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Domestic Debt Restructuring – An Alternate View

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by Romesh Bandaranaike, Ph.D.

There have been substantial and wide spread criticisms of the recently instituted Domestic Debt Restructuring (DDR) scheme carried out by Central Bank of Sri Lanka (CBSL), to reduce the Sri Lanka Government’s requirements for funding. In this article I argue that the scheme, as structured and carried out by CBSL, is appropriate, given the ground realities in the country, and that the critics have ignored a number of factors which forced CBSL to design the scheme as it did. I then suggest additional steps the Government could take to further improve its financial position in connection with past Bond issues.

The DDR Scheme

Faced with massive shortfalls in revenue, the Government recently carried out a “restructuring” of the debts it owed on Sri Lanka Rupee denominated Treasury Bills and Bonds in an effort to substantially improve Government finances, including the funds needed to service these Bills/Bonds. The two key elements of the DDR are a) Converting all Treasury Bills presently owned by CBSL to longer term Treasury Bonds, thereby substantially delaying the payment dates on these Bills; and b) Effectively “forcing” the Employees Provident Fund (EPF) and other superannuation funds to exchange most of the Bonds they hold for 12 year Bonds with somewhat lower interest payments.

They did this by threatening to increase the tax rates that EPF pays on its annual income to 30% from the present 14%, if they did not accept the Bond exchange. Since such an increase was financially worse for EPF compared with the Bond exchange, EPF opted for the latter.

CBSL estimates that the scheme would reduce the Gross Financing Needs (GFN) of the Government by 1.5%, 1% by the CBSL Bill-Bond exchange and 0.5% by the EPF Bond exchange.

The Criticisms

The principal criticisms of the DDR, from the public, Trade Unions, Economic Think Tanks, and numerous “Experts,” is that the entire burden of the DDR is being placed on the backs of the retirement savings of “poor workers” who are the members of EPF.

CBSL has justified the proposed increase in the tax rates for EPF and other superannuation funds to 30% from the present 14% on the basis that the banks have to pay the higher tax rate of 30% plus VAT. Dr. Wijewardena, a former CBSL Deputy Governor, has written several articles criticizing CBSL for not presenting the correct picture in this regard and not disclosing full information on the impacts of the restructuring on EPF members’ returns. Dr. W’s main argument is that, in the case of the banks, the tax rate applies to “net interest”, whereas, in the case of the EPF, it applies to “gross interest.” For the banks, net interest is interest earnings on its loans less the interest it pays to depositors.

In the case of EPF, Dr. W points out that EPF is not allowed to subtract the interest it pays to EPF account holders to determine its income and tax liability, and that CBSL comparison of bank and EPF tax rates is therefore misleading. In a subsequent article by Dr. W, he criticizes CBSL/EPF for not fully disclosing the cost to EPF holders of accepting the proposed DDR compared with an increase in EPF’s tax rate to 30% and the justification for accepting the Bond exchange rather than the tax increase to 30%. He goes on to add that CBSL has a conflict of interest as both the developer of Government policy and as the administrator of EPF.

My Responses to the Criticisms

The criticism that the entire burden of the DDR is on the backs of workers is factually incorrect. As stated above, two-third of the 1.5% reduction in GFN (1%) is being achieved by exchanging the Treasury Bills held by CBSL for long term Bonds. Only 0.5% of the reduction is from the exchange of Bonds held by the EPF and other superannuation funds. In other words, 67% of the restructuring cost is borne by CBSL (in effect by all citizens), while only 33% is borne by EPF account holders. Furthermore, only workers in the formal private sector contribute to the EPF/ETF, while workers in the informal private sector (e.g. farmers, fishermen, small transporters, traders and construction workers) and Government employees do not.

As a result, only about 25-30% of the workers in the country have EPF accounts. Therefore, 70-75% of workers in the country will not suffer any burden due to the EPF bond restructuring. Finally, the workers with EPF accounts also include middle and senior management of companies who cannot be called “poor workers” as referred to in the various criticisms of the present DDR scheme. It is true that this category may only be a very small percentage of those holding EPF accounts. However, their account balances are likely to be very much higher than other EPF members and the impact of the restructuring on them will be proportional to these balances.

It would be ideal if the EPF could release statistics in this regard which will allow an assessment of this element. For example, the fraction of the total EPF funds held by those with EPF balances of over Rs 5 million (say), since such persons cannot be classified as “poor workers.” Workers who have balances in EPF/ETF, built up as a result of deductions from their salaries and additional higher contributions from their employers, at least have a retirement fund they can turn to, even if it is somewhat less because of the DDR. It could conceivably be argued that the 70-75% of workers who do not have such balances, mostly working in the informal sector, are worse off or poorer than those with EPF balances. This would be a justification for placing the burden of part of the DDR on EPF account holders rather than on other, even “poorer”, workers.

In response to Dr. W’s criticisms that EPF and bank tax rates are not comparable the way CBSL has done; each year, EPF determines a percentage it will pay/accrue to the account of each EPF account holder based on the earnings by the EPF that year. This percentage is not an interest similar to that paid by banks to its depositors and is not a cost that is deductible by EPF to calculate its tax liability each year. It is simply a percentage decided by the EPF administrators to allocate the profits after tax earned by the EPF during the year. Calling this percentage an “interest” is a misnomer. Account holders in EPF are akin to shareholders in banks and not depositors.

The amounts credited by EPF to a member’s account each year, based on EPF’s earnings during the year, is not a cost incurred by EPF in generating these earnings. It is something closer to a dividend paid by a bank to its shareholders in the form of additional shares. If EPF is allowed to determine its tax liabilities by subtracting these accrued amounts, banks should be able to deduct dividend costs in determining their tax liabilities. Dr. W’s criticism of the non-comparability of bank and EPF tax rates cannot be sustained.

Dr. W uses CBSL/EPF’s own numbers on the differences in returns under the two scenarios EPF has been offered and simply multiplies it by the total EPF Bond holding value to arrive at the cost to EPF of accepting the Bond exchange. This is something that could have readily been done by anyone and Dr. W’s implication that CBSL/EPF is hiding/not fully disclosing something in its statement cannot be sustained.

The CBSL/EPF analysis is simply to show that the return to EPF is better under the scenario where it accepts the DDR option, compared to rejecting the DDR option and being subject to a 30% tax rate. This information is more than sufficient for EPF to recommend to its Board that it should accept the DDR. Dr. W than goes into the past history of taxation rates applicable to the EPF and points out that as originally envisaged EPF earnings were to be tax exempt.

He shows calculations of the losses to EPF holders of the present DDR, compared with a situation if EPF earnings were tax exempt. This is a straw man put up by Dr. W to be knocked down as part of his criticism of CBSL/EPF. It is the tax rates that are applicable to EPF today, before the DDR, that are relevant and it would have been nonsensical for CBSL to show calculations based on what if the tax rates were those that existed many years ago.

With respect to the criticism that CBSL has a conflict of interest in both being the administrator of EPF and the policy advisor recommending the DDR, I do not see any conflict. CBSL, as advisor to the Government, has made the DDR proposal which allows EPF to choose between two options, accept the proposed DDR Bond exchange or reject it and be subject to a 30% tax rate. As the administrator of the EPF, CBSL has simply analysed these two options and clearly shown that the EPF is better off accepting the Bond exchange compared with rejecting it and being subject to a 30% tax rate.

Other Relevant Issues

It is telling that none of those criticizing the present process have offered any viable alternative DDR arrangement to achieve the same objectives as the present exercise. In saying this, I am ignoring the suggestions by some parties who say there would be no need for the exercise if “The money stolen by the Rajapaksa’s is recovered” or “The large corruption in Government is reduced,” and so on. Such actions, even if they were possible, are not alternatives, because they cannot be achieved in the short or medium term, which is one of the key objectives of the DDR. Verite Research did, some time ago before the announcement of the present DDR, present some analysis on a possible DDR which included sharing the cut across all Bond holders, but, for the reasons I refer to below, this is not a viable arrangement.

CBSL in its original presentation to the Cabinet, and subsequently to the public, argued that it would be prudent to exclude the Banks from the DDR exercise, because these institutions were already under stress as a result of COVID related business failures and because the banks would also be taking a hit from the future restructuring of USD Bonds, some of which are held by them.

CBSL was of the view that such an exclusion was essential to ensure financial system stability. None of those criticizing the present DDR arrangements have objected to this and I concur with that view. Even if the banks are able to bear the burden of some restructuring of the domestic bonds they hold, bank stability is also dependent on public perception, and excluding them from the DDR has certainly had a positive impact on such perception.

There are two unstated conditions applicable to the DDR exercise which have received no mention in the ongoing discussions. First, the DDR should be concluded in a short time frame since it will be a pre-condition to the restructuring of foreign currency debt. Second, it must be carried out in a legally valid manner. A Government Bond is a legal contract between the Government and the holder of the Bond.

The Government is legally obligated to pay the interest coupon and the principal of the Bond on specified dates according to this legal contract. The Government has no legal authority to change the conditions of this Bond. It could, of course, pass a new law in Parliament giving itself the authority to make changes to existing Bonds. In doing so, however, if all Bond holders are not treated equally (in particular, if the bank holdings of Bonds are excluded), there are bound to be legal challenges in the Courts to any such changes, and the changes may well be struck down by the Courts.

Even if such changes are not struck down, this process can take considerable time to be determined and would not be achievable in the time frame required for the DDR process to be concluded as discussed previously. The present DDR has finessed the issue of different treatments of Bond holders by making it “voluntary”, albeit by holding a gun to the head of the EPF and superannuation funds in the manner detailed earlier. This is draconian, but effective.

As per CBSL statistics presented in connection with the original DDR proposal, the total outstanding amount of Treasury Bonds at that time was Rs. 8,700 billion. Of this amount Rs 1,644 billion is held by “Others”, after excluding the banks and EPF and superannuation funds being subject to the DDR. Even if the banks are excluded from the DDR to ensure “financial system stability” reasons mentioned previously, it would have been ideal if the “Others” holding the Rs 1,644 billion in outstanding Bonds were subject to some “restructuring”, in the form of cuts in coupon rates and/or face value, or an extension of the tenor of these Bonds.

If this was done, the benefit of these cuts could have been passed on in the form of a reduction in the burden passed onto EPF and superannuation funds. However, such an unequal treatment where some Bond holders (the banks) are excluded, even if the necessary legislation is passed, would certainly have resulted in legal challenges which would, at the least, have delayed the process as I have pointed out earlier, or even been found unconstitutional by the Courts.

Further Actions in Respect of Bonds

Very high yield rate Bonds (over 20% yield) were issued by the Government during the period prior to the announcement of the DDR (April 8, 2022 to March 13, 2023) as a consequence of severe financial shortages faced by the Government. Bidders for these Bonds added a premium to the bid yield rates, expecting a future restructuring of these Bonds as part of the DDR they knew was coming. By being excluded from the DDR, these Bond holders have enjoyed a “windfall profit.” It is not possible to specifically target these Bonds for a cut in coupons or face value, because many of the original holders may have sold some of these Bonds and have already earned the windfall profits.

[The buyers of the Bonds would only receive a “normal” profit in the form of coupon payments and final redemption.] Furthermore, in the case of individual Bond holders, their windfall profit would be in the form of a capital gain, which only attracts a tax rate of 10%. Corporates/ banks in the same situation would be paying a tax of 30% on their capital gains. I propose that the Government should “claw back” some of these profits by imposing a special windfall tax rate of 50% applicable to all profits derived from these Bonds. If the original purchaser has not sold the Bonds, the coupon interest and the capital gains on final face value redemption should also be taxed at 50%.

There would be some complications in structuring this tax, since some high yield Bonds may have changed hands within the period that high yield Bonds were still being issued, which means that the initial purchaser would only have made a small capital gain and the next buyer would still be enjoying the high coupon rate or subsequently selling the Bond for a large capital gain. A proper structuring of the 50% windfall tax can ensure that the taxes fall on those making the windfall profits. A tax of the type proposed will clearly be borne by the wealthy, who would have been the purchasers of these Bonds, and go some way towards balancing the burden imposed on less wealthy parties as a result of the DDR.

To place this suggestion in perspective, between April 8, 2022 and March 13, 2023 all Bonds issued by CBSL had yield rates in excess of 20%. The total face value of such Bonds was Rs 1,233 billion. The weighted average yield on these Bonds was 27.89% and the weighted average coupons in these Bonds was 19.09%. The latest four-year Bond yield rate is approximately 15% and this is likely to drop further.

As a result, any seller today of an average high yield Bond would make a significant capital gain on the sale and would need to pay substantial taxes to the Government at the proposed 50% windfall tax rate. As per CBSL statistics in the original CBSL presentation to the Cabinet, approximately 63.5% of all Bonds at that time were held by the banks and the “Other” category. If this percentage is also applicable to the high yield Bonds referred to above, the banks and the “Other” category would be holding Rs 777 billion of these Bonds.

Advocata has recently analysed EPF’s Bond portfolio prior to the DDR Bond exchange and concluded that EPF’s share of high yield Bonds was proportionately much less than for other Bond holders. Therefore, banks and “Others” would probably be holding even more than the above mentioned Rs 777 billion in such high yield Bonds which, in turn, will mean that a 50% windfall tax on the profits from these Bonds will result in substantial tax revenues for the Government.

An aside at this point is that for some unclear reason there is no withholding tax (WHT) applied to the interest earnings on Bonds as in the case of interest earnings from deposits in banks and finance companies. I have made inquiries as to why this is so from several senior Government officials and have not received any explanation for the practice.

It may well be that some Bond holders do not even have income tax files and that they are evading all taxes payable on Bond interest. Since Bond holders are all likely to be at the highest tax bracket given the minimum sizes of Bond investments, I suggest that a WHT of 30% be applied to all Bond interest payments. Holders are free to file tax returns and seek a refund if they have been taxed in excess of their liability due to such a WHT. I have been told there is some complication in applying WHT to Bond interest held by foreigners. If that is indeed the case, foreign holdings of Bonds could be excluded.

Conclusions

The economy of the country is in dire straits as a result primarily of bad/foolish policies of recent past Governments (including those by CBSL under its previous two Governors and Monetary Boards at that time) coupled with the endemic corruption inherent in the system. The present Governor of CBSL and his professional colleagues are facing very difficult conditions and are striving to get the country’s finances back on track.

I can understand trade unions, workers and other similar entities objecting to the implementation of policies which directly impact them, irrespective of whether such policies are needed to solve the country’s issues. But, why is it that so called “experts” and think tanks do not recognize the ground realities of what is practically achievable and support the efforts of CBSL rather than criticizing these efforts in print and at discussion forums?

(The author is an economist with wide experience in policy formulation and implementation in the Ministry of Finance and has worked at CEO level in both public and private sectors.



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Features

“Independent” Prosecutor’s Office: Myth and Reality

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By Professor G. L. Peiris
D. Phil. (Oxford), Ph. D. (Sri Lanka);
Quondam Visiting Fellow of the Universities of Oxford, Cambridge and London;
Former Vice-Chancellor and Emeritus Professor of Law of the University of Colombo.

I. A Cornerstone of the Legal System

The institution of criminal proceedings is of vital concern to the public. Irrespective of the outcome of proceedings, subjection of a citizen to criminal litigation is fraught with grave consequences, including psychological trauma and impairment of social reputation, quite apart from the expenditure incurred in defending a criminal action.

The law, therefore, goes to considerable lengths to ensure that recourse to criminal proceedings is the sequel to an informed and well-structured process which includes careful consideration of available evidence in a spirit of independence and detachment, far removed from partisan considerations.

II. The Role of the Attorney-General

In our legal system this responsibility belongs to the Attorney-General: it is for him to bring his mind to bear on the entirety of material emanating from police investigations and to make a dispassionate judgment whether the evidence at his disposal, in the surrounding circumstances, warrants the commencement of criminal proceedings.

The solemnity of this burden is underlined by the traditional formulation, in decided cases in our country as well as in other jurisdictions, that the Attorney-General, in performing this function, acts in a quasi-judicial capacity.

This calls for a clear separation of his mindset from that appropriate to the discharge of his other responsibilities. The principal law officer of the Republic, he is the chief advisor to the Government of Sri Lanka, and it frequently falls to his lot to defend, before the courts, senior representatives of the government in Fundamental Rights, writs and other proceedings.

Nevertheless, it is a sacred and inviolable principle that, when it comes to deciding whether criminal proceedings should be launched or, when once begun, should be discontinued, against any defendant or group of defendants, this decision should be demonstrably bereft of any tinge of political or other extraneous element.

This is one of the core values of the system of criminal justice in our country and, indeed, an indispensable pillar of the Rule of Law.

III. Ample Scope of Prosecutorial Discretion

A pivot of our law is the principle of vires or jurisdiction, which requires that a statutory power must necessarily be exercised by the authority on which it is conferred by the legislature.

This is the rationale of the concept of prosecutorial discretion vested in the Office of Attorney-General. Discretion to determine the sufficiency of grounds to institute a prosecution or forward an indictment is that of the Attorney-General alone, and any usurpation of that discretion strikes at the very foundation of the system.

IV. Limiting Criteria

This does not mean, however, that the Attorney-General’s discretion is total or absolute, and altogether beyond the reach of the courts.

It is a salutary feature of our law that Sri Lankan courts, buttressed by judicial experience elsewhere, have formulated a series of criteria which operate as the limits of this discretion and enable intervention, with due restraint, in a limited category of situations.

A trilogy of judicial pronouncements by the Court of Appeal of Sri Lanka(Sandresh Ravi Karunanayake v. Attorney-General CA/Writ/441/2021; Duminda Lanka Liyanage v. Attorney-General CA/Writ/323/2022); Nadun Chinthaka Wickramaratne v. Attorney-General CA/Writ/523/2024) have rendered yeoman service to our law in this regard. The value of this approach lies in its essential sense of balance.

These judgments, by Sobhitha Rajakaruna J., now establish with clarity the frontiers of judicial review in respect of prosecutorial discretion of the Attorney-General.

The applicability of judicial review, in this context, has been accepted unequivocally by our courts: Victor Ivan v. Sarath Silva, Attorney-General (1998) 1SLR 340.

Its ramifications straddle a variety of settings. Where, for instance, the initiation of criminal proceedings is entirely unsupported by any evidentiary basis, the indictment may be impugned in judicial review, by the writ of certiorari. In the relevant academic literature, in particular the writings of Professor Sri William Wade, it is identified as a jurisdictional flaw, in that action in the absence of evidence is considered to have been taken without jurisdiction.

Similarly, prosecutorial discretion exercised by the Attorney-General may be vitiated by a range of factors including plainly discernible bias indicative of mala fides, patent error, consideration of irrelevant matters or failure to consider relevant material, grave procedural illegality or irregularity during the decision-making process – blemishes which, severally or in combination, may amount to abuse of process and, therefore, a potential miscarriage of justice.

Recent trends in Commonwealth law suggest scope for expansion of the ambit of judicial review on the broad ground of palpable unreasonableness (in terms of the well-known Wednesbury test), but this is an extension to be effected sparingly.

While these grounds admit of adequate flexibility in relation to judicial review, there is need for uncompromising insistence on the exclusion of any form of political intervention, or even a well-founded suspicion of it, in the interest of preserving public confidence in the integrity of the prosecutorial process.

V. Contemporary Developments

In recent weeks there has been widespread interest in policy perspectives, and timely changes in the law, in this field.

These developments provide the backdrop to the media statement by the Ministry of Justice on 10 February regarding the proposed establishment of an “Independent Prosecutor’s Office”. What is contemplated, as an initial step, is the appointment of an “Expert Committee” to prepare a Concept Paper on which the views of civil society and the public will be invited.

The composition of the proposed Committee has been announced. It will consist of “1. The Attorney-General or two nominees of the Attorney-General; 2. The Secretary to the Ministry of Justice; 3. A senior judge in the judicial service; 4. The President of the Bar Association of Sri Lanka or his nominee”.

While a committee, so constituted, may be appropriate for the preliminary task of suggesting the outlines of the concept, its personnel, clearly, cannot be involved in operationalising the idea, as it moves forward. The Secretary to the Ministry of Justice is a political functionary, subject to control by the Executive; a member of the Judiciary can play no part in decisions as to the suitability of instituting prosecutions; defending counsel in criminal prosecutions will be drawn from the unofficial Bar.

Sri Lanka had, at one time, a Director of Public Prosecutions (DPP). The experience of the Crown Prosecution Service in the United Kingdom offers valuable guidance. The Government’s proposal, however, seems to go beyond the appointment of a Director and to envisage a comprehensive prosecutorial mechanism coexisting with the Office of Attorney-General.

VI. Critical Policy Issues

A mere change of nomenclature offers no more than a superficial and unconvincing solution. The experience of the DPP in our country was not an altogether happy one and, in any case, lasted only a short time. If susceptibility of the Attorney-General’s Office to political pressure is the core issue, it is hardly circumvented by the proposed supplementary mechanism.

Many structural issues naturally arise: What are the lines of demarcation contemplated? The new Office, if it is to serve a useful purpose, must obviously enjoy substantial independence from the Attorney-General, but a complete severance of the nexus, in terms of coordination, is unrealistic.

What safeguards, not explicitly spelt out in relation to the Attorney-General’s Office, are intended to apply to the proposed new Office? Will the Office of the Independent Prosecutor be served by members of the Attorney-General’s Department? If so, how will clarity be achieved in the delineation of reporting obligations? How will overlapping and interlocking lines of authority be dealt with? Since it has been made clear that the Attorney-General’s Office per se, will survive the proposed innovation, will there be some measure of erosion of the Attorney-General’s constitutionally entrenched functions? If this is the case, a piecemeal approach will not be feasible.

These are complex issues which will no doubt engage the intense interest and vigilance of the public, as the proposed reforms move forward.

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Rani’s struggle and fight of many mothers

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Rani: Movie poster

by Anushka Kahandagamage

Unlike Manorani, mothers in both the North and South, whose children disappeared, had no means of reaching out to a state minister in the dead of night, begging for help or even sharing the devastating news of their children’s abduction. They did not have the privilege of calling on influential figures to intervene in their grief. This contrast does not lessen my empathy for Manorani, but rather highlights that a mother’s pain is universal, despite societal divisions or hierarchies. A thought that has been occupying my mind since the making of Rani is why a film is being made about Manorani when so many mothers in this country have lost their children. As Malathi de Alwis highlights, many women involved in the Mothers’ Front never had the chance to take the stage, which was controlled by men. Malathi also argues that Manorani’s special opportunity on that stage was due to her professional background as a medical doctor and her elite status.

Powerful Cinematic Experience

Rani, undoubtedly a powerful cinematic experience, left me frozen, its impact lingering within me. It took me back to the 1987-89 period, a time of terror, when I was just a first grader. The trauma from that era has stayed with our generation ever since. The film brought back events that were slowly fading from my memory, yet still lingered in my nightmares.

Challenging the official memory

Handagama and others involved in the making of the film succeeded in bringing a dark period, which was absent from history books, into the public consciousness or I would say, to the popular discourse. The official memory crafted by the then government regarding this horrifying chapter of history is mostly one-sided, glorifying the rulers while carefully erasing stories that do not align with their narrative. The film uncovers the painful truths, complicating the official narrative constructed by the government. It reveals that history is far more intricate than the simplified version presented in state-crafted accounts.

Subtitles

Creating a film about a dark chapter of the past, one that isn’t recorded in history books, and making it resonate with the public is a formidable challenge. However, the increasing number of people attending the film is a testament to its success. A common challenge faced by artistic films or those addressing complex social issues is their lack of popularity, which often prevents them from entering collective memory. Yet, Rani has effectively overcome this obstacle, achieving both widespread attention and relevance. While the film has undoubtedly succeeded in establishing itself within popular discourse and bringing attention to a dark, often overlooked period in history, the absence of Sinhala and Tamil subtitles presents a significant drawback. These subtitles would have made the film more accessible to a broader audience, particularly those who are directly impacted by the events depicted. Without them, a large segment of the population, including Sinhala and Tamil speakers, may have found it difficult to fully engage with the content and its emotional depth. Subtitles could have enriched the film’s reach and impact, fostering a deeper understanding of the complex and painful history that the movie seeks to bring to light.

Female protagonist

Making a woman the protagonist is an essential reflection of contemporary demands in cinema. Across the globe, there has been a significant shift toward promoting gender equality in film, with an increasing emphasis on strong, multifaceted female characters. This demand is not only a response to the changing social dynamics but also an effort to give a voice to women whose stories have often been sidelined in mainstream narratives. The focus on female protagonists ensures that audiences see a more balanced and inclusive reflection of society on screen.

The Ending and Accountability

The film would have had a more impactful conclusion if it had ended with the peaceful scene of the two women and the child on the beach. This moment was emotionally powerful and seemed like the natural conclusion to the story. However, the final sequence where the police officers are in their casual clothes, drunk and plotting the abduction of Richard, drags on far too long and felt like forcefully imposed. Instead of taking the audience to a peaceful ending, it inadvertently starts to irritate the audience due to its excessive length, detracting from the overall emotional tone of the film. As previously mentioned, the prolonged nature of this scene feels unnecessary and could have been condensed or omitted to maintain the film’s pace and emotional resonance.

In this final scene, perhaps the filmmaker intended to highlight the multiplicity of narratives (as is common in the post-modern era), but it fails in many ways. I strongly object to this scene, as it makes the rulers unaccountable for the murders and reduces the event to a toxic masculine portrayal of the police officers involved.

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Excellent Budget by AKD, NPP Inexperience is the Government’s Enemy

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Anura Kumara Dissanayake

by Rajan Philips

President Anura Kumara Dissanayake has delivered an excellent first budget. It could easily be described as the best budget so far this century and presented in the most dire economic circumstances in Sri Lanka’s modern history. Following his consummate performance in parliament, the President waded into a post-budget forum and joined the country’s economic experts to “dissect new Govt’s maiden budget,” as headlined by the Daily FT, one of the sponsors of the event. Whether one agrees with him or not, there is no question that AKD has been listening to those who knows the subject, has diligently done his homework on the budget file, and knows what he is doing,.

The problem he faces is that he cannot be doing homework on every file for the entire government, and he must find a way to quickly address the collective inexperience of his cabinet. He should not let this inexperience become the enemy that kills the government from within. Hopefully, he will find a way to address this within the framework of the budget and in the delegation of ministerial responsibilities for its implementation.

Somewhere in the budget, the President refers to economic decentralization, to deconcentrate the top heavy Western Province. Unfortunately, the corollary of political decentralization could not find its place in the text. Equally important, the President should also pay attention to ‘cabinet federalisation’ (AJ Wilson’s description of one of DS Senanayake’s quite a few master traits), and more so as he moves ahead to implement the budget proposals.

Ultimately, the success of the budget will be measured in political terms. Read, electoral terms. AKD’s and NPP’s detractors will be winding themselves for political wrestling in the local and later the provincial council elections. The NPP could be expected to hold its ground, but not necessarily all two-thirds of it. It should not at all be strange if the NPP gains ground in the North and East even as it loses some of it in the South. To keep the inevitable losses to the minimum, the government must eschew any and all complacency, which, modifying Mao’s famous Redbook take on it, could be described as the enemy of elections.

Geopolitically, paraphrasing the French Marxist Regis Debray, the NPP government must have its overhead antennas fully alert, but its feet firmly planted on the ground in Sri Lanka. The government cannot avoid being distracted by the global tumults that Donald Trump is creating day in and day out. There will be ripples, even waves, around Sri Lanka depending on what the Modi government decides to do in India to harmonize with the Trump Administration in Washington. Even so, the government’s primary preoccupation in the context of the turmoil in America should be to protect for as long as possible Sri Lanka’s exports to the US which are significant for Sri Lanka’s forex earnings.

At the same time, and consistent with the budget objectives, even as it diversifies its exports the government must diversify its importers. For the next four years, as Trump unfolds his madness, there will be responsive realignments in the Global North even as there will be reconsolidations in the Global South. The NPP government will have to navigate Sri Lanka through these currents without being smothered by them.

There are of course the self-proclaimed Rajapaksa nationalists who want to hitch their broken political wagons in Sri Lanka to the passing hegemon in America. They are in fact ethno-narcissists just like – but writ-small – the racial narcissist that Trump is. Ridiculous as these forces and their politics might seem, indeed as they are, the government should not underestimate their potential to do harm even by accident. Look at Bangladesh to see how political fortunes can dissipate fast, even though the NPP government is in no way comparable to Sheikh Hasina’s rotten government. The eternal home truth is the quick rise and the quicker fall of Gotabaya Rajapaksa.

Setting the Budget Context

The budget speech outlines as its backdrop the 2022 economic crisis that has now become the Rajapaksa era legacy, and as its context the overwhelming verdict of the people in the 2024 presidential and parliamentary elections. In this context, the President calls the budget both “historic” and “challenging,” because the government has to not only lay the foundation for fulfilling the people’s aspirations, but also to dispel “the wrongful picture (of us) created by the myths and malicious political propaganda against our economic policy and vision.” “We have succeeded in that,” the President asserted.

The government has proved its expectant critics wrong and stabilized the economy. All the indicators confirm that – the relatively stable exchange rate at one USD for LKR 300, and not LKR 400 as recklessly scare mongered; the lowering of the Treasury bill rate (8.8%) and getting inflation under control; forex reserves rising past USD six billion; finalizing agreements over debt-restructuring; and most of all keeping essential goods available and avoiding queues. In fairness, the credit for starting the process of economic stabilization belongs to Ranil Wickremesinghe, but post-election expectations in political circles have been that things will start to unravel due to NPP’s inexperience and even incompetence. That did not happen, and President AKD and the NPP government are justified in claiming credit for it.

Mr. Wickremesinghe may have even fancied that another economic crisis this time under an NPP government would give him a second kick at the can of power. No such luck. RW is now part of a team of exes – former ministers and presidents including Maithripala Sirisena – trying to figure out a way to stay relevant in today’s politics. Looking at this aging crowd outside parliament and its slightly younger version in the opposition within parliament, the NPP might fancy its chances of retaining power for more than one cycle of elections. But what the NPP has to contend with ultimately will not be ill equipped politicians but a frustrated electorate.

Apart from President AKD’s versatile feats, the NPP government has little to show to keep the people contented. Recurring rice shortage, the shortfall in coconuts, and the power outage blamed on a monkey tripping off a transformer have certainly taken the shine off the government. Looked from the other end, rice, coconuts and the power outage seem to the only shortcomings that the government is being picked on by media pundits and the political class. But what should concern the NPP government is that any one of them (rice, coconut or power), all of them together, or any similar shortages or failures, are enough to rile the people and bring down a government. Not long ago, it was called aragalaya.

Budget as Political Reset

The budget speech lays down the principles underlying the government’s approach to the economy: sectoral growth sustained by participation and even distribution on the supply side; and balancing roles for the market and the government on the demand side. A GDP growth rate of 5% is targeted for the medium term, predicated on a strong export sector performance while maintaining price stability and ensuring social welfare. Promoting investments, leveraging logistics, revamping tourism, digital transformation of the economy, and unleashing SME potentials through new credit structures are highlighted as the main growth poles. Allocations for health, education, food security, and social benefits are intended to rebuild and strengthen country’s social welfare system.

There is emphasis on Regional Development, including the assurance of special programmes for the Eastern Province, the Malayaga Tamils, and the Northern Province, but there is no mention of Provincial Councils and Local Government bodies and their agency roles in regional development. Regional industrial zones are identified including the promotion of Chemical Manufacturing in Paranthan, KKS and Mankulam in the Northern Province, Galle in the South and Trincomalee in the East. If some of them were to materialize the North and East might be seeing state sponsored industrial activity after more than 70 years when GG Ponnamabalam was Minister of Industries and Fisheries.

Auto Parts and Rubber Products manufacturing is also identified for promotion through industrial zones. What is not clearly indicated is whether new regional industrial initiatives will be tied to the export sector without which they may not be viable, as past experience has shown. Also, on the export front there is no identification of specific products and target markets to match the significant export sector growth that is being championed. Generally, for industries, there should be guardrails for minimizing and mitigating adverse environmental effects.

The budget rightly focuses on the modernization of public transport. Specific projects are identified for bus transport in Colombo and for the rail sector, including the revamping and the extension of the KV Line, multi-modal transport terminal in Kandy, and the expansion of the Thambuththegama Railway Station to function as a hub for transporting agricultural products. Large scale transport projects and rail transport are invariably the responsibility of the central government, but bus transport operations including those in Colombo and Kandy are better assigned to provincial and even larger municipal governments.

The budget provides for settling the legacy debt of the Sri Lankan Airlines (SLA) in the hope that SLA would hereafter become a viable enterprise. For other SOEs, the budget is proposing the setting up of a Holding Company again with the hope of revitalizing the mostly under-performing State Owned Enterprises (SOEs). Whether this approach is motivated by patriotic sentiments or political calculations, there is little support for it from past experience, except for enterprises in the crucial servicing and energy sectors.

The budget gets quite specific in its proposals for the agricultural and food sectors, especially rice and coconuts. At long last, there is official admission at the highest level that there is no data and information system for the “entire value chain” from paddy production to rice consumption. There is no immediate solution to this except the assurance to find one through the ADB funded “Food Security Livelihood Emergency Assistance Project” and a related World Bank project.

Coconuts are easy to count and difficult to hide. Some 4,500 million nuts are the projected demand for 2030, with 2,700 for the coconut industry and 1,800 for household consumption – at one per household per day. The problem is with production and the budget is allocating money for high yielding seedlings to be used in a new Northern Coconut Triangle extending from the coconut rich Northwestern Province, recommended by the Coconut Research Institute and mirror imaging the long established Southern Coconut Triangle. Better later than never, even when it comes to nuts.

All in all, the budget provides a good framework for the NPP government to reset its political road map. To succeed, the resetting must involve delegations at the ministerial level and following through to local communities and political grassroots. Equally important will be the medium in between, and the challenge to the NPP government is in resurrecting and using the currently defunct provincial and local government agencies.

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