Sri Lanka’s political and economic crisis

by Neville Ladduwahetty

The ongoing Parliamentary debate on the 21st Amendment has precipitated a series of Amendments from individuals, public institutions, political parties and even the Prime Minister. The feature that is common to a majority of these Amendments is the need to reduce the powers assigned to the President under the 20th Amendment to the Constitution and in the process strengthen the powers of Parliament. The unknown factor in this eternal tug-o-war between the Executive and the Legislature is which balance would yield political stability and economic sustainability bearing in mind that the balances needed for both vary from country to country and from time to time within each country

Consequently, the ongoing debate in Parliament and in the public domain reflects the above exercise. For instance, the protesters want a system change. However, they do not have a clue as to their preferred system. They have instead focused on one simple demand, namely, “GotaGoHome” in the misguided hope that that single act would usher in all their unstated and indeterminate desired objectives. Others, such as the Bar Association, see the abolition of the Executive Presidency as the single most significant obstacle to political stability and economic sustainability. On the other hand, the Prime Minister is of the view that a reversal to the Executive Committee system that had existed prior to Sri Lanka becoming a Republic, should be the way to go.

Sri Lanka, having first experienced the Executive Committee System followed by a Parliamentary system wherein Parliament was the “supreme instrument of state power”, to the current Presidential system wherein the powers of the President have been increased beyond what was originally conceived and later whittled down under the 19th Amendment, it appears that Sri Lanka has exhausted all the systems. After having tried all possible systems and achieved only once the status of a middle-income country with a GDP per capita of $4000, the question that needs to be asked is: Is the fault with the system or is there any other reason? If the cause for the present dilemma, is in fact NOT the system, then it must follow that those who are for system change and others who are for abolishing the current system and yet others who are focused on tinkering with systems already tried, have misunderstood the cause for the current crisis.

CRISIS PREVENTION

The current crisis is attributed to failure of systems of governance. Hence, the demand for system change. This understanding has caused the search for revising completely, or reforming the existing systems. Before engaging on such an exercice it would be prudent to inquire into the cause for the present crisis. Was it the system, or the policies that resulted in the following:

The policy to ban the use of chemical fertilizer.

The policy to reduce Taxes.

The policy to adopt a fixed Exchange Rate.

Unrestrained borrowing to implement mega projects that have little or no return on investment

To print money to meet Rupee demands.

Such policies were adopted and maintained by governments under 20A and 19A where the former vested more power in the President, and the latter weighted power in the Parliament. This confirms the fact that it is not the system but the absence of mechanisms to put a lid on the use of power indiscriminately either by the Executive or the Parliament. Therefore, instead of focusing on the system, the need is to develop constitutional barriers to restrain undisciplined power in neither organs of state power.

Constraints of such a nature were introduced in the United States under the Gramm – Rudman – Hollings Deficit Reduction Act of 1985 to contain runaway Federal deficits.

“The Acts aimed to cut the United States federal budget deficit. This deficit is the amount by which expenditures by the federal government exceed its revenues each year and was at the time the largest in history in dollar terms. The Acts provided for automatic spending cuts (“cancellation of budgetary resources”, called “sequestration”) if the total discretionary appropriations in various categories exceed in a fiscal year the budget spending thresholds. That is, if Congress enacts appropriation bills providing for discretionary outlays in each fiscal year that exceed the budget totals, unless Congress passes another budget resolution increasing the budget amount, an across-the-board spending cut in discretionary expenditure is automatically triggered in these categories, affecting all departments and programs by an equal percentage. The amount exceeding the limit is held back by the Treasury and not transferred to the agencies specified in the appropriation bills” (Wikipedia).

“Under the 1985 Act, allowable deficit levels were calculated in consideration of the eventual elimination of the federal deficit. If the budget exceeded the allowable deficit, across-the-board cuts were required. Directors of the Office of Management and Budget (OMB) and the Congressional Budget Office (CBO) were required to report to the Comptroller General regarding their recommendations for how much must be cut. The Comptroller General then evaluated these reports, made his own conclusion, and gave a recommendation to the President, who was then required to issue an order effecting the reductions recommended by the Comptroller General unless Congress made the cuts in other ways within a specified amount of time” (Ibid).

“The Comptroller General is nominated by the President from a list of three people recommended by the presiding officers of the House and Senate. He is removable only by impeachment or a joint resolution of Congress, which requires majority votes in both houses and is subject to a Presidential veto. Congress can give a number of reasons for this removal, including “inefficiency,” “neglect of duty,” or “malfeasance” (Ibid).

Sri Lanka should learn from the US experience and develop legislation with adequate constitutional safeguards such as: Limiting Budget Deficits and Import – Export Deficits to prescribed levels; that no government commits the country to financial borrowings and other financial arrangements limited to a per cent of the GDP as prescribed; that no government commits the country to treaties, agreements and other obligations with government and non-governmental entities without approval of Parliament; that all unsolicited proposals are not even entertained without first informing Parliament; that no national assets are disposed of to either local or foreign individual or institutional entities; etc. etc..

Constitutional constraints of the nature suggested above are essential to discipline and control the tendency for profligacy of elected representatives, regardless of whether the political system under which they function is Presidential, Parliamentary or Semi-Presidential, in which the President has more or less power than Parliament.

Having set such standards and guidelines, the authority to ensure compliance should be assigned to an individual, as in the US, or to the Attorney General. Furthermore, such suggested safeguards would deter corruption.

However, in Sri Lanka, the more significant contribution from such constitutional safeguards would be to conserve the much-needed foreign exchange required to buy the fuel oil for transporting the food grown in rural areas, thereby benefiting the grower as well as the consumer. While the attempts to grow more food is commendable, a fact that should not be overlooked is that without imported fuel, the food that is produced would not reach the consumer.

Therefore, every avenue should be explored by the government to discuss with Russia to secure crude oil for Sapugaskanda, and to supplement it with diesel from China from the excess stocks the latter currently possesses. Since this would not meet all of Sri Lanka’s needs, the comment by the Prime Minister that Sri Lanka “Would be compelled to buy oil from Russia” should be seized upon, to negotiate with Russia to set up a Refinery in Trincomalee as a joint venture between the two governments, or with State owned Companies with sufficient capacity to meet the balance of the needs not available from Sapugaskanda and Lanka IOC, with the excess being permitted to export to countries in the IOR. Such a joint venture should be on the basis that Russia sets up the Refinery in exchange for the unique location of Trincomalee, to which no monetary value can be assigned.

The standard response to buying oil from Russia is that Sri Lanka does not have the needed foreign exchange to engage in such an exercise. However, what should be realized is that techniques exist that allow States to import their needs in exchange for goods they possess, as it was with the Rubber/Rice deal with China. For instance, one such technique is “Trade Creation and Trade Diversion”. Such a technique would enable Sri Lanka to export a parcel of goods to Russia or China in exchange for crude oil and diesel without tariff by either party. Another technique would be to adopt the technique adopted by India.

According to a report by Al Jazeera “the rupee-rouble mechanism to be implemented, Indian importers would pay for goods to the accounts of Russian banks in India and they in turn would make the payment in roubles to the Russian exporters. But since India’s imports outweigh its exports, the only way the Russian banks can get rid of their piled-up rupees is if India exports more, experts say, opening up an opportunity for manufacturers of agricultural machinery, medicine, furniture and bathroom fittings, among other goods, who are looking for new markets.

It is therefore absolutely vital for a team that is competent and knowledgeable on matters of trade and finance to engage with counterparts from Russia and China to work out proposals acceptable to associated parties as early as possible, if Sri Lanka is to avert a food crisis not due to production of food, but due to the inability to transport what is produces, thereby victimizing the grower and the consumer.

CONCLUSION

The debate in Parliament on the 21st Amendment has caused a national debate on constitutional reform, that ranges from system change to total revision and reform of the constitution. Top of Form

The reason for this distraction is because of the flawed understanding that the current political and economic crisis is entirely due to the systems of governance that Sri Lanka has been experimenting with, starting with Executive Committee systems to Parliamentary systems where Parliament is the supreme instrument of State power, and ending up with Semi-Presidential systems in which power sharing between the President and Parliament has been a matter of constant contention.

The fact that the current political and economic crisis is due to the lack of constitutionally framed checks and balances under any of the systems Sri Lanka has experimented with, has been overlooked. This is not a matter of surprise because it was after nearly 200 years of the existence of the US constitution and experiencing historically unprecedented Federal Deficits, that the US government decided to introduce the Gramm-Redman-Hollings Deficit Reduction Act of 1985 in order to contain runaway Deficits. If Sri Lanka is to learn a lesson from the US experience, Sri Lanka should seriously engage in the exercise of constitutionally developing standards and guidelines of governance as cited above, at least at this late stage, if Sri Lanka is to emerge from the prevailing crisis.

Another issue that would have an immediate impact on the economy is securing access to crude oil so that the Sapugaskanda Refinery could operate without interruption at full capacity, and other refined petroleum products from Russia and China without which the food that is being cultivated would not be able to be distributed, if the predicted food crisis that has grabbed the attention of the United Nations and the World, is to be prevented. Since Sri Lanka does not have the foreign exchange needed to secure the needed supplies, it is necessary to explore other options such as “Trade Creation and Trade Diversion”, or the mechanism used by India to buy crude oil from Russia using Indian Rupees. Such negotiations should be undertaken by a skilled team knowledgeable on matters of Trade and Finance prior to Parliamentary approval.

Instead of being distracted by constitution making and remaking, the urgent need is to focus on two issues; the first being for the whole Parliament to engage in developing constitutional standards and guidelines that would promote governance of a nature that would discipline governments, and the second, to ensure steady supplies of petroleum products to sustain the economy in order to prevent the Peoples of Sri Lanka from having to endure the hardships they are experiencing today.