productivity activities), the types http://www. of products exported (not all products have the imf.org/exsame consequences for growth and development), ternal/pubs/ and the diversification of the economy. ft/wp/2013/ http://www.levyinstitute.org/pubs/wp_715.pdf wp1371.pdf
THE NEW DIGITAL AGE Reshaping the Future of People, Nations and Business Eric Schmidt and Jared Cohen In an unparalleled collaboration, two leading global thinkers in technology and foreign affairs give us their widely anticipated, transformational vision of the future: a world where everyone is connecteda world full of challenges and benefits that are ours to meet and to harness. Eric Schmidt is one of Silicon Valleys great leaders, having taken Google from a small startup to one of the worlds most influential companies. Jared Cohen is the director of Google Ideas and a former adviser to secretaries of state Condoleezza Rice and Hillary Clinton. With their combined knowledge and experiences, the authors are uniquely positioned to take on some of the toughest questions about our future: Who will be more powerful in the future, the citizen or the state? Will technology make terrorism easier or harder to carry out? What is the relationship between privacy and security, and how much will we have to give up to be part of the new digital age? Schmidt and Cohen combine observation and insight to outline the promise and peril awaiting us in the coming decades. In a glowing review of the book, Sir Richard Branson, founder and chairman of the Virgin Group remarked, At last, a brilliant guide book for the next centurywhat the future holds for entrepreneurs, revolutionaries, politicians, and ordinary citizens alike. [] This book is the most insightful exploration of our future world Ive ever read...
Editors
Books
Latest Publication
State of the Sri Lankan Alcohol Industry and Analysis of Governing Policies by G.D. Dayaratne Research Studies:Working Paper Series. No. 19| December 2013 Despite the many perils of alcohol consumption on human health and on society as a whole, imbibing has become a significant activity for many of the ordinary citizens in Sri Lanka, and also seen as one of the most profitable industries in the country. As a result, the production and consumption of alcohol in Sri Lanka has reached a new height becoming a valuable contributor to the economy, in spite of certain alcohol restraining policies introduced by the government. However, misconceptions on the legal alcohol trade, politicization of the alcohol industry as well as matters related to the illicit alcohol industry remain issues of concern. In light of this situation, this Working Paper looks into the importance of formulating a balanced policy option for decision makers to develop a rational policy framework on alcohol production, sales and consumption in Sri Lanka. For details on how to obtain a copy, contact our Publications Officer Amesh Tennakoon on amesh@ips.lk or 0112143100.
THE GREAT CONVERGENCE Asia, the West, and the Logic of One World Kishore Mahbubani The twenty-first century has seen a rise in the global middle class that brings an unprecedented convergence of interests and perceptions, cultures and values. According to Mahbubani, eighty-eight percent of the worlds population outside the West is rising to Western living standards, and sharing Western aspirations. Yet he also warns that a new global order needs new policies and attitudes. He argues that policymakers all over the world must change their preconceptions and accept that we live in one world; that national interests must be balanced with global interests; that the U.S. and Europe must cede some power; and that China and India, Africa and the Islamic world must be integrated. Mahbubani urges that only through these actions can we create a world that converges benignly. This timely book explains how to move forward and confront many pressing global challenges. Reviewing the book, Raghuram Rajan, the current Governor of the Reserve Bank of India, observed that, Few today know Asia as well as Kishore Mahbubani, and even fewer combine it with a deep understanding of the Wests strengths and frailties. [] Mahbubani offers a balanced but profoundly disturbing analysis of the political challenges that face our modern, increasingly interdependent, world
July - Dec 2013
TE DIGEST
43
6th South Asia Economic Summit

In September last year, Sri Lanka hosted the 6th South Asia Economic Summit (SAES), organised by the IPS, and brought together over 120 leading socioeconomic experts and influential policy advisors of the region and beyond. The Summit, organised by the IPS, was held over 3 days, at the Cinnamon Grand Hotel in Colombo. The SAES, inaugurated in 2008 in Colombo, is a premier platform to debate and discuss the socioeconomic challenges faced by South Asia, currently one of the fastest growing regions in the world. Under the theme Towards a Stronger, Dynamic and Inclusive South Asia, the Summit debated and discussed the pressing concerns to sustainable and inclusive growth in the region in 4 plenary sessions, 12 parallel sessions, and 4 special events, over the course of the three days. The Summit was graced by many dignitaries, including the Hon. Ahsan Iqbal Chowdhury, Federal Minister for Planning and Development of the Government of Pakistan, Ahmed Saleem, Secretary General of SAARC, Dr. Gowher Rizvi, International Affairs Advisor to the Prime Minister of Bangladesh, Sham Bathija, Minister/Senior Advisor of Economic Affairs to the President of Afghanistan, Dr. Martin Rama,World Banks Chief Economist for South Asia, and Hon. G.L. Peiris, External Affairs Minister of the Government of Sri Lanka. The refreshing format of the summit's sessions, the extensive use of social media for wide online engagement and the participation of South Asian youth delegates were some of the unique features of the 6th SAES. For comprehensive content surrounding the summit, visit http://southasiaeconomicsummit.wordpress.com
79 1.2mn
Sri Lanka, with 40 points was placed 79th out of 176 countries in the annual Global Corruption Perception Index (CPI) released by Transparency International in late 2013. Among the South Asian countries, Sri Lanka ranks second above India, Nepal, Pakistan and Bangladesh. Only Bhutan has fared better than Sri Lanka. In the Asia Pacific region Sri Lanka is ranked number 11.
FAST FACTS
FROM JULY TO DECEMBER 2013
About 5,000 vehicles travel daily on the new Southern Expressway on weekdays bringing in revenues of Rs.1.5mn a day and up to 10,000 vehicles travel on weekends. The expressway cost Rs.70 billion to build, and was years behind schedule and heavily over budget.
749,016
2015
11.4%
Following a Budget 2014 proposal by the President indicating that the Sri Lankan financial system requires consolidation, the Central Bank set a 2015 deadline by which several non-bank lenders as well as banks would have to merge and consolidate. Tax breaks and matching funds for liquidity support would be offered by the state in this consolidation exercise. According to the latest data about 11.4% of households in Sri Lanka have internet access at home, with 9.2% accessing through other means with communications centres were playing a key role. The least internet access at home was seen in Mullativu at 2.8% and the highest in the Colombo district at 26.9%. However, critics argue that these numbers do not capture the rising trend of accessing internet via mobile devices.
The 1919 Government Information Hotline (GIC) service received 1.6 million calls in 2013, according to the state ICT Agency, with close to half of these - 749,016 coming from the Western Province. Calls from the Northern and Eastern Provinces were less than 80,000 despite the service being trilingual.
Rs. 47 bn
The Colombo-Katunayake Expressway which was opened on the 27th of October 2013 had a construction cost of Rs.1.8 billion per kilometer totaling to Rs.47 billion. The project was financed with borrowings from China.
$ 74 mn
Tetra Tech Inc, a US based firm, said it had won a US$ 74 million contract from Sri Lanka to build a water supply and treatment plant. Tetra Tech will design and oversee the completion of a new water supply treatment plant, storage tanks, pumping stations, a dam and impoundment reservoir and transmission and distribution pipelines for the city of Badulla and surrounding areas.
$290mn
A Silicon Valley jury ruled that Samsung must pay $290m (180m) to Apple for copying iPhone and iPad features in its devices. This verdict comes after a previous jury found Samsung owed Apple US$1.05bn for patent infringement. Samsung was found to have infringed Apple patents, including one that allows users to pinch and zoom on smartphone and tablet screens.
According to the Economist Intelligence U n i t s ( E I U ) 2013 Quality of Life Index, Switzerland was ranked No. 1 and the best place in the world to be born. It is based on a survey which takes 11 statistically significant factors into account, e.g. how happy people say they are, crime levels, trust in public institutions, climate, employment, gender equality, quality of family life and material well-being.
52.2 MW
L a n k a Ventures Plc, a unit of Sri Lankas DFCC Bank group, said it had invested US$ 2.0 million in a 52.2 MegaWatt heavy fuel power plant in Bangladesh. It has received concessions including a 15 year tax holiday. Lanka Ventures has other investments in hydro and wind power in Sri Lanka.
T h e governm e n t r e issued notices on tax concessions to three casino resorts with no mention of gaming being made, after initial investment approvals were withdrawn under fire. The state has issued gazette notices for Lake Leisure Holdings by Australian gaming tycoon James Packer and local entrepreneur Ravi Wijeratne, Queensbury Leisure by Sri Lankan businessman Dhammika Perera, and Waterfront Properties by John Keells Holdings. Total investment by all three was estimated to top Rs 1.3 billion.
55%
As Colombo played host to the Commonwealth Heads of Government Meeting (CHOGM) in November 2013, city hoteliers reported that room occupancy was far below expectations and the highest was around 55%. President of the City Hotels Association indicated that at the peak, from November 15th to 16th, the average occupancy rate was 55%. The average occupancy during 10th to 13th was at 30% and during 13th to 14th it was around 40%. This was far below our expectations.According to him, the original expectation was that a minimum of 4,000 city hotel rooms will be occupied but only 2000 to 2100 rooms were occupied during the event.
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Talking Economics Digest - Jul-Dec 2013

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Talk ng Econom cs Digest

July to December 2013

Managing the Middle

Research. Inform. Impact.

A Publication by the Institute of Policy Studies of Sri Lanka

P26 Reforming a post-war economy in four years?

P39 IPS Auditorium Ideal Venue for Your Next Event!

P7 Europe at the crossroads: Pulling back money, putting off reforms

P45 Fast Facts

100 TE DIGEST JulyImpact. - Dec 2013 Research. Inform.

TALKING ECONOMICS www.ips.lk/talkingeconomics

Anushka Wijesinha Editor Talking Economics (Research Economist, IPS) anushka@ips.lk

July - Dec 2013

Posted in January 2014

is the Sri Lankan Global Middle Class?

July - Dec 2013

Table 1: Distribution of Population Across Different Income Classes

Europe at the Crossroads:

Money,Putting Off Reforms

Posted in July 2013

July - Dec 2013

July - Dec 2013

Can People in Sri Lankas Estate Sector Break Away from

Poor Health and Poverty?

Posted in August 2013

Figure 3: Socio-economic Status of houseolds

Low Weight Births

Source: Authors calculations using DHS 2006/07 data

July - Dec 2013

Figure 5: Estate Sector Alcohol Users and Smokers Alcohol Cigarette

0% 10 20 30 40 Estate Rural Urban

July - Dec 2013

SPECIAL FEATURE ARTICLE MARKING INTERNATIONAL YOUTH DAY (12TH AUGUST)

Shaping Up The Future:

Can Sri Lanka Set an Example in

Achieving MDGs for Youth?

Posted in August 2013

July - Dec 2013

Posted in September 2013

July - Dec 2013

Is Sri Lanka Paying Enough Attention?

Tourism and Water Management:

16 TE DIGEST July - Dec 2013

Posted in September 2013

Image phelle 2007 | sxc.hu.

July - Dec 2013

PANDA-HUGGERS VS. DRAGON-SLAYERS:

Debating the China Growth Slowdown

Posted in October 2013

Posted in October 2013

Sri Lankas Middle-Income Transition:

Posted in October 2013

Optics to the Mechanics

Thinking Beyond the

Image Anushka Wijesinha (2013)

Table 1: Country Income Classifications

Source: www.adb.org and www.worldbank.org

REFORMING A POST-WAR ECONOMY IN

Posted in November 2013

Figure 2: Georgian Tax Revenue as a % of GDP 30

0% 1999 2001 2003 2005 2007 2009 2011

Fighting for the Poor:

July - Dec 2013