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EPS of Yahapalana Government:

Necessity for introducing machinery for


sustaining the reform program Part 2

16 November 2015
A fourth wave of policy reforms
The economic policy statement presented by the new Government has
vowed to introduce a reform program laying a firm foundation to place the
economy on the right track so that it can sustain growth and prosperity.
The statement has identified different reform regimes introduced in the
country since 1978 and calls the current reform programme as the Third
Wave of such reforms. The first and the second reforms, according to the
statement, had been introduced by J.R. Jayewardene in 1978 and R.
Premadasa in 1989.

However, the statement had missed the third wave of reforms implemented
by Chandrika Bandaranaike Kumaratunga from 1994 to 2001. Her reform
program too was not completed as was the case of the two previous
programs. But it was during her period that reforms were introduced to
telecom, airline, plantation and gas sectors. When this third wave of
reforms is considered, the current program proposed is not the third wave
but the fourth wave of reforms.
Political consensus a must
for proper
implementation of a plan
The existence of three
previous uncompleted reform
programs demonstrates one
fundamental flaw in economic
reforms of the country. That is,
failing to get political
consensus for reforms surely
derails the whole program
once the political power has
been changed.
This was evident when the current Prime
Minister attempted an economic reform
program when he held onto power during
2002-2004. The initial ground work for
reforms were laid by him but they were all
thrown away when the power changed
hands in 2004. The market is not happy
about the country attempting reform
programs with a lot of fanfare and then
throwing them away midway through by
successive governments.
Private sector demands continuity in
policy
This was an issue raised at a recent
seminar held in Colombo by the Sunday
Times Business Club to discuss the
forthcoming budget. At the discussion
time, the audience wanted to know how
the continuity of the current policy
package could be ensured in a
background of failures in the past.

Two suggestions were made. One was to get a political consensus for the
reform program and it was pointed out that the current political gettogether by the two rival parties which have the prospect of forming future
governments offers the ideal opportunity for building such a consensus.
The other was to establish a policy management mechanism so that
effective implementation of the current policy package could be assured.
Hence, signing off the policy package by the two main political parties
which have come together to form the new Government is a must. This
should simultaneously be followed by the establishment of effective
implementation machinery.
Promoting exports at the centre of the policy
The EPS of the Government is a skeleton that has outlined what the
Government is planning to do to deliver prosperity to the nation in the
future. The skeleton, as has been presented by the Prime Minister, is three
pronged, namely, the emphasis placed on exports for creating wealth, the
need for introducing new technology to transform the production mix of the
country and measures to make available the fruits of developments
inclusively to people at large. This skeleton has to be developed into an
implementation plan consisting of three main components in it. One should
be cautioned that it would not be a plan in the way plans were formulated
in old centrally planned economies. Rather, it would be plan containing
guiding principles for the Government to achieve its objectives in the most
efficient and effective manner.
Production should be in value-added areas
First, it has to set the physical targets which the plan aims at achieving at
the national level. For instance, it has to clearly lay down the rate of growth
which the country aims at achieving in the next 5 to 10 year period in the
form of a rolling plan where the targets are revised continuously in each
subsequent year based on the emerging ground realities and the
developments of the global markets favourable or unfavourable the
country is faced with.
These national targets in the plan have to be broken into sectoral targets
and sectoral targets into separate programs and program targets. The
programs have to be further broken into action plans with separate time
frames for each action plan. For instance, the action plan, say, of the
coconut sub sector, should elaborate on the introduction of technological
breakthroughs that enable the sector to capture the world market by newly
invented and innovated value added products.
A qualifying candidate, for example, is the use of virgin coconut oil in the
production of cosmetics, drugs or health foods. The call for such scientific
breakthroughs should come from the sector itself that has to work with the

relevant research institutions and universities.


In other words, the sector has to commission research into the area by
indicating its requirements to the research institutions concerned. This
involves the coordination of work among different government and private
sector organisations on a priority basis.
Funding should not be ignored
Second, the plan should indicate how the funding should be generated for
its implementation. Most of the plans formulated in the past, such as the
Ten-year Plan of 1959 or the Five-year Plan of 1971 lacked this vital
requirement. A part of the funding should come from the state budget, a
part from the private sector and a part from donors and multilateral lending
agencies.
To generate the capacity for funding, the budget should be reformed to
generate a surplus in its revenue account and transferring the surplus to
the capital expenditure program.
A clue to this has been indicated by the Prime Minister when delivering EPS
commenting that the nation had been living in the past beyond its earnings.
The Minister of Finance, who has the command over the budget, should
immediately take a cue from this and start introducing necessary budgetary
reforms.
In the mid 1960s, economist B.R. Shenoy, who was engaged by J.R.
Jayewardene to propose such a development plan, suggested that Sri Lanka
should go for a zero budget balance system whereby the needed resources
are generated in the budget itself through savings in its revenue account.
It also obviates the necessity for continued borrowing by the Government
and thereby adding to public debt in each of the subsequent years (A
review of Shenoys recommendation is available
at:http://www.ft.lk/article/432905/The-ignored-B-R--Shenoy-Report-of-1966:An-instance-of-missed-opportunity-for-Sri-Lanka?).
The use of the private sector funding should be encouraged through
appropriate government policies. Once the plan is in readiness, the
government can start negotiations with donors for funding certain parts of
the plan.
Progress review should be done continuously
Third, the plan should also lay down the mechanism for progress review
with key performance indicators clearly outlined for comparing with actual
results. For instance, the performance of research institutions and
universities should be evaluated on the basis of new patents which they
have obtained for new research breakthroughs.
A simple example is, say, the development of a roofing tile with a solar
panel embodied to it to capture solar energy as a renewable energy source.

Without this mechanism, a plan is just a document with no practical use at


all. In the past, many initiatives started by the governments in power did
not yield the required results because there was no effective mechanism for
progress review and taking corrective action if the plan has
underperformed.
Sri Lanka could take guidance from the initial development management
strategies of both South Korea and Singapore in this regard.
Korean Economic Planning Board
A report issued in 2014 by South Koreas Ministry of Strategy and Finance
together with its KDI School of Public Policy and Management under their
Knowledge Sharing Programme has documented the experience of Korea
Economic Planning Board (EPB) in the initial years of its economic progress.
The report titled Operation of Economic Planning Board in the Era of High
Economic Growth in Korea is available at:
http://www.ksp.go.kr/common/attdown.jsp?
fidx=402&pag=0000700003&pid=128 .EPB was set up on the initiative of
President Park Chung-hee who came to power in 1960 through a military
coup. At that time, South Korea was a sick patient in Asia with a per capita
income of only $ 80 and massive poverty all over. A quick economic
recovery was needed to prevent the country from falling into social and
political chaos which were to be used to its advantage by its fraternal
neighbour, North Korea. That was the reason for introducing a proper
economic policy management by President Park.
EPB was placed under a Deputy Prime Minister
The national economic management structure introduced by President Park
had the national goal of developing a self sufficient economy with selfdefence capability. Given the threat posed by North Korea, these two
national objectives by South Korea in early 1960s are understandable.
To attain this objective, Five Year Plans were introduced under the direct
supervision of the President himself. The structure involved the President
and Prime Minister under whom the newly established EPB was set up. To
emphasise the importance of EPB, it was placed under the management of
a newly created Deputy Prime Minister who concurrently held the post of
EPB Minister as well.
In the initial period, the function of EPB was threefold: planning, budgeting
and cooperation. Planning function included not only the simple
formulation of short- and long-term economic plans, but also developing
policy measures to respond to the constantly arising economic issues.
Therefore, performing its planning function naturally involved matters
falling under the administration of other government ministries, which
meant that consulting and coordinating with other ministries was essential.

In other words, this planning function included a coordinating function,


while the budget function (mobilising domestic capital) and the cooperation
function (attracting foreign capital), acted as two important pillars that
backed up this main function (p 16).
EPB was to prepare plans
Four functions were assigned to EPB: Designing overall plans, managing
their implementation, procuring resources for plans and researching on
economic development including the compilation of economic statistics.
To effectively run its affairs, several bureaus that had been operating in
other ministries too were absorbed into the EPB. They were the overall
planning bureau, budget bureau, materials mobilisation planning bureau
and statistics bureau. The monthly progress review and problem solving
meetings of EPB were chaired by President himself.
Singapore too had an Economic Development Board
Similar to South Korea, Singapore too set up an Economic Development
Board in 1961 to plan and execute strategies for enhancing Singapores
position as a global business centre and growing its economy.
It sought to create opportunities and jobs for the people of Singapore and
thereby shape the countrys economic future. Today, it runs a website which
gives comprehensive information to anyone who seeks to establish
business in that country (available at:
https://www.edb.gov.sg/content/edb/en/about-edb.html ).
Thus, its job has been to facilitate and support both local and foreign
investors in manufacturing and services sectors to develop and expand new
business opportunities, especially those involving capital-intensive,
knowledge-intensive and innovation-intensive activities.
The experience of Singapore with respect to EDB and its strong points have
been documented by the World Bank in a paper titled Singapore Local
Economic Development: The Case of Singapore Economic Development
Board (available at: http://siteresources. worldbank.org/ INTLED/ Resources
/339650-1194284482831/4356163-1211318886634/Singapore Profile.pdf ).
Proper economic management requires managing for development
results
Economic planning is not an easy task for any country. It involves the
elaborate preparation of plans in terms of national objectives that have
been decided by taking into account emerging global trends and where the
country wants to place itself in that global arena. Sri Lanka has chosen to
become a nation of worth in this arena.
However, the management of that process to reach its goal is the gigantic
task it now faces. This involves economic policy management. The veteran

national planner, Dr Lloyd Fernando, has recommended in a recent paper


that Sri Lanka should adopt the approach of Management for Development
Results (MfDR) and for that purpose, the country should rediscover the
Department of National Planning which had been serving a catalytic
function in good old days but has gone into permanent disuse in the
present period. His observation is that without undertaking a simultaneous
reform of the government bureaucracy across all sections, the
implementation of any national plan would become fruitless.
Suitable mechanism to implement the policy a must
Sri Lanka has already set up a Cabinet Sub-Committee on Economic Affairs
to implement its economic development program. This is a laudable act.
But it lacks proper direction and ability to map out the development process
and review the progress without the support of a permanent secretariat
staffed by professional people. Development planning is not the preserve of
politicians or economists. It should be supported by professionals drawn
from a multitude of professions like science, technology, engineering and
environmental sciences.
To support this, it is recommended that Sri Lanka should set up a National
Planning Council in the style of the Economic Planning Board of South
Korea. This National Planning Council should be a permanent body made of
professionals belonging to diverse fields. It can report to the Cabinet SubCommittee on Economic Affairs periodically.
In this manner, the country can ensure the continuation of the economic
policy package introduced by the government about which the private
sector has expressed its concerns.
(W.A. Wijewardena, a former Deputy Governor of the Central Bank of Sri
Lanka, could be reached at waw1949@gmail.com )
Posted by Thavam