Features
Global Bank Failures, French Protests, and Sri Lanka’s Massive Contraction
by Rajan Philips
Last Wednesday, March 15, the Department of Census and Statistics (DCS) revealed a whopping 7.8% contraction of the economy in 2022, the fourth quarter being the villain with 12.4% negative growth. Everything now is the worst ever. But there is no contraction, whatsoever, in the political confusion that is twisting the country’s parliament in knots.
In global economic news, the dramatic collapse of the Silicon Valley Bank (SVB) in California last week, followed by New York’s Signature Bank, and Credit Suisse’s public woes on Wednesday, in Zurich – all in a span of five days, have raised alarms about a repeat of the 2008 financial crisis. In France, the Macron government is executively pushing through pension reforms without a parliamentary vote and risking an even more heightened confrontation with protesters who are already out on the streets in their millions, from Marseille to Paris.
There is no connection between the bank failures, French protests and Sri Lanka’s contractions and confusions, but by juxtaposing parallel developments one might luck out in getting better insights than by navel gazing into homegrown sovereignty. The troubles facing the two American banks and the premier Swiss bank have been primarily attributed to their idiosyncratic circumstances. Poor risk management is suggested in the case of the Silicon Valley Bank, which although only 40 years old is the 16th largest American bank and the financial mainstay of the technology sector. It has also been compliant with regulations and did nothing improper. The 167 year old Credit Suisse, on the other hand, has long been beset by scandals, losses and plummeting shares.
Whatever is necessary
At the same time, amidst growing market and investor fears, the three banks in trouble are being seen as the first casualties of the aggressive interventions by central banks to raise interest rates and tighten monetary policy to end what is being called “the era of easy money.” The era of easy money began after the inflation crisis of the 1970s and the downward trend in interest rates that followed. Easy money flow became a flood after the 2008 financial crisis and more recently the pandemic, which triggered near-zero interest rates and stimulus funding as necessary responses to avert economic depression.
The not wholly unintended consequence has been the steep rise in national and global debt levels. To put it perspective, the global debt level rose by 30% in five years to a staggering $300-trillion in 2021, which is 350% of the annual global GDP of $85-trillion. The combination of debt and rate hikes in the new fight against inflation has made the financial system, if not the real economy, vulnerable to failures. The Silicon Valley Bank (SVB) which had created an unusual mix of a high proportion of bond assets and large volumes of variable-rate deposits became a direct casualty of rising interest rates.
Although it is the failure of only one bank, real people were affected as technology firms lost their deposits, even if temporarily, and could not make payroll leaving thousands of employees in the lurch. But this is America, where during a government shutdown standoff under former President Trump that would have left the US government unable to pay its employees, Trump’s Commerce Secretary and business tycoon, Wilbur Ross, infamously asked, “why do people need salaries?” May be, no longer.
While asserting that the troubled banks were not a source of contagion to the financial system as whole, the Federal Reserve and other regulators in the US, and the Central Bank in Switzerland, have decisively stepped in to provide liquidity to stop panic bank runs escalating the crisis. President Biden has vowed to do “whatever is necessary” to protect the American financial system, seemingly echoing an identical pledge in 2012, by then European Central Bank President Mario Draghi to protect the euro from collapse.
Whatever he wants
Turning to Sri Lanka, I do not recall any pledge by President Wickremesinghe to do whatever is necessary to rescue Sri Lanka’s economy. Only thing anyone can recall is his assertion that there is no economy to rescue or reform. The other thing everyone can now realize is that rather than doing whatever is necessary, President Wickremesinghe is bent on doing whatever he wants. He has raised the issue of LG elections to a new level of presidential intransigence. He is directing the executive branch to stop funding the Election Commission to conduct the local elections. He is putting the legislature and the judiciary on a needless collision course over whose responsibility it is to manage state funds. He is daring protesters and strikers to try what they did with Gotabaya Rajapaksa, in order to teach them a lesson.
Not unlike the lesson that his mentor-uncle made clear after a shooting incident involving security forces and protesters in January 1966. Raising the matter in parliament, Dr. N. M. Perera asked rhetorically, whether the government thought it had the army to shoot people. Pat he got the answer from the then Minister of State, JR Jayewardene, “what else, for fishing?” More than a decade later as Executive President, Mr. Jayewardene was known to muse that he was glad that he got power late in life as he was not as ruthless as he was when he was young. It may be that President Wickremesinghe is learning to be ruthless in his old age. But to what end?
And the opposition parties are either nowhere where they need to be, or all over the place where there is no need for them. The President’s cheap maneuvering over LG elections is abominable, but he is using the election as a bone to keep the opposition distracted while he goes about doing whatever he wants. The real question is what is the President going to do about the contracting economy? The 2022 contraction is not easy to overcome, and the ongoing political circus involving the President, his nondescript government and the unfocussed opposition is not making economic recovery any easier.
If the President is going to insist on doing and continues to do what he wants, he is not going to achieve the critical level of consensus that is needed for anything that he undertakes to succeed. Aside from the LG elections the proposed tax changes have become a major flashpoint. The current standoff could have been avoided through prior consultations and the proposed measures need not have been presented as a take-it-or-leave-it fait accompli. The threatened strike action has not been a convincing success but it would be a mistake for the government to conclude that it has succeeded in stopping it. Friday’s announcement that the organizations opposing the tax changes are going to meet with Secretary to the President and eventually with the President, is a positive sign, but such meetings could and should have occurred before, and not after, the tax proposals were finalized.
Protest Politics
In a vastly different situation, French President Emmanuel Macron with his executive fiat to raise the legal age of retirement from 62 to 64, is taking on some of the sacred cows of French society – the deeply ingrained commitment to equality and social solidarity, and the equally well grounded resistance to unbridled capitalism and suspicion of profit motives. Quite a far cry from the conventional American ethos which celebrates greed and profit that someone like Trump was cunning enough to exploit to win the presidency. Sri Lanka is neither here nor there but it doesn’t have to be either/or. It can remain small and in the middle, even if not beautiful. The French resistance to having to work two years longer to get their pension is not the same as the opposition to taxation in Sri Lanka. There cannot be social security without taxation, but it is not easy to change a system that people have got accustomed to without provoking a backlash.
President Macron has gone to unprecedented lengths to achieve his retirement age goal. Having secured the passage of the pension bill in the inherently conservative Senate, the Macron government on Thursday invoked the constitutional ‘nuclear option,’ Article 49.3 of the constitution, and adopted the pension reform by executive decree without a vote in the legislature, where the government does not have a majority. In the peculiarly French way, the same article allows the opposition to automatically bring in a motion of no confidence against the government.
Such a motion may likely succeed as President Macron currently heads a minority government having lost his legislative majority in the parliamentary election last June. Out on the streets, turmoil continues as France faces political uncertainty but not without revolutionary nostalgia. It has been said that President Macron is risking his political future by going ahead with his plan to raise the legal age of retirement. “You have to take your risks,” is his mantra. At 45 years of age, nearly 20 years to retirement in any job, Mr. Macron has indeed taken a huge risk. President Wickremesinghe, on the other hand, is 74 and does not have too much of a political future left to risk. But he seems prepared to risk the country’s future to get one elected term as President.
Features
‘Lord Edgware Dies’
It has been some time since I read an Agatha Christie, the plot of which I cannot remember. So, I was delighted to find on the shelves of a friend Lord Edgware Dies, which I had a vague memory of, but no certainty about who had done it.
When I read it, I found that my memory of who was probably the killer was correct, but I could not be certain and the red herrings Christie threw in were so diverting that until almost the very end I wondered if I had been wrong.
The plot is very simple. Jane Wilkinson, who is married to Lord Edgware, tells him that she is desperate for a divorce since she is in love with a very proper Anglo-Catholic peer, Lord Melton, but Edgware refuses to divorce her. She asks Poirot to talk to him, which he does, and is surprised to find that Edgware has told Jane he is prepared to give her a divorce. This was, after he had categorically refused, through a letter, which Jane said she had not received.
That night Edgware is murdered, after Jane had been to see him, or so the butler said, and also Edgware’s secretary. But Jane had been that evening at a grand dinner many miles away, where a dozen fellow guests could swear to her presence.
There was a solution however to the mystery of two Jane Wilkinsons, namely a skilful impersonator called Carlotta Adams who, in the opening chapter had impersonated Jane Wilkinson, who had also been at the performance. But when Poirot goes to see her, he finds that she had been found dead on the morning after Edgware had been killed, of an overdose. And in her bag was a gold case, with a strange inscription, that contained the drug, along with a pair of pince-nez.
Her maid said she had written a letter to her sister in America and posted it the previous night. Poirot asks Inspector Japp to get the letter, and a transcript is received from America, and in it the name of Edgware’s nephew Ronald Marsh is mentioned; he had taken Carlotta to dinner after her performance, with which the book opens, and had then set her a challenge. Japp arrests Marsh, but Poirot is not happy and asks for the original of the letter, which the sister sends him. That shows that a page is missing, and the tear is obvious, though that raises the question as to why it had not simply been cut.
Matters are further complicated by the fact that Marsh had gone in a taxi to the Edgware house, along with Edgware’s daughter Geraldine, in the interval of an opera which had previously seemed to provide them with cast iron alibis. Geraldine had gone in to fetch her pearls so that Marsh could raise money he needed, and thus had an opportunity to kill Edgware, as did Marsh, for the driver said he had got out of the taxi while waiting and gone into the house.
Marsh explained why he had gone to the house on the night of the murder as having followed Bryan Martin, an American actor, who had been in love with Jane, whom he saw go into the house with a key. But there was no one visible when he entered, and Geraldine almost immediately came down and they left together. And Martin too has become an object of suspicion to Poirot, for he had been to see him before the murders were discovered with a story of being followed by a man with a gold tooth – a story Poirot immediately realized was false when he was asked how old the man was, and was told he was young, for young people did not have gold teeth.
A heap of French money Edgware had got for a trip to Paris was missing, but since Marsh had no need for it after his cousin’s offer of help, Poirot deduces that it must have been taken by the butler, who has disappeared. Christie has stressed that he is astonishingly handsome, unusual in a butler, and Poirot notes a resemblance to Martin, so he thinks the mysterious man going into the house must have been him.
Incidentally, later Poirot assumes that Edgware’s change of mind was because he was involved in some scandal, and I believe Christie intends us to see the cause of this in his handsome butler, though this is not specified.
Meanwhile, Poirot has asked Japp to find out the provenance of the case found in Carlotta’s handbag, and it turns out to have been made in Paris, specially commissioned, and collected by a woman with pince-nez.
But then another murder occurs—that of another guest at the grand dinner, which provided Jane with her alibi. The victim is an actor who had been bemused when Jane, at a lunch, thought the Judgment of Paris referred to the city. He told Hastings he wanted to see Poirot, but was killed before he could get to the appointment. Poirot had rushed there when told about his request, but it was too late.
Meanwhile, Poirot has tried out the pince-nez on Edgware’s secretary, but she could not see through these. It was only a chance remark heard outside the theatre that led him to try them out on Wilkinson’s maid Ellis, a spare pair that had been appropriated for the night of the murders.
Poirot then lays things out, having summoned Martin and told him that he probably suppressed Edgware’s letter, as he had been dropped by then and he did not want Jane to marry another. But after teasing Martin, Poirot says that Jane was in fact the murderer, and she got Carlotta to impersonate her at the dinner while she went to the house and killed her husband. After meeting Carlotta later and checking with her through a call that she had
not been rumbled, Jane had gone ahead with the murder – she put veronal into her drink and the case with veronal into the handbag. She forgot to take out the pince-nez she had used earlier to imitate an American. Carlotta had registered as the American in a hotel and Jane had gone to see her, and there they exchanged identities. After seen the letter, she made use of it by tearing off the page that referred to her, and the S of She, so that the person who had challenged Carlotta to impersonate her seemed to be a man.
There is a coda in which Jane, condemned to death, writes to Hastings, still full of pride at her ingenuity hoping she will be remembered.
Features
Desilt reservoirs, learn from our ancient irrigation systems
by Prof. O. A. Ileperuma
Silting of reservoirs is a major problem today affecting our hydropower production and irrigation systems. The main Mahaweli reservoirs are silted to a considerable extent reducing the water holding capacity of them. Due to poor soil management practices, floodwaters deposit large amounts of silt in these reservoirs. When the Polgolla reservoir was fully drained about two years back, one could see mountains of silt in the lower reaches of the reservoir. A rough estimate is that 50% of the total capacity of these reservoirs has been lost to siltation. This is a serious issue which affects not only power and agriculture but also flood control.
Our ancient irrigation systems ensured that desilting of reservoirs took place under royal decree where all users of the reservoirs were ordered to carry out desilting of reservoirs during the dry season. The clay thus collected was used in making bricks for the construction of great stupas which dot the landscape of our ancient kingdoms. This ensured that the reservoirs had their full capacity filled with water for the next cultivating season. Our ancient kings were clever enough not to construct reservoirs by blocking main rivers such as the Mahaweli. A classic example is the Minipe left canal where they tapped only the surface water of Mahaweli. Even the bigger tanks such as Nuwara Wewa and Parakrama Samudraya were fed with minor rivulets. There were also other ingenious features in the cascade irrigation systems built by the ancient kings, such as mud sluice canals and forest reservations between the reservoirs in the cascade system. These reservations helped trap silt and remove excess nutrients, which could otherwise contribute to increasing salinity as water flowed from one reservoir to another.
- Parakrama Samudraya
- Kalawewa
- Kotmale
A classic engineering marvel is the former Yoda Ela, which carries water from Kalawewa to Nuwara Wewa and Tissa Wewa. It is 87 km long although the straight distance between these points is only about 40 km. The gradient of this canal is about 10 cm per km or 6 inches per mile. Yodha Ela functions as a moving reservoir and feeds about 4,600 hectares of paddy lands. It is a winding canal with about 120 smaller reservoirs on its way. It was constructed during the reign of King Dhatusena around 459 AD and later expanded by King Parakramabahu by connecting more reservoirs to the network. Unfortunately, during the Mahaweli project our modern-day engineers constructed a concrete canal replacing the winding path of this Yoda Ela also called Jaya Ganga. This effectively removed the ability of the old Yoda Ela to remove silt and nutrients. The bank of this Ela has wet zone trees such as jak and areca nut growing well. They take up the nutrients from the flowing stream making the water suitable for irrigation later.
Ancient Mesopotamian civilisations depended on dams constructed along the two main rivers, Euphrates and Tigris. After continuous irrigation of their fields over several thousand years, salinity of the irrigated lands increased making them unsuitable for agriculture. People died due to famine and this clearly illustrates the danger of blocking main rivers for agriculture. There is scientific evidence that the salinity of paddy soils in the Mahaweli C area is increasing.
We saw the devastation caused by Cyclone Ditwah. The sluice gates of the Kotmale Reservoir were opened, and Kandy and Peradeniya were flooded. If the reservoir had had greater storage capacity, couldn’t the opening of the gates have been delayed? This may not be an argument that modern-day engineers would readily accept, and I am not an irrigation expert. These ideas may well be naïve. But most of us tend to think of reservoirs mainly in terms of hydropower generation and irrigation, while their role in flood control receives much less attention. The question therefore deserves serious consideration. Could restoring lost reservoir capacity through desilting help improve our ability to manage extreme rainfall and reduce flood risks?
Desilting our reservoirs should be considered a national priority.
Features
Losing out to Ethiopia
Export diversification – Missing the wood for the trees – Part III
by Gomi Senadhira
In Sri Lanka, the word “Ethiopia” is often used as disparaging slang to describe individuals or areas experiencing extreme poverty, starvation, or severe economic hardship. This linguistic habit originated in the 1980s with the Western media coverage of the devastating Ethiopian famine of 1983-85. That media coverage shocked the world but also left an outdated and offensive global stereotype that the country is permanently starving. Much has changed since then. By now, with an annual growth rate of around 9%, it is the fastest-growing economy in sub-Saharan Africa. Ethiopia has also emerged as a highly competitive exporter and is challenging not only its competitors in the region but also countries like Sri Lanka. This article is on how Sri Lanka has lost ground to Ethiopia (and a few other countries) in the GCC markets for agricultural and floricultural products.
Sri Lanka – A Pioneer in the Agriculture and Floricultural Market in the GCC
As discussed in Part II of this article, by the mid-1980s Sri Lanka had established a strong foothold in the GCC’s fruit, vegetable, and floricultural market. Geographical proximity and well-established shipping and air links gave Sri Lanka a strong comparative advantage over Southeast Asian and African nations. Thailand, Vietnam, and Kenya were not even in the market. At that time, Ethiopia was experiencing (as BBC news reports described) “a biblical famine”.
The market was not very large, but it was lucrative and growing. Trade Minister Lalith Athulathmudali as well as the Chairman of the Export Development Board, Victor Santiapillai, who visited Kuwait (and the GCC countries), recognised the market potential for these products and encouraged us to continue with our work. The minister was particularly keen to further develop links between the market for these products, exporters, and his Export Production Villages (EPVs). So, it was becoming a successful case not only for export diversification but also for transferring gains from exports directly to rural households.
From Trailblazer to Tailender
As a result, even by the beginning of this century Sri Lanka had a larger market share than most of its competitors from Asia or Africa. But since then, our competitiveness has weakened significantly. The tables below provide a comparative snapshot of Sri Lanka’s performance vis-à-vis Thailand, Vietnam, Kenya and Ethiopia in the GCC market for vegetables, fruits and floricultural products. As illustrated therein, in 2001 Sri Lanka was ahead of Thailand, Kenya and Ethiopia in this small but rapidly growing market. Since then, we have fallen behind Thailand, Kenya and many other countries in that lucrative market. If this trend continues, Sri Lanka will fall behind Ethiopia within the next few years. (See Table 1)
In the GCC market for vegetables (covered in HS chapter 07), Sri Lanka was ahead of most other competitors in 2001. As illustrated in Table 1 , Sri Lanka had failed to develop this market, while Thailand, Kenya, and even Ethiopia had very efficiently increased their market shares. The GCC is a market to which Sri Lanka can supply some vegetables, like cabbages, by sea. It appears Sri Lanka had also failed to exploit this mode of supply.
We can see a similar trend in the market for fruits. Vietnam, Kenya, and Thailand have emerged as major players, while exports from Sri Lanka have staggered on slowly. In this segment, Vietnam has emerged as a leading player during the last twenty years and the GCC imports from Viet Nam have shot up from US$44 thousand in 2001 to US$346 million by 2024. In part one of these articles, I discussed the remarkable increase of jackfruit exports from Vietnam “…just $3 million in 2015 to an impressive $236.8 million in 2023” while most of our jackfruit production rots under the trees. This explains how countries develop their markets, geographically and product-wise. (See Table 2)
Sri Lanka’s performance has been weakest in the market for floricultural products (HS Chapter 06), which groups live trees, cut flowers, and ornamental foliage. When we first entered the market in the 1980s, the market was dominated by the Netherlands, and Kenya and Ethiopia were not even in the market. At that time, we identified the Gulf states as a market where Sri Lanka could have a dominant presence due to geographical proximity. Even in 2001, Sri Lanka was ahead of Kenya, Ethiopia, and Thailand. But by now, Kenya has emerged as the dominant supplier. Ethiopia is also expanding its market share and is the third-largest exporter. (See Table 3)
Missing the Wood for the Trees
In the mid-1980s, Sri Lanka first established its foothold in the GCC market. Since then, Thailand, Vietnam, Kenya, and even Ethiopia have moved well ahead of us and have become leading players. Why did we lag behind in our export diversification efforts in general and, more particularly, in the GCC market?
The reasons are very clear. After the initial attempts in the 1980s and early 1990s, Sri Lanka has not been proactively involved in identifying, developing, and promoting new products and markets, or protecting and further developing new markets already established. The focus has simply been on traditional exports: tea, coconut, cinnamon, and garments, while other products were almost ignored. In essence, we have been and continue to focus intensely on a narrow group of products and markets, and we have lost sight of the bigger picture.
(The writer can be reached at senadhiragomi@gmail.com)
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