Navigating stability towards dynamic growth – II

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

Sri Lanka is often credited with an envious strategic location in the critical east-west supply route catering to the global market. It must therefore sense and evaluate every pulse of this strategic rivalry and competition correctly and respond to it wisely so as to reap maximum economic benefits from all sides,

Some have raised the question whether we should enter the fray of this rivalry or stay neutral? Answers to this will determine whether Sri Lanka’s so-called strategic location value will be an economic asset or a geopolitical liability for us.

Our own past experience and the economic success of ASEAN tell us that ‘alliance neutrality’ not ‘alliance partnership’ ought to be the way forward for us. This will enable us to engage with and benefit from all without getting entrenched with any geopolitically or strategically.

Reasons are simple and obvious. We should not be accused by anyone for being on the wrong side of any strategic power rivalry, simply because we want to benefit from all sides as demanded by our national interest. Something that the economic success stories of SE Asia have done well. So whatever terminology you use, -Non-Aligned, Neutral, Multi aligned or other nomenclature- the core element of our policy mantram should be ‘shunning power rivalries’ – that is the way forward for us as we strive to recover and reach a growth trajectory. This by definition has to be based on a reform regime that enjoys general or ideally consensual support on the one hand and a carefully calibrated relief for the vulnerable groups of our citizens on the other. Make no mistake – a rising poverty index and falling human development index already signify these dangers. The ensuing instability will militate against recovery dovetailing into a pathway to growth.

Now some brief observations on geopolitical aspects of reforms and recovery.

Firstly, it is not rocket science to know that if we do not muster enlightened reforms and a political consensus thereon and if reforms fail or reforms decimate the vulnerable, instability and crisis can recur. If we do not reckon with this reality, whatever cosmetic changes that the promised but yet uncertain elections may or may not bring, will be of little relevance. And no major geopolitical player or a serious investor will want this strategic hub to be crisis-hopping forever, even if they do not harbour military base aspirations here. Also, as a result, more intrusive external interventions in our governance affairs can ensue,

Secondly, Sri Lanka is already under severe and continuing multilateral scrutiny and aggressive prescriptions on many of our internal affairs, by the UNHCR, esp. on our long running issues with accountability, reconciliation and governance. The last HR Council Resolution added to this embarrassing list of prescriptions, the so-called ‘Economic Crimes’ opening up a whole gamut of new issues going beyond civil and political rights – issues that normally fall under the domestic jurisdiction of any sovereign country. Various further resolutions by the EU and other Western Legislatures also refer to these issues adding reference to Chana’s presence in Sri Lanka, certainly bringing in new challenges of a greater geopolitical flavour for the country. What all this signifies is that if we do not get our domestic act together in governance and accountability through targeted reforms, external intrusiveness or interventions dictated by geopolitical interests can intensify harming Sri Lanka’s prospects for becoming a FDI destination.

Thirdly, India will have its own strategic interest in ensuring a stable Sri Lanka remaining within what it perceives as its ‘sphere of influence’ particularly at this juncture when India is defining a geopolitical profile for itself as a major global power. Indian FM Dr. Jaishankar put it as India’s transition from a ‘balancing power’ to a ‘leading power’. India has a concern or even a fear about Sri Lanka. Whether this is an ill-founded or well-founded concern is of course a different matter and even a debatable one. But it does have a concern that an unstable and crisis prone Sri Lanka can fall prey to a power that is a threat to India’s security, her interests and global aspirations. That is why some Indian strategic literature give Sri Lanka the dubious status of an ‘unsinkable aircraft carrier’. It is therefore in Sri Lanka’s interest to allay this fear by reasserting our self-governing credentials through consensual reforms so that the strategic autonomy of Sri Lanka enfeebled by the crisis, is restored sooner than later, lest any external power seeks to exploit that lacuna.

What is even more important is that Sri Lanka has its own intrinsic interest in strong reform-backed recovery as a prudent via media to modulate Indo Sri Lanka economic cooperation in a way that will not compromise our sovereignty for making independent decisions concerning public policy and economic development. All Sri Lankans should of course be thankful to India for its gesture of $4.5 billion tide over assistance and for her role in building common ground among key bilateral creditors to facilitate our debt restructuring under the EFF of IMF. However, questions remain what India expects in reciprocity and how Sri Lanka can do that without impairing our ability to make independent public policy choices esp. for econ development.

This will not be clear until we know the fuller details of the recent agreements and MOUs concluded during the President’s visits to India in crisis time. It goes without saying that Sri Lanka should deepen and widen economic cooperation with India in order to exploit our comparative advantage with that country in terms of trade and investment so that we derive maximum benefits from the robustly growing Indian economy.

While cooperation is welcome one needs to be prudent and cautious about integration through random transactions devoid of an overall strategy. Does India expect exclusive rights to certain of our sovereign assets? Do they ask for exclusivity for investment in certain strategically sensitive areas of Sri Lanka like Trincomalee? Does the last joint declaration on ‘connectivity’ coupled with the energy pipeline and land bridges represent an integration framework, not by negotiation but by momentum – is this an ‘integration process in connectivity clothing’? These questions can only be answered when MOUs between the two countries become public and their small print is interpreted carefully.

 So, a domestic consensus on an enlightened reform regime which will ensure there will be no deficits in the interrelated areas of governance, economy, accountability, human rights and so on that will give rise to these kinds of external interventions constraining our capacity to independently decide, will be of paramount importance.

 Sri Lanka is a case study of unwelcome and unwarranted experience in this regard.

How does one prevent or at least minimise such unwelcome things and retain our strategic and sovereign autonomy in making choices while reckoning with a globalised world?

Two things stand out.

First, reform of a malfunctioning system in accordance with the rule of law – not the rule of men.  Second, right people asking right questions at the right time be it in public governance or corporate governance. Who are the right people? The public officials in the former and the professionals in the latter including those leaders and professionals in the CMA domain gathered here. If this does not happen and domestic deficits continue whether due to corrupt politics, mal-functioning systems or even corrupt clients, the crises will recur and deficits will continue. Again, it will create space for geopolitical interference be it under the guise of external assistance, accountability or human rights.

This in essence is the fundamental interplay between geopolitics and reforms or the absence of it.

Let me conclude with something positive.

We are supposed to be a multi branch democratic govt system with clear separation of powers with attendant checks and balances. With some landmark determinations in recent times, the Judicial Branch of this multi-branch system has taken the lead in asking some probing questions and taking some robust actions brightening hope for revitalising accountability. Sri Lanka’s crisis in its broadest sense was and remains a crisis of accountability that evaded our domestic regulatory system. It is time for the executive and the legislative arms in both the public and corporate sectors, therefore, to take the cue from the judiciary and follow suit. They can and should ask those probing and may be uncomfortable questions relevant to their mandates, without waiting for politicians to deliver. That is because the track record of delivery by politicians has been one of miscarriages and stillbirths, if I may put it that way.

  If changes do not happen through an enlightened reform project on a system wide basis, chasing the lenders of last resort yet again at the butt end of interference by the geopolitical forces in the neighbourhood and in far flung places can become a strong possibility. Sri Lanka needs to avoid it being branded as a country of crisis proclivity. It is doable through consensual reforms. Whatever happens or doesn’t happen prior to or at the elections, the politicos must get their act together to build that common ground. The public service and professionals like the CMA partners can and should provide the necessary institutional prodding towards it. That is the best shot the professionals can take at averting cyclical crises.