By Dayantha Laksiri Mendis
Dayantha Laksiri Mendis was the former Director of the Bandaranaike Centre for International Studies (BCIS). He was also Ambassador to Austria and Permanent Representative to the UN in Vienna. He has worked and travelled extensively in Latin America and the Caribbean region as UN and Commonwealth Legal Expert/Adviser. At present, he is the Honorary Consul for the Republic of Guyana in South America. Latin America and the Caribbean is a neglected area in Sri Lanka’s foreign policy-making, academic research, and scholarship. The broad focus of this article is to give an overview of Latin America and the Caribbean. The narrow focus is to ascertain as to how Sri Lanka could improve relations with this region in a beneficial manner. This approach would be more relevant than a mere description of Latin America and the Caribbean, since Sri Lanka has recently decided to establish closer relations with this region for a variety of reasons.
First of all, it is useful to define the terms ‘Latin America’ and ‘the Caribbean.’ The term ‘Latin’ refers to those persons who speak the Spanish language, and thus the term ‘Latin’ refers to the Spanish speaking states in the Americas. The Caribbean has a different definition. It refers to independent and dependent territories in the Caribbean Sea. The independent states belonged to several ex-colonial powers such as Britain, France, and the Netherlands. These island states are also called the West Indies. However, in recent terms, with the birth of the Association of the Caribbean States (1994), the term ‘Caribbean’ is re-defined to include those countries which are abutting the Caribbean Sea in South America and Central America, in the same way as states belonging to the Indian Ocean Rim Association (IORAC) are determined.
A short overview by reference to the geography, history, and culture is necessary to understand the major issues confronting this region, before we consider their relevance to Sri Lanka.
Geographically the Latin American states spread from Mexico in North America to Argentina in South America. The land area exceeds 7.9 million square miles, and equals the landmass of Europe, and the US combined. In distance, it covers roughly an area from London to Cape Town. It is quicker to fly from Rio de Janeiro to Johannesburg than from Mexico City to Buenos Aires. This would demonstrate that Latin America and the Caribbean constitute a vast area.
It is important to note that Brazil is bigger than India in size, and Amazonia is the largest repository of biodiversity and constitutes the world’s largest ‘sink’ for carbon dioxide (CO2). The Galapagos is an off-shore island of Ecuador, where Charles Darwin wrote his famous book on The Origins of the Species to dispute the birth of homo sapiens to the horror of theologists.
Latin America can be further classified into several sub-regions such as the Andean States, Central American States, and Rio de la Plata. Similarly, the Caribbean can also be classified into Eastern, Western, Northern, and Southern Caribbean States. Eastern Caribbean is further classified into Windward and Leeward Islands. The Caribbean is now one of the most beautiful, up-market and popular tourist destinations in the world, with a galaxy of off-shore financial centres.
Historically, it must be emphasised that Latin American and the Caribbean civilisations were in existence before the arrival of Christopher Columbus to the New World over 500 years ago. In fact, the Mayans in Belize, Aztecs in Mexico, and the Incas in Peru had sophisticated civilisations. It is, therefore, a myth to say that Christopher Columbus “discovered” the Latin America and the Caribbean as if these civilisations and states were not in existence in the early 16th century. Since the conquest of these areas by the Spanish conquistadors and other colonial powers, the whole face of Latin America and the Caribbean changed rapidly. Approximately 14 million slaves from Africa, and later indentured labour from India, were shipped to this region for sugar and coffee plantation, and the original inhabitants of this region were decimated by the European powers, through the colonisation of the New World.
This region has contributed to the international community in literature, art, music, and sports in a substantial manner. In the arts—the famous Pablo Casals, Pablo Neruda, and the artist Pablo Picasso lived in Latin America. They have also produced a number of Nobel Prize winners. In sports, the West Indies, the former British Colonies in the Caribbean Sea dominated the game of cricket. Both Argentina and Brazil dominated the soccer scene. In music, the Latin American rhythms such as the Tango, Bossanova, Cha-cha-cha, Rhumba, and many other rhythms are popular in many parts of the world. The Calypso and Reggae rhythms, as well as the wonderful sonorities of the Caribbean Steel Drums, are taught and played in many Western capitals for the listening pleasure of millions of people throughout the world.
Relations with the US
This region cannot be fully understood without reference to the US. Since the promulgation of the Monroe Doctrine (1823), the US excluded any extra-hemispheric rivals from this region. It has followed a ‘hegemonic’ policy in the region in the Cold War period and interceded in the internal affairs of those states. It has sent troops to Dominican Republic, Panama, Nicaragua, Haiti, and Grenada in the recent past.
In the landmark Paramilitary Activities Case in 1986 (Nicaragua v. the US) the International Court of Justice (ICJ) held the mining of the Nicaraguan harbours and support to the Contras by the US was contrary to international law. The US continues to hold a tough stance on Cuba. It has passed the Helms-Burton Act to prevent other states from doing business with Cuba in regards to expropriated property4. However, at present, the most sensitive factor in US-Latin relations is the drug problem. The US holds a very strong position with regard to the extradition of traffickers. Nonetheless, the US is the driving force behind the economic expansion of this region through the North American Free Trade Agreement (NAFTA), Caribbean Basin Initiative (CBI), and several aid programmes.
It is important to understand the major issues confronting this region, and how the region has dealt with these issues are of relevance to Sri Lanka. Firstly, the question of promoting economic development is of paramount importance. The debt crisis in Latin America in the 1970s and 1980s has created difficulties for this region and will continue into the new millennium. The Latin American debt crisis arose because this region was unable to pay their debts which they borrowed from foreign banks. As this crisis began to grow, countries like Argentina and Brazil were really affected as they had to pay at least 50% of their Gross Domestic Product (GDP) in servicing the debt. The Baker Plan (1986) and Brady Plan (1989) ameliorated this situation but the debt crisis still continues to be a major problem in this region5.
Another important issue is the shift from dictatorship to democracy. In most Latin American countries, there are no tin-pot dictators. Most have gone back to multi-party democracy through Presidential systems or the Westminster model.
Under Carlos Menon, Argentina has reverted to a Presidential system of government. Chile, Nicaragua and Panama have now established a democratic system of government. In most Latin American countries, democracy is the order of the day and dictatorships have taken a back-seat.
Finally, the viability of mini-states in the Caribbean is another major issue on the international agenda. After COVID, the mini-states are likely to suffer tremendously in the global economy. Previously, the Banana Issue has created huge trade disputes between the US and the European Union in regard to its preferential treatment. The viability of these states has been taken up at several Commonwealth Summits. A recent report on vulnerability by consultative groups of the Commonwealth Secretariat suggests many recommendations to overcome these difficulties.
Can we benefit from this region?
Sri Lanka can benefit a great deal from this region. The language barrier, lack of diplomatic representation, and geographic distance elude us from benefiting from this region in the following spheres.
Firstly, Latin America has taken a lead role in creating a ‘new platform’ to deal with the questions of globalisation and liberalisation of trade in a more effective manner at international fora. Jorge Castaneda’s initiative Alternativa Lationamericana provides a Latin answer to neo-liberalism. This initiative is of significant value to South Asia, and in particular to Sri Lanka, as we share similarities with this region
Secondly, the Caribbean experiment with off-shore financial services is relevant to Sri Lanka at this moment. It is indeed a success story. The Caribbean off-shore companies and banks have attracted high net worth individuals and corporate clients. It has created new employment opportunities and numerous benefits to a large number of Caribbean citizens. It is an experiment which can be copied easily, and therefore it has some value in making Sri Lanka an off-shore financial centre (OFC) in South Asia. If Sri Lanka can be developed as an OFC to India and other Asian states in the same way as Mauritius is to India, we can expect some offshore banks and trusts and offshore companies to establish offices in Sri Lanka to do business with other Asian giants especially in providing insurance and syndicated loans.
Thirdly, if Sri Lanka were to encounter difficulties of importing oil from the middle east countries, we may have to import oil from Latin America and Caribbean and our good relations with this region can help Sri Lanka to rely on them in a crisis situation. The Republic of Guyana is now emerging as a new oil producing country in this region.
Improving relations with this region
This is a neglected area in Sri Lanka’s foreign policy-making. Successive governments have failed to establish closer relations with this region. In this regard careful cost-benefit analysis should be undertaken in foreign policy making
Sri Lanka cannot afford to neglect this region since it provides a veritable avenue for export for manufactured goods, tea, coconut, cinnamon, and rubber products to Latin America, and precious stones especially to the Caribbean destinations, since these island states attract up-market tourist trade, through a network of cruise ships. India dominates the gem trade in the Eastern and Southern Caribbean. St. Maarten and Aruba are havens for gems and jewellery businesses and provide an avenue to market these products to high net-worth individuals. We have a comparative advantage in certain goods and services, too numerous to mention in specific terms in this short article. Hence, the selection of the appropriate countries for trade and diplomatic representation and penetration is of crucial importance.
It is also important to have closer relations, since any Sri Lankan who is vying for an international position in the future has very little chance to succeed without the support of this region. Almost, two decades ago, Judge Professor Christy Weeramantry, who was not a traditional diplomat, knew this too well in his election to the ICJ and worked extremely hard through expatriate Sri Lankans to win their support. On my invitation, he attended the Caribbean Heads of State Meeting in St. Kitts and Nevis and was able to form links with several Heads of State.
It is axiomatic that Sri Lankas relations cannot improve without adequate diplomatic and trade representations. It is unfortunate we have Ambassadors in Brazil and in Cuba and the Honorary Consuls in some Latin American and Caribbean countries. Cuban representation is for political rather than economic reasons, but this Embassy can be upgraded with proper accreditation to establish better relations with the neighbouring English-speaking Caribbean countries in the region. In the long run, Cuba might be the number one tourist destination for North American tourists, and therefore we must get prepared to build good economic relations with Cuba, as the sale point for some of our goods to the tourists who may arrive from North America. It is unclear as to why the Caribbean states are served from the Sri Lankan Embassy in Washington DC and New York and not from Havana, Cuba—the heart of the Caribbean.
Recently, Sri Lanka obtained Observer status in the Organization of American States (OAS). It is a step in the right direction. It is also useful for Sri Lanka to join the Association of Small Island States (AOSIS) at least as an observer to improve relations with small island states in the Caribbean.
It is impossible to improve relations with this region without a good knowledge and understanding of Latin America and the Caribbean. Sri Lanka needs to send ambassadors who can speak the language and understand the culture of Latin America and the Caribbean to maximise the benefits and good relations with this region
How bankruptcy paves way for exploitation of Sri Lanka
Mismanagement of cash cow SLPA, where still it’s carry on as usual
By Shamindra Ferdinando
The United States is keen to further enhance and consolidate its role in Sri Lanka. The current turmoil that has been caused by waste, corruption, irregularities, mismanagement of the economy over the years as well as a spate of ill-advised decisions taken by the incumbent administration would facilitate the US strategy here. The global fuel and food crises caused by Russia rushing into a quagmire in Ukraine, essentially tailor made by the West, as happened to its predecessor the Soviet Union in Afghanistan earlier, has further debilitated the Sri Lankan and many other economies.
The failure on the part of the ruling SLPP and the Opposition to reach a consensus regarding a common action plan to face the daunting economic challenges, has assisted the U.S. and common ‘Quad’ approach towards Sri Lanka. The organization consists of the U.S. Japan, Australia and India, the last now more or less a reluctant bride.
The U.S. wants to strengthen Sri Lanka’s accounting and auditing sectors as part of its overall measures to improve the public sector here. Other ‘Quad’ members are pursuing combined as well as individual strategies pertaining to Sri Lanka. India is now in a position to dominate Sri Lanka in every aspect. The push to expand network of Lanka IOC service station is a case in point.
Speculation is rife of New Delhi seeking to further enhance its share of the oil market here in a situation of utter economic turmoil caused by unprecedented shortages.
The recent announcement that the USAID (U.S. Agency for International Development) would partner the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and the Association of Public Finance Accountants of Sri Lanka (APFASL) to toughen Sri Lanka’s accounting and auditing sectors was amidst the worst ever economic turmoil. The US project, according to a statement issued by the U.S. Embassy in Colombo, is meant to train approximately 600 public sector accountants and audit professionals and 1,200 officers on IT applications and other platforms that support strategic decision-making.
U.S. Ambassador Julie Chung declared at the launch of the project the partnership with CA Sri Lanka and APFASL would contribute towards greater accountability in the public sector. The Embassy, in a statement issued on June 15, 2022, quoted Chung as having said that as one of Sri Lanka’s longstanding development partners, the U.S vision was to help the country to emerge from crises stronger than before.
The statement also quoted Sanjaya Bandara, President of CA Sri Lanka, as having said that “Strong public financial management is very critical for Sri Lanka to achieve its long-term goals. President of APFASL V. Kanagasabapathy profusely thanked the USAID for the recognition of its efforts. The U.S. Embassy quoted Kanagasabapathy as having said that APFASL’ vision was to lead the public financial management to excellence while helping the sector to continue to play a pioneering role in Sri Lanka.
The countrywide U.S. project, according to the statement, is meant to provide a framework for the preparation and presentation of financial statements in compliance with international best practices for quality financial accounting and reporting. Having published the US statement, the writer asked the Embassy whether it would be possible to know the total cost and duration of the project and who would receive the funding?
The Island received the following response: “This initiative is a series of trainings supported by the United States. The training will be attended by public sector accountants and audit professionals to strengthen oversight and accountability capacity in Sri Lanka.”
The Island again asked the U.S. Embassy whether it would be possible to know the total cost of the project. We received the following second response: “This initiative includes 24 training programmes over the course of two years. Training programmes will take place in all 9 Sri Lankan provinces.”
After having thanked the U.S. Embassy, The Island once again repeated the question how much the project would cost the US? The Embassy didn’t respond to that query. That was nearly two weeks ago.
Question mark over 2016 US project
The latest project can be examined taking into consideration the high profile USAID funded three-year project launched in late Nov. 2016. Budgeted at USD 13,000 mn (Rs 1.92 bn), the project launch that took place in Parliament under the auspices of the then Speaker Karu Jayasuriya and USAID Mission Director Andrew Sisson, the gathering was told the Strengthening Democratic Governance and Accountability Project (SDGAP) would improve strategic planning and communication within government and Parliament, enhance public outreach, develop more effective policy reform and implementation processes, and increase political participation of women and underrepresented groups in Parliament and at local levels.
Had that project achieved stated goals, Sri Lanka wouldn’t be in the current predicament. It would be pertinent to mention that the U.S. finalized the project over eight months after the then Central Bank Governor Singaporean national Arjuna Mahendran perpetrated the second far bigger Treasury bond scam. So were all those American efforts nothing more than a smokescreen for other agendas?
The CBSL perpetrated the first scam in February 2015, just few weeks after the US-backed campaign installed Maithripala Sirisena as the President, which they shamelessly crowed about publicly with none other than then Secretary of State John Kerry announcing it to the world. Mahendran carried out the second bond scam in late March 2016, half a year after the UNP won the general election.
The release of the unedited video footage of the examination of public enterprises undertaken by the parliamentary watchdog, the Committee on Public Enterprises (COPE) under the leadership of Prof. Charitha Herath MP has exposed unbridled waste, corruption, irregularities and mismanagement of state enterprises. Unfortunately, the media and the civil society hadn’t taken advantage of the availability of such video footage released by the Parliament to educate the public. The press releases issued by the Parliament on proceedings at the COPE, COPA (Committee on Public Accounts) and COPF (Committee of Public Finance) quite clearly helped the media, but video footage provided much clearer picture of the developments taking place.
The video footage of the Sri Lanka Ports Authority (SLPA) top management appearing before the COPE on June 22, 2022 is a case in point. The proceedings revealed not only a pathetic state in public sector finance but the failure on the part of the executive, legislature and the judiciary to address these issues at hand. Prof. Charitha Herath flanked by Auditor General W.P.C. Wickramaratne and Secretary to the COPE Nishanthi Wickramasinghe examined the top SLPA management. Ports and Shipping Secretary K.D.S. Ruwanchandra, flanked by Chairman, SLPA Dr. Prasantha Jayamanna, Director J.R.U. de Silva and Chief Financial Officer, Ports and Shipping Ministry Sandhya Pushparani. They were on the first row. Isuru Balpatabendi, Director sat in between Chairman, Jaya Container Terminal Attorney-at-Law Lakmal Ratnayake, and its Managing Director Upul Jayatissa. Director General Customs Maj. Gen. (ret.) G.V. Ravipriya also sat on the second row as a Director of the cash cow.
The COPE didn’t raise any queries from Isuru Balpatabendi nor did he offer any explanations. Balapatabendi’s presence among the eight-member Board of Directors should be examined taking into consideration of him being the Secretary of the Bar Association of Sri Lanka (BASL). Having offered solutions to overcome the current political, economic and social crisis, the BASL cannot turn a blind eye to continuing waste, corruption, irregularities and mismanagement in the public sector. The SLPA can be a case study for the BASL.
The bottom line is that Sri Lanka is currently in such a desperate situation the US may find the environment conducive for a fresh attempt to force SOFA (Status of Forces Agreement) and MCC (Millennium Challenge Corporation) on Sri Lanka. The US succeeded in securing Sri Lanka’s consent for ACSA (Access and Cross Servicing Agreement) in Aug 2017. Interestingly both Ranil Wickremesinghe and Maithripala Sirisena who approved ACSA that gave US military access to Sri Lanka are now with President Gotabaya Rajapaksa’s government.
Importance of internal audit
At the onset of the COPE proceedings, Prof. Herath sought an explanation as regards the status of the internal audit. Obviously, Chief Internal Auditor, SLPA, Gayani Liyanage responses as well as that of the SLPA Chairman to specific questions didn’t appease Prof. Herath, who asserted that poor internal audit could be one of the reasons for the current issues. Prof. Herath asked the SLPA Chairman not to assign tasks to the 53-strong internal audit unit outside their legitimate duties.
Herath raised several contentious issues with COPE members Patali Champika Ranawaka (PCR), Madura Vithanage, Jagath Pushpakumara, D.V. Chanaka, Eran Wickramaratne and Premanath C. Dolawatta making valuable contributions. PCR was particularly spot on. The former JHU heavyweight dealt firmly and expertly with contentious issues while Vithanage targeted the Finance.
The following are the main points of contention:
(1) The loan obtained from China to build Hambantota port has been removed from all government financial statements. As at Dec 31, 2021, Sri Lanka owed China Rs 165.4 bn (USD 1.89 bn). USD 1.2 bn received from China for 99-year lease of the strategic port hadn’t been utilized to settle the loan. Instead, the USD 1.2 bn had been spent though the COPE was not told of the allocation of USD 1.2 bn. The Treasury now services the loan. Prof. Herath requested Ports and Shipping Ministry Secretary Ruwanchandra to submit a comprehensive report on this matter.
(2) The COPE sought an explanation from the SLPA why the state enterprise failed to market the Hambantota port the way the Chinese did after the finalization of the USD 1.2 bn agreement on the 99-year-lease on the commercially strategic port.
(3) Massive losses suffered as a result of procurement of a stock of oil at a cost of USD 24.3 mn (Rs 8,000 mn) that had to be sold for USD 3.5. COPE questioned Niroshan Siriwardena, Managing Director, Magampura port over the circumstances the outfit unwisely utilized the loan obtained from a bank on the advice of a consultant. COPE recommended the SLPA and the Secretary Ports and Shipping Ministry to take legal measures against the consultant. Proceedings revealed Magampura port operation is nothing but an absolute waste of public funds. The failure on the part of those responsible to take tangible action in this regard stressed.
(4) The inordinate and continuing delay in equipping the ECT (East Container Terminal) thereby giving advantage to the China owned CICT (Colombo International Container Terminal) and SAGT (South Asia Gateway Terminal). The SLPA owned 15 percent each of both CICT and SAGT. The negligence and the failures on the part of those responsible for transformation of the ECT seemed, in a way, deliberate. The parliamentary watchdog questioned the possibility of some interested party purposely undermining the operation. The fault seemed to be at the level of Cabinet of Ministers as well as successive SLPA administrations. The issue of taking delivery of gantry cranes before constructing specific positions they were to be installed shocking and disappointing. The COPE took notice of the fact that such equipment took one and half years to be built after an order was placed. It transpired that the cost of the civil works component was USD 198 mn (65% local currency) and equipment installation cost USD 282 mn. However, the installation has been delayed due to the failure on the part of the SLPA’s state bank to provide the required financing. The shocking revelation that the ECT hadn’t been expanded for five years after the completion of the 400 m stretch is evidence that successive governments failed public expectations. Lawmaker PCR emphasized the pivotal importance of revisiting the ECT project as the ground situation has changed. The MP reminded the SLPA and the COPE of the government’s admission of bankruptcy.
(5) Dispute over the SLPA’s stated profits. The SLPA challenged the Auditor General’s estimate that the state enterprise earned Rs 45 bn in 2021. The SLPA placed annual profits at Rs 62 bn. The COPE also made reference to the SAGT returning to the SLPA in 2019 and the government’s responsibility in that regard.
(6) The loss of revenue as well as foreign shippers’ faith in the SLPA as a result of the strike launched on June 10, 2020.
(7) Construction of Adani Group-led CWIT (Colombo West International Terminal). Comparison of the CICT and the SAGT workforce with that of the SLPA and the sharp difference in the number of the private sector workers and the SLPA. The SLPA seemed a law unto itself with the disclosure that the highly profitable venture operated to a certain extent outside the purview of the Management Services Department though the total number of employees remained well under the stipulated figure 9,900. The COPE stressed the need to ensure that the SLPA under any circumstances didn’t go beyond the stipulated number of workers. The current work force comprised 9,300.
(8) Rohitha Abeygunawardena who served as the Ports and Shipping Minister of President Gotabaya Rajapaksa till April 2020 raised the contentious issue of recruitment beyond the approved cadre. The lawmaker stressed the need to compare the private sector operations and that of the SLPA. The COPE was told that though the total approved cadre hadn’t been exceeded, recruitment has been carried out in an irregular and extremely shoddy manner.
(9) Big question mark over the transfer of just Rs. 600 mn out of 69,686 mn profits (2016-2021) period and the pathetic failure on the part of the Finance Ministry to address the issue.
(10) Absence of a cohesive and efficient system to charge CICT and SAGT for certain services rendered by the SLPA.
(11) Growing overtime Bill with 2021 recording a staggering Rs 5.8 bn in extra payments. Scandalous disclosure some workers earned overtime for 400 hours and unskilled work assistants numbering 1,500 continued to be a heavy burden.
(12) Controversy over so-called collective agreement that ensured salary increase every three years. The COPE stressed the need to have guidelines formulated by the Management Services Department to prevent exploitation of collective agreements as the process threatened financial stability.
The SLPA, in spite of being a profit making state enterprise, remains in an utterly chaotic situation. The SLPA hasn’t been a burden on the taxpayer though the national carrier SriLankan, the CEB and the CPC bled the country dry. But casual examination indicates regardless of the financial status a section of public servants continued to enjoy perks and privileges while the entire country suffered as a result of local and some external factors beyond Sri Lanka’s control.
The Bonhomie of the Ages
By Lynn Ockersz
Ignoring aching hearts and limbs,
And unmindful of days passing,
The men slumped in their Tuk-Tuks,
Continue their lonesome vigil,
In queues snaking into the distance,
For those never-coming cans of fuel,
Promised by smooth-talking Sires,
That could help fetch a few more coppers,
And delay the onset of starvation,
But thanks to the age-old wisdom,
Handed to them by their humble elders,
The only inheritors of the pristine Dhamma,
The men are not bereft of compassion,
So much so, they share the frugal meals,
The Sweat of their Brows has yielded.
House watchdog committees ascertain culpability of FM, Monetary Board
By Shamindra Ferdinando
The Committee on Public Finance (COPF), inquiring into financial meltdown recently, called several former and serving officials to ascertain their culpability as well as that of the institutions they served for the developing crisis.
Among them were former Governors of the Central Bank Prof. W.D. Lakshman (Dec 2019- Sept 2021), and Ajith Nivard Cabraal (Sept 2021-March 2022), Secretary to the President Dr. P.B. Jayasundera (Nov 2019-Dec 2021) and Treasury Secretary S.R. Attygalle (Nov 2019-April 2022), Sanjeeva Jayawardena P.C. (received appointment as a member of the Monetary Board in Feb 2020) and Dr. Ranee Jayamaha (the retired CB Deputy Governor received appointment to the Monetary Board in June 2020). It would be pertinent to mention that Attygalle earlier served a short stint as the Treasury Secretary (Ministry of Finance) between Oct. 31, 2018 and Dec. 18, 2018 during the constitutional coup staged by ex-President Maithripala Sirisena.
The term of office of an appointed member of the Monetary Board is six years and in the event of vacation of office by the appointed member, another person shall be appointed in his or her place to hold the office during the unexpired part of the term of office.
The COPF meeting took place on June 08. Dissident SLPP lawmaker Anura Priyadarshana Yapa chaired the meeting. CBSL Governor Dr. Nandalal Weerasinghe and Finance Secretary Mahinda Siriwardana, too, were present.
Attygalle didn’t mince his words when he squarely blamed the then Prime Minister Mahinda Rajapaksa, who also served as the Finance Minister (Nov 2019 to July 2021) for the controversial fiscal policy that had ruined the country. Attygalle declared that the government implemented the first Cabinet paper, dated Dec 04, 2019 presented by Premier Mahinda Rajapaksa.
The former Treasury Secretary, who also served in the Monetary Board till April this year, challenged the widely held view that abolition of a range of taxes, in line with Mahinda Rajapaksa’s fiscal policies, triggered the crisis. Attygalle asserted that the import restrictions, especially the ban on the importation of vehicles imposed at the onset of the Covid-19 eruption, and the economic contraction, resulted in the meltdown.
The COPF should seek an explanation from Attygalle, himself a former top Central Banker, having last served there as Deputy Governor, regarding the failure on the part of the Finance Ministry and the Monetary Board to review the decision to abolish taxes soon after the Covid-19 eruption. The Finance Ministry banned vehicle imports in March 2020 as part of the overall measures to manage the weak foreign currency reserves. Therefore, the Finance Ministry and the Monetary Board cannot absolve themselves of the blame for failing to take remedial measures.
The COPF specifically asked whether the Finance Ministry and the Monetary Board officials sought to advise the political leadership of the ground realities against taking such decisions. It emerged that they did nothing. The COPF proceedings revealed that in spite of a rapidly deteriorating financial situation, the Finance Ministry and Monetary Board mandarins failed to take remedial measures. The SLPP members in the COPF, too, should not forget that the change of tax policies had been in line with their 2019 presidential election manifesto ‘Vistas of Prosperity and Splendour’.
A disastrous manifesto
The SLPP made the following proposals:
a- Income tax on productive enterprises will be reduced from 28 to 18 percent.
b- The Economic Service Charge (ESC) and Withholding Tax (WHT) will be scrapped;
c- A simple value added tax of eight percent will be introduced, replacing both the current VAT of 15 percent and the Nation Building Tax (NBT) of two percent;
d- PAYE tax will be scrapped and personal income tax will be subject to a ceiling of 15 percent;
e- A five-year moratorium will be granted on taxes payable by agriculturists and small and medium enterprises;
f- Various taxes that contribute to the inefficiency, irregularities, corruption and lack of transparency of the tax system will be abandoned. Instead a special tax will be introduced for different categories of goods and services;
g- Import tariff on goods competing with domestically produced substitutes will be raised;
h- A simple taxation system will be introduced to cover annual vehicle registrations and charges for relevant annual services, replacing the cumbersome systems that prevail now;
i- Various taxes imposed on religious institutions will be scrapped;
j- A zero VAT scheme will be adopted in the case of businesses providing services to Tourist hotels and tourists, if they purchase over 60% of the food, raw materials, cloths and other consumer items locally;
k- Service charges levied on telephones and Internet will be reduced by 50%;
l- Special promotional schemes will be implemented to encourage foreign investments;
m- A tax-free package will be introduced to promote investment in identified subject areas;
n- A clear and uncomplicated system of taxing will be in place with the use of internet facilities, special software and other technological services;
O- Information Technology (IT) services will be totally free from taxes (Zero Tax), considering said industry as a major force in the national manufacturing process;
p- All the Sri Lankans and Foreigners, who bring Foreign exchange to Sri Lanka through consultancy services, are exempt from income tax.”
Dr. Athulasiri Kumara Samarakoon, Soosaiappu Neavis Morais and Dr. Mahim Mendis in a FR petition filed in terms of Articles 17 and 126 of the Constitution listed the above-mentioned points, in that order, as one of the primary reasons for the current crisis. Among the respondents are Prof. W.D. Lakshman, Ajith Nivard Cabraal, Dr. P.B. Jaysundera and S.R. Atygalle.
All of them earlier appeared before the COPF where the incumbent Governor of the Central Bank Dr. Nandalal Weerasinghe emphasized that officials should never engage in politics and should recognize the difference between them and politicians. Dr. Weerasinghe asserted that officials were duty bound to inform politicians if the decisions taken by the latter were wrong. The outspoken CBSL Chief declared that politicians alone shouldn’t be held accountable for the consequences of such wrong decisions. What Dr. Weerasinghe obviously meant was those who served in key positions at that time, too, were responsible for the current crisis. Dr. Weerasinghe, who had been asked to succeed Ajith Nivard Cabraal, in March, after the former suddenly announced his retirement, told the COPF, the officials’ claim that they had been unaware of the economy was on a wrong path for two years leading to the meltdown was not acceptable. Dr. Weerasinghe also strongly questioned the claim that economic policies had been implemented only on decisions taken by the political leadership.
Lawmakers present participating in the proceedings declared that the political leadership and the officials ignored their concerns as regards the economy raised at different occasions.
CBSL Governor Dr. Nandalal Weerasinghe before COPE on May 25, 2022. Finance Secretary Mahinda Siriwardana is on Dr. Weerasinghe’s right.
The COPF proceedings should be studied along with revelations made by Dr. Weerasinghe before the COPF and the COPE (Committee on Public Enterprises) on May 24 and May 25, respectively as well as lawmaker Ali Sabry’s shocking declaration on May 02 as regards the origins of the crisis. President’s Counsel Sabry discussed the issue in his capacity as the Finance Minister after having led the government delegation for talks with the IMF.
Appearing before the COPF, Dr. Weerasinghe disclosed that those who had been responsible for preparing budget estimates over the years deliberately deceived even the Parliament by providing unrealistic and inaccurate revenue estimates. The CB Governor explained how such practices further weakened the economy as decisions and allocations were made on the basis of fraudulent estimates.
The whole process had been nothing but a farce. Lawmaker Sabry on May 02 in a live interview with Swarnawahini, and Dr. Weerasinghe on May 25, named those responsible for the current crisis that has ruined the economy with unemployment at an unprecedented high. Sabry alleged that the Secretary to the Treasury, Governor of the Central Bank, and senior economic advisors to the President, misled the Cabinet as regards the economic situation. The National List member revealed how they repeatedly assured that the situation was well under control, in spite of difficulties while expressing confidence that issues could be successfully dealt with.
By the time the Central Bank floated the rupee in March this year even without bothering to inform the Cabinet-of-Ministers of its decision, irreparable damage had already been caused, Sabry said.
The COPF and COPE proceedings and MP Sabry’s interview in which he questioned the role of the Finance Minister have revealed the pathetic situation as regards public finance.
The MP has alleged that those who managed the national economy had prevented the country seeking IMF’s intervention well over a year back. Had President Gotabaya Rajapaksa and the Cabinet-of-Ministers received proper advice, Sri Lanka would not have been in the current predicament, Minister Sabry said.
Dr. Weerasinghe named those who refused to heed IMF warnings when he appeared before COPE on May 25. The role played by Mahinda Rajapaksa, Dr. P.B. Jayasundera and the Cabinet-of-Ministers were discussed during the proceedings with Finance Secretary Mahinda Siriwardana, too, helping to ascertain the environment in which the SLPP leadership operated.
Dr. Weerasinghe went to the extent of naming Dr. PBJ as the one who prevented the government seeking IMF’s intervention.
The Customs, Inland Revenue and the Excise Department responsible for revenue collection are run in a shoddy manner. In spite of the watchdog committees exposing glaring omissions and commissions by them that had caused revenue losses in billions of Rupees over the years, the political leadership hasn’t taken remedial measures. Committee reports paint an extremely bleak picture.
But what could be the most unforgivable sin is then Finance Minister Basil Rajapaksa joking about having himself used the illegal Havala/Undiyal system that completely shut down several billion dollars that should have legitimately come to Sri Lanka as in past years as remittances from our migratory workers, especially serving in West Asia. Even at the height of the COVID pandemic the country received about six to seven billion dollars from mainly those unappreciated poor Lankan workers slaving in those countries as mainly labourers and housemaids. Such money may not be enough to pay back the country’s USD 50 billion foreign debt. That money, however, would have ensured that the country had the few million dollars to clear a shipment of gas or other necessities, instead of having to beg all over the world.
Unfortunately, the Parliament seems incapable of taking corrective measures. The Parliament should explore the possibility of appointing, a smaller team, comprising members of COPE, COPF and the COPA (Committee on Public Accounts) to recommend remedial measures, including possible criminal prosecution of dual citizen Basil Rajapaksa for his many omissions and commissions, but especially for not applying the full weight of the law against those running the underground money transfer system, that has even robbed the education of our children.
Keeping the currency steady is the wish of any Finance Minister as otherwise in a country like Sri Lanka dependent on imports for many of its essentials, like milk food, wheat, etc., it would result in basics skyrocketing in price as experienced now and as former Finance Minister Ronnie de Mel also learnt it the hard way after allowing the rupee to devalue almost overnight by over 40 percent in the aftermath of opening up the economy to market forces after the victory of the UNP in 1977 with a staggering 4/5th majority in Parliament. It led to government workers staging a general strike demanding a Rs 10 wage increase, but was ruthlessly crushed by that regime.
A corrupt ministry
The Parliament needs to take tangible measures to restore public faith in the system. The Finance Ministry should be overhauled. Perhaps, the IMF, currently engaged in negotiations with the government, should look into the current system in place. The government can formulate an action plan on the basis of findings and recommendations made by the parliamentary watchdog committees. Perusal of proceedings of these committees reveals that the government hadn’t acted on their findings. The inordinate delay in taking action regarding the mysterious decision to reduce the duty on a kilo of white sugar from Rs 50 to 25 cents on Oct 13, 2020 without passing on its benefit to the people is a case in point as pointed out by the COPF Chairman Anura Priyadarshana Yapa, MP. It, however, cost the cash starved Treasury dearly in billions in lost revenue.
Mahinda Rajapaksa served as the Finance Minister at the time of the issuance of the relevant gazette notification. S.R. Attygalle had been the Finance Secretary. It would be pertinent to ask both MP Mahinda Rajapaksa and Attygalle who recommended the duty reduction.
Actually, the COPF should ask Attygalle to explain the circumstances leading to the issuance of that controversial gazette. As Dr. Weerasinghe pointed out recently the officials cannot absolve themselves of the responsibility for the highly questionable decisions taken by politicians.
Who benefited from the reduction of duty imposed on sugar? In fact, the parliamentary watchdog committees should undertake a comprehensive study. Perhaps, the Finance Ministry role in the Yugadanavi deal can be investigated. Sri Lanka finalized the Yugadanavi transaction with US based New Fortress Energy at midnight on Sept 17, 2021 against the backdrop of Basil Rajapaksa receiving the finance portfolio. The government also brought in retired controversial figure M.M.C. Ferdinando from Australia to assume the leadership at the CEB before making the final move. S.R. Attygalle played a critical role as the Secretary to the Finance Ministry. The SLPP had no qualms in going ahead with the agreement in spite of Vasudeva Nanayakkara, Wimal Weerawansa and Udaya Gammanpila challenging the transfer of 40 percent shares of the power station held by the Treasury among other concessions not fully revealed to the public.
The President’s Media Division (PMD) defended the agreement with the US energy firm. On the invitation of the then Presidential Spokesperson Kingsley Ratnayake, M.M.C. Ferdinando briefed the media of the usefulness of the US investment. It would be pertinent to mention that Ferdinando, who fled the country in the wake of Maithripala Sirisena’s triumph in 2015 returned from Australia after the change of government in Nov 2019. Ferdinando’s 2015, move should be examined against the backdrop of corruption accusations directed at him by civil society activists Rajith Keerthi Tennakoon and Attorney-at-Law Namal Rajapaksa. The lawyer lodged a complaint with the then anti-Corruption Committee Secretariat. There had also been a case in the Fort Magistrate Court regarding the import of coal for Lakvijaya coal-fired power plants at Norochcholai.
In spite of initial public interest, such major cases are often not pursued properly even by those initiating them possibly with ulterior motives. When The Island inquired, lawyer Namal Rajapaksa acknowledged not being aware of the developments of his own case. At the time of the Norochcholai project, Ferdinando had served as the Secretary to the Power Ministry. The unholy alliance between the Finance Ministry and monstrous institutions, such as the CEB, should be investigated and mechanism put in place to protect the public interest.
The controversy over President Gotabaya Rajapaksa’s alleged intervention on behalf of India’s Adani Group at PM Narendra Modi’s persistent request led to Ferdinando’s resignation recently. The disclosure made by Ferdinando at the COPE, his subsequent denial and a letter dated Nov 25, 2021 Ferdinando wrote to the then Treasury Secretary Attygalle exposing the horrific way business of the State is being conducted. Accountability and transparency seem to be the last thing in the minds of political leaders here.
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