Features
Navigating stability towards dynamic growth – 1
Sustaining Reform Momentum for a Strong Recovery: Impact of Geopolitics
Text of speech
by former Foreign Secretary
H. M. G. S. Palihakkara
recently at the CMA National Management Accounting Conference 2024
We the citizens of Sri Lanka suffer many hardships at this juncture. Among them are three fatigues—Crisis fatigue, Reform fatigue and last but not the least, the Analysis fatigue. I hope my remarks will not add to this last one. More so because we seem to have an abundance of analysis but are confronted with a paucity of solutions, particularly those based on the imperative of agreed reforms. I emphasise the word ‘agreed’. This is simply to flag the need for a political understanding, if not a consensus on a way forward, anchored in a prudent reform regime. The stark reality is that if the crisis was painful, the reforms needed to recover can be equally or more painful.
Hence my emphasis on a consensual reform regime. That was how other countries – ranging from India to Italy to Greece, to name only a few – prevented such crises from happening or recovered after such crises. Unfortunately, for the people of Sri Lanka, their so-called leaders, on all sides, have failed once again to reach a common understanding on the imperative and substance of reforms. They failed, too, to explain that stark reality to the taxpayers who have to bear the burden of a double jeopardy viz. an agonizing crisis followed by reform pain. Instead, the quarrelling politicians, on both sides, have opted to expose this ‘existential requirement’ of reforms to the unforgiving blood sport, called the election politics, in a very controversial election campaign. Consequently, we have enforced reforms instead of consensual reforms.
This political malaise spawns several concerns:
Firstly, it suggests a degree of uncertainty and unpredictability to the trajectory and future of reforms,
Secondly, the external inputs needed for recovery are becoming more prescriptive, or even punitive – the latest report by the UN High Commissioner for Human Rights to the ongoing session of HRC, in Geneva, already suggests this unprecedented line of action towards Sri Lanka, even in the context of the reform-restructuring effort under the IMF auspices. I have not seen such an approach in regard to any other similarly affected country. We don’t have a domestic consensus with which one can negotiate credibly with these external interlocutors.
Finally, it can once again open windows for intrusive geopolitical pressures constraining our freedom of choice in public policymaking and governance even as our creditors formulate their medium- and long-term approach to Sri Lanka’s problems, consistent with their own financial and strategic interests.
The forthcoming elections have already become controversial. If and when they are held, they may change some faces but not much else. This is because it is not yet clear whether the outcome of the election will bring about a more constructive and consensual approach to reforms or whether it will aggravate the prevailing polarization of reform hardships being used for regime change again.
This then is the context in which we have to look at the impact of geopolitics on the recovery/reform effort.
Sri Lanka has now reached a semblance of stability with some economic and financial indicators showing good work in progress. There is also a reasonable outcome in negotiations with bilateral, plus multilateral creditors, as well as with the all-important non-state ISB creditors. These happened despite a volatile election season, that is looming large, and related uncertainties. This good work by the negotiators needs to be appreciated. However, the breathing space thus gained to recover and move on, cannot and should not be misconstrued as an assured pathway to sustainable growth. It won’t happen without a political consensus committed to a consistent and continued reform effort over the long haul.
There are concerns on several fronts.
Usual election polemics about undeliverable promises are being heard again. There is unhinged trade union activism, and other disruptive street manifestations not always driven by the principles of collective bargaining but by parochial interests. The State’s propensity to respond to these disruptions and distortions by using water cannons and forceful suppression as a substitute for negotiations is quite worrisome as these already signal the perils of enforced reforms as against consensual reforms. Such reforms that decimate the vulnerable segments of society and multiply poverty can bring about more instability and no agreed pathways. The rising poverty statistics given by UNDP, if accurate, are alarming and depressing.
Obviously, it is necessary to reaffirm the reform imperative. One must also explore how and why it is in Sri Lanka’s national interest to do consensual reforms as against enforced reforms even from a perspective of geopolitics and negotiating the external inputs required to advance the recovery/growth process beyond the current status quo – an inflection point at which Sri Lanka seems to be rather delicately placed .
First, what is geopolitics?
The term geopolitics is said to be a coinage by the Swedish political scientist Rudolf Kjellén about the turn of the 20th century. It sports many definitions and volumes of literature. Suffice it to say here that geopolitics is no better or no worse than local politics. Geopolitics represents doctrines, policies and practices by major powers to advance their interests by the use or the threat of use of power, often at the expense of some others’ interests. Basically, it is power-based manipulation. It may be hard power or soft power – military, economic or cultural power. Countries that hop from crisis to crisis due to bad macroeconomic deficits and fiscal indiscipline, like Sri Lanka, are particularly vulnerable. Multilateral system entities, like IMF, WB, etc., have ancillary roles in this geopolitical framework. Sri Lankan crisis fits in here as a telling case study. So, geopolitics has been and will continue to figure as synonymous with coercive international politics.
So why bother much about geopolitics or externalities – international system? After all, it is our economy and our work at home. If we get it right here, we can’t go wrong abroad? In an ideal world yes, but not necessarily in the real world. Although there is much talk by the major powers about the primacy of a rules-based order of the world, in reality it is more a world where the rule of force rather than the force of rule applies, as we discussed above. We cannot grow or develop ourselves in isolation. Also, the playing field is uneven and the world is asymmetric.
The Oxford handbook of Modern diplomacy says:
quote:
“… domestic policy objectives cannot be achieved independently of what is happening in the global economy or of the policies of other countries….economic diplomacy is all about reconciling domestic and international policy objectives in an increasingly interdependent if not global, economy….” unquote
The home truth embedded in this diplomatic jargon is that the high moral ground of a ‘rules-based international order’ notwithstanding, we should be pragmatic enough to reconcile our policy objectives with those of other countries – translation: we need to reckon with geopolitical power play.
In its broadest sense, geopolitics have and will interact with both the causes of as well as recovery from Sri Lanka’s economic crisis.
The US-led West and India, plus some analysts in Sri Lanka, opine that a principal contributor to the crisis is the alleged debt trap diplomacy by China, driven by its strategic interests – primarily its aggressive Belt and Road Initiative (BRI) designed to project its rising global footprint. Obviously, this view is connected with complex strategic calculations by the Western alliance and by India for managing and containing the phenomenal rise of China as an economic powerhouse and a major global player. The West and India want to contain China without precipitating an armed conflict or an economic decoupling with that country. Of course, China and Sri Lanka dispute this contention citing much more complex considerations and structural issues as being responsible for the Sri Lankan crisis. In fact, China contends that Sri Lanka is not in a ‘China debt trap’ but in a development trap of its own making. Analysts here, too, feel that the crisis was of Sri Lanka’s own making due to failures in macroeconomic management, governance, public policy blunders – on the whole, a mal-functioning system, political mischief and corruption here – and, very importantly, a long running internationally focused accountability deficit in the country.
One can hardly blame those who surmise that the truth lies somewhere in between these two contentions – namely the preponderance of China in bilateral debt as well as clear and present failures in political leadership, governance, public policy and endemic corruption in this country.
Complexity of these considerations relevant to the genesis of our crisis as well as to recovery therefrom is signified by various perceptions about our crisis by different geopolitical players – some perceptions complement each other while others seem to countervail.
For instance:
* Negotiating crisis recovery and reaching a sustainable growth path require not only sound economic analysis but also careful diplomacy to corral key creditors onto a common platform beneficial to Sri Lanka. But this is caught up in the triangular rivalry and competition among the US-led West/India on one side and China on the other.
* India would like to frame what it calls its ‘generous’ financial assistance to Sri Lanka during the crisis, as an expression of what it sees as its legitimate sphere of influence in the region, particularly South Asia. Accordingly, Indian assistance may necessitate geopolitical quid pro cos from Sri Lanka.
* The Western/Indian creditors claim that China came on board debt restructuring ‘common ground’ for Sri Lanka owing to diplomatic pressure from their Indo Pacific partners who basically constitute the core of the Paris Club – US Asst Secretary of State Donald Lu during his last visit to Sri Lanka said as much by making this assertion publicly. China predictably disputes this.
* This somewhat tangled web of permutations signifies a complex mix of foreign relations, geopolitics and economic interests.
This notwithstanding, GOSL has done reasonably well so far to navigate the debt restructuring stretch of the recovery process as indicated by the recently announced outcome of negotiations with bilateral state creditors and non-state creditors.
This needs to be built upon a firm foundation of a consistent and continued reforms drive going beyond the grace period secured by Sri Lanka, so as to ensure that reasonable progress so far does not morph into yet another crisis down the road but that progress will transit into a stable growth scenario.
(To be continued)
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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