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Sri Lanka opposition defends proposed handouts

EconomyNext – Sri Lanka’s opposition defended sweeping handouts promised in an election manifesto saying they were short term and were needed to kick start the economy, while the incumbent president assured stability.

Current opposition leader Ranil Wickramasinghe, who is to be appointed prime minister if the opposition wins presidential polls on January 08, said the proposed handouts to state workers were part of a short-term fix to kick start a slow economy.

The opposition promised a 5,000 rupee salary increment for Sri Lanka’s one million-plus state workers and a 3,500 rupee increment for pensioners.

Wickramasinghe told a business forum in Colombo that the increase was only 2,000 rupees more than what was promised in a budget by the administration.

He said Sri Lanka’s aggregate demand was low and the state sector salary increment was a short-term fix to boost demand and growth.

He said loans to small businesses were low and gold-backed loans were falling and needed to be boosted with ‘Central Bank re-financing’ which is another euphemism usually used for printed money.

There are fears the handouts will lead to money printing and excessive credit which lead to currency depreciation, though expenditure overruns could also be countered with higher domestic borrowings and higher interest rates.

Sri Lanka’s bank credit has already started to grow, putting pressure on the exchange rate.

Such moves are part of failed ‘Keynesian fixes’ that boost debt levels, inflation, weaken currencies and had generally led to the economic decline and balance of payments troubles of Western countries and developing countries after World War II.

Germany, Singapore and Hong Kong and after the 1970s Japan were among the few countries that did not resort to money printing and avoided economic hardships for the poor by maintaining sound money.

The opposition is however also promising the re-establishment of rule of law and freedom with an independent judiciary and public service with an end to a controversial executive presidential system.

Meanwhile President Mahinda Rajapaksa, unveiling his own manifesto Tuesday, promised stability and continuity of policy.

He said it was the defeat of Tamil Tiger separatists in 2009 during his first term after being elected in 2005 and massive infrastructure modernisation drive continued in his second term that began in 2010 that ensured stability and delivered economic growth of around seven percent a year.

Foreign powers were still out to divide the country, he warned, noting how Tamil separatism had external support and warning against traitors within the country.