Sri Lanka drive to invest in ports, airports and ground transport will help the island link itself to the global trade, drive exports and growth, an International Monetary Fund official said.

Global trade which plunged 20 percent in 2008 and 2009 has started to recover from 2010 and has now grown about 10 percent over two years, IMF's Sri Lanka resident representative Koshy Mathai said.
Trade Pull

"We should see trade volumes recovering much more," Mathai told a business forum in Colombo.

"The (Sri Lanka) government has focused itself on a strategy as developing a regional hub."

"Port infrastructure, airport infrastructure and rail are being built."

Mathai was addressing an annual conference of the Chartered Institute of Logistics and Transport in Colombo, a global association of transport sector specialists.

Romesh David, from CILT Sri Lanka said the convention was being held in Sri Lanka after more than a decade. The convention saw 130 foreign delegates participating.

Mathai said countries that grew fast showed strong export growth. Countries like Brazil, which initially showed some success through domestic production eventually, ran out of steam in the early 1980s.

Protectionism raises domestic costs, including living costs, makes production expensive, eventually making exports uncompetitive.

Large volumes of capital are also driven into inefficient protected industries, which can be better used to serve people through exports or efficient production.

Critics say entrepreneurs then also spend their time and ingenuity lobbying politicians and bureaucrats to rig customs regimes and trap domestic consumers instead of engaging in helpful activities such as research and development.
Three Speed

Mathai said the world is on a three speed recovery with the US seeing growth of around 2 percent, emerging markets growing up to 8 percent in some cases and Europe still lagging behind with some countries contracting.

Analysts say the US remains a most free economy in the world with the least regulations and free enterprise led revolutions including shale oil and deep oil had helped the country recover. Many such activities are still banned in Europe.

Europe remains mired in regulation where structural reforms are also needed, Mathai said.

Economists have said that contradictory state interventions such as tight bank capital requirements - especially in Europe - has put the breaks on credit even as central banks tried to push growth with quantity easing or printing large volumes of money.

Some of the money has instead ended up in emerging markets which had credit systems that were working better, pushing up asset prices in some cases.

Mathai said budget deficits have to be cut to reduce debt but it should be done carefully not to slow growth.

The role of state spending however is contentions among economists. Typically states that spend other people's money tends to reduce growth unlike private spending which bring better returns, as chronic deficit spending countries have shown.

Small European states such as Estonia that cut budgets and reduced the burden of the state on citizens were among the first to recover and boom during the current crisis. But pro-spending economists have tried hard to discredit their achievements.

Critics say state spending in the absence of private spending and credit can give a temporary boost at the expense of higher debt which will create long term uncertainly and negative perceptions and lower future growth.

But continued state spending amid a private sector recovery will crowd out useful activity and even short-term growth and any monetary loosening to 'have the cake and eat it' can create asset price bubbles, inflation and instability.