|The wages of envy|
The Economist, Aug. 20, 1983
The wages of envy
FROM OUR SPECIAL CORRESPONDENT IN SRI LANKA
"The Tamils have dominated the com-
manding heights of everything good in
Sri Lanka", explained the soft-spoken
Cambridge-educated finance minister.
Mr Ronnie de Mel is too sophisticated to
use the term on the tip of many Singa-
lese tongues these days - the need for a
"final solution" to the Tamil problem.
But, even for him, the "only solution" is
to "restore the rights of the Singalese
Restoring Singalese rights is a code
phrase for dislodging the Tamils from
their disproportionate influence over
large sectors of the Sri Lankan economy.
This is what the Singalese mobs set out
to do when they put their torches to
thousands of carefully targeted Tamil
factories and shops. Now the govern-
ment is about to advance this process by
expropriating all damaged properties. Many Tamils will assist them by leaving
the country. The result will be a decisive .
shift in the balance of economic power in
Sri Lanka from Tamils to Singalese.
The stated aim of the government's
takeover of riot-ravaged homes and bus-
inesses is to prevent distress sales and to
promote an orderly reconstruction pro-
granme. Government funds are to be
injected into salvageable industries, with
export-earners a top priority. In ex-
change, the government will take a share
of the equity and appoint directors. In
theory, former owners will be free to
buy back government shares in time.
But ministers do not disguise their redis-
tributive intentions. Many are talking
about following Malaysia's example of
writing preferences for the majority
into commercial law.
The trade minister has already reor-
ganised rice wholesaling to break the
Tamil grip. "It is no longer in my
interest to allow one community to
dominate the wholesale trade in any
commodity", insists Mr Lalith Athulath-
mudali, who doubles as a government
spokesman on Tamil questions. Making
room for the Singalese in trade also has a
literal meaning. Ravaged city centres such as the Pettah commercial district in
Colombo are to be redeveloped; when
prime sites are reallocated, former occu-
pants will not necessarily get them back.
The central bank governor, Mr Rasa-
putram, has another justification for
taking ownership out of Tamil hands:
their companies might otherwise be hos-
tage to another wave of communal at-
tacks. Better to make Tamil family firms
go public and broaden their ownership.
The trouble is that this argument may
well frighten off Singalese investors,
who have also been shaken by the vision
of mob rule. So the main new partners in
Tamil-owned companies are bound to be
the government and the banks.
The state stake in Sri Lanka's injured
industries is meant to be temporary.
But, if the alternative is returning eco-
nomic control to the Tamils, the govern-
ment may decide to hold on, The World
Bank, among others, is worried that this
will mean the expansion of an inefficient
state sector; it would prefer to see the
financing and management of recon-
struction left to the banks. The banks
are anyway Involved because of the high
level of lending to the ruined compan-
ies-how high nobody yet knows.
The loses are still being added up in
the statistical department of the central
bank, which has sent out teams of ac-
countants and surveyors to do an on-site
census of destruction, The preliminary
estimate of $l50m worth of damage to
commercial and residential property -
equivalent to about 4% of Sri Lanka's
gnp - is almost certainly too low, be-
cause it is based on book value; replace-
ment costs might be five to 10 times
higher. It also excludes the value of lost
stocks, lost output and lost export
The destruction of nine coconut mills,
for example, could cost Sri Lanka its
position as the world's second largest
exporter of coconut oil; all oil exports
have been suspended. Although half the
factories making clothing for export
have been put out of action, the net ,
losses in this $150m-a-year trade may be
made up by surplus capacity.
Optimistic ministers are predicting
that recovery will take two to three
years. But this will depend partly on the
government's ability to raise capital at
home and abroad. The International
Monetary Fund is sending a team to
Colombo later this month to reassess its
agreement to provide $IOOm in three
tranches ovcr the next I8 months.
Another key factor in Sri Lanka's
recovery will be the brain-drain of Ta-
mils. Thousands of Tamil professional
people are said to have left the country
since the violence last month.
One Ieading Tamil entrepreneur - and
Sri Lanka's most successful entrepre-
neurs are Tamil - estimates that 90% of
his fellow-industrialists are now contem-
plating emigration. If they go, Sri Lanka
will lose more than their capital assets,
many of which went up in smoke last
month. It will lose commercial instincts
and management skills which have
aroused Singalese envy but not yet imi-
tation. This could prove the most serious
casualty of the conflagration of '83.
[reformatted from original article]