Economic sanctions on Sri Lanka not in UK’s interest

economic sancations     Economic sanctions on Sri Lanka are not in the interests of his country, and movers of a UN resolution are expecting progress which would make such questions redundant, UK’s envoy to Colombo said.

“Sanctions are not currently an issue,” High Commissioner (ambassador) John Rankin told an LBR-LBO CEO forum on meeting the challenges of a resolution on Sri Lanka by UN’s Human Rights Council.

“First, because the Human Rights Council does not have the power or mandate to impose sanctions. And to the best of my knowledge no government to date has proposed economic sanctions on Sri Lanka.

UK is one of the key sponsors of the resolution, which calls for improvements in human rights, as well as an external probe into alleged war crimes.

“Nor would sanctions necessarily be in the interests of a country like the UK. Policy is not uni-dimensional towards Sri Lanka. UN rights issues and Human Rights Resolutions are not the sole purpose of our policy.”

High Commissioner John Rankin said Sri Lanka and Britain had a strong and investments relationship with the island.

“We are one of your top five investors,” he said. “We are your second largest trading partner in the world after India.

“We have over 100 UK companies successfully operating here employing people locally

generating profits, which in turn help employ people in the UK.”

“A major part of my job is to promote that trade and investment relationship. So economic sanctions which could affect that economic relationship are not in the interests of the United Kingdom. Or indeed the other major trading partners.”

 Economic Impact

But he said there had been economic consequences in the past such as the loss of GSP plus concessions when Sri Lanka chose not to comply with conditions that would have improved human rights of citizens.

“That was a matter of choice of Sri Lanka. But it demonstrates that those choices human rights issues can have an impact on economic relationships.

Next March a report from the UN’s Human Rights Commissioner was due with an oral report in September.

“We are not planning for failure. The plan is for success not for things to get worse,” he said.

“I think the key question that has to be identified in this discussion is whether the effect of the resolution is to harden positions or whether the resolution would be to create the space to allow some positive progress in the areas of concern.”

He said recent elections in the North and the East was a positive development.

“If the resolution does encourage that constructive action in the future, then (a) it will hopefully make questions of economic sanctions redundant. And (b) hopefully help further improve inward investment,” he said.

Central Bank’s Deputy Governor Nandalal Weerasinghe said so far there has been no economic impact from the three UN resolutions.

In January before the resolution Sri Lanka had been able to sell a billion US dollar 5-year bond at 6.0 percent after being oversubscribed three times with a large share from European and US investors.

Two months later, one week after the resolution the demand was 8 times a 500 million offer with very high demand from the EU and US.

“So these are the two major blocks that supported the resolution,” Weerasinghe said. “But the investors, those who were looking at Sri Lanka, simply ignored the resolution.

“Anyone putting their own money, they are the people who would be most concerned about the impact or fallouts of the resolution.”

The yield fell from 6.0 percent before the resolution to 5.1 after the resolution.

“It they had concerns about the resolution they would have demand a little more higher price,” Weerasinghe said. “Or they would not demand that much bonds issues by the Sri Lankan government.”

In the area of trade exports and imports as well as foreign direct investments have grown since the first resolution.

“What matters for economics or finance is the bottom line. Whatever the government position, they look at the risk and return.”

Building Buffers

Weerasinghe said the objective of the authorities was to improve economic fundamentals, which the investors have already seen. If conditions improve there will be more investors, he said.

He said even if debt investors pulled out in the unlikely case of sanctions the Central Bank had a built up an 8.0 billion US dollar foreign reserve buffer and exposure to bonds that could be withdrawn at time was about 3.7 billion dollars.

He said buffers were built not only for sanctions but there were other international risks as well.

Chairman of the Ceylon Chamber of Commerce Suresh Shah said rather than official sanctions, unilateral or otherwise were possible but Sri Lanka was hopefully far away.

The bigger worry was international public opinion. Sri Lanka has been getting a lot of negative press overseas, he said.

“On the other hand countries like Vietnam and Myanmar has been getting much more positive press than Sri Lanka is been getting,” he said.

“These can have an impact on FDI flows. In terms of tourism public perceptions can matter. So our potential can certainly be affected.”

Myanmar however has also got negative press due to rising Bhuddist nationalism.

Nishan de Mel, head of Verete Research, an economic research firm said a looking at recent international actions, there had been indirect sanctions.

“The main economic impact will be losing potential opportunities,” de Mel said. “Strong economic sanctions are away. The nature of sanctions are quite varied and multifarious.

“There can be sanctions against individuals. There can be limited sanction on certain types of investments, policies that can prevent Sri Lanka from drawn into certain international agreements.

De Mel said in the present context where foreign investments were not high (about 1.3bn US dollars last year) even they there were to fall, there is not much to fall.

De Mel said though tourist arrivals have increased, Sri Lanka still had only about 6 tourists per 100 population, and taking it up to about 10 or 12 would not be affected by resolutions.

In trade relationships ‘positive’ balances (exports from Sri Lanka were higher than imports to Sri Lanka) were with countries that sponsored the resolution.

“52 percent of our exports go to countries that voted for the resolution,” de Mel said. “And only 9 percent of our exports go to countries that are voted against the resolution. So that is quite telling.

“Oddly enough the countries that voted against the resolution or abstained turn out to have a larger percentage of imports to the country. By a huge margin they have a negative trade balance.”

De Mel said improving governance and human rights would also bring positive benefits overall.

He said Sri Lankan businesses could diversify their products and markets.

Shah said diversification of exports was strategy that should be pursued but it took time and there were possibilities with incomes growing in countries like China.

Tourism diversification was happening faster with many Chinese already starting to travel out, he said. (LBO)

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