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A People's Bank Publication

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DARY O]
June
1" Speaking to the United Nations Human Rights Council (UNHRC), Sri Lanka's representative, Attorney General Mohan Peiris, said the Government had been precluded from making a full assessment of the Channel 4 video because of the blurred quality of the images.
The Inspector General of Police, Dr Mahinda Balasooriya, tendered his resignation to the President Mahinda Rajapaksa in response to death of a Free Trade Zone (FTZ) worker who was injured during the clash which took place between a group of garment workers and the police at the Katunayake FTZ on 30 May. This workers' protest was against a Pension Bill proposed by the government for the private sector employees.
5. To mark the 2600 Sanbuddhathua Jayanthi, the sacred Aku relics of the Lord Buddha sent by the Pakistan government to Sri Lanka, were received by the Speaker Chamal Rajapaksa at the Bandaranaike International Airport.
6. The Kokavil Transmission tower in Mullaitivu District, the tallest self-supporting transmission tower in South Asia, was declared open by the President Mahinda Rajapaksa.
India declared its support for the re-election bid of Ban KiMoon as the Secretary General of the United Nations (UN). The Asian Group at the UN, met in New York, endorsed Ban Ki-Moon's candidature for the second term.
7. The Global Economic Prospects report (June 2011) of the World Bank was released. The report greatly appreciated the Sri Lanka's post-war economic recovery and stated that India and Sri Lanka will lead the South-Asian growth path -reaching 7.9 percent GDP (Gross Domestic Product) growth in 2013.
8. The European Union (EU) gave its backing for a second five-year term for Ban Ki-Moon as the UN chief, after expressing support of four of the five permanent members of the UN Security Council (UNSC) (United States, Britain, China and France). Russia was the only permanent UNSC member yet to declare its position.
The Board of Investment of Sri Lanka (BOI) has announced the achievement of the highest-ever quarterly Foreign Direct Investment (FDI) inflow in the first quarter of 2011. The inflow of US$ 236 million of realised foreign investments for the first quarter of 2011 is an increase of almost 160 percent against corresponding period in 2010.
China State' media reported that the floods triggered by torrential rain in Southern and Central China have killed
52 people and forced more than 100,000 to leave their homes.
Reuters reported that the International Monetary Fund (IMF) has been the latest victim in a string of cyber attacks that have targeted large and well-known companies and institutions in the United States (US). The attack aimed at stealing sensitive inside information.
11' The high-ranking Indian delegation including the National Security Advisor Shiva Shankar Menon, the Foreign Secretary Nirupama Rao and the Defence Secretary Pradeep Kumar, who arrived in Sri Lanka on 10th June to discuss about the future political development of North and East provinces of Sri Lanka, met President Mahinda Rajapaksa at Temple Trees. At this meeting, the President said that his government will not be able to concede Police and land powers to Provincial Councils if the 13th Amendment will be included to the Constitution. He further explained that the constituent partners in his UPFA (United People's Freedom Alliance) were opposed to land and Police powers being vested in Provincial Councils.

EVENTS
Two leading South-Indian politicians, Janatha Party President Subramanian Swamy and Dravida Munnetra Kazhagam (DMK) President M. Karunanidhi condemned the Tamil Nadu Assembly resolution against Sri Lanka on issues concerning Tamils in the island, describing it as misleading and highly inappropriate.
12 Associated Free Press (AFP) reported that the leaders of North and South Sudan began talks in Ethiopia aiming at resolving the crises in the border regions of Abyei and
13. The ferry service between Tuticorin in India and Colombo in Sri Lanka that had been suspended due to terrorist activities over the last 30 years was resumed.
The Sri Lankan Defence Ministry website (www.defence.lk) said that the new Channel 4 video of alleged extra-judicial killings in Sri Lanka has once again been determined as a fake by Siri Hewavitharana of Australia, who is one of the world's leading experts on digital video systems and former Head of Cisco's Global Broadcast and Digital Video Practice division.
14 Tamil Nadu Chief Minister J. Jayalalitha has urged the Indian Prime Minister Dr. Manmohan Singh to take action against Sri Lanka. Submitting a memorandum to him, she asked the Central government of India to suspend the ferry service between Tuticorin and Colombo.
15. The British Prime Minister David Cameron urged the government of Sri Lanka to investigate allegations of war crimes highlighted in a TV documentary screened in Britain.
The High Commission of Sri Lanka in London stated in a release that the Sri Lankan Government categorically denied allegations that it has deliberately targeted its own civilians, as the Channel 4 shown in its film 'Sri Lanka's Killing Fields'. The Channel 4 film has the potential to incite hatred amongst different communities in Sri Lanka, including future generations, and thereby, adversely affect the ongoing national reconciliation process.
A statement issued by the Ministry of External Affairs, Sri Lanka said that the Channel 4 documentary titled "Sri Lanka's Killing Fields' is a mere collection of visuals previously aired through LTTE websites, at the behest of parties with vested interests to undermine the present efforts at reconciliation and development taking place in Sri Lanka.
16oo. The Sri Lankan President Mahinda Rajapaksa left for Russia to attend the St. Petersburg International Economic Forum as an observer.
17th The President of China Hu Jintao in the course of bilateral talks he had with the President Mahinda Rajapaksa in St. Petersburg said, “We respect the sovereignty of Sri Lanka and oppose external forces intervening in the internal affairs of Sri Lanka".
The Russian President Dmitry Medvedev assured the President Mahinda Rajapaksa that Russia will stand-by Sri Lanka in all its efforts when the Two Presidents met in St. Petersburg.
Mr. Alexie Miller, the Chairman of the Russia's biggest energy company Gazprom, one of the world's largest natural gas extractors, agreed to support Sri Lanka in oil exploration off the Mannar coast and also to enhance facilities in oil refineries when he met the President Mahinda Rajapaksa
at a meeting held in St. Petersburg International Economic Forun.
The Lessons Learnt and Reconciliation Commission (LLRC) of Sri Lanka said that it would examine the latest video telecasted by Channel 4 TV.
Contd. on page 4

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C O N T E N T S
Features
28 Chemical Weapons and the
International Response to Their Use
32 Sri Lanka's Success Story in
Population Management: A Lesson for other Programmes
Students' Page
36 Economic Growth
Book Review
3. 40 Trade Liberalisation and Poverty in
South Asia
Special Report
New World Order
2. O3 New World Order: The Origin and
Historical Evolution
O7 The Rising Tide: South Asia's Place
in the New World Order
у 10 Sri Lankan Economy: A critical Analysis of the Past and Present
19 Democratisation of International
Institutions: Challenges and Prospects
24 An Insight from Early Buddhist
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Potential super powers of the World
United States of America European Union I (Current superpowers)
in dia محمدبر محیچ262ے 23 Brazil
*
China
Source: http://en.wikipedia.org/wiki/potential superpowers
Russia
Economic Growth (by Region f Country)
Source: World Economic Outlook-IMF, 2011
Over 38,000
|3:30,000-37.999 圖2000029999 園14000-19999 O 11,000-13,999
Per Capita GDP (Purchasing Power Parity) in US$
κ. Σε 8.000-10999 ఫ్లో 6,000–7999 4,500-5999 3,000-4,499 2,000-2,999 證1s00-1999
1,000-1499 鬱 |É: Under 1,000
NJA Source: http://en.wikipedia.org
Global Investment (%)
15 10
5 *^ంoం. | = 0 8 بیمہ ۔۔۔ ہند. 二
5 -10 - Advanced economies -15 Emerging economies
сЈ erre R <二s - R ܗ 翡 爵 翡 美 美 美 美 鼠 亲 亲 亲
를 출 플 플 GRN CYN
1
Source: World Economic Outlook-IMF, 201
Current Account Balances (as a % of world GDP)
ERest of the World, ZEmerging Asia sijapan and German
China United States
Global discrepancy
景爵美籍嘉美美籍翡景素亲器滨亲美 Source: World Economic Outlook-IMF, 2011
 
 
 
 
 
 
 

Global GDP Growth (by type of economy)
GDP Growth (%)
Emerging and
developing economies - 10 X. World స్వభజ9ుఖ...?
దో నయగర్ను
' . లో '%ఖలో
Econogrates -8
2007 丽 09 -र्मतः । 12 Source: World Economic Outlook-IMF, 2011
Per Capita GDP (PPP) - by Region
- Major advanced economies
- Newly industrialized Asian economies
Advanced economies
ක්‍රි. 4 బX }ދ ޗާ& Other advanced economies (advanced
등 || economies excluding G7 and euro area)
r Euro area سس؟
கி. 30
兰 European Union
器 Central and eastern Europe
품 2 X Commonwealth of independent States
인 مین پیج Latin America and the Caribbean
品 1 x: Middle East and North Africa
Emerging and developing economies
Developing Asia ASEAN-5 Sub-Saharan Africa
Source: World Economic Outlook-IMF, 2011
Vulnerable Employment as a % of total employment)
పైకి
sh saharan Emerging Northern Middle Developing Emerging Advanced Africa Asia Africa East America Europe Economies
Source: World Economic Outlook-IMF, 2011
public Debt as a % of GDP-by region 滚蕊 接蓉毅 Advaಣೂes
G-7 economies
Emerging and devel
955 1960 1965 1970 197 source: The Global Competitiveness Report, 2011
讹
5 gao 1985 1990 1995 2000 2005 2010 2015

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New World
order
Historical Evolution
e historical genealogy of the concept and the hope for a new world could be traced back to the dawn of human history. The idea of a new world had cropped up again and again in periods of historical transition and in times of intense political crisis. However, the concept of a "new world order that is perceived in the broader systemic framework emerged in political discourse only in the 20th century with the crises and calamities of world politics. As a result of the historical processes associated with the development of a capitalist economic order in Europe and the resultant establishment and expansion of its colonial domination in the rest of the world in stages since the 16th century, the entire world had moved towards a single global system by the beginning of the 20th century. At the same time, the internal contradictions of the imperial world order paved the way for political and economic crises and world wars in the first half of the 20th century. It is in this historical context that the concept of a new world order in the structural sense of the word has evolved.
The Liberal and Socialist Readings of New World Order after the World War
Among the first to use the term "new world order as a prescription to reorganise the world were Woodrow Wilson and V.I. Lenin. Wilson wanted to see a new world order after the First World War based on Liberal Democratic norms. In contrast, Lenin believed that the Russian Revolution heralded a new era in human history and a new world order was in the making with the impending socialist revolutions in Europe and the national democratic revolutions in the colonial world. Woodrow Wilson in his speech to the United States Congress in January 1918 presented his famous Fourteen
Economic Review: June/July 2011
Points as the bas the First World W. of the crisis of political order th wake of World Wilson further b Fourteen Poin advocated no ec between countrie agreements, woul world order. In orc pressing problem Europe, Wilson v to the principle Determination il political map of Eu that self-determin to a better world, of it was condition eleinent of the Cobban observ determination almost another v sovereignty. In th French and the than the Bri tradition. The democracy was ar Wilsonian ideolog her allies agreed November 1918 o Fourteen Points a made at the Verse to put these poir In line with the Fourteen Points Nations was es vanguard in the 'new world order, safe for democ America could member of the L due to the USSe: its membership. League of Nation key to a new worl to Wilson suff setback at the ve
After the Octob Russia, Lenin an that it was the b world order ba uveltanschauung believed that Revolution was
world socialist ré

: The
is for peace after ar. In the context the European at ensued in the War I, Woodrow elieved that the ts, where he onomic barriers s and no secret dusher in a new er to address the of nationality in fanted to adhere of National Selfh redrafting the rope. He believed ation would lead and his reading ned by the liberal concept. Alfred ed that “selfwas to Wilson word for popular is he followed the American, rather tish, political idealization of essential part of y”. Germany and o an armistice in n the back of the nd attempts were ailles Peace treaty hts into practice. final one of the , the League of tablished as a march towards a to make the world racy. However, not become a eague of Nations nate's rejection of As a result, the s which was the d order according ered a serious ry outset.
ær Revolution in i Trotsky believed eginning of a new sed on Marxist Leon Trotsky the October the precursor of volutions. Lenin
Origin and
Prof. Gamini Keerawe la
Senior Professor in History, University of Peradeniya.
believed that the October Revolution was an international one and victory could be ensured by world revolutions that encompass both the 'wealthiest countries and the colonial world. As a Communist visionary, Lenin talked of the emerging new world order as against the decadent old capitalist world order. For Trotsky socialism was not possible in one country and the permanent revolution' will ultimately usher a new socialist world order. After Lenin's death in 1924 and the establishment of the political authority of Joseph Stalin in the Soviet Union, the concept of a socialist world order gradually faded away.
The Nazis and New World Order
While Liberal (Wilson) and Socialist (Lenin and Trotsky) versions of a new world order that emerged after the World War I faded away in the course of the inter-war years, the idea of a new world order emerged from a different framework with the rise of Fascism in Europe. In his concept of the "Thousand-Year Reich', Adolf Hitler talked of a new world order based on pure Arya German supremacy. After coming to power Hitler mobilised material and manpower resources in pursuit of his vision of a 'new order' which covered Europe first, and then the entire world. The military defeat of Nazi Germany at the end of the Second World War, along with ideological defeat of Fascism, marked the end of Hitler's version of the new world order.
The World War I and Aftermath
In the throes of the Second World War, H.G. Wells expressed the idea
3

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ti a new world order to unite the ilations of the world, to bring peace a:nd to end the war. In the book to tablished in 1940 titled The Neu World Order, H.G. Wells remarked that "there will be no day of days then when a new world order comes into being. Step by step and here and there it will arrive, and even as it comes into being it will develop fresh perspectives, discover unsuspected problems and go on to new adventures ....World order will be, like science, like most inventions, a social product, an innum erable number of personalities will have lived fine lives, pouring their best into the Collective achievement". However, it is interesting to observe that in he wake of the economic and political reconstruction process after World War II, the phrase the new world order did not receive much currency, compared to the situation after World War I. The delegation of 44 victorious allied nations gathered at Bretton Woods, New Hampshire in July 1944 and signed the Bretton Woods Agreements to lay down guide-lines relating to the management of financial and commercial relations for the post-war world. It was believed that the International Monetary Fund (IMF) and the international Bank for reconstruction and Development (IBRD), the main organs of the Bretton Woods System, along with the newly established United Nations Organization (UN), the principal organ in the maintenance of international peace and security, would usher in a new economic and political world order. The open rivalry between the United States and the Soviet Union that cropped up after 1947, which was termed as the Cold War, belied any hope for a new world order of peace and stability.
New International Economic Order and the Third World
The concept of a new world order surfaced once again in the 1960s with an economic emphasis in the UN frannework. The decolonisation process after 1945 gave birth to new States' in Asia and Africa. These Third World States that had now
conne forward to politics in the wanted to change political environm. the Super Pow Industrial powers majority of the St World' organise Non-Aligned Cou the UN organs interests utilising strength at the C general perception World countries something funda with the exist international ec( which needed cor to Nurid Islam, th in addition to th with the existing shaped the attitu World in this reg vast majority of common a hist domination by European cour attendant humil and inequalitie "irrespective of th and endowme resources they al inferior to the de terms of connan to science and tec “Third World participation in th process of the aff The discourse or change of the: exis economic order fo the establishmer (United Nations Trade and Develc The demand for existing interna system was fou prepared by Raul Geneva Conferenc and Development systematic articu International E (NIEO) could be fo 1964 - 1974. In General Asseml Declaration for the NeuvInternational. is true that NIE trade and deve issues but it wa first move towa order by chang global power re.
4

assert in global 950s and '60s the international ent dorminated by ers and other of the West. The ates in the Third themselves as ntries and used o present their their numerical sN. There was a among the Third that there was mentally wrong ing system of onomic relations 'ection. According ree other factors, e dissatisfaction economic order, des of the Third ard. Firstly, “the thern share in ory of colonial the developed tries with its iation, indignity s". Secondly, e levels of income nt of natural te technologically veloped world in d over the access hnology”. Thirdly, nations lack e decision making airs of the world". the need for a ting international und a forum with it of the UNCTAD (Conference on эрment) in 1964. a change in the tional economic hd in the report Prebisch for the ze on World Trade in 1964. A more lation of the New conomic Order und in the period 1974, the UN oly adopted the Establishmentofa Economic Order. It CO covered only lopment-related s considered the rds a new world ing the existing lations. Anon J.
Nsekela of Tanzania observed in 1977 that “the New International Economic Order is about distribution: the distribution of world production, the distribution of the surpluses derived in any country and the distribution of economic power”. He further stated “at present, there are almost no significant format or informal decision-taking forums in which the Third World has an effective enough voice for its interests to be taken into serious account when decisions are formulated and agreed". The vigour of the cry for a new international economic order could not be sustained for long. Apart from periodic declarations in the NAM (Non-Aligned Movement) forums as to the NIEO, it could not move forward as expected by its ideological founders due to internal contradictions among themselves, the absence of a clear programme of action and certain conceptual ambiguities. Ultimately, it has become nothing more than a political slogan.
The Post-Cold War Scenarios and
New World Order
The concept of a new world order received fresh impetus in the changed historical conditions that evolved after the Cold War. Even before the formal end of the Cold War, President Michael Gorbachev articulated his vision for a new world order. In this regard Michael Gorbachev presented a main policy statement at the UN General Assembly in December 1988. In his Statement he identified the wideranging measures necessary for creating a new world order. In order to achieve a new level of cooperation in the light of the changed international context, he emphasised de-ideologising of relations among States. Further, he wanted to see a more prominent role for the United Nations which is now free from Cold War constraints. In promoting a new world order, Gorbachev expressed the willingness of the Soviet Union to withdraw its forces from Eastern Europe and Asia and enter into several important international organizations such as the CSCE (Commission on Security and Cooperation in Europe) and the International Court of Justice. In
Economic Review:June/July 2011

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addition, he emphasised global cooperation in dealing with other pressing issues such as environmental protection and the debt issue of developing countries.
The far-reaching changes brought about in the international political environment by the ending of the Cold War kindled the hope, more than, ever for a new international order. The end of the Cold War was viewed as a decisive historical event and it was cited as the 'end of history' and, consequently, the dawn of a new historical era. It was in this context that new hope and vision was raised and new scripts were written about a new world order. Barely three weeks after the fall of the Berlin Wall in November 1989 which symbolised the end of the East-West divide, Presidents Michael Gorbachev and George Bush met on December 2-3, 1989 on board the Soviet cruise ship SS Maxim Gorkiy anchored off the coast of Marsaxlokk Harbour in Malta to discuss the post-Cold War order. At the Malta Conference both leaders widely used the term "new world order' to denote the post-Cold War world that was unfolding at a rapid phase. The political reforms in Eastern Europe and the unification of Germany were considered the key elements of the new world order in Europe. The cooperation between the superpowers was considered the foundation for peace and security of the new world. Among the other issues discussed relevant to the new world order included NorthSouth cooperation and the debt issue. Following the same line of thinking, President George Bush further stated in his address before a Joint Session of the Congress on 11 September 1990 that "a new world order can emerge: A new erafreer fron the threat of terror, stronger in the pursuit of justice and more secure in the quest for peace. An era in which the nations of the world, east and west, north and south, can prosper and live in harmony". However, the early euphoria generated by the end of the Cold War as to the emergence of a new world was proved to be short-lived. In August 1990, Iraq invaded Kuwait. The UN Security Council passed a number of resolutions condemning the Iraq
Economic Review: June/July 2011
invasion of Kuwa 678 passed or authorised all ne uphold and impl 660. The United "Operation. Desert 1991. The proces of the Soviet Un by the 24 of Dece the United St superpower in th
The manner in wil
ended set the h
framework for t evolve further. Th not as a result of conflagration, but voluntary diss "Communist' cont War. Therefore, i as an ideological Democracy. On ti true that liberal ci the war of system pointed out, cap succeeded at a n level because it all basic needs, 1 the wants of the p alternative ʼ tc Communism’ democracy. Acco: Banerjee "the enc not necessarily pr Instead, as it increasingly evi many forms of a nationalism, ci market Comn emerging. There religious altern taking place of ide do not follow a se language and i political leadersh States used to c world order intentions for he politics. Howeve the realities in pos politics do not allc its own script for The United States the most powerf world, as far capability is sometime to disintegration of But, energing increasingly curi execute unilater Nye Jr. writes th in the world re dimensional ches

it and Resolution 29 November cessary means to enent Resolution
States launched Storm' in January s of disintegration on was complete nber 1992 leaving ates the only e world.
nich the Cold War istorico-political he discourse to e Cold War ended a violent military as an outcome of olution of the estant of the Cold t was interpreted victory for Liberal he face of it, it was apitalism had won ls. As Ken Booth pitalism had not hore fundamental could not satisfy put it could meet owerful’. The only “totalitarian is not liberal rding to Dipankar i of the first does oduce the second. is becoming ident, there are uthoritarianism, orporatism and unism that are are also many latives that are ‘ologies and which cular path". The diorns that the lip of the United lescribe the new underscore US gemony in global r, it is clear that st-Cold War global ow the US to enact a new world order. would remain as ul country in the as its military concerned, for come with the the Soviet Union.
multi-polarity ails its ability to al action. Joseph e power structure senbles a three is game. "The top
military board is unipolar with the United States far outstripping all other States, but the middle economic board is multi-polar, with the United States, Europe and Japan accounting for two-thirds of world product and the bottom board of transnational relations that cross borders outside the control of government'.
It is noted that the nature and structure of war has changed in the post-Cold War global context. As the Human Security Report 2006 pointed out the number of armed conflicts around the world has declined by more than 40% since the early 1990s. The intensity and violence of declared inter-State State wars are replaced by intraState wars, especially identitybased conflicts. At the same time, new doctrines of intervention have also emerged. The London based Economist in September 1992 identified two sets of conditions that are used to justify such interventions 11. These two conditions include, first, Wars of Interests' and, second, Wars of Conscience'. In wars of interests, the focus was on the control of vital resources that the developed world needed urgently. The interventions of coalition forces of the developed nations in the post-Cold War period showed that they have no hesitation to take swift action to protect' their interests in strategic areas and resources. The second category includes direct military intervention that is necessitated in the face of degrading living conditions and humanitarian crises due to man-made or natural calamities. However, as far as the second category of intervention is concerned there was no consensus yet because of their complexities and competing strategic interests.
New World Order in the Context of Globalization
The concept of new world order has been viewed both as a prescription as well as a description. To Woodrow Wilson, Lenin, Gorbachev and Bush it was more or less a prescription to guide an emerging/ desired political/world order. The concept of a new world order acquired more validity recently as a description of the globalised world unfolding as a result of the multi
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dimensional process of giobalization. The intense global flow of goods, services, finance, people, images and ideas has compressed the world by linking dispersed localities and people. The unprecedented level of contraction of time and space in human activities due to technological advances has pushed the entire world into a structurally different phase of interaction and web of relations creating a high degree of interdependence and multiple properties of collective decisionmaking systems in global politic. As a result, one nation rests on the decisions of many others. As Christopher Coker writes, Globalization "refers in the first place to the many different complex patterns of interconnectedness and interdependence that have arisen in the late twentieth century. It has complications for all spheres of social existence: the economic, the political, and even the military. In all three it ties local life to global structures, processes and events' The role of Internet, E-mail, Facebook and Twitter in day-to-day life reflects the way in which the world today has transformed. The role played by Facebook and Twitter in the political mobilization of masses for uprisings against the dictatorial regimes in Morocco and Egypt highlighted the political Overtones of information revolution. It is in this context that the concept of a new world received renewed credentials as a description of the emerging world.
From the Old World Order to a New World Order
In order to understand the new world order as a description of the emerging world with a historical perspective, it is necessary to differentiate it from the 'old world order'. The modern world system emerged with the development of the capitalist economic order in the 15th and 16th centuries in Western Europe along with the modern "nation State' system. Western colonialism emerged as an economic project of commercial and later, industrial and financial capitalism, as well as a political project of the new political entities identified as the national States. Rosa Luxemburg argued that modern capitalism cannot survive
without constant production forces production relatic nature is an ex driven by th accumulation. Th invariably expand as well as raw investment oppo the capitalist ec According to Lux cannot accumula of non-capitalis nor, on the oth tolerate their cor side by side with continuous ar disintegration o organizations mal of capital possib imperialism is an of capitalism ar. catalyst for the capitalism. Imma argued that no emerged as a wo long-distance tr. scale. It was an u in which surplus f of the capitalis continuousy tra centre. It leads capital accumula scale, and necess appropriation and peripheral surplu of labour leads to two interdepende and periphery in system." The eme system was not a violent process a further remark unequal power r the core and pel contested with thi These challengo political al contfadictions of creates systemic ( system'.
Finally It is impor that the 'mode evolved as ari inte package where m the nation State science and enlig comprised its int. nun ber of hist ranging from deemergence of gro" “periphery”, politi crises in the ind the ethno-politi
6

y revitalising its and expanding its ns. Capitalism by pansive system
dynamic of refore, capitalism s seeking markets materials and tunities outside onomic sphere. emburg, “capital e without the aid : organizations, 5r hand, can it tinued existence itself. Only the d progressive f non-capitalist kes accumulation le°o. Therefore, inherent feature d it is also the crisis of modern anuel Wallerstein dern capitalism rld system with ade on a global inequal exchange rom the periphery t world system ansferred to the to a process of tion on a global arily involves the transformation of Ls. This division ) the existence of ent regions: core a single world rgence of a world snooth and nont all. Wallerstein :ed that these elations between iphery would be 2 passage of time. es and internal d e Co η οπιic the capitalist core crisis of the 'world
tant to emphasise rn” world order :rlinked historical odern capitalism,
system, modern htenment culture :gral elements. A prical processes colonisation, the with centres in the cal and economic ustrialised 'core, :al mobilisations
and political assertion of subnationals to the process of globalization contributed to change the structure and dynamics of the 'modern' (old) world order and challenged its constituent components. It is in this context that the concept of a new world order acquired more validity as a description, not as a prescription, of the "post-modern' world order/ disorder in the context of globalisation.
Footnotes
Alfred Cobban, The Nation. State and
- ion, New York: Thomas Y. Crowell Company,
1970. p.63.
o V.I. Lenin, Collected Works, Vo. 31, Moscow: Foreign Language Publishing House. 1961. p.371.
3
The Documentary Record.edited and translated by Richard B. Day and Daniel Gaido. (Brill, 2009).
* H.G. Wells, The New World Order (reprinted by Hesperides Press in 2006).
5 Amon J. Nsekela, "The World Bank and the New International Economic
Order," development dialogue, 1977:1, p.78
http://en.wikisource.org/wiki/ Toward a New World Order
7 Ken Booth, New Thinking About
London: Harper Collings Academic 1991, P.4.
D. Banerjee," A New World Order: Trends for the Future" in
, Maj. Gen. Dipankar Banerjee, ed., New Delhi: Institute of Defence Studies and Analyses, 1994,
p.5.
o Joseph S. Nye Jr., " The American national interests and global goods' International Affairs, & 8:2, April 2002
Human Security Centre, Human
Human Security Audit, p63.
'' The Econonist (London), 5
September, 1992
? Christopher Coker, Globalization
ity in the T fi
€Inent
, Oxford:
Oxford University Press, 2002. pp. 18-19
*** Rosa Luxemburg, The Accumulation ital, London: Routledge and Kegan Paul, 1951, p. 416.
-1“ Immanuel Wallerstein, The Modern
... New
York: Academic Press. 1974.
Economic Review: June/July 2011

Page 9
The Rising Tide: Sout New World Order
growth and development in Asia ave profoundly impacted the topography of global economic power. Following the Asian Tigers' emergence in the 1970s and China's subsequent rise, the South Asian region has displayed strong and consistent growth, due in no small part to India's growing preponderance in the world economy. Broad-based economic reforms undertaken by its constituent states since the early 1970s have improved integration at both intra- and inter-regional levels and have expanded regional trade and FDI (Foreign Direct Investment) volumes. South Asia's average growth rate during 2003-2008 was approximately 8 per cent, and despite the protracted ill-effects on the global economy of the recent financial crisis, the region is projected to grow quite strongly into the future. Certainly, numerous challenges remain to be met: the persistence of poverty, difficulties associated with facilitating regional integration, and inherent structural and institutional weaknesses in these economies are significant in this regard. Nevertheless, there is reason to be optimistic about South Asia's future economic prospects, not only because these issues are beginning (however slowly) to be addressed, but also due to a range of emerging growth opportunities. Key among these opportunities are the 'demographic dividend' created by South Asia's current demographic transition, a rapidly growing middle class, increased global integration, service sector developments and the regional benefits derived from India's continued and increasing economic
SuccesseS.
the last few decades, rapid
The Demographic Dividend
South Asia is currently undergoing a demographic transition, resulting
Economic Review: June/July 2011
from a change ove mortality and feri ones. This has iu implications: as born just after thi but just before til approaches worki experiences a sig its labour-force estimated that by South Asia will h population in t opportunity for in growth which th transition afford "demographic
phenomenon whic increase in a coun to non-working-ag
South Asia's population is pro an average of 18 year for the next this excess labou employed, the pot be reaped by extensive. Apart whose relatively mortality and ferti already generate dividend, the wor working-age ratio the South Asiar estimated to peak over the next fou these econom favourable policy capture the ma benefits of thi change.
Bloon et al.
important factor The institutions to base for fa demographic d Particular attenti paid to labour leg that the extra lab the demograph productively emp suggests two alti
ability

th. Asia's Place in the
Sr time from high ility rates to low nportant growth the generation 2 fall in mortality he fall in fertility ng-age, the region nificant swell in :. Indeed, it is 7 the year 2020, ave the youngest he world. The creased economic he demographic s is termed the dividend', a. h arises out of an try's working-age ge ratio.
working-age jected to grow by million people per twenty years. If r is productively ential benefits tO the region are from Sri Lanka, early and rapid ility declines have i a demographic king-age to nonis still rising for States, and is at various times r decades. Thus, ies require : , a environment to ximum possible s demographic
consider some s in this regard. pf government provide a sound cilitating the ividend is one. ion must also be islation to ensure »our generated by ic transition is loyed. The study ernative paths in
Stephanie De Mel
Institute of Policy Studies of Sri Lanka
this respect: a low road' approach, which consists of expanding lowwage jobs to absorb the excess labour, and a high road approach, which seeks to develop more highly-skilled forms of employment in the services, industrial and agricultural sectors. Macroeconomic management and trade policy are two other factors that contribute to an en hanced demographic dividend. Curbing inflation and maintaining a favourable domestic environment for the expected savings and investment increases ae important, as is developing the export industry to increase employment opportunities. Another consideration is education policy: the burgeoning services sector in South Asia requires highly-skilled workers. The demographic transition provides an ideal opportunity for swelling the ranks of this type of worker through effective investment in education. Such investments enhance the possibility of achieving a high-road' form of employment for a larger cohort of workers.
The Rise of the South Asian
Middle Class
Demographic change in South Asia has also occurred along income lines. A significant decline in poverty has pushed a large number of people who formerly survived on less than $2 a day into the ranks of the middle class. This effect is particularly marked in India, a country home to a significant proportion of South Asia's poor, and where strong growth has generated improvements in income over
7

Page 10
several years. Sri Lanka is the other South Asian State expected to experience a large middle-class expansion within the next decade. South Asia's middle class has grown at an average rate of 12 per cent per annum over the last decade, rising in absolute terms from 24 million in the year 2000 to 72 million in 2010. It has been estimated that, by the year 2025, South Asia could boast a middle class of 1 billion people, or 55 per cent of its population." This is a notable increase from its current proportion of 4.5 per cent and, even more significantly, represents approximately one-quarter of the global total. India's middle class could, by the same year, become the largest in the world in absolute terms.
The ways in which a large and growing middle class can contribute to economic growth processes have been frequently documented. Firstly, strong links exist between the degree of entrepreneurship in an economy and the size of its middle class. Secondly, members of the middle class contribute significantly more, at least in absolute terms, to aggregate savings and human capital investment than do their poorer counterparts - middle-income groups typically save sizeable amounts for retirement, housing and their children's education, thereby providing ample resources for capital investment. Another consideration is the relationship between the size of the middle class and levels of domestic consumption. Growth in the middle class raises demand for consumer durables and other manufactured goods. This increase in the size of the domestic consumer base encourages capital investment and fosters the development of international trade.
There is also the possibility that, once the middle class reaches a critical mass, it creates a virtuous cycle of higher consumption, higher firm profits, higher savings and investment, higher growth and, consequently, a larger middle class. A contributing feature is the middle-class' willingness to pay
more for high-qua encourages produ among firms an higher profits.
Increased Globa
South Asia has strides in trade financial op en 1 decades. Imports
grown strongly average export g from 5.3 per cent c to 14.3 per cent du Similarly, import
from 2.2% during per cent durin Notably, the regio rate during 2002cent is significant global average of
Another importa has been an ex region's base of Traditionally, mc states supply a manufactured pro markets. More re strong trade developed betwe and other deve notably in Africa, and other parts of countries received South Asia's expC 43.8 per cent of its By the year 2006, increased to 42.7 respectively.' * Tı has, in particular quite strongly sinc - aggregate trad and the group O Asian Associati Cooperation) Stat approximately US 2010, for exam further expand t mutual benefits, have agreed to target of US$ 100 2015. Encourag also experienced intra-regional tr 2003 to 2008. 16
Furthermore, F. Asia have increa
8

lity goods, which ct differentiation , consequently,
Integration
made significant articipation and , es s in recent and exports have - the region's rowth rate rose uring 1997-2001 ring 2002-2006.19 growth increased 997-2001 to 24.6 g 2002-2008. h's export growth 2008 of 19.3 per y higher than the t 1 per cent. 12
nt development pansion of the trade partners. ost South Asian gricultural and ducts to Western :cently, however, linkages have en these States loping States, the Middle East Asia. Developing | 38.1 per cent of rts and provided imports in 1985. these shares had and 49.1 percent, 'ade with China been expanding :e the early 2000s between China f SAARC (South on for Regional es was valued at $ 80.5 billion in le. * Seeking to he scale of these India and China bilateral trade pillion for the year ingly, South Asia a doubling of its ade figures from
flows to South sed steadily over
the last decade. FDI grew from USS 6.7 billion at the start of the 2000s to US $22 billion in 2006/07.17 Between the periods 2003/04 and 2006/07, FDI inflows more than doubled for the region's three largest recipients: India, Pakistan and Sri Lanka. Although South Asia's share of FDI inflows is only about 5 per cent of inflows to developing States in Asia and about 3 per cent of inflows to developing states in the world, it is increasing over time, indicating the growing attractiveness of the region for investment relative to its other developing counterparts.'
An interesting development in South Asia's process of financial integration with the world is its slow but definite emergence as a source of outward FIDI. In 2006/07, FIDI outflows from South Asia amounted to nearly US$ 10 billion. Of this, US$ 9.67 billion came from India, US$ 0.11 billion was from Pakistan and US$ 0.03 billion was attributed to Sri Lanka. In fact, India is beginning to be viewed as a significant source of intra-regional FIDI. This represents another means by which the States of South Asia can aid each other's growth through closer cooperation.
Service Sector Development
The importance of service sector development to South Asia's growth prospects is well-documented. Services now account for the largest share of regional GDP (Gross Domestic Product) - approximately 55 per cent in the year 2008.21 Indeed, the South Asian States display enormous potential for growth through service sector development as against through alternative sectors. This is because, firstly, there is significant demand for services in the global market, as well as numerous opportunities for globalisation via the services route. Services currently account for over 70 per cent of global GDP - more than twice the contribution of the manufacturing sector.' Secondly, the production of services involves an extremely large cost differential amongst countries - one which favours South Asia.
Economic Review:June/July 2011

Page 11
Furthermore, a confluence of economic factors has created an environment in South Asia that is conducive to services production. Key among such factors is the existence of a workforce that is relatively highly-skilled (as a result of a strong tradition of higher education in India, for instance) and speaks English fluently (a hallmark of the region's colonial past). A large and widespread diaspora that has gained exposure to and familiarity with the rapid advances in technology is another significant advantage; this diaspora played an invaluable role in the formation of India's IT (Information Technology) and information services sectors.
The development of services production among the South Asian economies has equally led to increased participation by these States in global services trade. As an indicator, during 1991-2006, South Asia's trade in services grew at 16.1 per cent, notably surpassing its merchandise trade growth of 12.7 per cent. 2o The composition of services exports diverges quite markedly across the region: in India and Bangladesh, computer, communications and other services dominate commercial services exports; Nepal, Pakistan and Sri Lanka demonstrate high levels of transportation and travel services; and the Maldives' service exports are dominated by travel services.'
Despite the considerable progress already made by the region in terms of service sector development, however, much scope for further progress remains. In particular, what is required is a more concerted effort at achieving regional integration and inter-State cooperation to further the development of this sector. The benefits of agglomeration afforded by the services sector suggest that, in the absence of such cooperation, these countries will be unable to reap the greater part of potential economic gains from services developments occurring within the region.
Economic Review: June/July 2011
India's Success Spillovers
India's emergenc player in the glob represents one most important regional growth The nature of s multiform. First most important India's booming Beginning in the burgeoning sof India's service sec over time to em (in clu din g Bu { Outsourcing pharmaceutical, and medical s indicator of the service sector gro' services exports 2002/03 and 20t from USS 20 bi billion. Furt accounted for 6 software outsourc
Importantly for Indian IT and otl firms continue production value themselves begin more routine proc South Asian
demonstrate lo sufficiently sk therefore benefit continued deve Indian service
service sector d thus no longer ( but rather, have other South Asia Pakistan and Sri that South Asia global ICT (I1 Communicatio] outsourcing hub garnering atten realise such a considerable effo deepen the de integration with well as to imp1 infrastructure ne a vibrant Endeavours to i and to lower es to foster a fav environment are

Story: Regional
as a significant l economic arena of South Asia's opportunities for nd development. luch potential is y (and arguably y), we consider service sector. ate 1980s with a ware industry, tor has expanded brace IT-enabled iness Process (BPO)), biotechnological ervices. As an speed of Indian wth, the country's tripled between )5/06, increasing llion to USS 60 hermore, India 0% of all global ing in 2008.26
the region, as ner service sector to move up the chain, they are ning to outsource edures regionally. States which w wages and a illed workforce considerably from lopments in the sector. Regional evelopments are :onfined to India, extended to the in States, notably Lanka. The notion could become a formation and Technology) is, consequently, tion. In order to h aim, however, rts are required to gree of regional in South Asia, as ove the regional cessary to sustain ervice sector. improve education ablishment costs urable business
also desirable.
Furthermore, Indian service-sector firms are increasingly moving towards economic activity that involves knowledge production. For example, certain I ndian pharmaceutical companies have begun to develop new drugs, rather than merely producing low-cost, generic versions of existing drugs, as was previously their practice. If, in this manner, India is able eventually to establish itself as a Ceir tre of research and development, the potential spillover benefits to the region - in terms of knowledge and technology transfer - would expand considerably. Yet again, however, the realisation of these benefits depends crucially on state's ability to integrate effectively, both amongst themselves and with India.
A second Indian "success' which could benefit the region is its emergence as a source of FIDI outflows. As previously discussed, capital inflows to South Asia have been on the rise in recent years. Equally, however, growth in the Indian economy has spurred a culture of Indian investments overseas. India’s FIDI outflows have grown appreciably in the last five to ten years: for instance, they grew from US$5 billion in 2005/06 to US$ 12.8 billion in 2007/08.7 Notably, much of India's FDI is directed towards developing States, a significant proportion of which are regionally located. India is Sri Lanka's third-largest source of FDI at present, for example. As is the case with service Se C tOir development, however, deepened regional ties are desirable to ensure that higher levels of Indian FIDI flow intra- rather than interregionally.
Conclusion
Despite the continued challenges posed by poverty, global economic volatility and the slow progress of regional integration, the unique and important opportunities currently afforded to South Asia
Contd. on page 22
9

Page 12
Sri Lankan Economy of the Past and Pres
Introduction
ri Lanka, has had an excellent prospect for development since
independence in 1948. Unlike the other former British colonies, Sri Lanka was well-equipped with superior economic and social infrastructure, advanced political, legal and governing systems, a population with adaptive mentality and a pool of financial resources to finance development expenditures. (World Bank, 1953; Snodgrass, 1998; Lakshman and Tisdel, 2000).
The country, however, soon plunged into serious economic and political problems, losing its initial advantage for development, mainly due to the short-sighted or wrong political and economic priorities, ambitious welfare-enhancing programs without an economic backing for its sustainability, and later al
Economic Perfo
Economic growth ( the last
insufficient to na
an economic take too small compare that followed sin nationalist polici violent civil con times. On averag been able to main of 3-4 percent be 1977 and 5 - 6 p Sri Lankan ecor:
remarkable res
internal and exte as oil crisis, dro civil war. The col maintain positi around 2-3 perc 1970s during sev the youth uprisin; war era since 19 country's growth
six
a - Table Political regimes, prolonged civil Sri Lanka from 9 war that lasted for nearly three Time Period Political Regin d e c a d e s ( A 1 ail in a , 1950-1955 UNP - rightwing pop 1997) The 1956-1964 MEP- leftwing socia country has
1965-1969
become a test UNP - rightwing pop case among 1970-1976 SLFP — leftwing socia development 1977-1993 UNP - rightwing cap eCOnOnlistS aS PA - leftwi capital an economy 1994-2OOO twing capita. characterised with human face by slow 2001-2002 UNP- rightwing capit e c on O m ic
PA - leftwi ital growth with 2003-2004 eftwing capita high social with human face welfare and 2005-2OO UPFA - leftwing nati basic human
e e d
satisfaction
* Average Annual Economic Growth UNP - United National Party
(O s m an i, 1994).
SLFP - Sri Lanka Freedom Party Source: Author's compilation.
10

y: A Critical Analysis
ent
国丞&及@@
pf Sri Lanka during decades was
ke a big push for off, but it was not 2d to the countries ilar populist and ies or faced with flicts or war at e, Sri Lanka has tain a growth rate etween 1950 and
ercent thereafter. omy has shown ilience to both
rnal shocks such ughts, riots and antry was able to we growth rates :ent in the early ere droughts and g. During the civil 83 to 2009, the
rate WaS more
Dr. M. Ganeshamoorthy
Serior Lecturer Department of Economics University of Colombo
than 4 percent except in 2001 (Ganeshamoorthy, 2002). The main conclusion one might draw from Table 1 is that the country's growth performance was closely associated with political and economic ideologies of the ruling parties.
The two main parties that ruled the country almost alternatively since independence till 1994, namely, the United National Party (UNP) and the Sri Lanka Freedom Party (SLFP), have followed diametrically opposed political and economic ideologies. Being a pro-western capitalist party, the UNP subscribed to liberal
economic policy and economic performance of
SO to 2010
E c on o na i c
e Economic Policy Growth 96
pulist liberal market economy 4.26
list closed economy 2.50
bullist partial open market economy 4.64
alist closed economy 2.52
italist open market economy 4.92
list open market economy 5.17
with intervention
talist | open market economy 1.25
ist open market economy 5.65
with intervention
onalism open market economy 6.36
with nationalistic sentinents
MEP - Mahajana Eksath Peramuna
UPFA –
United People's Freedom Alliance
Economic Review: June/July 2011

Page 13
market economy ideals and the country's economic policies were directed towards this end at the times of the UNP rule, whereas the SLFP was an anti-western nationalistic party believing in socialist ideals, so that periods of the SLFP was witnessed in closed economy with widespread nationalistic sentiments.
The discontinuity in economic policies was a major impediment for launching a development drive that could have taken the country towards a high growth path as was happened in Singapore and Malaysia. This impediment has, however, been removed in 1994 following a left- wing PA (People's Alliance) government decided to follow the economic policies adopted by the previous government without major changes. Yet, another tumbling bloc, the civil war, played a major role in reducing the growth potential of the country thereafter (Arunatilake et al., 2000).
Growth performance of Sri Lanka varies significantly under different political regimes. Economic growth of Sri Lanka was relatively high during the periods of right-wing governments compared to that of the leftwing. Table 1 shows that this trend continued till 1993, and then, there was a remarkable departure from the hitherto existed practice of changing
positive step in the right direction. The
current UPFA regime itself did n Ot deviate much from its predecessor in terns of macroeconomic p o 1 і с у . Never the less, main focus has been on the rura nationalistic sen Menifesto of Pe government in 19 Chintana 2005). growth performar UPFA regime since ever increasing shown that high is feasible even governmentifeco directed on righ Bank of Sri Lanka
The Sri underwent signi changes during th (Table 2). The dominated by the (46.3% of GDP Product)) in 19, importance of
sector to GDP ha mere 12.8 percel
Lan
the contributior
economic policies with Table 3 Social indic the change in the government of a 1946 different party. The Adult Literacy 58 newly-elected school enrolment 41 government in 1994 (aged 5-14) decided to continue
- Life expectancy 43 the policies of the
Infant mortality 141
previous regime with some basic changes that dee med necessary. The new policy was termed as 'market economy with human face' and this was considered as a
Economic Review
(1,000 live births)
Death rate (1,000) 20 Birth rate (1,000) 37 Natural increase('%) l.7 Population growth 2.3
Source: Compiled by the aut
Sri Lanka 2010.
: June/July 2011

Table 2
Structural change of GDP of Sri Lanka
from 1950 to 200
Year Agriculture Industry Services 1950 46.3 19.6 36.9 1960 37.8 16.8 45.4
197Ο 28.3 23.8 47.9
1980 27.6 29.6 42.8
1990 26.3 26.O 47.7 2OOO 19.9 27.3 52.8 2010 12.8 29.4 57.8
Source: Annual Reports, Central Bank of Sri Lanka.
economy with a timent (Election ople's Alliance 94 and Mahinda
The remarkable Ce of the Current : 2005, despite an war budget, has economic growth under a left-wing nomic policies are it path (Central
sector to GDP has increased from 36.9 percent to 57.8 percent in 2010, making Sri Lanka a services The
contribution of the industrial
sector-driven economy.
sector to GDP has also risen from 19.6 percent in 1950 to 29.4 percent in 2010. This change is considered, however, as inadequate to sustain the economy industrialisation growth path. The
Ο Ι1 its
typical transition of an under
, 1995-2010). developed economy to a developed country status usually involves a kan eeonomy transformation from agriculture to
ficant structural he last sixty years
economy was agriculture sector (Gross Domestic 50. The relative the agriculture s come down to a ht in 2010, while of the services
However, countries
industry, and then from industry to services sector dominant economy as it was happened in the United Kingdom (UK), Germany and in many countries.
such
Western
2S Singapore, Hong Kong and the Maldives have the transformation from agriculture to
made
services sector-driven economies,
ators of Sri Lanka from 1946 to 2010
1953 1963 1973 1980 1990 20OO 2010
65 72 78 86 88 90.7 91.3
58 65 86 1OO 100 OO 100
56 63 66 68 72 74 75
71 56 46 34 18 9.8 10
(2005) (2006)
1. 9 8 6 6 6.1 6.2 39 34 28 28 21 18.4 7.6 2.8 2.5 2.0 2.2 1.5 1.7 1.5 3.3 2.5 1.6 1.8 1.1 1.3 1.O
nor using data at Snodgrass (1998). Central Bank of
1.

Page 14
directly bypassing the industrial sector. The major advantage of services sector growth is that, it requires a short time to develop with relatively small amount of resources using simple technology compared to industries. However, services sector-led economic growth is highly fragile since the services sector is more vulnerable to both internal and external shocks. The major contributors to the services sector of Sri Lanka include retail and wholesale trade, transport and communication, banking, insurance and real estate and government services (Central Bank of Sri Lanka, 2010).
Social Welfare Conditions
Sri Lanka has been considered as an outlier among developing countries on the social welfare indicators and the fulfilment of basic human needs. The first government of the independent Sri Lanka announced proudly that the primary objective of the new regime was to create a welfare state in the country. The three ambitious pillars af Sri Lanka's welfare policy, viz. free health, free education and free or subsidised food on a universal basis have led to such a remarkable achievement in social indicators (Table 3). These indicators are comparable with developed highand middle-income Nevertheless,
in come
countries. sustainability of these programs was the major problem without
sufficient econo
drained resourc. country's eco (Snodgrass, 1998
The increase of p universal natur provisions made difficult, governments trie
and
the welfare provi the subsidised fo
met with Stif
sometimes turne from organised welfare issue
politicised. There reducing welfare considered as po. and governments welfare state inta
in 1977
nature of the fo
change
abolished replaci stamp scheme on basis in the bud the other two pi and free educatio the expenditur frequently b significantly.
education and he
as an invest:
infrastructure. Tl
nations, such as, invest heavily ol research and de government spen and health in Sri percent of the GD
Table 4 Income distribution of Sri Lanka fr
1953 1963 1973 1978/
1979
Richest 20% 56.7 55.2 45.9 54. share
Poorest 20% 5.1 3.9 5. O 3.8 share
Midde 60% 38.2 40.9 49.1 42.1 share
Gini Coefficient 0.46 O45 O.35 O.43
Source: Central Bank of Sri Lanka, (various years).
12

nic growth as it es meant for the
nomic
).
growth
opulation and the e of the welfare
its maintenance
the successive
'd to scale down
sions particularly
od. These moves
f resistance -
2d to be violent
groups as the highly ore, any move on
WaS
expenditure was litically too costly maintained this
act till the major
The universal
fod subsidy was ng it with a food a selective target get of 1978. Yet, llars, free health n, continued, but
e on these has
een clipped Spending on alth is considered
soft
he faster growing India and China,
in education and
ment On
2velopment. The iing on education
Lanka is a mere 2
P at present. The
participation of the private sector in health and education sectors has
helped reducing expenditure on then. These two sectors are
with the
participation of local as well as
growing faster
foreign private investors (Central Bank of Sri Lanka, 2010).
The welfare measures adopted by successive governments in Sri Lanka can be considered as a strategy to achieve redistributive Sri in come distribution did not change significantly even after six decades after independence. More than half of the country's income is enjoyed
justice. Lanka's
by the top richest twenty percent while the bottom poorest twenty percent receive only 4.7 percent (Table 4). This does not show the existence of a fair distribution of income in the country. Therefore, the larger portion of any economic growth achieved by the country goes to the richest segments of the society. Intervention of the government is, therefore, essential to help poorer segments of the society and to reduce poverty. The UPFA government’s efforts in poverty reduction have been commendable. The increased focus on the rural economy, where a majority of poor people live, by capacity building as well as creating
opportunities under various programs initiated by the government recently has
produced favourable results. The
om 1953 to 2009/10
1981/ 1986/ 1996/ 2003/ 2006/ 2009/ 1982 1987 1997 2004 2007 2010
56.8 56.8 53.0 55.1 54.7 52.1
3.7 3.6 4. 3.6 4.6 4.7
39.5 39.6 42.9 4且.3 40.7 43.2
O.45 0.46 0.43 O,46 O.49 O.47
Economic Review: June/July 2011

Page 15
incidence of poverty expressed in terms of poverty head count index has come down from 22.7 in 2002 to 7.6 in 2010 indicating a significant progress in poverty reduction in the estate, rural and urban sectors. Yet, the poverty level is higher in the estate sector (11.4) well above the national average (7.6), making Sri Lankan poverty as an "estate phenomenon (Central Bank of Sri Lanka, 2010).
The Role of Government Sector
Sri Lanka maintains a large government sector in terms of number of employees, government institutions and ministries and the
The
resources required to run the
size of public expenditure.
government machinery are mainly
derived from taxation and borrowing. Generating adequate income through taxation has its limitations given the country's narrow tax base and an inefficient
tax administration. Since the half of the country's national income is enjoyed by the top richest 20 percent of the society, revenue generation from income taxation was limited. Augmenting more revenue from corporate income taxes is constrained by various tax concessions offered by successive governments to investors as an incentive to encourage private investment and the existing higher tax rates. Taxes in international trade have been the major source of revenue for the Sri Lankan
til 1977. The importance of trade taxes diminished since 1977 as a result of trade liberalisation initiatives of
the government and domestic
governments
indirect taxes as a main source of
The recommendations by the Tariff
taX TeV en e. recent
Commission can be considered as an attempt to widen the tax base
Economic Review: June/July 2011
TTable 5 Gov COF
Yegar Gove Reve:
grant
2OOO 17
2OOl 17
2002 17
2003 5
2004 15
2005 16
2006 17
2007 6
2008 15
2O09 5
2OO 14
Source: Central E
while simplifying and making tax efficient. The pre: has been able 1
revenue collecti
with new measui implementation (C Lanka, 2010).
The expenditure government outweighed its r negative savings f. (Table 5). Expend public admin expenditure allocated to the Ministry of Finance are the m a ji o r
expenditure items. The large- sized
g o v e r n m e n t sector at the с е n t r a l , provincial and di i v i s i o n a l secretariat levels siphons of considerable annount of public funds; the huge central g o v e r n m e n t with nore than 1 OO ministries

2rnment fiscal operations (as a percentage of
from the year 2000 to 2010
ment Government Overall budget hulle and Expenditure deficit
s (after grants) .2 26.7 -9.5
O 27.5 - 10.4
O 25.4 -8.5
6 22.9 -7.3
.3 22.8 -7.5
.8 23.8 -7.O
.3 24.3 -7. O
.6 23.5 -6.9
.6 22.6 -7.0
O 24.9 -9.9
.9 22.O -7.9
Bank of Sri Lanka, 2010.
the tax structure shoots up expenditures
administration
sent government :o increase tax
on significantly res and efficient
entral Bank of Sri
s of Sri Lankan have always evenue, making or the government
iture on defence,
unnecessarily high. The civil war has resulted considerable drain in the public coffers, and even two years after the completion of war, the defence expenditure could not be scaled down because the government priority to maintain the fighting formations and structures developed during the war. It is mostly unlikely that defence expenditure would be reduced in the foreseeable future as the government still considers a perceived threat in the country.
istration and
Table 6 Public debt as a percentage of GDP of Sri Lanka from the year 1950 to 2010 Year Domestic Foreign Total 1950 13.7 3.2 16.9 196O 28.9 5. 34.O 197Ο 46. 17.5 63.6 198O 43.7 33.5 77.2 1985 38.6 41.7 80.2 1990 41.6 , 55.0 96.6 1995 43.3 51.9 95.2 2OOO 53.8 43.1 96.9 2OO1 58.0 45.3 103.3 2002 60.O 45.6 105.6 2003 56.O 46.3 102.3 2004 54.7 47.6 O2.3 2005 5.6 39.0 90.6 2006 50.3 37.5 87.9 2007 47.9 37.1 85.O 2008 48.5 32.8 81.4 2009 49.8 36.5 86.2 2010 45.8 36.1 8.9
Source: Annual Reports, Central Bank of Sri Lanka.
13

Page 16
Public defence is utmost priority for any country in a situation of actual threat its sovereignty and stability. When
or perceived to
those threats wane away, government should bring down military expenditures and direct them towards civilian use (Budget
Speeches, 2010 and 2011).
Widening budget deficits has been a major threat to macroeconomic stability in the country. Deficit financing from inflationary sources fuel inflation, and public borrowing from domestic sources crowds out resources meant for private sector investment. The UPFA government in recent time has resorted to market-based borrowings using treasury bills and (sovereign) bonds as the primary borrowing devices. The recent engagement with the International Monetary Fund (IMF) to obtain support in the form of a Standby Agreement required Sri Lanka to fulfil the condition of reducing budget deficit to less than 7 percent of GDP, the target which the government had missed mainly due to the war-related spending. The government should reduce its budget deficit to a manageable proportion while re-scheduling the country's spending priorities more towards economic development and to create a stable macroeconomic environment conducive for private sector investment (IMF, 2009).
Overshooting of targeted budget deficits has been a major feature of public finances of the country. This relates to the problem of increases in public borrowings and mounting up of public debt - both domestic and foreign origin (Table 6).
Table 7 shows that public debt
of Sri Lanka is mounting up and pushing the country into a
possible debt trap loans taken effectively in investment. The e of loans in expa country's growth could improve the capacity of alre loans. In a situa
domestic
mobilisation is resorting to forei is inevitable. country has been to a lower midd
group, concessionary len
SOU
longer available foi
and the coul
compelled t commercial sol
borrowing. Nev taking bigger loar the loan that ha been taken and
loan to finar expenditure of the set a trend of dangerous debt happened even economy as the
America (USA).
Every citizen o including the new a total of Rs. 22. which Rs. 98, foreigners. This amount compared Sri Lankan econ
around 6 perc currently spen
Table 8 Savinų
Private Savings % C
Government Saving
Domestic Savings % National Savings %
Investinent % GDP
Saving - Investment
Source: Central Bar
4.

unless the Table 7 Total public debt are used outstanding of Sri Lanka from 1950 roductive to 2010 fective use Year Public Debt (Million Rs) inding the 1950 654 potential 1955 l, 121 repayment || 1960 2,282 ady taken || 1965 4,435 tion where 1970 8,689
TCSOU C5 1975 14,564 difficult, 1980 51,346 gn sources 1985 130,284 Since the 1990 310,779 graduated 1995 635,696 le-income 2000 1,218,700 C€S of 2005 2,222,341 iing are no 2006 2,582,648
• Sri Lanka, || 2007 3,041,685 try has 2008 3,588,762 ) seek 2009 4,161,422 urces for 2010 4,590,245
ertheless, is to repay Source: Annual Reports, Central Bank ve already of Sri Lanka. using the ce recurrent payments on public borrowing.
government will falling into a trap as it was in such hyper United States of
f this country born in 2010 owe
2,255.60, out of O28.51
is not a small
to the size of the
omy. Moreover, ent of GDP is
interest
is to
ί ΟΠ
Reducing this rate is going to be a real challenge for Sri Lanka in the years to come. A considerable annount of resources will outflow to
service the debt in the future as
well (Central Bank of Sri Lanka, 2010)
Saving, investment and Foreign Direct Investment
Sri Lanka has been regarded as a consumer economy with a higher marginal propensity, to consume (MPC) of around 80 percent. The private savings rate of the country
gs and investment in Sri Lanka from 2006 to 2010
2005 2007 2008 2009 2010 DP 19.3 18.7 19.8 21.6. 20.8 s % GDP -2.3 -1.l -2.0 -3.7 -2.1 b GDP 17.0 17.6 13.9 17.9 18.7 GDP 22.3 23.3 17.8 23.7 24.7
28.0 28.0 27.6 24.4 27.8 gap 5.7 4.7 9.8 0.7 3.1
k of Sri Lanka, Annual Report 2010
Economic Review: June/July 2011

Page 17
has been low compared to that in other countries in the region. It was even much low when compared to countries such as Japan and Singapore at their initial stage of development. Japan, for example, had maintained a 30-35 percent savings rate (household and corporate saving) at the early stage of development (Herbener, 1999; http://mises.org/daily/298).
Table 8 shows recent data on the
the investment of the country. Since
trends in savings and
the government savings are negative, domestic saving of the country is lower than private savings, indicating a crowding out by the government sector. The country's
of private savings
national saving rate in 2010 was around 25 percent of GDP while the investment as a percentage of GDP was around 28 percent. Thus, an investment savings gap of 3 percent was filled by foreign investment.
The ruling UPFA government has targeted at doubling the per capita income of the country by 2016. To achieve this ambitious task, the country needs to maintain an annual economic growth rate of more than 8 percent until 2016. Maintenance of an annual growth rate of 8-9 percent requires an investment rate of 32 -35 percent of GDP. The current investment rate of 27.8 percent of GDP is well The
increase
below this requirement. country needs to investment by another 5 percent of GDP to materialise the growth forecast which is not a simple task to achieve (IPS, 2007).
Raising public investments to bridge the gap is also a hectic task given the bottlenecks in the government finances. Government investment at present is 6.2 percent of GDP. Increasing government
H Economic Review: June/July 2011
investment extremely diffic since the governn
TõVee
insufficient ever
finance its recur
expenditures (Bu{ Speech, 2000-201
A possible alterna solution to incre
investment
promoting the in: of foreign din
investment. Ꮺ
UPFA governm was highly optimi of attracting a la volume of foreign with the end of
2009. But, such happen as expecte foreign direct inv Sri Lanka is low
Table 9. The size
Sri Lanka was v
compared to col India, Vietnam, a is even a very sm Lanka’s GDP. Ho
of Investment ( attract FDI am
billion in 2010, ar.
annount to USD 1
and USD 2.0 billi
Table O E
Easy of Doing Starting a busi Dealing with Co Registering pro Getting credit Protecting inve Paying taxes Trading across Enforcing contr
Closing a busil
Source: Central B

is Table 9
ult
Foreign Direct Investment in Sri Lanka from 1999 to 2010
eft Year Foreign Direct Investment
is USD Million
tO 1999 210 ent 2OOO 175 lget 2OO1 O82 O) 2002 22 2003 229 2004 234 tiVe 2005 287 2SC 2006 604 is 2007 734 low 2008 889 ect - 333 蠶 The
ent Source: Central Bank of Sri Lanka, Annual stic Reports (various issues)
trge
direct investment
civil war in mid an influx did not ld, and the actual estment (FDI) in as evident from
of inward FDI in
rery small when untries such as
und China and it
all fraction of Sri
wever, the Board BOI) expects to ounting USD 1 ld to increase this
.5 billion in 2012
on in 2013.
The main FDI contributors to Sri
Lanka in recent times are the arc
rivals of China and India. These two
countries have increased their presence in Sri Lanka by raising their investment, particularly in the government's ambitious development projects such as southern port, airport, power generation, building railways and housing projects as well as private The
engagement of these two Asian
business Ver ture S.
superpowers in Sri Lanka is viewed as a cold power struggle to control a strategic location in the Indian Ocean. Sri Lanka maintains a very
asy of doing business in Sri Lanka
Singapore | Sri Lanka || Chad
Business (Rank) 1. 102 138 SSS 4. 34 82 nstruction permit 2 169 101 berty 15 155 137
6 72 152
stOrs 2 74 154
4. 166 179
boarders 1. 72 171 aCtS 13 137 64 eSS 2 43 83
ank of Sri Lanka, 2010.
15

Page 18
cordial relationship with both countries. The obstacles and bottlenecks in the economy have to be removed to attract FDI from other sources in large volumes.
The doing business index places Sri Lanka in the middle range of 102 rank among 183 countries. The data in Table 10 indicate that Sri Lanka
needs to make a significant progress in the ranking, if the country is to attract FIDI from internationally-reputed multinational companies operating purely on business interests. For an
international investor, there are 101 countries in the list to choose from, before considering Sri Lanka. Hailing nationalism, patriotism, or emotional speeches showcasing the glory of the past do not help attracting sensible investors, but certainly creating a suitable business environment conducive
for profitable ventures would do better.
Main problems in attracting FDI include;
i. Labour market rigidities: Labour laws are very rigid and hiring a labourer is relatively easy but firing him out of the job is extremely costly.
ii. Increasing cost of production due to high wage rates and ever increasing cost of energy.
iii. Small size the domestic market.
iv. Macroeconomic instability due to high budget deficit of 7 to 8 percent of GDP and increasing foreign debt.
v. Problems related to accountability and goods governance.
vi. Uncertainty in government policies with regard to private FDI, the recent government decisions on
Table
Export Destir United States C
United Kingdon India. Italy Germany Belgium -Luxen United Arab En
Russia
Netherlands Singapore
Source: Central
Apollo hospital, Sl
SriLankan Airline
Indian Oil Compa example of such
Performance of
Sector
Sri Lanka’s rela
western nati
deterioration witl
three decades of
2OO9. The West
Lanka violated hu
the conduct of wat
a charge that Sri L
denies. Sri Lanka
anti-western and
to counter the n
calling for an inte
Table 12
Import Origin India Singapore China
Iran Japan Hong Kong United Arab Ern Malaysia Thailand Pakistan Canada
Source: Central
16

Sri Lanka's largest export destinations (as a percentage of total exports) from 2006 to 2010
tation 2006 2007 2008 2009 2010 if America 29.1 25.8 23.0 22.2 21.1
12.8 3.3 13.4 14.4 12.3
7. 6.7 5.2 4.5 5.6 3.7 5.2 5.5 6.2 5.6
4.8 5.7 5. O 4.9 4.8
mbourg 5.2 5.2 5.2 5. 4.8 mirates 2.5 2.7 3. 3.O 3.O
2.7 2.7 2.7 2.7 2.9
1.8 2.O 1.9 2.2 2.2
1.1 1.O O.9 1.2 2.2
Bank of Sri Lanka, 2010.
hell gas company, s, and Sri Lanka
uny can be recent uncertainty.
the Foreign
ations with the
started
in the end of the
civil war in mid
ions
alleges that Sri man rights during r and thereafter, anka vehemently sought help from
Islamic countries
oves of the West
rnational inquiry
on human rights issues in recent times. The country's principal allies include China, India, and Russia,
Ukraine, Iran, and some countries
in Africa, East Asia and in the
Middle East.
This is not the first instance that
Sri Lanka locks horns with the
The fir St
incidence of this nature had
western countries.
occurred in the late fifties following the nationalisation of foreign oil companies by the left-wing SLFP
government to establish Ceylon
The
Russian government promised to
Petroleum Corporation.
supply crude oil to Sri Lanka at a
cheaper price if Sri Lanka were to
Sri Lanka's main import origins (as a percentage of total imports) from 2006 to 2010
2006 2007 2008 2O09 2010 21.2 23.1 24.5 17.8 19.O
9.7 9.9 8.8 1O.4 1.6
7.6 8.2 7.9 10.1 9.2 7.4 7.5 8.5 8.8 6.7 4.4 3.7 3.O 2.2 4.3 6.4 6.4 4.9 5.1 4.3
irates 2.1 2.9 3.O 4.O 3.5 4.3 2.5 2.5 2.8 2.8
2.O 2.O 2.1 2.7 2.3
1.4 1.6 4 .9 2.1 2.1 O.7 2.7 2.7 2.1
Bank of Sri Lanka, 2010.
Economic Review: June/July 2011

Page 19
nationalise western oil companies. Keeping national interest in mind, the government went ahead with its plan of nationalisation. The US (United States) and French oil companies suffered as a result of the takeover and demanded full compensation at market value for which the government did not agree. In retaliation, the US government invoked the famous Smoot-Hawley legislation against Sri Lanka and ceased all its aid and assistance to the country until the full compensation to the oil companies was made. Sri Lanka sought assistance from Russia, China and India for its immediate needs but
at the expense of a good part of foreign market, economic growth and international relations. The relationship with the West has been re-established by the UNP government in 1965, after making the full payment of compensation
to the oil companies.
In the current world geo-political power play, Sri Lanka's friends seem economically superior and more powerful than their western counterparts who are plagued by financial crises and economic
turmoil in recent times. Some are highly optimistic to conceive that the twenty first century to be an Asian century, and it is predicted that all the growth of the world is going to happen in Asian countries (Scott, 2008). As such, one might argue that Sri Lanka's friendly countries will be able to support by providing market access to their countries in addition to financial and diplomatic assistance whenever required to counter the noves of the western countries.
Economic Review: June/July 2011
But, even for
al casual
observation,
it is not
difficult to
see the high
cost of
pursuing such a policy for a small
country like S1
present context
At present, Sri mainly on the we its exports as sh
The USA and the
major export mark products. One thi
exports goes
countries. More Lanka exports de countries. It is mc
any new allies of grant such a lar{ given the nat commodities of S rubber, cocon petroleum prod gems and jewell
China and India the Us and Eur markets, for thei Therefore, findir Lankan product countries might
endeavour. The
to suspend the to Sri Lanka considerable
exports to the E
Sri Lanka’s imp mainly from fr: India, Singapore first three large Lanka. (Table 12

Table 3 Balance of payments of Sri Lanka from 2006 to 2010
Year Trade Balance Current Account Balance (billion USD) (billion USD) 2006 3.3 1.5 2OO7 3.6 1.4 2008 5.9 3.9 2009 3.1 O.2 2OO 5.2 1.4
Source: Central Bank of Sri Lanka, 2010.
i Lanka in the
Lanka depends
stern markets for
own in Table 11. : UK are the two iets for Sri Lankan
"d of the country's to these two
than half of Sri stines to western
ostly unlikely that Sri Lanka could ge market access ure of export ri Lanka, viz. tea, ut, garments, ucts, diamonds,
ry. Indeed, both depend more on opean Union (EU) exports as well. g market for Sri S in non-Western
not be an easy
ecision of the EU
SP+ Concessions
has exerted
ressure on its
J.
rts are originated endly countries. and China are the
t exporters to Sri
.
Sri Lanka has been experiencing
deficits in both the trade and
current account balance (Table 13). The higher trade deficit has offset mainly by private transfer receipts in the form of expatriate inward remittances. Hence, the current account deficit records a lower
figure than trade balance. It is
interesting to note that the
women's contribution to the
balance of payments is extremely important. The two major exports of Sri Lanka tea and garment are produced mainly by female workers. The third largest source of foreign exchange earning is migrant unskilled female workers employed mainly in the Middle East. This is not favourable for Sri Lanka to boast its image as an emerging
economy.
The solution to the increasing trade deficit requires fundamental changes to the structure of exports and imports, and at large, the economic structure of the country.
Efforts
commodities have not yet made
to diversify exports
significant progress. The country has identified tourism as a leading sector that can help reducing the trade gap, particularly after the completion of the war in the North and the East. However, at present, the country does not have the
17

Page 20
capacity to cater to large number
tourist arrivals as compared to major tourist destinations such as
the Maldives or Thailand. Tourism
promotion activities of recent times
have been successful, but the
be
developed to sustain the advantage
infrastructure needs to
as a major tourist destination. High-spending tourists destine to
the Maldives than Sri Lanka,
the Maldives
its
because have
reconstructed tourism
infrastructure after the devastation
of the Tsunani in 2004 to attract
high-spending tourists. Sri Lanka
has so far failed to take this
advantage and yet there is great
potential to develop this sector in
the future.
Conclusion
The growth performance of Sri
Lanka during the last sixty years was not satisfactory given the
initial favourable conditions. The
country's social development record has been impressive despite lower economic growth. Recent efforts to increase growth performance are also constrained by both domestic
and international factors. Sri
Lanka's economic relations with
the western world have been
deteriorated after the end of the
civil war. Polarisation night not help Sri Lanka to materialise its ambitions development targets. A
combined effort is necessary to
restore the country's image as an open economy with grater human
freedom.
References
Alailima, P. (1997). Social Policy in Sri Lanka. In: W.D. Lakshman (ed)
Dilemmas C
Development:
Economic Change
Lanka Associatio
(SLAE), Colombo.
Arunatilake, N, Ja Kelegana, S. (200
Cost of the Wa
Institute of F
Colombo.
Athukorala, P. an
S. (1994). Macroe Crisis, and Grow
1960-90, The
Washington DC.
Bruton Hendry
Political Econo
Equity, and Grow Malaysia, The Wo
University Press,
Budget Speech (, Budget Speech of of Sri Lanka, Mir Colonbo.
Central Bank of S years). Annual Central Bank
Colombo.
Department of Statistics (2009). available at: www.statistics. Povertylindicators
Ganeshamoorthy Political
Liberalisation
Countries: The S
NICCOS, V Entwicklungspol GmbH, Germany.
Econ(
Herbener, J.M. (19 Fall of The Japane Daily, Ludwig Vol available at :ht daily/298.
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f
Fifty Years of
Economic
2 in Sri Lanka, Sri
n of Economists
lyasooriya, S. and O). The Economic r in Sri Lanka, 'olicy Studies,
ld Rajapathirana, conomic Policies, th in Sri Lanka,
World Bank,
J. (1992). The my of Poverty,
th: Sri Lanka and
Irld Bank, Oxford
New York.
2010 and 2011).
the Government
listry of Finance,
ri Lanka (various Reports of the
of Sri Lanka,
Census and Poverty Statistics http:// gov.lk/poverty/ 2009-10.pdf
, M. (2002). The omy of Trade in Developing iri Lankan Case, terlag Fur itik Saarbruken
99). The Rise and ese Miracle, Mises in Mises Institute, tp://mises.org/
International Monetary Fund (2009). IMF Executive Board Approves US$2.6 Billion Stand By Arrangement for Sri Lanka, IMF Press Release No. 09/266,
Available at: http://WWW.inf.org/ extern al A n p / S e C / p I/2 OO9A pro9266.htm
Institute of Policy Studies (2007). Mahinda Chintana: A Complementary on Policy Options, IPS Working Paper Series No.l. 1, Colombo.
Lakshman, W.D and Tisdel, C.A. (2000). Sri Lanka’s Development Since Independence; Socioeconomic Perspectives and Analysis, Nova Publishers, New
York.
Mahinda Chinthana (2005 and 2010) Mahinda Chinthana Policy Document, Government of Sri Lanka, Colombo.
Osmani (1994). Is there a Conflict Between Growth and Welfarism? The Significance of the Sri Lankan Debate, World Development No.25:387-92.
Scott, D. (2008). The 21st Century as Whose Century, Journal of World Systems Research Vol.XIII, No. 2:96-118 availablw at http:// jwsr.uci.edu/archive/voll3/ScottVoll3n2.pdf.
Snodgrass, D. R. (1998). The Economic Development of Sri Lanka: A Tale of Missed Opportunities, Development Discussion Paper No. 637, Harvard Institute for International
Development, Harvard University,
World Bank (1953). Economic Development of Ceylon, World Bank, John Hopkins Press, Baltimore.
Economic Review: June/July 2011

Page 21
Democratisation Institutions: Challen
Introduction
he term "international
organisation' is usually used
to describe an organization set up by agreement between two O Oe States. These organisations are established for the purpose of achieving collective goals. In that sense, they are interState institutions with the mandate of working for the goals stipulated in the constituting documents. However, these common goals cannot be divested from the general welfare of the people around the world. Each institution has its own constituting document which sets out its primary objectives, powers and functions. Expressing willingness to be bound by the constitution by any State would qualify it to become a member of the institution. In fact, it is a kind of club of States but could be established for various purposes as agreed upon the founding members. Although there were many such institutions established well before, the arrival of the United Nations (UN) has remarkably changed the landscape of the nature and functions of such institutions.
Today one could find such institutions functioning in many spheres such as politics, defence, economics and finance, natural resources, trade, health, science and technology, travel, tourism etc. Prominent among them are the UN and its specialised agencies, the International Labour Organisation (ILO), World Health Organisation (WHO), the World Bank, the International Monetary Fund (IMF) and the World Trade Organisation (WTO). As promoted by the UN, States have shown keen interest in establishing powerful regional
Economic Review:June/July 2011
organizations as Atlantic Treaty (NATO), the Euro the Council o Organisation fo Cooperation in Eu African Union,
American Organi considered as il wield much pow international are)
The primary fu organisations is c and contributing 1 the States at nat international lev and protecting th people. They necessary lega powers for the sta have proved to be their chosen f monitoring mecha hesitate to use stick” policy in ens by the governme countries.
However, with the and the begi globalisation prc been a discernibl in the focus of international in slogan of 'democr of law has becoi label affixed to all and remains a co: in evaluating the the nember State in the internaliz there are man transcend territor States and th addressed by the without the
cooperation of Examples al communication technology and

of International ges and Prospects
well. The North Organisation pean Union (EU), f Europe, the r Security and rope (OSCE), the and the Inter
sation States are
nstitutions that er today in the
a.
nction of these ollaborating with o the activities of
ional as well as el in promoting he welfare of the have acquired l enforcement ted purposes and very effective in ield with due inism. They never the 'carrot and uring compliance ints of the third
end of cold war nning of the ocess, there has e paradigm shift activities of the stitutions. The atisation and rule ne the attractive
of their activities ndition precedent : performance of es. It is true that ed world affairs, y issues which ial boundaries of uey cannot be respective States support and
other States. e transport, information proliferation of
W.T.Thaminaran
Head, Department of Public and International Lаи», University of Colombo.
cross-border crimes. Therefore, the necessity is felt that the States have to act in collaboration with each other. The easiest way of doing it is through international organizations. However, requesting strict adherence to the conditions laid down by some of these organisations is considered as bias and irritating many
developing countries. In their
opinion, these conditions annount to an interference with their domestic politics and restrict them from the lawful exercise of the sovereignty of the people concerned. In that sense they have become necessary evils undermining the political independence and territorial integrity of their own members. Topping the list of these conditions is the OS relating EO democratisation of the system of governance of States.
Globalisation
Denocratisation
and
A widely-held misconception is that globalization promotes democracy and rule of law. Leave alone the different types of democracy one may be obsessed with, it is very much contested by scholars from the developing countries. For example, Anghie argues that the difference between the colonised and the coloniser has been replaced by the terms developed and under- developed. It is perceived by them that globalization is just a tool employed by the developed to perpetuate the cleavage between the haves and have-nots in the
19

Page 22
globalised world. The underlying truth is correctly pointed out by george Monbiot in his observation that in our age everything has been globalised except our consent'.
“Globalisation and "Global in today's context are all about economy and market. The process of globalisation transcends all borders including geographical, political and social ones. Not surprisingly, those institutions which are entrusted with the task of stabilising financial market(s) have taken particular interest in taking forward the process of globalisation. Strategically, they adopt the policy of promoting democratisation and rule of law in all areas of governance. In addition, globalisation has its own inherent ability of operating through networks.
What should not miss our attention is that all the programmes designed for such promotion are fundamentally based on market - oriented agendas. The "not so hidden agendas' of many of these institutions are aimed at creating a legal environment conducive for promoting market interest of the developed world.
it is correctly observed by Harold Hongju Koh that in the new millennium there are, at least, three universal languages': money, the internet, and democracy and human rights. Hence, the question of democratisation is bound to address issues relating to rule of law, democracy, equal access to justice, empowerment of the people, etc. All the international institutions have designed their programmes and prepared their budgets giving high priority to addressing the above- mentioned issues. In fact, it has been argued that the democratisation process is nothing new but grounded in the UN Charter itself. Reference has been made to the Preamble to the UN Charter and the subsequent State practice."
Undertaking the process of globalisation as their primary task;
today the interna are in a position to their principal This is very mucl the institutions d finance such as
World Bank. Th allegation tha organistions si] interests of a few On the other ha amazing to see ' should partici arrangements sk interests of the st can it be conside phenomenon? “undemocratic” ar UN Charter it demonstrated as the permanent
Security Counc States want join The understanding c structure rather t to certain abstra
8 SWE
Global Net “Undemocratic”
The increased ir institutions is ev many spheres affairs, but a domestic politics the member Stat above, altho' international inst same level of wi matters falling w sovereignty of m extended reach affect day-to-day the globe. There over the 'democ1 international attributed to th Considering th institutions are of States and ac partners in t process, democ cannot be do: institutions democratic in external outlook
20

onal institutions :o 'dictate' terms , i.e., the States. so in the case of aling with global he IMF and the s has led to the international ply reflect the powerful States. ind, it is equally why weak States pate in such wed towards the rong.” But, again red as a strange What about the rangement in the self as clearly to the powers of members of the il? Why do still :he club, the UN? lies in the f the functional han the reverence ct principles.
:Works and
Liberalism
fluence of these ident not only in of international so in shaping and economy in es. As referred to ugh not all itutions are in the elding power over ithin the ambit of ember States, the of some of them life of everyone in re many concerns atic deficit at the level mainly ese institutions. fact that these othing but agents ing as formidable e globalisation atising the world
e unless these.
hemselves are heir internal and and operations.
The purported autonomy of the international institutions is in no way helpful to make them democratic; Many States are enticed to become members of major financial international institutions through attractive common purposes. The weaker States tend to believe that they can expect benefit through such cooperation. At this stage, all member States agree to delegate enormous powers in the hands of the agent, the newly- created organisation.
Once armed with the powers entrusted through a common agreement, the international organisation begins to produce, most of the time predictable, policies reflecting the concerted views of the powerful members within the organisation. In making these policies and demanding their implementation, each institution has its own style of operation. However, scholars have observed a common phenomenon running through the functions of many of these institutions.
This observation has helped Stone to conclude that international organizations operate according to two parallel sets of rules; formal and informal.0 The formal- level operation demands consensual procedure adopted by the members. The informal - level operation only warrants much criticism for its lack of transparency and accountability towards its own members.
After studying the operational style of the IMF, Stone concludes that it is at the informal level only the US is in full control of the Fund.
Is it possible to think about any meaningful ways and means of checking the 'undemocratic liberal' practices of the institutions? This question is largely related to the international legal framework that governs international institutions.
Is Autonomy Evil in Itself?
According to Malcolm Shaw, international institutions have
Economic Review: June/July 2011

Page 23
objective legal personality. Generally, the criteria adopted for determining legal personality include its constitution and its ability to enter into relation with States and other organizations. It is also based on the institution's ability to conclude treaties with States and its capacity to undertake and perform according to the treaties.
This personality on the other hand also invites responsibility which could be extended not only towards States but also other organisations and individuals. Therefore, there is a legitimate expectation from various quarters that international institutions should adopt democratic practices in their operations. Quoting from the celebrated judgment of the International Court of Justice (ICJ) in Reparation case, the leading authority on international institutions, Bowett noted that what is most dan gerous is the implied powers of the organisations to do whatever necessary for achieving the general purposes and enabling to perform their functions. Under this umbrella, the institutions enjoy a certain degree of "freedom" to design and carry forward their activities.
A few examples would be illustrative of the extent to which that freedom can be used or otherwise. Way back from the 1990s, the EU has made human rights as an important element of its relationship with third parties. When the EU signed a trade agreement with India in 1996, a human rights clause was included in it, and it was approved by the European Court of Justice. But, in the same year, the same Court ruled that the EU lacked competence to accede to the European convention on Human Rights. With the latest amendments and modification of the regulations of the EU relating to financial assistance to developing countries, decision- making on sanctions is
Economic Review: June/July 2011
influenced, not principles but pragmatic consid worrying aspect fo: of the global so regulations recent EU which author financial assis governmental or projects independ of the third coul concerned.
In the case of IM by Stone, it is i mobilise more re US Agency for Development as th without US congre It is obvious, ther can exercise its in Fund to induce governments to s term foreign polic
The decision-ma adopted by these not always sa democratic requir earlier, there may of unanimity, veto lack of willingnes on the part of the States.
Democracy at H.
While welcoming requesting the requirements rela and human righ countries are w domain of legiti that these institu same values with expectations is r through parliame which represer assemblies of the If this practic situations such
the US over the II only 17% of the
be, at least, redu This is, in fact, governments at it
However, it is instead of co1 supranational II

strictly by legal y political and trations. Another the governments uth is that the ly adopted by the izes it to extend
ain Ce tO In On – ganisations and 2nt of the consent
try government
F, as pointed out in a position to jources than the International eformer can lend ssional approval. efore, that the US nfluence over the the recipient upport its longy objectives 7.
king procedures organizations do atisfy all the ements. As noted be a requirement l, and sometimes, s or genuineness powerful member
the conditions fulfillment of ting to democracy ts, the recipient ell within their nate expectation tions practice the hin. One of such making decisions ntary assemblies it the national member States. e is adopted, as the control of MF while holding voting power can ced to a minimal. a parliament of nternational level.
suggested that stituting such arliaments with
an
national parliamentarians, it is preferred to elect them directly as in the case of the European Parliament. The time is ripe to think about expanding democracy beyond the boundaries of the nation-State.
Many of those issues previously considered which fell within the sphere of domestic decision making at the national level have now been shifted to the global level. Going by the same yardstick, the democratic decision-making process at the national level stressed by the global south should be made equally applicable at the international level as well. Opportunities for participation, not only by civil society actors, but also by those “would be targets' should be made available at all international fora where matters are transacted in the name of democracy and human rights.
Democracy at the international level cannot afford to function only with supranational parliaments. After all, a government needs the presence of its all three organs to make it a democratic one. As such, there should be an executive branch, and access to justice would be made available, not only to the State parties, but to all of those who would be affected by the
governmental actions'.
Conclusion
The need for democratisation of international institutions is timely, and it is possible through reducing the dominant role and influence of national States in the process of globalisation. It should be a participatory process involving all the stakeholders including civil society actors representing a variety of interests within and across national boundaries. Promoting the establishment of supranational organizations, whether at regional Ο Ι. international level, would end up in widening the gap between the global south and the north, if not checked for their representative character of the people at large. In parallel to the globalisation process
by States and inter-State organizations, there should be international civil society
21

Page 24
movements as well. These In ovements will undertake to nonitor the activities of these institutions not fron a Statecentric perspective but purely from a people's perspective. The civil society movements are need not be bound by market-oriented interests or membership constraints in the respective international organizations. This could be a very effective way of placing a check on the process of globalisation depriving the basic rights of the people of 'recipient' countries. It is a strange phenomenon that there exists a quite number of monitoring bodies for evaluating the performance of national States of their adherence to democratic norms and human rights values, but at the same time, there is no such body in existence to check the domestic practices of those institutions which are entrusted with the task of demanding such adherence.
Footnotes
o Michael Ake Introduction to
(1997), p.92
* Anghie, Antony., Post Colonial State Sovereignty and International Law
Monbiot Geor
Consent : A Ma
World Order (2003), p. 23
“ Nye and Donahue in A Globalising
5 Synder, F. Globalization" in T Process: globaliz Disparities, Likosk at p.67
US Departmen Country Reports Practices, Feb., 20
7 See for detail d Burnell (ed.), Denc International C Democratization
Contd. from page 09
have poised it on the brink of a period of significant economic growth. If appropriately harnessed, these opportunities could establish the region as a growing economic power of considerable note. Its success in this regard will, however, depend crucially upon India's continued economic achievements and the region's ability to absorb the consequent spillover benefits. This, in turn, relies upon a far greater level of regional integration than is currently being experienced. Yet, despite the relative slowness of the process, greater attention is now being paid to achieving just this. If, during the next few years, South Asia is able to overcome geopolitical concerns and improve regional integration, particularly with India, to a more desirable level, it could well fulfil its potential of becoming Asia's newest economic miracle'.
References
' Tan Tai Yong (ed.), Challenges of Economic Grouth, inequality and Conflict in South Asia, Singapore: World Scientific Publishing, 2010, p. 32.
World Bank, Reshaping Tomorrou: Is South Asia Ready for the Big Leap? (forthcoming).
David E. Bloom, I Larry Rosenberg Change and Econ World Bank, Resha South Asia Ready (forthcoming).
ibid.
ibid.
Homi Kharas, "Th Class" in World
Tomorrou: Is South Big Leap?(forthcon
7 World Bank, Resh South Asia Ready (forthcoming).
ibid.
ibid.
Research and Info Developing Coun Development and
2008, New Delhi: Press India, 2008,
ibid., p. 27.
Ibid., p. 27.
13 Ibid., p. 29.
* IMF Direction St a t is t ic s
accessed 16 June
o “Sino-Indian Tra USD 60 bn Targe January 20 postjagran.com/
22

hurst, Modern international Law
"Sovereignty in the ”, in Imperialism, l the Malking of
(2005)
ge, The Age of ifesto for a New
(eds.), Governance World (2000), p.02
G., “Governing ransnational Legal ation and Power y,M. (ed.), (2002),
t of State, 1999 on Human Rights OO
iscussion; Peter cracy Assistance: ooperation for 2000), pp.67-89
Randall W. Stone, "The Scope of IMF Conditionality”, International Organization, Vol.62, No. 04, Fall 2008, at p.590
9 Ibid.
10 Ibid.
ll bid.
Malcolm W. Shaw, International Law, at p.241
13 1949 ICJ Reports 174
Bowett, D.W., The Law of International Institutions (1982), at p. 337.
o Portugal v. Council (1996 ECR 16.177
Regulation (EC) No. 1889/2006 of the European Parliament and the Council of 20 Dec. 2006
7 Stone, op.cit., at p. 594
David Canning and (, "Demographic onnic Growth", in aping Tomorrou: Is for the Big Leap?
e Rise of the Middle Bank, Reshaping Asia Ready for the ning).
aping Tomorrouw: Is for the Big Leap?
brmation System for
tries, South Asia
Cooperation Report Oxford University p. 27.
of Trade Online
, s h t tip. A 1. s.org/DOTA->, last 2O11.
de Volume Exceeds t”, Jagran Post, 27 ) li li , http://
12961427, last accessed 26 June 2O.
Research and Information System for Developing Countries, South Asia Development and Cooperation Report 2008, p. xix.
Research and Information System for Developing Countries, South Asia Development and Cooperation Report 2008, p. 47.
Ibid., p. 47.
Ibid., p. 48.
Ibid., p. 53.
Ibid., p. 19.
Ejaz Ghani (ed.), The Service Revolution in South Asia, New Delhi: Oxford University Press, 2010, p. 6.
* Research and Information System for Developing Countries, South Asia Development and Cooperation Report 2008, p. 37.
2 Ibid., pp. 38-39.
Arvind Panagariya, India: The Emerging Giant, New Delhi: Oxford University Press, 2008, p. 266,
o Ejaz Ghani (ed.), The Service Revolution in South Asia, p. 216.
* Research and Information System for Developing Countries, South Asia Development and Cooperation Report 2008, p. 54.
Economic Review: June/July 2011

Page 25
The might of powerful nations cannot pr
Mr. President of the sixty sixth session of the Genera
tion of the Presidency. I must also congratulate His
I is with great pleasure that I congratulate Your Ex the Secretary-General and we look forward to worki
As we gather here today, it is appropriate to reflect on 1 system. One of the principal attributes is the spirit c United Nations.
We must acknowledge the need for that spirit of oper time. This is because the foundations of the world Order At the heart of these changes is the need to protect sm their interests vigorously.
In the midst of uncertainty, there are some things whi beliefs and convictions. Despite repeated references in of the Palestinian people to a state of their own within a reality.
It is a matter of profound disappointment that this ha now, and we must make use of it before it is too late. It This will be in the interest of the security and the wel
The need for sustained support for countries of the Al mention.
It is important to remind ourselves that every country religious convictions it has nurtured over the centuries of human rights, by the imposition of attitudes or app:
If this were done, it would amount to a violation of h pointed out that even where sanctions are imposed, ex at large, men, women and children yet to be born, are : again, my solidarity with the people of Cuba, and I wis
Mr. President, Excellencies, Whilst clash of ideas, c clearly that dialogue, deliberation and consensus offe: might of powerful nations cannot prevail justice and fa
In the troubled times in which we live, we can derive who advised the Lichchavi Princes, whose energies wer the way forward consists of meeting, discussing and d represents the essential spirit of the United Nations.
The most significant challenge to stability and progr terrorism. Recent experience the world over amply demo approaches can unintentionally give a fresh lease of response which refuses to recognise political shades
Terrorism presents a threat from which not even the must be remembered, as well, that terrorist groups fre Conferring legitimacy on these has the inevitable effecto of terror.
As the leader of a nation which has paid a heavy pric underline that we must firmly resolve to rid the world the ground, and send out our collective message on tl
Mr. President, Excellencies, The interests of the devel respect. It is vitally important to insist that the struc uniform and consistent and devoid of discrimination.
We ask our friends in distant lands to drop pre-conceiv for them to be sustainable. It is clearly impractical afflict our societies.
H Economic Review: June/July 2011

avail against justice and fair play
— President Mahinda Rajapaksa
Assembly, Excellencies, Ladies and Gentlemen,
cellency Nassir Abdul Aziz Al-Nasser on your assump Excellency Ban-ki-Moon warmly on his re-election as g with him constructively.
he values and ideals which inspire the United Nations f flexibility which has always been a feature of the
ness and adaptability today, more than at any other are being transformed dramatically and fundamentally. aller countries in the developing world and to advance
ch must remain constant. These reflect our esteemed his Assembly by many member countries on the right secure borders, we still have not been able to make it
s not yet happened. There is a window of opportunity is time for decisive action rather than more discussion. | being of the entire region including Israel.
rican Continent at this critical time is also worthy of
cherishes the values and traditions, and deeply-held . These cannot be diluted or distorted under the guise roaches which are characteristics of alien cultures.
unan rights in a fundamental sense. It must also be treme care has to be taken to ensure that the people not harmed by such action. I would also express, once sh them all success.
pinions and values continues, we have to recognise r the only viable means for resolving differences. The ir play.
guidance from the wise words of Gautama the Buddha e being consumed by bitter disputes among them, that eparting in an atmosphere of amity and goodwill. This
ess in the modern world is posed by the menace of instrates that inconsistent standards and discriminating life to the forces of terror. An explicit and uniform of terrorism is necessarily required.
wealthiest and most powerful nations are immune. It quently operate under the guise of front organisations. providing comfort and encouragement to the merchants
due to terrorism over a quarter of a century, I would of terrorism. We need to have solid practical action on is issue loud and clear universally.
ping world need to be protected in another significant lures and procedures of multilateral organisations are
:d notions. We strongly believe in home-grown solutions o conceive of universal remedies for problems which
Contd. on page 27
23

Page 26
An Insight from
Philosophy
Introduction
ustice and peace are two
relative concepts and have a
very practical significance. Human society is always dependent on justice and peace, and they are very much related to almost every facet of human existence. In the absence of justice, it is extremely difficult to maintain law and order in society, and this shows that justice has more dominance over the other. These two cognate terms have various connotations and signify their utmost importance for the harmonious existence of human society. The term peace in a broad sense signifies the state of freedom from war or violence and a state of harmony and friendship where there is absence or prevention of conflict, warfare, disorder and agitation in human society. According to this connotation, it is comprehensible that it has a psychological, social, economic and political significance. Peace makes its origin in human mind and develops in society. The seed of peace when planted in the field of human mind grows into its maturity in the pond of human society. For its growth and development, there should be a harmonious social atmosphere, especially in which justice is enjoyed by everyone equally. This shows that peace is to be achieved through peaceful means, and in that endeavour, justice also becomes a key element. Justice and peace are not merely abstract concepts; they signify a practical living phenomenon of human society and life.
According to Buddhism, justice, signifies the first virtue of social
into J
institutions an element to mair
human socii
establishes the e society or effecti that serves the tr Whereas peace is first generated in strong founda continuous m interpersonal r creates prosperi social, political welfare and der disposition am( beings towards e. life of unity amor result of peace". peace does not d mere absence ( presence of cultu: understanding a diversity. It is a human mind an
there is absence aggressive, harn mind and human
Thus, these two very importantide instance, good gc signifies justic Justice and pe understood in Bu nothing but ha 1 relationships and human needs requ existence of all and peace could b when there is re human aspiratior and the equal national wealth (r. the state among society.
Role of State in of Justice and
Buddhism has 1 human needs suc
24

Early Buddhist ustice and Peace
d is a required tain equality in ety?. Justice uality in human ve political order ue interests of all. considered, it is mind and lays a tion for the
aintenance of clationships. It ty in matters of and economic hotes a friendly ong the human ach other, and a ng diversity is the This shows that enote necessarily of war, but the ral and economic nd unity among positive state of d society where of destructive, hful elements of
society.
concepts become als in politics. For overnance always e and peace. ace have been Lddhist teachings rmony in social the fulfilment of tired for the happy beings. Justice e maintained only cognition for the S (mental needs) distribution of material needs) by the members of
the Maintenance
Peace
recognised basic ch as subsistence,
Dr. Rajitha P. Kumara
Senior Lecturer, Department of Pali and
Buddhist Studies, University of Kelaniya.
economic stability, education, protection, social-interaction, mental and physical health, human dignity and social status, loving kindness and compassion, spirituality, etc. as the mental and physical needs of human beings. Basically, these human needs can be classified as physical, mental and spiritual as well. According to Buddhist political, social and economic philosophy, these needs have to be fulfilled if justice and peace are to be established and maintained in human society.
When we observe the evolution of human society, it is obvious in its dynamic process of evolution; the necessities of people also grew at a very rapid speed. For instance, according to the Aggannasutta, the fundamental human needs are reproduction, existence and protection. All other needs are related to the above three kinds of human needs. When these basic human needs are fulfilled, justice and peace could be secured and maintained. A system of good governance was established in human society, basically for the maintenance of justice and peace as well as the fulfilment of the above-mentioned basic human needs. As governments are formed by the people based on principles of good ruling, it is the responsibility of any government to create a harmonious atmosphere in which justice and peace are enjoyed by people equally.
Thus, it is obvious that maintenance of social justice and
Economic Review:June/July 2011

Page 27
peace to a greater extent lies in the fulfilment of basic human needs by the governing bodies. Among then, economic stability and equal distribution of national wealth are of prime importance. Individual as well as society depends on the economic realities, and it is a dominant factor in deciding the nature and social level of one's life. Some of the discourses such as Kutadanta, Agg аппа Mahasuddassana, etc. focus much
the conditions of individuals, and
and
attention on economic
advice is given for the fulfilment of economic realities by the state'. Specially, the rotation of wealth around one sector of society or individual leads to problematic situations of a society. This makes the emergence of inequality, theft and plunder, class-division and class-struggle in society and also widens the disparity among different sections of society. It is an obstacle for the harmonious relationships among the people, and the maintenance of justice and peace. In the Pali discourses, the hoarding of wealth by a certain section of society has been termed as sannidikara which makes clear disparity among the sections of society that crumbles the social structure. Maintenance of justice and peace is dependent on the equal distribution of national wealth in society. All should have an equal access to national wealth, and it is the responsibility of a State to create opportunities for every citizen to enjoy equal economic benefits. It is mentioned that the supply of capital and the infra-structure facilities are of paramount importance for the harmonious existence of society?. In the discourses, much emphasis is given
many
on cultivation, agriculture, government service, business ventures and employment.
Buddhism has given an equal importance to all the sections of
Economic Review: June/July 2011
society, and the mention on any society. If equal of be extended to
society, social di lead to the bre (justice) and orden could be preve certain section of the centre of focu: inequality amon and the emerger situations becom Some economic th
make use of
conditions of the
and use it as a creation of soci thereby attempt for the achieveme peace and socialj rejects such destr emphasises the the divided sectie building a harmo. relationship amo. sections of soci does not support of conflicting situ for the materialis of socialism, capitalism. Instei the existing con sections of societ to create harmon among the indivi
According to Bud intrinsic natures
the endeavour to existence, and psychological d human beings dis other species. It that existence is the foundation
social relationshi good system o necessary. A
governance c protection agains financial, politic emotional requirements of the dangers from

re is no special rivileged class in portunities could 2very section of screpancies that ak down of law (peace) in society inted. When a society becomes , there generates the individuals ce of conflicting es unavoidable. Leories attempt to poor economic underprivileged means for the
all conflicts and
to find solutions nt of long-lasting ustice. Buddhism
uctive means and appeasement of ons of society by nious and cordial ng the conflicting ety 1“. Buddhism the employment Lations in society ation of the ideal
communism or ad of aggravating flicts among the y, Buddhism tries tous relationships duals of society.
dhism, one of the of human mind is make life a happy it is a basic
rive that nakes tinguishable from is an obvious fact relative and lays for a network of ps. That is why a f governance is good system of ould maintain it physical, social, al, occupational, ind human beings and natural and man
spiritual
made disasters. Therefore, it is the responsibility of good governance to control recognised hazards of life. When there is threat to justice and peace in human society, remedial measures have to be implemented immediately°.
Moral Foundation of Justice
and Peace
Individual as a social being is a part of society, and inevitably, there develops various kinds of social relationships with other members of society. Just as the relevant governments accountable for the maintenance of hazard-free society, members of society also have a big responsibility in the fulfilment of the needs Other 7. Individual behaviour is the deciding
of each
element of justice, peace, unity, harmony and integrity of a society. Every human being wishes for the support from other human beings for the fulfilment of their needs. Expectations and aspirations of people are psychological drives that take humans an upward journey of their life. Expectations and individual behaviour in society form the basis of social relationships. Thus, the maintenance of order in human relationships is of prime importance in preserving justice and peace. It is necessary to be responsive to the needs and expectations of others and to have a regard and respect for them. As the other members of society are not mere physical objects, one should have a sense of respect towards their basic human needs. This sort of responsible socia 1 behaviour is known in Buddhism as samacariya, a kind of behaviour supportive for the harmonious existence of social relationships. Society is living phenomena in which life of all members is dependent on each other. To control detrimental elements of society (visanacariya) there should
25

Page 28
be a good system of law (justice) and order (peace) above everything'. On the other hand, every individual too has a big role to play in society. That is why Buddhism emphasises the significance of a good social relationship in the fulfilment of
each others' needs.
Psychological Foundation of Justice and Peace
According to Buddhism, mind is the forerunner of human actions, and the nature of human actions decides the nature of human society. Thus, justice and peace have a strong psychological foundation. One should not be driven by the four extremes of human mind known as insatiability (chanda), antagonism (dosa), terror (bhaya) and delusion (moha). Insatiability is an evil quality that signifies the extreme desire. This could drive a human towards antisocial behaviour which is extremely harmful for justice and peace of a given society. Antagonism or enmity signifies a very strong dislike and unpleasant psychological drive towards society, and it damages harmonious existence of human beings. This can be either a remark or a deed. It manifests as anger, a kind of feeling of displeasure and hostility. Terror or cowardice drives one into doing detrimental things that dismantle the co-existence of human society, a threat to justice and peace. Delusion signifies incapability of understanding the causality of a challenging situation.
The views, thoughts, ideas and concepts are generated in human mind as a result of the contact of objects with the relevant faculties. The final result is the conceptualisation of the objective world. Buddhism has made necessary grounds to correct and rectify our erroneous ideologies, views, thoughts, concepts, etc. that shape human destiny. For instance, Buddhist political and economic philosophy is one of the examples which has a great impact on mental and physical behaviour of an
individual. Found principles of goc based the
benevolence, lo
O
truthfulness and
such qualities ge: harmony amon beings.
Harmf:
Harmful Co
falsehood harsh words harmful word
worthless wo
Communicatio) Channel for Just
According to Buc communication channel for the justice and peac have the strong truthfulness and Basically, commu aspects, i.e communication communication. communication disintegration of justice is class aspectsas showr
Irresponsible ( generates decept disharmony an society. Deception the two psycholo bad communicati disharmony and : social consequ communication. communication dr spirit and energy harmonious so Hence, positive c maintenance communication generated27. Advi self-interest (attah (parahetu) or with of advantage ou falsehood should The words that integration, friend
26

ation of Buddhist ld governance is thoughts of ving-kindness, generosity, and nerate peace and fellow human
and understanding should be expressed. One should adhere to the followings in communication: i.e., communication in right time, imparting of right facts, right use of language, use of meaningful facts, inner motive of justice and реасе, e tC. Moreover, in communication, one should be mindful of the application of pleasing words, pleasant talk,
Ll communication and its consequences
in an Essential tice and Peace
ldhist teachings is an essential maintenance of e, and it should foundation of trustworthiness. nication has two
harmful ל " and harmless
Harmful that leads to peace and social ified into four
below:
communication :ion, animo sity, d injustice in and ill-will are gical impacts of kon whereas the injustice are the ences of bad These types of 'ain away human essential for a cial existence. gualities for the of a. good
have to be ce is given with etu) or interest of the expectation s (anisahetu) not be uttered. nake harmony, ship brotherhood
d tion and favo ill-will and
3.
unblemished method, meaningfulness, making obvious facts very clearly drawing of receivers attention, well presentation, receiver's rejoice, etc. Advice is given to totally abstain from falsehood in Buddhism and to promote truthfulness in society. The promotion of truthfulness and the disapproval of falsehood in society lay a good foundation for justice and
peace.
Conclusion
It is obvious that justice and peace
have psychological, economic
social, political implications. These two cognate concepts have a relative and practical importance and form the very structure of human society. It is the justice that always could safeguard peace in society. Thus, there is a big responsibility of the governing bodies of a country to maintain justice and peace in society. In the process of the establishment of social justice and achievement of peace, basic human necessities have to be identified and attended in practice and theory. State as well as the each and every member of any society has a big responsibility in the fulfilment of
and
Economic Review: June/July 2011

Page 29
human needs which lays a good foundation for justice and peace. The motivating force of human society is the various kinds of aspirations and the material needs of its members. However, the quality and nature of justice prevailing in a society is the energising principle and deciding element of peace according to Buddhist teachings.
Footnotes
Scott, Foresman Advanced Dictionary, Thorndike E.L., Clarence L. Barnhart, Scott, Foresman and Company, California, 1979, p.751
o Scott, Foresman Advanced Dictionary, Thorndike E.L., Clarence L. Barnhart, Scott, Foresman and Company, California, 1979 p. 558
The Pali-English Dictionary. Rhys Davids. T.W. William Stede. New
Delhi. 1997, p. 681
4 Ibid.
°Kutadanta Sutta, Dighanikaya No 05, Phys Davids T. W. Buddhist
Publication Society Kandy, 1984, pp. 7, 8 , 9, 10
Encyclopaedia of Buddhism ExtractNo. 3, Social Dimensions of Buddhism, Ministry of Buddhasasana, Sri Lanka1995, p.11
Estlin Carpenter J. Dighanikaya, Vol. iii, Pali Text Society, Oxford, 1992, pp. 189, 190,191
o Rhys Davids T.W Dighanikaya, Vo. Society, London, 1
o Rhys Davids T.W Dighanikaya, Vol Society, London, 1
* Estlin Carpent Vol.i. The Pali Tex 1975, p.133
1 Rhys Davids T.W Dighanikaya, Vol Society, London, 19 92
Encyclopaedia of No. 3, Social
Buddhism, Ministry Sri Lanka 1995, p.
Encyclopaedia of No. 3, Social
Buddhism, Ministry Sri Lanka 1995, p
1* Rhys Davids T.W Dighanikaya, Wol Society, Lor pp, 173, 174,175
1S Venerable Buddharakkhita Buddha Vacara 1986, p.52
Estlin Carpente vol.iii, Pali Text Soc pp. 189,190,191
7 Estlin Carpente vol.iii, Pali Text Soc pp. 189,190,191
o Jayatilaka, K. ] Peace, The Wheel Buddhist Publicati 1983, p.8
Contd. from page 23
My country, as it comes out of the darkness of the future, must be afforded the time and space to set people. It is in keeping with the values enshrined i body of international law which governs us.
A further consideration that the international connu developing nations and providing appropriate instit
As I observed when inaugurating the fiftieth anniver Committee in Colombo three months ago, dumping developed countries imperils the economies of many
Mr. President, Excellencies, In conclusion, let me sa and Reserve Banks to support agricultural produ protectionism, cause serious distortion of the interpl ability of farmers in many developing countries to a on an equitable basis.
The disproportionate pollution of the environment b on global warming and climate change, cannot be 1 harsh restraints on developing countries which have These circumstances heighten the importance of sc
May the Noble Triple Gem bless you all! Theruwan
* This is only a part of the address delivered by Pre United Nations General Assembly, New York, 23° Se
Source: uvuvu.priu.gov.lk
Economic Review: June/July 2011

Estlin Carpenter, .i. The Pali Text 975, p.133
Estlin Carpenter, ii. The Pali TeXt 982, pp, 173, 180
er, Dighanikaya, : Society, London,
. Estlin Carpenter, ii. The Pali Text 182, pp, 89, 90, 91,
Buddhism ExtractDimensions of of Buddhasasana,
.20 ,19 ,10,18.ג
Buddhism Extract
Dimensions of
of Buddhasasana,
2, 13, 14, 15, 16
... Estilin Carpenter, .ii. The Pali Text ldon, 1982,
Sri Acariya , Dhammapada, rust, Bangalore,
r J. Dighanikaya, xiety, Oxford, 1992,
r J. Dighanikaya, xiety, Oxford, 1992,
N. Buddhism and Publication No.41, on Society, Kandy,
9 Venerable Sri Acariya
Buddharakkhita, Dhammapada, Buddha Vacara Trust, Bangalore, 1986, p.52
20 Horner I.B. The Middle Length Sayings, Vol.i.The Pali Text Society, London, 1995, pp. 54,55
2 Ibid.
Rhys Davids T.W. Estlin Carpenter, Dighanikaya, Vol. ii. The Pali Text Society, London, 1982, pp,80,81
23 Venerable Sri Acariya Buddharakkhita, Dhammapada, Buddha Vacara Trust, Bangalore, 1986, p.2
Nayanatiloka, Buddhist Dictionary, The Corporate Body of the Buddha Educational Foundation, Taiwan, 1987, p.6
The Pali-English Dictionary. Rhys Davids. T.W. William Stede. New Delhi. 1997, p. 681
o Dighanikaya iii, pp.45,48
Bhikkhu Nanamoli, The Exposition of Non-Conflict, The Wheel Publication No.269, Buddhist Publication Society, Kandy, 1979, pp. 8,9
* Dines Andersen & Helmer Smith, Suttanipata, The Pali Text Society, Oxford, 1990, p.22
Rhys Davids T.W. Estlin Carpenter, Dighanikaya, Vol.i. The Pali Text Society, London, 1975, pp.36,37,38
*раппарата, patthapana, vivarana, vibajana, uttanikatun.
last three decades into the light and promise of the 2k its destiny in accordance with the wishes of its n the Charter of the United Nations and the whole
unity should take into account is the vulnerability of tional arrangements for their protection.
sary meeting of the Asian-African Legal Consultative of commercial and industrial goods manufactured in
Asian and African countries represented here.
y that the use of substantial subsidies by Treasuries ction in the developed world, and other forms of ay of market forces, and reduce to a great extent the :cess international markets for their export products
y industrialised countries, and the resultant impact emedied with any semblance of justice by imposing contributed very little to aggravation of the problem. cial equity at the international level.
Saranai.
sident Mahinda Rajapaksa at the 6565* session of the pt.2011.
n 27

Page 30
Chemical Weapons a Response to Their U
in the 25th of January, 2010, a man named Ali Hassan al-Majid, a cousin of the
former President Saddam Hussein, was executed by the government of Iraq. The Iraqi Kurds referred to him as Ali Kimyani, or Chemical Ali. One of the many crimes for which he was sentenced to death was his involvement in the poison gas attack on the Kurdish city of Halabja, in northern Iraq, in 1988.
Halabja is a town in the Kurdish part of Iraq, about 11 kilometres from the Iranian border, with a population of about 45,000 people, mostly Kurds. For many years, the Kurds of Iraq had been at odds with the Saddam Hussein regime, and on the 17th of March, 1988, the people of Halabja paid a stiff price for this. Before dawn on that day, Iraqi war planes launched a major attack on the town, lasting several hours. While conventional weaponry was part of the attack, the Iraqi military used the opportunity to test their new capacity in chemical weapons. It is believed that both mustard and nerve gases were used. The estimated death toll due to chemical weapons alone was about 5,000, making this by far the greatest civilian loss of life due to the use of such weapons. In fact, only the industrial accident in Bhopal, India, in 1984 resulted in a greater death toll due to exposure to toxic chemicals.
In 1988, the West was aligned with Saddam Hussein in his war against Iran, and the international response to Halabja was muted. Since then, however, Halabja has become a catalyst for putting into effect one of the most comprehensive, balanced, and (so far) successful weapons treaties
e Ver.
28
What are Cheni
The Chemic Convention, w described in det chemical weapon
i. Toxic chem
precursors, excep for purposes not (the Chemic Convention.
ii. Munitions specifically design or other harm th pro perties of chemicals.
iii. Any equipm designed for u connection with t (such) munitions
According to 1 chemical weapon cause direct de human beings th: of the chemica chemicals that ca purpose are biolog may also be class weapons. Chen damage a countr forestry (e.g., Ag by the Americ Vietnam war) m legitimately ( weapons, but the by the above con
Regarded simp chemical weapon us throughoutml concern here is w can be used on “weapons of mas warfare and, no1 terrorism.
Classes of Che
The chemicals potential to be

ind the
Se
cal Weapons?
al Weapons nich will be ail later, defines s as follows:
icals and their t where intended prohibited under al Weapons)
and devices, ed to cause death rough the toxic those toxic
ent specifically se directly in he employment of
and devices.
his definition, s are intended to ath or harn to rough the toxicity is. Some of the n be used for this gical in origin, and ified as biological icals designed to y's agriculture or ent Orange, used ans during the ay, of course, be :onsidered as y are not covered vention.
ly as poisons, s have been with chof history. Our th chemicals that a large scale, as s destruction,” in e recently, acts of
nical Weapons
which have the used as weapons
International
Dr. Ranil D. Guneratine
Department of Chemistry, University of Colombo.
can be loosely classified into 6 categories as follows:
i. Pulmonary (choking) agents: The se include gases such as chlorine (which is not a scheduled chemical, as it is so commonly used in industry), phosgene, and chloropicrin, which were among the first poison gases to be used in warfare. They act by affecting the lungs, preventing breathing.
ii. Blood agents: These are toxins such as hydrogen cyanide, as well as biological toxins such as ricin and saxitoxin, which are carried in the bloodstream to cells upon which they operate by various mechanisms. The compounds so classified may be gases or dispersible solids, and are deadly poisonous in minute amounts.
iii. Blistering agents (vesicants): These include the socalled mustard gases (sulphur mustard and nitrogen mustard) as well as arsenic-containing compounds such as Leuisite. Upon contact with skin, they cau se blisters to form; their effect upon the lungs may be lethal. Together with chlorine and phos gene, sulphur mustard was widely used in World War I; in the 1980's it was used by Iraq against Iran.
iv. Nerve agents: These are compounds that act on the central nervous system, by permanently disabling a key enzyme, acetylcholinesterase. Structurally,
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they are similar to many common insecticides, which work similarly. Like the insecticides, they belong to a class of chemicals called organophosphorus compounds. The earliest nerve agents, tabun, sarin, and soman, were discovered by German scientists in the 1930s, and were stockpiled by both sides during the Cold War. Because of its relative ease of manufacture and its volatility (ease of vaporisation), sarin was a popular choice among both smaller nations and, as we shall see, terrorist organisations.
Nerve agents do not have to be inhaled to be effective; they can be absorbed through the skin. In the 1970s the U.S.A. (United States of America) developed the first of a new generation of nerve poisons. Known by the code VX, this substance is so deadly that 10 milligrams (a very small drop) of it on the skin may be lethal. Not to be outdone, the Soviet Union developed its own variant, VR.
v. Incapacitating agents: These are compounds, including some synthetic narcotics, which are not necessarily lethal (at least in small amounts), but which incapacitate people exposed to them, either physically or mentally.
vi. Lachrinators (tear gases): These are non-lethal irritants commonly used by police forces as riot control agents, and also in personal protection devices ("pepper spray” or "mace"). While such uses against one's own citizens may be legal, the use of tear gases against enemy soldiers is outlawed by the Chemical Weapons Convention (CWC).
A Brief History of Chemical Weapons
As early as the late 19 Century, the potential of chemicals, particularly poison gases, to be used as weapons was apparent. By the turn of the century, the great nations of Europe were arming
Economic Review: June/July 2011
themselves to the
War I was on the h and the Second P held in the Hagu the Netherlands (i. respectively), wer head off the inevil agreements reach meetings, the Hagl. prohibited the l poisoned weapons to release harmful
The first and the use of chemical we
the first World Wat the first use is us the Germans, but French who, in A used the relativel gas, ethyl bromoace The massive use C Germans in April
Second Battle of Y door to the large-st chemicals by t. advanced nations war, viz., Great B and France. Othe such as phosgere: were also brought defences in the fo were developed a the frontline sold
The use of che: during this war to among soldiers or by far the heavies suffered by the tec advanced Russ Germany's Easte 91,000 deaths du poison gases, 56,0 Well over one mill injured by these w them permanen majority were Ru
At the same tim lesson was learn fighting the war: t иveapons иvas not among equally-ac The use of prote was effective, whi the gases th un predictable

teeth, and World orizon. The First ace Conferences e, the capital of 1899 and 1907, e an attempt to able. One of the ed during these Le Treaty of 1899, se of poisons, , and "projectiles l gases."
most significant apons was during Lr. The blame for ually assigned to it was in fact the ugust 1914, first y harmless tear tate, in grenades. of chlorine by the 1915, during the pres, opened the cale use of deadly he three most involved in the ritain, Germany, , deadlier gases, and mustard gas, into action, while rm of gas masks hd distributed to iers.
mical weapons ok a ghastly toll both sides, but t casualties were hnologically lessian armies on in Front. Of the
e to exposure to OO were Russian. ion soldiers were reapons, many of tly; again, the ssian.
e, an important t by the nations he use of chemical decisiue, at least vanced nations. ctive equipment le the efficacy of em selves was and subject to
random factors such as wind direction. On at least one occasion, a change in wind direction resulted in British soldiers being exposed to their own poison gas
The Treaty of Versailles that formally ended the war prohibited Germany from manufacturing or using chemical weapons. However, this was far from being a lasting solution to the problem. Therefore, in June, 1925, a number of countries signed the Geneva Protocol, which prohibits "the use in uar of asphyxiating, poisonous or other gases, and of all analogous liquids, materials or devices." This protocol, which came into force in 1928, was the major international treaty governing the use of chemical weapons until 1993.
Despite the intent of the Geneva Protocol, it had several weaknesses that made it ineffective. It was not ratified by Japan until 1970, nor by the U.S.A. until 1975. Many countries that did ratify it did so conditionally. Furthermore, the protocol did not ban the production and stockpiling of chemicals weapons, only their use. During and after World War II, the U.S.A., the U.S.S.R. (Union of Soviet Socialist Republics), and many other countries including Iraq produced massive quantities of these chemicals.
Two interesting developments took place prior to the Second World War. One was yet another demonstration of the frustrating truth that powerful nations can ignore their international commitments, when it suits them to do so, with impunity. The culprit this time was Italy, whose leader, Benito Mussolini, was determined to join the other major nations of Europe in empire-building. The victim was Ethiopia, whose emperor, Haile Selassie, appealed to the League of Nations in Geneva in vain. The use of chenical weapons by Italian forces while over-running Ethiopia was a clear
29

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violation of the Geneva Protocol. Meanwhile Japan, which had signed but not ratified the treaty, was similarly expanding its empire at the expense of China. This expansion was accompanied by atrocities of the worst sort, not the least of which was the use of both chemical and biological weapons (also prohibited by the Geneva Protocol) against the Chinese. It has been reported that, at the end of the Second World War, when Japan surrendered and withdrew its troops from China, significant quantities of chemical munitions were abandoned on Chinese soil.
The second development was the discovery, initially by German scientists, of the so-called nerve poisons, as described previously. They are much deadlier than the chemicals used previously, directly attacking the nervous system and fatal in relatively small amounts through both inhalation and skin absorption. The "first generation” of nerve agents, tabun, sarin, and sonan, were stockpiled by Germany prior to the war, but never used, though other chemicals were used to kill hundreds of thousands of people in gas chambers during the Holocaust.
With the possible exception of Japan against China, the combatants during the Second World War did not use chemical weapons against each other. The lessons of the First World War had been learnt well.
The Cold War brought another wave of stockpiling. Research brought new chemicals into superpower arsenals, including "second generation" nerve agents such as VX and VR (produced by the U.S.A. and the U.S.S.R., respectively). At the same time, talks were under way aimed at treaties to limit the use of weapons of mass destruction. The Biological and Toxic Weapons Convention was signed in April, 1972, and came into force in March, 1975. However, lack
of whole-hearted the superpowers. refusal on the pi States to establi organisation-ma and unenforceab
The Gulf War of t which Iraq used c on a large scale and the Kurds, wat Chemical weapon cheapest and t. developed wea destruction, and were believed to to develop them. negotiation acco collapse of the Sov dismantling of weapons program Weapons Convent January, 1993, ar in April, 1997, a minimum numbel ratified it.
The Chemic Convention
The Chemical Wea (CWC) is perh comprehensive a global weapons tr Its strength lies in its signatories, inc the United State to and bound
provisions apply Further, the conve a verification ol Organisation for 1 Chemical Weapo put in place a mec the signatories language, the St. keep and eye on
There are 196 cou by the United Na excludes several,
Palestine, and K recognised by ma States, but not b Of these, as of
signed and ratific includes the U.S. well as Sri Lank
30

commitment by - in this case, the art of the United
sh a verification
de this too a weak
e treaty.
he 1980's, during hemical weapons against both Iran is a turning point. s had become the he most easilypon of mass over 20 countries
have programmes Following years of mpanied by the riet Union and the Iraq's chemical me, the Chemical ion was signed in ld cane into force fter the required of countries had
al Weapons
pons Convention aps the most ind even-handed eaty ever signed. n the fact that all :luding, crucially, s, are committed by it, and its f equally to all. ntion established ganisation, the the Prohibition of ns (OPCW), and hanism by which (in diplomatic ates Parties) can each other.
intries recognised utions (U.N.) (this such as Taiwan, osovo, which are any U.N. member
y the U.N. itself).
2010, 188 had d the CWC. This A. and Russia, as ca. Another two,
Israel and Myanmar, have signed, but not ratified, the treaty. The rest, namely, Angola, Egypt, North Korea, Syria, Somalia, and the newest country in the world, South Sudan, have yet to sign it.
The “States Parties" who have signed and ratified this treaty have undertaken the following obligations:
i. Each State Party to this Convention undertakes never under any circumstances to:
a. develop, produce, otherwise acquire, stockpile or retain chemical weapons, or transfer, directly or indirectly, chemical weapons to
anyone;
b. use chemical weapons;
c. engage in any military preparations to use chemical weapons; and
d. assist, encourage or induce, in any way, anyone to engage in any activity prohibited to a State Party under this Convention.
ii. Each State Party undertakes, in accordance with the provisions of this Convention, to destroy:
a. chemical weapons it owns or possesses, or that are located in any place under its jurisdiction or control;
b. all chemical weapons it abandoned on the territory of another State Party; and
c. any chemical weapons production facilities it owns or possesses, or that are located in any place under its jurisdiction or control, in accordance with the provisions of this Convention.
iii. Each State Party undertakes not to use riot control agents as a method of warfare.
The last obligation is interesting. It makes it illegal to use tear gas against enemy soldiers, even though it is perfectly legal to use it against one's own citizens!
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The Convention lists certain chemicals or classes of chemicals to which special attention must be paid. These are chemicals, which have been used as weapons or precursors to weapons, or have strong potential for such use. They ae “scheduled” chemicals, and their import, export, production, consumption, and stockpiling is monitored. There are actually three separate schedules, which may be described as follows:
known as
Schedule 1: chemicals whose only known use is as chemical weapons (not produced for any other purpose), and their precursors. These chemicals include nerve agents, mustard gases, certain arsenic-based compounds, and highly toxic compounds of biological origin, including ricin from castor beans.
Schedule 2: chemicals used primarily as weapons, but connercially produced in small quantities for other purposes, and their precursors. Noteworthy in this list is thiodiglycol, which is widely used as a solvent in the printing and textile dyeing industries, but which can be converted into the most common type of mustard gas, sulphur mustard, in a single reaction.
Schedule 3: dual use chemicals - produced in large quantities for commercial purposes, but usable as weapons or precursors. Many common laboratory and industrial chemicals, such as phosgene, hydrogen cyanide, thionyl chloride, phosphorus trichloride, triethanolamine, and triethylphosphite appear in this list.
Under the provisions of the CWC, a verification organisation, the Organisation for the Prohibition of Chemical Weapons (OPCW) was established. Appropriately enough, it is headquartered in the Hague, where the first treaty dealing with chemical weapons was signed
Economic Review:June/July 2011
almost a hundred Its objectives inch
i. Implementing the CWC.
ii. Verifying compliance with the CWC.
iii. Providing consultation alı among States Pa
Each member St. establishes a Na the National Auth is part of the Mir and Commerce. ' responsible for
import, export stockpiling, and
scheduled chemic annual declaratio the OPCW, whic provided informa information from
checks for discrep inspectors from th routine inspecti facilities in ne! addition, “challe: may be carried ou at the request c States, if there
grounds for doing
Under the terms stockpiles of cher well as producti supposed to be certain time, curI 2O 12. OPCW ins this process a functions incl assistance to dev Ultimately, the Ol to report intract the UN Security C action.
In Sri Lanka, imp Chemical Weapo governed by the C Convention Act N addition to e. National Al criminalising the

years previously. ude the following:
the provisions of
international the provisions of
a forum for ld cooperation rties.
ate of the OPCW tional Authority; ority in Sri Lanka listry of Industry These bodies are monitoring the E, production,
consumption of cals, and making ns of the same to h compares the tion with similar other States, and pancies. Teams of e OPCW carry out ons of chemical mber states. In nge” inspections ut at short notice, f other member
are reasonable
SO.
of the treaty, all nical weapons, as on facilities are destroyed by a ently extended to spectors monitor as well. Other ude providing eloping countries. PCW has the right able problems to :ouncil for further
lementation of the ns Convention is Chemical Weapons so. 58 of 2007. In stablishing the thority and production or use
of chemical weapons in this country, the Act also places strict controls over the import of scheduled chemicals; importers are expected to register with the Authority, and imports of the scheduled chemicals require approval by the Authority.
Chemical Terrorism
Weapons and
The last time, a nation State used chemical weapons against another was during the Iran-Iraq war in the 1980s. At the present time, a repetition seems very unlikely. However, a deadly new threat has emerged; the use of chemical weapons as a relatively cheap and low-tech weapon of mass destruction by terrorist organisations, or, to use the UN euphemism, “non-State actors.”
In 2004, the UN Security Council passed a resolution, Resolution No. 1540, which stated, "...all States shall refrain from providing any form of support to non-State actors that attempt to develop, acquire, татиfacture, possess, transport, transfer or use nuclear, chemical or biological weapons..." The matter was considered sufficiently important, and the pace of action so slow, that it was re-affirmed by Resolutions 1673 (2006) and 1810 (2008).
What has caused such concern at the highest levels of the UNP While many organisations in the world have been labelled "terrorist," the one most commonly associated with weapons of mass destruction is the Aum Shinrikyo cult in Japan. This was a Hindu-Buddhist cult, whose leader, Shoko Asahara, had travelled widely in India and elsewhere before founding the cult in 1984. Initially a purely religious organisation, by 1990, the Aum Shinrikyo had begun to engage in extortion and murder, and after some failed experiments with biological weapons in 1993, established a laboratory to
Contd. on page 39
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FEATURE Sri Lanka’s Success Management: A Lesson
Introduction
e population programme in Sri Lanka is one of the most successfully-implemented programmes by government since independence. It is a les son for other public sector programmes. It is also a programme where, by and large, right decisions were taken at the right time and right people were appointed to the right jobs. Therefore, this article describes, in some detail, the policies and programmes that influenced the transition from a high population growth rate to a relatively low growth over a period of six decades.
The decade of the 1950s saw Sri Lanka experiencing its highest rate of population growth in its known demographic history. However, perhaps due to fear of religious opposition, there was no direct intervention by government to reduce the rate of population growth which was growing at a near 3 percent annually. Nevertheless, the governments of the day did take some decisions which paved the way for a subsequent national
programme.
The beginnings of population activities in Sri Lanka were modest. The Family Planning Association of Sri Lanka, a Non-Governmental Organisation (NGO) set up in 1953 by a group of enlightened women and men, sought to reduce the high maternal and infant mortality prevalent among the low-income urban families due to poor birth spacing. The activities of the Association were recognised by the government in 1954 by providing a small financial grant. The Association was also allowed to conduct family planning clinics in government hospitals in major
32
towns such as C Galle, etc. Whe Programme of I presented by gove it stressed the ne productive capaci to outstrip the population growth Ceylon, 1955 p.3). the importance of of population government en agreement with th Sweden to implem to ascertain whe demand for family married couples a whether there opposition to fanmi became the agreement betwee in the population í of the survey ca project revealed 1 latent demand for and there was nic opposition. Thus Year Plan of the presented in 195 "unless there is s a slowing down population growt| stability at least i. is difficult to env benefits from development” (Na Courňcil, 1959 p. 1
A labour force sur the Department o assistance of th Labour Organisat revealed that 1 ( labour force in 1 unemployed. Til policymakers and Term Implementa was presented b 1962, it state quantitative term our present rat
 

Story
in Population
for other Programmes
olombo, Kandy, in the Six-Year
nVe Stinnent Wa S rnment in 1955, ed to expand the y of the economy high rate of (Government of In 1958, realising reducing the rate growth, the tered into an he government of ent a pilot project ather there is a planning among und also to know is religious ly planning. This first bilateral
2n two countries ield. The findings rried under the
hat there was a family planning major religious , when the Tengovernment was 9, it stated that some prospect of in the rate of
h and of relative n the long run, it isage substantial planning and ational Planning l6).
vey conducted by f Labour with the le International (ILO) in 1960 ) percent of the the country was his worried the when the Shortation Programme y government in d the issue in
is as follows: "At e of population
inn
Dr. A.T.P.L. Abeykoon
Forner Director Population Division of the
Ministry of Health
growth of 2.8 percent per annum, a 2 per cent increase in the gross domestic product per head would require an investment of R. 1, 065 million. In other words, in 1961-62 we have to invest Rs. 245 million more because our population is growing not at 1.7 percent, but at 2.8 percent a year" (Department of National Planning, 1962 p. 16).
In 1963, the data of the Census of Population clearly showed that the age structure of the population had taken the shape of a pyramid with 42 percent of the population under 15 years of age. It was evident to both demographers and economic planners that longer the country stays in this position, greater would be the social and economic costs. This is particularly so for a country such as Sri Lanka where health and educational services are provided free-of- charge and rice was distributed free to the entire population.
Launching Phase
Therefore, in 1965, the government took a policy decision to include family planning as part of the maternal and child health programme. This legitimised family planning which hitherto was seen as "ugly' by certain quarters. Sri Lanka was fortunate to have had, at that time, outstanding health professionals who resisted the temptation of running a parallel family planning programme as some countries in the region did. Thus,
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it was three decades before the International Conference on Population and Development (ICPD) in 1994 that Sri Lanka recognised the importance of integrating family planning with other reproductive services such as maternal and child health. With this policy decision, the family planning clinics of the Family Planning Association that provided services in government facilities were handed over to the government. In 1968, the Family Health Bureau was established to coordinate and implement the national maternal and child health and family planning programme. In view of this policy decision, the Swedish government came in a big way to assist Sri Lanka by providing free contraceptive commodities and training of the field health staff in the delivery of family planning services. The entire building complex of the Family Health Bureau at that time was a gift from the people of Sweden to the people of Sri Lanka. The environment was also conducive to implement family planning activities in the country, as by then, 70 percent of females in the reproductive ages were literate and the primary health care system was well developed with a network of institutions through which family planning services could be delivered (Abeykoon, 1996).
As a result of the rapid growth of population in the 1950s and the rising enrolment of young people in secondary and higher education, the new entrants to the labour market grew rapidly by the end of the decade of 1960s. Thus by 1971, about 20 percent of the labour force was unemployed. The rate was almost twice for those in the age group 15 to 24 years with secondary and higher education. This resulted in a youth uprising in April 1971. The Secretary of the Ministry of Planning and Employment, who was a former professor of economics at the University of Peradeniya invited an ILO team led by Professor Dudley Sears, an eminent
Economic Review: June/July 2011
development econ Sri Lanka to st un employment making al recommendatio government, th Report did make population iss "Suppose that a campaign poli implemented at t the malaria eradic the 1940s and h present target bir 1,000 in 1955, (1971) of such a p have been to lig) creating emp. considerably. The say "will anoth mission in 1985 there had been a policy in the 197 resources of he achieve a birth ral in 1975, the pros unemployment in would not look s 1971 p. 45).
Therefore, when t of the governmer in 1972, it stated “the continued gro at present high problems which attempt at solut run, the expansio) present rates w population of ab the year 2000. resources impose rate of population almost intolerabl gives very high diffusion of fa facilities amongst adult populatio Planning and En p.21). The wom Health at that tim interest in the programme and
surgical contrace
In 1973, a proje signed between and the United N

omist to conne to udy the youth problem. While
series of
S to the e Dudley Sears reference to the
ae as follows: family planning cy, I had been he same time as ation campaign in had reached the th rate of 25 per che result today programme would inten the task of loyment very report went on to er employment be saying 'if only vigorous official Os, using the full alth services to te of 25 per 1,000 pects of reducing in the year 2000 so bleak?'(Sears,
he Five-Year Plan it was presented very clearly that with of population rates will pose would defy every ion. In the long n of population at ould result in a out 27 million in The strain on d by the present growth would be e. The Plan thus priority to the mily planning , the mass of the in” (Ministry of mployment, 1971 han Minister of e took a personal family health strengthened the ptive services.
ct agreement was the Government ations Population
Fund (UNFPA) to broad base the population programme. The UNFPA funded l l projects ranging from population education in schools, workers education in family planning in the urban sector and in the estates, teaching of population dynamics and family planning in medical schools, demographic training and research, family health and education, etc. As there were many institutions outside the Ministry of Health, implementing population activities, coordination became an important issue. Thus in 1974, the coordination of UNFPA-funded projects was vested under the new Ministry of Plan Implementation which functioned under the Executive Prime Minister.
Progressive Phase
In 1977, the subject of population policy formulation and coordination was assigned to the Ministry of Plan Implementation, and in the Throne Speech of the government, the need to give high priority to the population programme with emphasis on clinical contraceptive services was clearly stated. The new Secretary of the Ministry of Plan Implementation, who came from outside the public service was a legal academic by training and took a personal interest in the programme. At the back of his mind was the question as to how to prevent Sri Lanka reaching 27 million in the year 2000 as stated in the Five-Year Plan. In fact, when the Census of Population was taken in 2001, the total population of the country was enunerated at only 18.7 million. The events that followed certainly contributed in keeping the total population size under control.
Being a person who was quick in putting ideas into action, the Secretary of Plan Implementation consulted his technical staff and came to the conclusion that by providing financial inducements to voluntary acceptors of
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sterilisations, the fertility rate could be reduced substantially. The available data at that time showed that about one third of women in the age group 30 to 49 years had less than primary level of education and the number of children anong them was relatively high. It was also evident that 31 percent of annual births were taking place among women in this age group. The strategy therefore, was to expand the availability of permanent methods of fertility control to reduce unplanned or unwanted births. This was however, opposed by the then Director of the Family Health Bureau who was the brother of a Cabinet Minister of the government at that time. The Secretary, Plan Implementation took the position that national interest should take precedence over personal views. The decision to provide financial inducements to nedical teams and sterilisation acceptors thus prevailed. It was also decided to implement the payments to sterilisation acceptors through the District Secretariats. Thus from May 1979, the government decided to provide financial inducements to medical teams who carried out voluntary sterilisations. This was extended to clients from January 1980. The number of married men or women who had at least two children and who underwent sterilisations voluntarily increased rapidly. The new acceptors of voluntary sterilisations increased from 4,971 in 1970 to 1 12,926 in 1980. The numbers continued to remain relatively high until the high parity women moved out of the reproductive ages. It is to be noted that the total fertility rate (the average number of children per women) declined from 3.7 in 1982 to 2.8 in 1987 and the contraceptive prevalence of voluntary sterilisations was nearly 50 percent of total contraceptive use. In other words, sterilisations provided half the total protection from unwanted births.
In addition, in the decade of 1980s, the programme received high visibility with a vigorous information, education and communication campaigns. On the
34
government side. of Information ar.
Information Cen
role. On the NGC to the Family Plar three other NG Community Deve Population Servic Sri Lanka Associa Sterilisations pri needed suppleme the government p organisations, at led by outstan commitment and 1
The National
Committee on PC chaired by the M of Family Health Plan Implements as the member
Secretaries of oth
and their senio 1 implementing po including the fami and representativ agencies, effecti the programine. selected men and capable of trans into action consti created Populatio functioned as the
NCCP and I
programme at t district level.
In March 1980, and Parliamentar parties got on a to endorse family party politics. Thi event as previou family planning political weapo parliamentary Ad was appointed wit Minister as the ch the same year, D Committees were the Governme chairperson to c. level population a a National Advist information, communication established to a planning mess released by gove

the Department hd the Population tre played a key side, in addition ning Association, Os, namely, the lopment Services, es Lanka and the ation of Voluntary Ovided the much
entary support to Irogramme. These that time, were ding men with managerial ability. Coordinating pulation (NCCP), inister in charge and the Secretary tion functioning secretary with Ler line Ministries
staff who were pulation activities tly planning NGOs b of relevant donor vely coordinated A small band of women who were lating new ideas tuted the newlyin Division which
secretariat to the
nonitored the
he national and
leading Ministers ians of all political common platform planning as above s was a landmark Lsly at elections, was used as a in. In 1982, a visory Committee h a senior Cabinet airperson. During istrict Population established with nt Agent as oordinate district ctivities. In 1983, pry Committee in education and (IEC) WaS advice on family ages that were rnment agencies
and the NGOs. Medical officers who took an active interest in family planning activities were recognised by the NCCP and were awarded certificates and sent on study tours abroad.
With the strong commitment shown by the Minster of Family Health and the Secretary, Plan Implementation and their dedicated staff including those at the district level, the programme gathered momentum and many indicators of population and family planning further improved. By 1987, the rate of population growth had declined to 1.3 percent and the contraceptive prevalence rate had risen to 62 percent. However, the un met need for contraception was 12 percent,
Maturity Phase
Towards the end of the decade of 1980s, the population programme had transformed from a demand creation phase to a supply-oriented one where the provision of family planning services became the focus of attention. Therefore, the function of population policy formulation and coordination was reassigned to the Ministry of Health and the Population Division of the Ministry of Plan Implementation was moved to the Ministry of Health in 1989. In this new set up, the NCCP was chaired by the Secretary of the Ministry of Health and the Population Division continued to function as its secretariat. It was the view of the National Health Council in 1990 that Sri Lanka should aim at reaching replacement level fertility by the year 2000. Therefore, the Population Division formulated a policy statement and prepared short-term population projections and contraceptive needs to reach replacement fertility. This was approved by the National Health Council chaired by the Prime Minister. In 1994, Sri Lanka became a signatory to the global consensus of a broad-based concept: of reproductive health detailed in the Programme of Action of the International Conference on Population and Development (ICPD) held in Cairo.
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Sri Lanka adopted a number of initiatives responding to the ICPD Programme of Action. An important initiative was the formulation of the Population and Reproductive Health Policy in 1998 and the subsequent development of an Action Plan based on the policy. Others included the development of an Advocacy Strategy for the promotion of population and reproductive health activities, IEC activities on population and reproductive health, and the paradigm shift from family planning to holistic approach of reproductive health in the service delivery programme. Therefore, the structure of the national programme took the shape of a pyramid. At the apex was the national policy on population and reproductive health. At the next level was the advocacy programme followed by the IEC programme implemented by government and NGOs. This was followed by the school reproductive health education programme. Next, at the base was the largest programme, the reproductive health service delivery programme (Abeykoon, 2009).
With the implementation of many elements of the Action Plan, further improvements occurred in the indicators of population and reproductive health. By 2000, as planned, the fertility rate reached replacement level. The contraceptive prevalence rate had reached a high level of 70 percent. The unmet need for contraception was further reduced to 9 percent. Thus, when the international community met at the United Nations in New York in 2004 to review progress during the 15-year period after the ICPD, the Minister of Health on behalf of the government was able to report that Sri Lanka had met most of the goals envisaged in the Programme of Action adopted in 1994.
If the fertility rate had not declined as it did, Sri Lanka would have faced serious social and economic problems. It would have been difficult to provide free education and health services and other social welfare services to the mass of the population.
Economic Review: June/July 2011
By 2006, the cou the final phase o transition, and Division of the M had achieved its stabilising popul sustainable de population age transformed into from that of a py. proportion of pop 15 declined from 4 to 24 percent in 2 dependency, ratic percent during th same time, there in the population the young ages. Til are also educ, commonly refe 'demographic bol counts, the demo in Sri Lanka is economic expansi necessary to e failure to en su enabling economi waste opportuniti demographic bon
In a nutshell, thi said that init activities commer with a NGO. Su activities were
legitimised unde: Health as a natio) the programme a visibility, pop planning and c. vested under the Implementation under His Excelle: When the dema family planning these functions w under the Ministr is responsible fo family planning health services. of five decades,
were taken at th right people we1 positions.
In the future, ho incones anon eventually the government in
activities will di and more marri resort to NGO a
Sources to meet

ntry had reached f its demographic the Population inistry of Health s initial goals in lation growth for velopment. The structure had a barrel shape ramid shape. The ulation under age 42 percent in 1963 2006 reducing the from 82 to 45 his period. At the emerged a bulge age structure in hese young people ated. This is rred to as the nus'. Thus on all graphic structure s conducive for ion. It is however, en phasise that ire appropriate c conditions could es created by the
S.
erefore, it can be ial population nced in Sri Lanka ubsequently the
expanded and r the Ministry of nal policy. To give push and greater ulation policy oordination was
Ministry of Plan which functioned ncy the President. Lind creation for
was completed, vere again placed y of Health which Ir the delivery of and reproductive In this transition many decisions Le right time and re placed in key
wever, with rising g the nasses, role of the family planning minish and more ed couples would nd private sector their needs.
In this transition from high population growth to relatively slow grovth, vhat mattered nost vere the people who managed, coordinated and implemented programme activities. They were the very heart and soul of the programme, the movers and shakers. It was my privilege to meet and work with some of those men and women, among the most dedicated, sincere and heartwarning people that I have ever encountered in my public service career of four decades.
(During four decades as a public servant, Dr Abeyikoon has contributed immensely to the field of demography in Sri Lanka and in the formulation and implementation of population policies and strategies. He was popularly known as Mr. Population)
References
Abeykoon, A.T.P.L. (2009). “ICPD 15 Years on: Sri Lanka's Participation, Policy and Programme Initiatives” in ICPD - 15 Years or Sri Lanka: A Reuietly of Progress, Family Planning Association of Sri Lanka, Colombo.
Abeykoon, A.T.P.L. (1996). Population Programme in Sri Lanka: The Environnent, Strategies, Structure, Managerial Processes and Strategic Issues for the Future, Research Paper Series-8, Population Information Centre, Ministry of Health, Highways and Social Services, Colombo.
Government of Ceylon (1955). Six-Year Programme of Investment, 1954/55 to 1959/60, Planning Secretariat, Colombo.
Ministry of Planning and Employment (1971). The Five Year Plan. 1972-1976, Department of Government Printing, Ceylon.
National Planning Council (1959). The Ten-year Plan, The Planning Secretariat, Colombo, Ceylon.
Sears, Dudley (1971). Matching Employment Opportunities and Expectations, International Labour Office, Geneva.
The Department of National Planning (1962). The Short-term Implementation Programme, Government Press, Colombo, Ceylon.
trotte
Based on the keynote address at the inauguration of the Annual Scientific Sessions of the Population Association of Sri Lanka, 2011.
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ŠTUDENTSPAGE
Economic Growth
Introduction
is article primarily intends to provide an elementary knowledge and understanding of some of the basic theoretical aspects of economic growth for the students offering Economics as a subject for GCE Advanced Level and the university undergraduates. The following aspects of economic growth are covered in this article: (a) definition of economic growth, (b) measuring of economic growth, ic) benefits of economic growth, (d) causes of economic growth, (e) policies of promoting economic growth, and (f) costs of economic growth.
Defining Economic Growth
Economic growth is an increase in the production capacity of goods and services of ara economy. The more food, clothing, housing, cars and medical services a country can produce, the better off that country's citizens will be. Economic growth will increase the availability of these types of products over time, resulting in higher standard of living. From a theoretical point of view, economic growth can be defined as an expansion of the production capacity or the potential output of an economy. There are two ways of presenting the concept of economic growth. The first is in terms of production possibility frontier as shown in Figure l where economic growth is characterised as an outward shift of the production possibility frontier from PPF, to PPF. In other words, economic growth enables a country to produce more goods and services in any given period as a result of an expansion of its production capacity.
The second way of presenting the concept of economic growth in
Consumer Good
PPF 1
O capital
Figure 1. Ecor. Shift in produc frontier
terms of aggregate in Figure 2. Ec involves a rightw economy's long supply curve. Thi an increase in th of potential outpu the economy's res and productivi production of n services at any gi the aggregate sup) outwards from A
entails an inc employment out output) from Y, tc
AS
Price
Figure 2
A Shift in Aggre
Measurennent
Growth
Let us now discu measuring growt sense, econon:
36
 
 

PPF 2
Goods
Lonic Growthtion possibility
supply as shown onomic growth rard shift in the
-run aggregate s corresponds to e economy's level it. An increase in
ource endowment ty will enable hore goods and ven price, so that ply curve will shift AS, to AS. This crease in full
put (or potential
Y.
AS
Y Real Output
onomic gate Supply
of Economic
ss the best way of
h. In a statistical c growth is an
Growth:
Prof. Danny Atapattu
Senior Professor in Economics, University of Ruhuna
increase in real output of a country. Thus, economists use two methods to measure economic growth; (i) the increase in real GNP (Gross National Product) or NNP (Net National Product) which occurs over a period of time and (ii) the increase in real GNP or NNP per capita which occurs over time. Both measures are useful. For example, if we are concerned with the question of military potential or political pre-eminence, the first measure is more relevant. But per capita output growth is clearly Superior for comparisons of living standards anong nations or regions. Economic growth by either measurement is usually calculated in terms of annual percentage rates of growth. For example, if real GNP was Rs. 200 billion last year and is Rs. 210 billion this year, we can calculate the rate of growth by subtracting last year's real GNP from this year's real GNP, dividing the difference by last year's real GNP and multiplying by 100, i.e., (210 200)/2OO)x100, or 5 percent.
If economists try to measure economic growth using the rate of change of real GNP or per capita real GNP as an indicator, they are not necessarily measuring whai they want to. GNP growth measures the actual rate of change of output rather than the growth of the potential output capacity of the economy. In Figure 3, a movement from point A to point B represents a move to the frontier. This is an increase in actual output
Economic Review ; June/July 2011

Page 39
Consumer Goods
ν. R poverty economy
new р alleviate
v. Imp services
taX r
O Capital Goods
governn
IIOIe OI
Figure 3
Growth
resulting from using up surplus capacity in the economy, but it is not economic growth in the theoretical sense, as moving from point A to point B does not entail an increase in productive capacity. In contrast, the shifting of the frontier itself, enabling the move from point B to point C, does represent economic growth. However, when economists observe a rate of change in real GNP, they cannot easily distinguish between the two types of effects, especially when the economy is subject to a business cycle. It is therefore, better to measure economic growth in terms of growth of real GDP (Gross Domestic Product).
Benefits of Economic Growth
Economic growth means increase in real output. It provides the following benefits:
i. Increasing incomes: The growth of total output relative to population means increasing standard of living. An expansion of real output enables consumers to enjoy more goods and services.
ii. Lowering un employment: With higher output, firms tend to employ more workers, creating more employment opportunities.
iii. Reducing government borrowing: Economic growth creates higher tax revenues and hence the need borrowing to finance government expenditure will reduce.
Different forms of Economic
Economic Review:June/July 2011
public g goods in f r a development, education, etc.
wi. Protection c A growing econo more funds for environment with existing levels C investment anc production.
vii. Les sening scarcity: A grc unlike a static ou more while increasing its cap more in the futu
Caυιεes of Econ
Theoretically, the economic growth that can shift
Possibility Fron Long-Run Aggreg curve to the rig include; (a) quan natural resource: quality of hum stock of phys entrepreneuria technological kno rights structu
freedom. These it supply factors in
. Natural res
TE SO CES ES production that nature, such as mineral dep resources ta' renewable and
 

duction of A growing can undertake ogrammes to
poverty.
'oving public With increased :venues, the ent can spend the provision of oods and merit
such aS
St r u C tu I e health саге,
f environment: my can allocate cleaning up of but impairing the If consumption, | public goods
the burden of wing economy, ne, Can ConSurne simultaneously pacity to produce
e.
bnic Growth
determinants of are the factors the Production lier (PPF) or the ate Supply (LRAS) ht. These factors ity and quality of ; (b) quantity and an resources (c) cal capital (d) ability (e) wledge (f) property 'e (g) economic ens may be called economic growth.
ources: Natural those inputs of are provided by land, rivers, and ) sits. Natural e two forms: on-renewable.
ii. Human capital: Human capital is the knowledge and skills that workers acquire through education, training and experience.
iii. Physical capital: The stock of equipment and structures that are used to produce goods and services is called physical capital.
iv. Entrepreneurial ability: The human resource that organise land, labour and capital is called entrepreneurship. Entrepreneurs come up with new ideas about what and how to produce, make business decisions, and bear the risks that arise from these decisions.
v. Social capital: Social capital refers to those stocks of social trust, norms and networks that people can draw upon to solve common problems. Networks of civic engagement, such as neighbourhood associations, sport clubs and cooperatives are an essential form of social capital, and the denser these networks, the more likely that members of a community will cooperate for mutual benefit. Social capital is productive, since two farmers exchanging tools can get more work done with less physical capital; rotating credit associations can generate pools of financial capital for increased entrepreneurial activity; and job searches can be more efficient if information is embedded in social networks.
vi. Technological knowledge: Technological, knowledge is the understanding of the best ways of producing goods and services. Technological knowledge may take many forms. Some technology is common knowledge - after it becomes used by one person, everyone becomes aware of it. Other technology is proprietary - it is known only by the company that discovers it. Still other technology is proprietary for a short time. When a pharmaceutical company discovers a new drug, the patent systern gives that company a
37

Page 40
temporary right to be its exclusive nanufacturer. When the patent expires, however, other companies aire allowed to make the drug. All these forms of technological knowledge are important for the economy's production of goods and services.
v. Property rights structure: Property rights refer to the laws, rules, and regulations that define rights for the use and transfer of resources. Consider two property right structures. In one structure, people are allowed to keep the full monetary rewards of their labour. in the other, people are allowed to keep only half. Many economists would predict that the first property rights structure would stimulate more economic activity than the second.
vii. Economic freedom: Some
econonists believe that economic freedom leads to economic growth. Countries in which people enjoy a higher degree of economic freedom develop and grow more quickly than countries in which people have
les ser economic freedom. The
Heritage Foundation and the Wall Street Journal have joined together to produce an "index of economic freedom.” The index is based on 50 independent variables divided into 10 broad categories of economic freedom, such as trade policy, monetary policy, property rights structure, regulation, fiscal burden of government, and so on. The data show that economic freedon and real GNP per capita are correlated.
The above-mentioned factors that can shift the production possibility frontier to the right may be termed the supply factors in economic growth. They are physical and institutional elements that can enhance production and productivity. But the ability to grow and the actual realisation of growth may be quite different things. Specifically, two additional considerations contribute to growth. First, there is a demand
38
factor in growt growing produc country must pri employment of its of resources. T growing level of a Second, there i. factor in growth productive pote must provide not employment of it also for full produ The ability to exp not a sufficient ( expansion of to actual employm
resource supp allocation of thc such a way as to amount of useful are also required,
Policies of Prom
Growth
Promoting econom shifting rightward possibility frontiel aggregate supply
the policies of pro growth should ai eSOce end productivity. Such (a) promoting
investment, (b) en investment, (c) human capital, property rights
political stability trade, (f) lower reducing regul: pronoting development.
i. Promoting
investiment: Bec produced factor country can chan, capital it has. Ti raising future pr investing more cl in the productio raise the level of the economy, it r country sacrific consumption of go Encouraging Savin

h. To realise its tive potential, a ovide for the full expanding supply his requires a ggregate demand. s an allocative
... To achieve its ntial, a country
only for the full s resources, but iction from then. and production is condition for the tal output. The ent of expanded lies and the
se resources in get the maximum
goods produced
oting Economic
nic growth means the production or the long-run curve. Therefore, moting economic im at enhancing
OWet and policies include; savings and
couraging foreign investment in (d) protecting and promoting , (e) liberalising "ing taxes and
ation, and (g) esearch and
savings and
ause capital is a of production, a ge the amount of hus, one way of 'oductivity is by rent resources n of capital. To
capital stock of
equires that the .
ce the present iods and services. g and investment
through monetary and fiscal policies is one way that a government can encourage growth.
ii. Encouraging foreign investment: Saving by domestic residents is not the only way for a country to invest in new capital. The other way is investment by foreigners. Investment from abroad take several forms. A capital investment that is owned and operated by a foreign entity is called foreign direct investment. An investment that is financed with foreign money but operated by domestic residents is called foreign portfolio investment. In both cases, foreign investors contribute to increase the domestic stock of capital.
iii. Investment in human capital: Education - investment in human - capital is at least as important as investment in physical capital for a country's longrun economic success. One way in which government policy can enhance the standard of living is by providing good schools and quality education and encouraging the population to take advantage of them.
iv. Protecting property rights and promoting political stability: Property rights refer to the ability of people to exercise authority over the resources they own. For this reason, judicial system serves an important role in a market economy. It enforces property rights, ensuring buyers and sellers live up to their contracts. In many countries, the system of justice does not work well. Contracts are hard to enforce, and fraud often goes unpunished. To do business in some countries, firms are expected to bribe powerful government officials and ministers. Thus, economic prosperity depends, in part, on political prosperity. A country with an efficient judiciary system, honest government officials and a stable constitution will enjoy a higher economic
Economic Review: June/July 2011

Page 41
standard of living than a country with a poor judiciary system, corrupt officials and unstable political system.
v. Liberalising trade: Most economists today believe that countries are better off pursuing outward-oriented policies that integrate these countries into the world economy. Trade is, in some ways, a type of technology. When a country exports tea and imports steel, the country benefits in the same way as if it had invented a technology for turning tea into steel. A country that eliminates trade restrictions will, therefore, experience the same kind of economic growth that would occur after a major technological advance.
vi. Reducing taxes and regulations: The reduction of tax rates and regulations would encourage private investment.
vii. Promoting research and development: The primary reason that living standards are higher today than they were century ago is that technological knowledge has advanced. Although rnOSt technological advances conne from private research by firms and
individual in government ha encouraging the development of n Using its fiscal po the govern mer incentives to enc and development. which goverr:
encourages resear patent system. inventors to pr inventions, the enhances the
individuals and fi
research.
Disadvantages Growth In recent years, s have been rai desirability of cor. growth for all societies. The follo
arguments con growth sentiment
i. Environmenta. growth of pr consumption can externalities
increased noise quality arising fr and road congest of household and
Contd. from page 31
manufacture sarin. Their first major u se of it was in 1994, at an apartment complex in Matsumoto, apparently chosen because a judge, who was hearing a case against them, lived there. Eight people died and over 200 were hospitalised, but investigators failed to identify the Aum Shinrikyo as the culprits. Their next attack was the spectacular, coordinated release of sarin on five trains in the Tokyo subway system, on the 20th of March, 1995. This resulted in 12 deaths and over 1,000 injuries. This time, the police were finally able to identify those responsible, and Shoko Asahara was tried and sentenced to death.
Organisations exist, whether formally labelled “terrorist” or not,
Economic Review ; June/July 2011
which do not con to be bound b treaties or natior whom chemical w cheap and easy v the capacity to attacks agains civilians. The act Shinrikyo have br the world's at
uncertain terms. designed to cover it can only succee cooperation at th its signatories, a of the OPCW, Authorities, anc agencies ch implementing th customs, law enfo and intelligence a States. These fact

ventors, the as a role in
5 research and ew technologies. licy instruments, lt Can grant ourage research Another way in eat policy 'ch is through the
By allowing ofit from their
patent system incentive for rms to engage in
of Economic
serious questions sed about the
tinued economic ready affluent wing interrelated prise the anti
concerns: Fast
oduction and create negative (for example, : and lower air om air pollution ion, rapid growth industrial waste).
Growth that leads to environmental damage can have a negative effect on the people's quality of life and may also impede a country's sustainable rate of growth.
ii. Human obsolescence: The changing technology that is the core of growth, poses new anxieties and new sources of insecurity for workers. Both high-level and lowlevel workers face the prospect of having their hard-earned skills and experience made obsolete by an onrushing technology, thus becoming structurally unemployed.
iii. Opportunity cost: The opportunity cost of higher economic growth is the sacrifice of current consumption which could otherwise have been enjoyed. Current consumption is being sacrificed to achieve a higher rate of consumption in the future.
iv. Inflation risk: If the economy grows too fast too quickly, there is the danger of inflation as demand raises ahead of aggregate supply.
VV, Inequity in income distribution: Rapid economic growth could result in disparities in income distribution.
sider themselves y international hal laws, and for eapons may be a vay of developing carry our major ;t un protected ions of the Aum ought this fact to tention in no
While the CWC is this eventuality, 'd with the willing e highest level of nd the alertness
the National
the numerous larged with e CWC, such as rcement, defence, gencies of member tors are mostly in
place, at least in developed countries with significant chemical industries.
Allowing for the fact that several States have yet to sign or ratify the CWC, the treaty works well, and has made the world a safer place during the past 14 years or so. However, the frightening possibility that a terrorist organisation may acquire chemical weapons looms over us. The answer lies in international cooperation, meticulous monitoring, and unending vigilance.
Acknowledgement
The author thanks the OPCW for the opportunity to undergo training in their Associates program in 2004.
39

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BOOK REVIEW
Trade Liberalisation
South Asia
Eds. Jayatilleke S. Bandara, Prema-chand
and Saman Kellegama
Routledge, London, 2011, pages 195
Prologue
is compendium of essays on trade liberalisation and poverty in South Asia, edited
by three distinguished Sri Lankan economists, is a welcome addition to the economic literature of South Asia. The subject matter is of great importance to policymakers and academics alike and poses a considerable challenge to both the editors and the individual authors, to get at sometimes elusive links between trade and poverty alleviation. Nevertheless, it is a highly competent and high-quality study with contributions from wellrecognised authors, mostly from the countries themselves. No serious researcher, policymaker or advanced student could afford to ignore it. No country can hope to reach higher levels of growth by neglecting its foreign trade or not sustaining trade reform once it is initiated. Equally, it is not a magic bullet but only one in the arsenal of policymakers to raise the rate of economic development and reduce
poverty,
Introduction
The study covers the seven South Asian countries; Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka. It stretches over four decades starting with the earliest episode of Sri Lanka and the later effort of the Maldives and Bhutan. The main trade reform efforts are concentrated in the two decades of the 1980s and 1990s. Some of the work that underpins these studies is known but much is unknown about the link of trade to poverty. This study addresses that crucial issue and fills a gap in our knowledge with a specific focus on the region.
The study has Chapter 1, Trade Poverty in South Stylised Facts and both an introduc summary of the w three editors. Cha Poverty, Theory E. Issues by Jayati provides a tour de confronting the nexus between til and an impres different methoc
from cross count computable gen (CGE) models, top and cost of living a at a number of
notes the c establishing an between trade depending, as it structural chara country in que ambiguity of empirical work 1 positive links to : this reviewer, the balanced, sound presented. It is wo to spare oneself reading some pool badly-done model the topic in the g The remaining sev 9 Chapters) deal
C3SCS.
Country cases
Chapter 3 on B Selim Raihan. overview of the pa trade liberalisatio The important liberalisation was structural adjust of the World Bank
40

and
ra Athukorala,
nin e chapters. Liberalisation and Asia: Reforms, Preview, provides tion and a crisp hole study by the pter 2, Trade and vidence and Policy leke S. Bandara force of the issue analysis of the rade and poverty isive survey of lologies ranging ry regressions to eral equilibrium artial equilibrium analysis. It arrives inferences and iifficulties of empirical link and poverty does, on special cteristics of the stion, and the the results of that range from negative ones. To : chapter is wellly-analysed and rth a careful read the drudgery of rly-motivated and tling exercises on eneral literature. ren chapters (3 to with the country
angladesh is by It provides an uth of progress in n in the country.
phase of the
supported by a ment programme and an enhanced
Economic Review; June/July 2011
Poverty in
Reviewed by
Dr. Sarath Rajapatirana
Visiting Fellou, American Enterprise Institute, Washington D.C., USA.
structural adjustment facility by the IMF (International Monetary Fund). The path followed is the now familiar pattern in most countries, moving from a highly restricted import regime based on quantitative restrictions to replacing them with tariffs, and reducing tariffs and their variance over time. Between 1991-1992 and 2004-2005, the un-weighted average tariff was reduced significantly. But some tariff reductions were accompanied by new import taxes or para-tariffs imposed over and above custons duties. Para-tariffs were aimed more at raising revenues than raising protection, but without equivalent excise duties having a protective effect. Bangladesh supported particular industries by exempting them from the value-added tax. Econometric investigations of the link between trade and poverty at the national level did not show a conclusive positive relationship between the two. But, it found a positive relationship for some industries. The method used was a dynamic CGE model subject to its own limitations as discussed in Chapter 2. The short-term impact of reducing tariffs was to reduce welfare and increase poverty. However, in the long-term, there was a reallocation of resources towards more efficient sectors that raised welfare and reduced poverty. One is not sure whether the shortterm losses are fully over-ridden by long-term gains in poverty reduction. Perhaps, many other factors would have been present to

Page 43
make this relationship more complicated in Bangladesh. These include inadequacy of the accompanying policies, limited commitment to implement the programme, floods and political uncertainties. They would have played their roles to keep income growth low and poverty reduction more difficult.
Chapter 4 on Bhutan is by Chencho Dorji. Although Bhutan opened the country to foreign influence as early as 1960, it began to integrate with the world through trade only in the 2002-2007 period. Its land-locked status and bilateral free trade agreements with India and Bangladesh determine its overall trade status. Custons tariffs were introduced in the 1970s ranging from zero to 100 per cent. Bhutan liberalised its trade regime by replacing quantitative restrictions (QRs) with tariffs. However, customs duties did not bring sufficient revenues even as trade expanded significantly. Hence, a sever-isiab sales tax of zero to 50 per cent has been introduced. A large part of trade of Bhutan is the
export of electricity to India.
Meanwhile, GDP (Gross Domestic Product) growth averaged 8.3 per cent a year during the 1998-2008 period and per capita income reached $ 1900 in 2008. Headcount poverty declined from 36.3 per cent to 23.2 per cent of the population over this decade. Poverty in Bhutan is a rural phenomenon associated with low agricultural productivity, small land holding, low levels of education, ill health and vulnerability to food shortages and insecurity. The author makes the point that Bhutan's comparative advantage lies in natural-resource and capital intensive activities such as hydroelectric power and hence an increase in trade does not lead to higher employment. He thus makes the vital point that it does not mean that Bhutan will gain from restricting trade.
Chapter 5 on India is by Rashmi Banga and Shruthi Sharma. India is a most interesting case for the
Economic Review: June/July 2011
study. It has be restricted econo the first five-year Soviet model economy to industrialisation substitution. liberalisation beg macroeconomic c high inflation ar Current a CCO un 1 poverty front, Ind number of poor i single country, gi size and low pri rural sector. Indi addressed the seriously as the prevailed during barely exceeded p Raj Krishna call rate of growth". F trade liberalisa accompanying p "licence raj" was la economic growth 7-8 per cent per y began to be red happen at a fast estimate the in poverty using wi labour in the mi agricultural sec indirect measur sample surveys d measure of cons headcounts. Agr some 60 per cent both directly and some liberalisati trade, there are and export contro State trading, e. licensing among continued to pri average bound a 1 14 per cent, wit primary product processed produ cent for edible have lower bound QRs have been re 2001 and the se from price a manufacturing However, agri largely un touc Consequently, a has been low a low producti implications on r and hence on p.

en an arch-type my starting with olan based on the of a command achieve rapid based on import Serious trade an only after the isis in 1991 with d unsustainable deficits. On the ia has the largest in the world for a ren its population oductivity in the a could not have ssue of poverty low growth that he earlier period opulation growth. ed it the “Hindu Iowever, following tion and other olicies when the argely dismantled, took off reaching ear. While poverty uced, it did not trate. The authors pact of trade on ages of unskilled anufacturing and tors. This is an e since national o not give a direct parable poverty iculture supports of the population indirectly. Despite on of agriculture still sonne import ols through tariffs, xport and import others. India had otect agriculture; griculture tariff is h 100 per cent for I, 150 per cent for Lcts and 300 per oils. Some items rates. Meanwhile, noved in 2000 and ctor has benefited ignments from sector reforms. :ulture remains hed by reforms. griculture growth ld the sector has vity with its ural income growth verty reduction in
the rural sector. In contrast to agriculture, the manufacturing sector has gone through strong reforms. The simple average tariff rate for manufacturing had fallen from 82 per cent in 1990 to 29 per cent in 2002, and the peak rate for non-agricultural goods came down to 12.5 per cent in 2006-07. As a result of trade liberalisation and associated policies, growth in manufacturing rose as did productivity and competitiveness. Like manufacturing, services also saw strong liberalisation under commitments to General Agreement on Trade in Services (GATS). Between 1990 and 2000, trade in services grew by 6 per cent per year. In terms of output growth, services grew by 7.9 per cent between 1994 and 2004 whereas agriculture grew by only 3 per cent and manufacturing by 5.3 per cent per year. State-wise incidence of poverty, the more reliable measure, recorded a decline in the poverty headcount index from 35.97 per cent in 1993-94 to 26.1 per cent in 1999-2000. Because there are no reliable and consistent measures of poverty at the national level, the authors examine the impact of trade on the wages of unskilled labour as an indirect measure of poverty. A regression model has been used with dem and for unskilled labour and a wage rate equation to stand for the supply side of labour. The results show that after controlling for interindustry differences, export intensity of the industry has a positive and significant on impact unskilled wages. However, imports of the product do not have a significant impact on un skilled labour in the industry. In the case of agriculture, the impact of trade liberalisation has no impact on its export activities. However, higher imports have led to lower wages of unskilled labour in those activities. Thus, the results are ambiguous as they differ by sector, product and between export and import activities. It is noteworthy that the authors do not draw the inevitable conclusion that for poverty reduction to take place, India has to reduce agriculture protection.
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Page 44
Chapter 6 on the Maldives is by Jagath Dissanayake and Suwendiri Jayaratne. Like Nepal, Bangladesh and Bhutan, the Maldives is defined as a least-developed country by the United Nations, despite its per capita income of $ 4,059 in 2008, the highest among the seven South Asian countries. It is also a small island economy, another category promoted by the United Nations. Given its small size, it has little option than to engage itself with the rest of the world. Nevertheless, it has had high tariffs, mostly as a means to raise revenue, and it also has a complex tariff structure with ten bands ranging from zero to 200 per cent. The latter increases the variance in protection to the detriment of a better allocation of resources. The Maldives started its trade liberalisation in 1989 by replacing QRs with tariffs. Staple food enters duty free and is subject to import quotas. The authors note that following the trade liberalisation, there was impressive growth of exports and imports, but it experienced a 15 per cent decline in 2005 due to the end of the MultiFibre Arrangement (MFA) with export growth however resuming later. Following the trade liberalisation, GDP growth rose to 13 per cent. The authors note the difficulties of analysing poverty over time in the Maldives due to the absence of time-series data. However, they note that poverty reduction in the country in three decades has been exceptional. Using the absolute poverty line of one US$ in Purchasing Power Parity terms, it revealed that the incidence of poverty in the Maldives was only 4 per cent of the population. Following the trade liberalisation, overall employment increased with some job losses due to reallocation of resources. The trade liberalisation had a positive and direct impact on reducing poverty. The authors however are concerned that its exports are not diversified, its resource base is narrow and that income inequality between the main island and other islands has increased. These developments are to be expected,
and trade liberal: one instrument addressed those
Chapter 7 on Nep Khatiwada. Like a land-locked co trade takes plac India. The Nepal linked to the India is free trade wit prices determin incomes and en other countries in had a restricted tr the 1956-1985 pe and market-orient the 1990s. In policies were pa India given the between the two trade had grown base by 19 per cer for exports respectively, it acc cent and 20 per following the lib returned to more after the spur. significant change of trade. The shar{ in exports declir nearly 70 percent cent in 2007. manufacturing woollen carpets garments, rose to cent in the 19 rescinding of th ready-made gar However, the stri changed much le imports remaine cent over this pe Nepal’s growth pe 4-5 per cent in the did not change the country's pov from 42 per cent line in 1996 to 31 However, its GD USS 38O in 2007 the lowest in So the trade liberali of exports and im not increased happened were compositions of Thus, though decreased sign country, the conti
42

sation being only could not have
issues.
al is by Yuba Raj Bhutan, Nepal is untry. Its foreign ; mostly through Rupee is closely n rupee and there in India. Indian : Nepal's prices, hployment. Like the region, Nepal ade regime during iod. It began trade ed reforms during :his regard, its rallel to that of close connection economies. While fast from a low nt and 18 per cent and imports :elerated to 28 per cent respectively, beralisation and sustainable levels There were also is in the structure 2 of primary goods ned rapidly from in 1980 to 22 per The share of goods, mostly and ready-made more than 70 per 990s. With the le MFA, Nepal's ments declined. ucture of imports ss. Capital goods d close to 25 per riod. Meanwhile, rformance around 1980s and 1990s significantly. Yet, erty rate declined below the poverty per cent in 2004. P per capita was and has remained uth Asia. Despite sation, the shares ports in GDP have markedly. What changes in the these variables. poverty has ificantly in the ibution from trade
to that outcome was apparently limited. This may well be a statistical problem, in that, large parts of trade are not reported, given the 1,800-mile-long border with India, so that both these variables are understated. The other reason for the apparent lack of a strong relationship of trade to poverty reduction, is the importance of remittances in raising incomes particularly in the rural
area.S.
Chapter 8 on Pakistan is by Rehan na Siddiqui. Like other South Asian countries, Pakistan's trade regime went through different phases. The first two phases from 1947 to 1980s, saw a move from relatively liberal trade to attempts at industrialisation through import substitution with increasing levels of protection. Towards the middle of this period, Pakistan attempted to give greater incentives to export growth using an export bonus scheme based on a dual exchange rate. In the 1988-1993 period, the country began to liberalise the trade regime supported by a structural adjustment programme of the World Bank. Tariffs were progressively reduced from a maximum of 225 per cent that prevailed in 1986/87 to 70 per cent in the 1990s and to 25 per cent in the 2000s. Tariff dispersion was also reduced to four slabs, and by the 1990s, only 2.7 per cent of the imports faced QRs. Despite these efforts, the import to GDP ratio did not change significantly, but the composition of both imports and exports changed indicating a reallocation of resources. Meanwhile, the exchange rate regime was changed from a fixed regime to a managed-float one. National poverty incidence measured by income and expenditure estimates, declined from 32.6 per cent in 1998-1999 to 22.6 per cent in 2006. The poverty rate was 27 per cent in rural areas and 13. Il per cent in the urban areas. Using simple regression models (given the paucity of data for other ways to model the link between poverty and trade) for the
Economic Review: June/July 20ll

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period 1973-2OO5, a robust relationship was found between growth and poverty. However, the relationship of openness and poverty was not uniform. The rise in import to GDP ratio and trade to GDP played an important role in poverty reduction whereas other indicators of trade liberalisation such as the average tariff rate and export to GDP ratio, depended on the production Structure particularly on the export side. To sum up, there was a positive relationship between trade liberalisation and poverty reduction, but it depended on the structure of the particular industry and other factors.
Chapter 9 on Sri Lanka is by Deshal de Mel and Ruwan Jayathilaka. Sri Lanka had a liberal trade regime from independence to around 1960 when it began to use strong trade restrictions based on both balance of payment reasons and the
ideological change that came about
with the victory of the Mahajana Eksath Peramuna in 1956. After a brief interlude, the United National Party (UNP) came into power in 1965 and attempted to undertake a partial liberalisation of the economy. It was defeated in 1970 which led another left of centre
coalition that included Marxists parties as well as those with left leanings with a nationalist veneer. The 1970-1977 period saw the strongest inroads into goods and factor markets and liberal trade, spurred by balance of payments problems (especially following the first oil shock and many years of trade tightening) which made the country one of the most controlled economies outside of the Soviet Union. When the UNP cane into power again in 1977, it liberalised the economy and the trade regime significantly changed on ideological grounds, in the wake of the success of East Asian economies and the very poor economic performance of the earlier government. The earlier governments (1970 - 1979) period was characterised by inwardlooking, import substitution
Economic Review: June/July 2011
policies and a co. which led to low unemployment. government revi through a proce liberalisation. Sr. first country in liberalise the tra
strong Inanner. liberalisation pro steam with th committed to ur. public expend Accelerated Maha Project. Due to hil and consequent leading to high in rate appreciation payments deficits slowed the pro further liberalis 1994, the UNP lost new left governme much atten tion agenda but seen with what was the to the civil war, n raised by i ac increases in dor imports and expC of para-tariffs. Mo were adjustmen schedule followir peace. However, has a very compl These authors als about lack of di product and marl rural phenomenor in other South Asi
national headcour. has fallen from 1990/91 to 15.7 However, rural p per cent of the declined at a slov same period. On poverty in the increased from 30 to 32 per cent i authors find t
liberalisation ha impact on poverty through its imp garments, and supported by tour labour to the Econometric inv

ntrolled economy growth rates and In 1977 the new sed the policies ss of economic
i Lanka was the
South Asia to ade regime in a By 1982, the gramme lost its e Government dertaking large iture on the weli Development uge expenditures budget deficits, flation, exchange and balance of , the government gress towards ation. Then in power again. The nt did not pay as to the liberal
ned to continue re. However, due
Oe eWee WaS
ross-the-board
nestic taxes on
rts with the use re recently, there ts to the tariff ng the return to Sri Lanka today ex trade regime. so are concerned versification by ket. Poverty is a in Sri Lanka as
an countries. The it index of poverty 26.1 per cent in per cent in 2007. overty (where 80 people live) had ver rate over the the other hand,
e State S e C tOr per cent in 2002 n 2006/07. The hat the trade d an important reduction mainly act on tea and beyond trade, ism and export of
Middle East. estigation of the
poverty reduction.
trade poverty nexus indicated that sector-wise differences in poverty impact depend on communication and general access to international markets. More generally, trade liberalisation has resulted in significant employment creation which in turn, has contributed to There is a positive relationship between trade, employment and poverty reduction but they hold primarily in urban
aeaS
Comments on Generic Issues
There are many challenges to a study of this nature. First, the subject matter is difficult given that the link between trade and poverty is multi-dimensional. The concept of trade liberalisation itself is subject to different definitions and the concept of poverty is clearly more difficult given that it is a truly multi-dimensional concept that refers not only to low income but to other aspects such as the access to assets (both human capital and financial), access to services such as health, education and to social security, not to mention limited or lack of empowerment in the political dimension. Nevertheless, the volume confronts these challenges in a practical and clear way, and the editors have done a good job in putting together this valuable volume. South Asia serves as a good laboratory to study the link between trade liberalisation and poverty. First, all the countries have moved towards more liberal trade regimes albeit at different speeds and intensities. The outcomes of their liberalisations therefore have to be different, providing a variety of experience. Second, these countries began at different initial conditions with respect to poverty levels, and hence their convergence to an average poverty indicator for the region (the headcount index that measures the proportion of those falling below the accepted poverty line of US$ 1.25 a day) has to be different and not necessarily smooth. But no such indicator has been developed, nor was that necessary given that the uses to which such an indicator was
43

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to be put, are limited. Third, many other factors impinge on the poverty outcome other than trade; both economic and non-economic factors are at play. Hence a proper correspondence of trade liberalisation variables to poverty outcomes has to be carefully sorted out. Fourth, trade liberalisation has not been an unidirectional phenomenon given that there have been many reverses and some advances over the period, starting with the earliest in Sri Lanka in 1977 to the latest in Bhutan in mid 1990s. Finally, the South-Asia region has the largest number of poor in the world, given its large population that have had low productivity in the dominant agricultural sectors, limited access to public services and backward in terms of social indicators with respect to education, health and status of women.
To some extent, South Asia's liberalisation path has been stronger and quicker than other regions, namely, the Middle East and Sub-Saharan Africa. The latter
had faster liberalisation in the 1990s starting with highly restrictive regimes but quickened the pace in the 1990s with little to show for it in terms of growth and poverty reduction. The Middle East was slower and the extent of liberalisation smaller. Latin America liberalised faster but has not able to hold on to a straight path. East Asia was first with strong trade reforms in the early 1980s and showed huge gains in terms of poverty reduction. China and India today have reduced poverty during the last three decades faster than probably any other time in modern world history. They have a lot to show for it in terms of the number of persons moving out of poverty. However, India still has the largest number of poor people in the world (although the actual numbers are contested by Surjit Bhalla). The present study should be able to help policymakers see the importance of consistent and strong trade
44
reforms accomp reforms that
resources from more productive a good macroecono doing so. The sobering reminde: reform is neither rewarding among same region. It is that trade libera magic bullet but arsenal to get e efficient to cont: growth to help pov this regard, the S has continued top which has con 1 persistence of pov areas, the main C poverty problem.
Connents on C
Guided by the edi authors have pro informative and c;
work, exploring th
trade and poverty of the findings il country studies a should provide v policymakers in th authors should b for their careful overstating or u findings, but keep in exploring the Also, the authors judgment well, to way to explore th trade policy and p Thus, they have u (Bangladesh) to s analysis (Sri Lanll analysis (Bhutan) link between tra reduction.
Nevertheless, the found some weak areas. A short li following:
i. The neglect of the regime in whi liberalisation took
known, the excha make a big differen or failure of trade lil

anied by other help to move ss productive to eas and naintain nic stances while study is also a that the path of easy nor equally countries in the
also a reminder lisation is not a only one in the conomies more ribute to higher erty reduction. In outh-Asia Region rotect agriculture ributed to the verty in the rural :omponent of the
ountry Issues
tors, the country oduced a highly redible analytical le nexus between reduction. Many n the individual re new and they 'aluable grist to he countries. The be complimented il work in not inderstating the ing to their brief nexus carefully. have used their use a particular e nexus between overty reduction. ised CGE models imple regression ka), to historical , to discuss the de and poverty
present reviewer nesses in a few st includes the
: type of exchange ch the trade place. As is well ange regime can ce to the success beralisation or the
extent of the productivity increase it would bring about. After all, the price of tradable to non-tradables or the real exchange rate is clearly affected by the exchange regime and unskilled wages constitute an important component of non-tradable goods. What happens to this price or exchange rate is a determinant of the poverty outcome. Thus, Pakistan changing its trade regime from a fixed-rate to a managedfloat and maintaining the stability of the real exchange rate through fiscal and monetary policies, mattered. Similarly, Sri Lanka's trade liberalisation of 1977 could not bring its full benefits because the exchange appreciated due to the "Dutch disease” associated with the Mahaweli River Valley Development project.
ii. Some authors went beyond the scope of the work, to be concerned about regional distribution of gains and losses of trade liberalisation. In this regard, it was up to the government that implemented the trade liberalisation to provide a cushion to those who were adversely affected, as some have to be.
iii. It is also not correct to define trade openness based on the trade ratio (i.e., the sum of exports and imports divided by GDP). Thus, the Maldives has a high trade ratio because it has a narrow resource base and not because it was a liberal trade regime.
iv. One would have expected to read good analytics with respect to the countries' endowments, the motives and ways in which trade was liberalised to evaluate the outcomes. Not all country studies have done this.
Overall, the present reviewer found the work to be original, of high quality and a worthy addition to the growing literature on South Asia. It is strongly recommended to the policymakers and scholars alike. It is hoped that the findings of the study will be used by policymakers when they consider the next stage of their trade reform, whatever point they happen to be at the time. It is also hoped that scholars will carry this work further refining the analysis, bringing new data that becomes available over time, and using this contribution as a standard reference on the subject.
Economic Review: June/July 2011

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Contd. from Diary of events
18o The Prime Minister of Spain Jose Luis Rodriguez Zapatero told the President Mahinda Rajapaksa that the international community and international organisations such as the UN should help Sri Lanka, during the bilateral talks they held in St. Petersburg
The UN, EU and Arab League met in Cairo called for a political process to end the conflict in Libya.
The Justice Ministry of Sri Lanka said that the US Federal Court has issued summons on the President Mahinda Rajapaksa in connection with three civil cases filed under the Hague Convention claiming monetary damages under US Torture Victims Protection Act (TVPA) over alleged extrajudicial killings of war in Sri Lanka.
19" The Justice Ministry of Sri Lanka said that it will reject the summons issued by the US Federal Court for the President Mahinda Rajapaksa. The Secretary to the Ministry of Justice stated that necessary legal measures in this regard have already been taken.
20th The Defence Ministry of Sri Lanka claimed that "Issipriya’- a woman alleged to have been a journalist and a news presenter by the Channel 4 documentary was confirmed as an LTTE cadre.
The IMF said that the mounting debt crisis in Europe is threatening the economic recovery throughout the world. In a statement issued by the IMF, it warned that the ongoing crisis could have "large global spillovers" if decisive action is not taken.
The Asian Development Bank (ADB) agreed to provide financial assistance of US$ 120 million for the implementation of sustainable power sector support project in Sri Lanka in line with the government's target of providing electricity to all households by end of 2012.
Prof Benjamin Horton, a Researcher of the University of Pennsylvania, said that the sea levels are rising faster than they have been in the last two millennia. In his statement, he further said that the sea-level rise is a potentially disastrous outcome of climate change.
22"“ The two Sri Lankan Ambassadors to the UN, Dr Palitha Kohona and Major General Shavendra Silva, foiled an attempt made by International Non-Governmental Organisations to mislead a gathering at the UN Church Centre by screening the documentary titled ' Sri Lanka's Killing Fields'. The two ambassadors convinced the gathering of inconsistencies and biased narrations of the documentary.
26. The Bank for International Settlements (BIS) warned that the emerging economies are at risk of building up debt levels and property bubbles similar to those in advanced economies that triggered the recent financial crisis.
27" Mr Kanapathipillai Devadasan, a Tamil Information Technology expert who had served in a Scandinavian country, had closely scrutinised the Channel 4 video and
said that it was certainly "doctored' beyond any reasonable doubt.
The International Criminal Court at the Hague issued arrest warrants for Libyan leader Muammar Gaddafi, his son, Saif al-Islam, and the country's intelligence chief for alleged crimes committed against anti-regime protestors.
28' Libya rejected the arrest warrants issued for its leader Muammar Gaddafi and two of his closest allies for alleged crimes.
The executive board of the IMF announced that the French Finance Minister Christine Lagarde is appointed as the new Managing Director of the IMF. She will start her five-year term on July 5, 2011.
The US urged Sri Lanka to move quickly to address allegations of war crimes.
- Economic Review:June/July 2011

July
1" Lanka web quoted a statement made by Senior Adviser on Foreign Policy in Japan, Yasushi Akashi, in the 16 Joint Committee of the Sri Lanka Business Co-operation Meeting held in Tokyo "The Darusman Report, though intended only to be an advisory report to the Secretary General of the UN, is improper".
7. The External Affairs Minister G. L. Peiris informed Parliament that twenty two countries of the Non-Aligned Movement (NAM) have stated there was no necessity for the Darusman report to be presented at the Human Rights convention in Geneva.
Colombo has ranked high among the low-cost of living cities in the world, according to the latest worldwide cost of living survey of The Economist. According to the survey, Tokyo is still the most expensive city in the world.
9 South Sudan became the world's newest nation, as a result of its breaking away from Sudan after two civil wars continued over five decades.
11. The Human Rights Watch called upon the US President Barack Obama to investigate allegations of the detainee abuse which was authorised by former US President George W. Bush and other senior officials. The Human Rights Watch asked to investigate it similar to the US call for inquiry against international crimes that are committed in places like Darfur, Libya, and Sri Lanka.
A. London Court has ruled that Sri Lanka's petroleum authority - Ceylon Petroleum Corporation (CPC) - owes nearly US$ 162 million plus interest to Standard Chartered Bank for nonpayment of dues resulted from a failed hedging deal.
13 Supporters of the revolutionaries in Libya have staged mass demonstrations in major opposition strongholds, calling for the downfall of Libyan leader Muammar Gaddafi.
15. The IMF called on Europe to strengthen banks that flunked stress tests amidst turmoil over the Euro zone debt crisis. The IMF, which is partnering with the European Union in financial rescues of Greece, Ireland and Portugal, welcomed the tests of whether the banks meet the European Banking Authority's new capital requirements. According to the results announced, just eight of 91 banks (five Spanish banks, two Greek banks and one Austrian bank) failed.
21" The US Congressional committee halted 13 million dollars aid to Sri Lanka projected in the 2010 Appropriations Bill. Now, it is before the Congress for debate and approval.
26. The UN World Food Programme was set to start airlifting food to Somalia, Ethiopia and Kenya after an emergency meeting held in Rome on the drought-stricken Horn of Africa region. Nearly 3.7 million people in Somalia - around a third of the population - are on the brink of starvation and millions more in Djibouti, Ethiopia, Kenya and Uganda have been struck by the worst drought in the region.
The British Foreign Secretary William Hague said Britain has recognised Libya's rebel council as the country's sole legitimate government after dramatically expelling all remaining staff loyal to Muammar Gaddafi.
28' The government of Muammar Gaddafi denounced Britain's decision to recognise the Libyan Opposition as the sole legitimate authority in the country.
30" Tamil Nadu Chief Minister J. Jayalalitha has urged the Central Government to impose an economic embargo on Sri Lanka for alleged “war crimes'.
31." The government of Sri Lanka has invited the UK-based Channel 4 to visit Sri Lanka to study the ground situation. The deputy ambassador to the UN Major General Shavendra Silva has informed Foreign Affairs Correspondent of Channel 4, Jonathan Miller of Sri Lanka's readiness to facilitate a
visit.
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