Two major events happened during the past few days with regard to possible changes in the country’s macro-economic fundamentals in the near future.
(1) Market based rate or managed float:
This is what private sector players have been asking. It’s not clear whether the Rupee is floated, based on market forces or a managed float. It has increased and traded around Rs 260/- per $ on day two. As we know, it was Rs 203 for the last six months, and on 9th March, with a major shift in exchange rate policy by the Central Bank, the official exchange rate went to Rs 230/-, and the following day, it was Rs 260. In my view, the guided exchange rate system, managed by commercial banks, would be more prudent, better to keep a close tab without allowing a 100% free float, based on market sentiments.
a. This external value of the rupee is good for exporters and inward remittances. On the other hand, the import of non-essential items is now discouraged through market forces, and certain regulations imposed. The challenge is how to mitigate the increased expenditure on fuel bills and the cost of other essential food items, which are going up at a faster rate and whether the losses of SOEs will be passed on to the consumers or not.
b. Government budget deficit will go up. On the other hand, government revenue from taxes and the collection of import duty could increase. SOE restructuring is inevitable, and foreign JVs to infuse FDIs and reduce government expenditure can be explored.
c. The private businesses need to walk the talk and focus on increasing local production, value added agricultural products (a proper land use plan for optimum utilisation of land and human capital is needed), start import substitution industries and manufacture, software development for export markets and improve their BOP/ ICT businesses – this is the way forward for economic development, as long as the benefits would be trickled down to the bottom of the pyramid people.
d. Can we afford excessive use of imported goods, including crude oil, gas, chemical fertiliser, etc.? It’s high time we put a stop to blame culture – instead, serious R & D work has to come in. The entrepreneurs should be able to compete globally, if other factors are put into good use, together with improvements in doing business index.
e. However, banks have to closely monitor and manage the rate, otherwise the dollar might go up further in rupee terms. At the same time, the social security network systems, to protect the middle class and such vulnerabilities, need to be carefully assessed, in order to put in place a system and implementation programmes by the government.
(2) Discussions of World Bank/IFC and ADB with the President & government:
Numerous meetings were held with the three institutions during the last two years. We understand that the President has very well articulated the government policy framework to these high-level delegations from the three multilateral agencies recently. Apparently, the government has critically reviewed the progress of such discussions, prior to this recent meeting. It goes without saying that any new projects undertaken should be for prioritised areas under the President’s policy statement. The following salient points are worth mentioning here.
a. This is the time the country needs the support from the above institutions the most, as a member country. It is in difficult times, that the support is most needed, in keeping with the mandate of these institutions – “support member countries as a development partner”
b. The World Bank Country Manager has recently pointed out the importance of agribusiness, dairy and fisheries sectors for Sri Lanka’s green, resilient and inclusive recovery. It is logical that Sri Lanka would ask the WB to ‘walk the talk’ and support us with funding and expertise consultancy assignments, where they could support us in the transformation from conventional agriculture to a more sustainable green agriculture.
c. Modernised the green Agri sector thorough study of reducing the post-harvest losses, and involve the private sector in such loss reduction strategies.
d. Private sector investments to scale-up operations to ensure at least US$ 500 million per year by end 2023. We need to invest in the export of Agri businesses, value added agriculture, and new technology transformation, and support high value-added export industries.
e. Support the banking sector with additional credit lines of US$ 1 Billion to:
i. Finance SMEs to recover from the impact of COVID.
ii. The sustainable development projects, in keeping with the Government’s policy – such as renewable energy, green agriculture.
iii. additional trade finance facilities to facilitate essential imports.
f. We need their inputs to develop the industrial parks, cold storage, and processing facilities to minimise Agri waste, and structure them as PPP projects, and support us in attracting investors using their global network.
g. Investment in the East Terminal: We hope the discussions between the SLPA and multilateral agencies will conclude successfully.
h. Knowledge management – we would request for the existing programme to include sustainable agriculture practices and train the farmer programmes, knowledge transfer on use of research and development facilities, to innovate and improve our products and services.
i. The World Bank could provide assistance under Institutional development, to study the possibility of introducing key performance indicators (KPIs) to the strategic public sector entities, and develop a high-level dashboard.
The positive feature would be; there will be a centralised economic policy making and ‘one voiced’ communication channel to avoid any confusion if any. The name of the game is export-led growth strategy through FDIs and domestic capital formation.
To me, this is the beginning of another major transformation – at least a mind-set change towards changing consumption patterns, and a strategic shift to use renewable energy and focus on green agricultural farming systems, etc. These are few areas that could be exploited to gain economic benefits.
Either we can make it or break it.
The lasting curse of Janasathu
Let me begin with two anecdotes.
In the 1960s, my father would pull into the local Shell petrol shed and a smiling pump attendant, smartly attired in a uniform (khaki shirt and shorts) would come up to the driver’s side and inquire what was needed. While petrol was being pumped, the attendant would wipe the windscreen and check the engine oil. The toilet was clean. The air pump worked. To my delight, large, colourful road maps were given out, for free. Sounds like a dream, doesn’t it? All this for about Rs. 1 (one) for a gallon of petrol!
The next anecdote. In 1978, I visited Brian Howie, a former classmate, at Kataboola Estate in Nawalapitiya. Brian was an SD – assistant superintendent – and his bungalow was in a remote corner of the estate, so remote that it had its own mini hydroelectric plant. Mrs. B’s government, which had nationalised the estate, had recently fallen and the estate was now under new management.
The bungalow was sparsely furnished, and I noticed that a corner of the living room was blackened. Brian told me that the previous occupant, a former bus conductor turned “SD”, had not known how to use the kitchen stove, so he put some bricks together and had created a lipa in the living room to do his cooking. Meanwhile, every appliance and item of furniture in the bungalow had been stolen by the same man.
Janasathu has a false ring, meaning “owned by the people”. But, as everyone knows, the term instead means a nest of thieves, running up millions in losses at the cost of the people. A place where friends and political supporters are given employment, showered with generous perks, and given a free run to plunder. Government owned corporations, companies, and “other institutions” run into the hundreds, and perhaps a handful make a profit. The rest are leeches, sucking the blood of the nation.
Do we need a corporation/board for salt, ceramics, timber, cashew, lotteries, fisheries, films, ayurvedic drugs, handicrafts? For a publisher of newspapers? They are so swollen with employees that their raison d’être appears to be employment, perks and plunder that I mentioned above.
I recently read that Sri Lankan Airlines, the CTB, the Petroleum Corporation, and the Ceylon Electricity Board are the biggest loss makers. The Godzillas among them appear to be Sri Lankan Airlines, which reportedly lost Rs. 248 billion in the first four months of this year, and the Petroleum Corporation, which lost Rs. 628 billion in the same period. (The Petroleum Corporations is owed billions of rupees by both Sri Lankan Airlines and the Ceylon Electricity Board.) The Ceylon Electricity Board appears to be a mafia, subverting efforts to promote renewable energy, while promoting commission-earning fossil fuels. While the poorest among our population are starving, the crooks that run these organisations continue to deal and steal.
In Hong Kong, where I lived for 20 years, no airline, bank, petroleum company, telephone service, LPG or electricity supplier is owned by the government. The buses belong to the private sector. In Japan, where I live now, in addition to the list from Hong Kong, even the railways and the post offices are privatised and provide a courteous, efficient service. In Japan, the service at petrol stations is reminiscent of Ceylon’s in the 1960s that I described above.
At least in one instance, Mrs. B attempted to correct her folly in nationalising plantations. The de Mel family owned thriving coconut estates in Melsiripura. After nationalisation, the estates declined to such a sorry state that Mrs. B personally invited the de Mels to take them back. Today, the estates are thriving under efficient management.
As a nation, we need to admit that janasathu has failed, and take steps to remedy the situation ASAP.
Road to Nandikadal: Twists of Kamal and Ranil actions
I am re-reading retired Major General Kamal Gunaratne’s book “Road to Nandikadal ” these days. This is his first hand experience of the battle against LTTE, and his journey in the Sri Lankan army from Thirunelveli in 1983 to Nandikadal in 2009, where the final battle took place. Thirteen years have passed since the defeat of the LTTE in 2009 under the political leadership of former president Mahinda Rajapakse and the then secretary of defence Gotabaya Rajapakse. As we all know, Gotabaya became the president of Sri Lanka in 2019, and resigned last July, due to public pressure, and is currently travelling from country to country without a set destination.
In his book, Kamal has written an interesting chapter titled “A final chance for peace” and detailed the peace process followed by the then government led by Ranil Wickremesinghe, as the prime minister. This is Kamal’s narrative about the memorandum of understanding (MOU), brokered by the Norwegian government and signed by the then prime minister Ranil Wickremesinghe and LTTE leader Velupillai Prabhakaran in 2002. “According to the MoU, members of the LTTE political wing were allowed to enter government controlled areas to commence their political activities. The first group of such LTTE political wing members entered the government controlled area from Muhamalai, singing and cheering, as if they had won the war. They insulted and jeered at the soldiers manning the checkpoint with impunity whilst the poor soldiers, under strict instructions not to react, helplessly looked on. The Navy, which arrested a group of terrorists, was immediately instructed to release them. Upon release, the terrorists threatened the sailors and lifted their sarongs, baring their genitalia at the stunned sailors, who could do nothing but simply look down in shame. Such developments intensified the apprehension we held of things yet to come and prepared ourselves to face untold humiliation in the name of the Motherland”.
Kamal further writes, “At the time of drafting the MoU, experienced officers like myself, knew it was premature to enter into peace negotiations. On the one hand, LTTE could not be trusted to keep their word, as past experience had taught us bitterly, and on the other hand, negotiations should be ideally undertaken from a position of strength”. He continues, “The government of Prime Minister Ranil Wickremesinghe was very confident of the peace process and strongly believed there would never be a war again. They did not have any confidence in the Army, which spurred this belief and therefore pursued peace at any cost”.
Kamal’s criticism of the Wickremesinghe administration continues: “The step motherly treatment the Army received during this period was terrible. Strict instructions were given to cut costs and the ever obedient army reduced many of our facilities and benefits. The army even stopped the annual issue of face towels to soldiers, given as a benefit for decades. It felt like they wanted us to live like ‘Veddhas’ without a bit of comfort”
Now the same Ranil Wickremesinghe is the President and Commander-in-chief of the armed forces, and Kamal Gunaratne, who was highly critical of the Wickremesinghe administration, is the trusted Defence Secretary of the president. Is it a twist of fate or twist of faith!
Need for best relations with China
(This letter was sent in before the announcement of the government decision to allow the Chinese survey vessel to dock at Hambantota – Ed.)
I once met Pieter Keuneman sometime after he had lost the Colombo Central at the general election of 1977. We met at the SSC swimming pool, where he had retreated since his favourite haunt at the Otters was under repair. Without the cares of ministerial office and constituency worries he was in a jovial mood, and in the course of a chat in reference to a derogatory remark by one of our leaders about the prime minister of a neighbouring country, he said, “You know, Ananda, we can talk loosely about people in our country, but in international relations care is needed in commenting on other leaders”.
Pieter, the scion of an illustrious Dutch burgher family, the son of Supreme Court judge A. E Keuneman, after winning several prizes at Royal College, went to Cambridge in 1935. There he became a part of the Communist circle, which included the famous spies Anthony Blunt, later keeper of the Queen’s paintings Kim Philby, and Guy Burgess. Eric Hobsbawm, the renowned historian commenting on this circle, wrote of the very handsome Pieter Keuneman from Ceylon who was greatly envied, since he won the affections of the prettiest girl in the university, the Austrian Hedi Stadlen, whom he later married. Representing the Communist Party in parliament from 1947 to 1977, soft-spoken in the manner of an English academic, Pieter belonged to a galaxy of leaders, whose likes we sorely need now.
I was thinking of Pieter’s comments considering the current imbroglio that we have created with China. Our relations with China in the modern era began in 1953, when in the world recession we were unable to sell rubber, and short of foreign exchange to purchase rice for the nation. The Durdley Senanayake government turned to China, with which we had no diplomatic ties. He sent R G Senanayake, the trade minister, to Peking, where he signed the Rice for Rubber Pact, much to the chagrin of the United States, which withdrew economic aid from Ceylon for trading with a Communist nation at the height of the Cold War.
Diplomatic relations with China were established in 1956 by S W R D Bandaranaike, and relations have prospered under different Sri Lankan leaders and governments, without a hint of discord. In fact, in addition to the vast amount of aid given, China has been a source of strength to Sri Lanka during many crises. In 1974, when the rice ration was on the verge of breaking due to lack of supplies, it was China, to which we turned, and who assisted us when they themselves were short of stocks. In the battle against the LTTE, when armaments from other countries dried up, it was China that supported us with arms, armoured vehicles, trucks, ships and aircraft.
It was China and Pakistan that stood by our armed services in this dire crisis. More recently, amidst the furore, created by Western nations about human rights violations, China was at the forefront of nations that defended us. A few weeks ago, it was reported that the UK was ready with documents to present to the UN Security Council to press for war crimes trials against the Sri Lankan military, but the presence of China and Russia with veto powers prevented it from going ahead with its plan.
It is in this context that we have to view the present troubles that have engulfed us.President Ranil Wickremesinghe, in the short period he has been in office, has won the sympathy of people by the speed with which he has brought some degree of normalcy, to what was a fast-disintegrating political environment. On the economic front, his quiet negotiations and decisions are arousing hopes.
A shadow has been cast over these achievements by the refusal to let in the Chinese ship to Hambantota, a decision made on the spur of the moment after first agreeing to allow it entry. The manner in which it was done is a humiliation for China, one administered by a friend. We must remember that these things matter greatly in Asia.
These are matters that can be rectified among friends, if action is taken immediately, recognising that a mistake has been made. The President should send a high-level representative to assure the Chinese leadership that these are aberrations that a small country suffers due to the threats of big powers, to smoothen ruffled feelings, and normalize relations between two old friends. The American-Indian effort to disrupt a 70-year old friendship, will only lead to its further strengthening in the immediate future
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