Sri Lanka expropriations will hurt economy: EIU

Nov 21, 2011 (LBO) – A Venezuela-style law to expropriate dozens of private enterprises will hurt the economy, undermine policy predictability and scare investors despite state assurances that it will be a ‘one off’, UK-based Economist Intelligence Unit said. EIU said the law which deemed some 37 firms as ‘under-utilized’ or ‘under-performing’ also resembled similar asset seizures in other populist countries.

“It also raises uncomfortable echoes of the actions of populist Latin American governments, notably Venezuela, which has repeatedly used similar excuses to nationalise foreign-owned land and companies,” EIU said.

“As this comparison suggests, Sri Lanka’s expropriation law is likely to be economically counter-productive.”

All the firms had either received state land grants, were privatized or had received tax breaks.

EIU said the asset seizures will be “particularly counter-productive at a time when Sri Lanka is keenly seeking foreign investment for development following the end of the civil war.”

The legislative process that was used to pass the law was also a concern, EIU said.

Critics have said that the law is deeply flawed in that it trespassed on a constitutional separation of powers, and amounted ad hominem law,