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THE NEED FOR INCREASED FUEL PRICES AND DIVESTITURE OF CEYLON PETROLEUM CORPORATION

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by Sanjeewa Jayaweera

In a recent TV talk show “Face the Nation”, a panel of economists mostly with experience in the private sector delivered an insightful and no holds barred discussion on the recent hike in petroland diesel prices.  The participants were Murtaza Jafferjee (Chair of Advocata Institute), Nishan De Mel (Executive Director Verite Research), Dr Anila Dias Bandaranaike (Former Assistant Governor of Central Bank) and Shiran Fernando (Chief Economist of the Chamber ofCommerce).

It was good to listen to a discussion where no attempt was made to cotton wool the perilous position of the Sri Lankan economy. It was pleasing that all panelists felt that the price increase was inevitable even if taken rather late in the day. Some of the key points they made were:

Murtaza Jafferjee said, “market forces are not allowed to operate due to government interference, which prolongs the issues at hand despite creating an illusion that everything is fine. The government is trying to solve a foreign currency solvency issue by using toolsintended to manage a liquidity crisis. We spend a net amount of US $ 3.5 billion in a year on fuel imports (when the average price is US $ 70 per barrel) which is the single largest import, and that it is vital to price it correctly.

“The revised pricing, unfortunately, does not still cover the cost of diesel. The government should have done price increases in stages. In New Delhi, the price of a Liter of petrol is Rs. 250/- (SEE TABLE 1). According to a World Bank study, the fuel subsidy benefits the richest 30% of households (here) with 70% of the benefit. He proposed that to ease the burden of higher fuel cost on the poorest segment of the population, there needs to be a cash transfer, like Samurdhi benefits to that segment instead of subsidizing all and sundry.”

His message was not to play politics with fuel prices, causing a huge hole in the economy. He was astounded that the single person income tax-free threshold of Rs.three million for a year introduced by the government in 2019 is 400 per cent of the country’s per capita income. This contrasts with countries like Singapore and Australia, both of whom have a much higher per capita income than Sri Lanka, but the tax-free threshold is only around 20% of per capita income.

Dr Anila Dias Bandaranaike said, “leadership need to make tough decisions and convince the public to undergo certain hardships to work towards a better future.” Those presently overseeing the management of the economy are out of their depth and drowning. Post-2015, when attending parliamentary oversight committees, she observed that most MP’s were absent and that many of the few who attended did not understand what was going on! She was critical of the private sector and referred to them as the NATO = No Action Talk Only! But unfortunately, she declined to comment about the role of the utterly inefficient and subservient public service of which she was part for several years!

Nishan de Mel said, “The present government reduced a plethora of taxes when it came to power, thereby significantly reducing government revenue—estimated to be around Rs. 600 billion. These measures were to act as an economic stimulus leading to economic growth. Unfortunately, no analysis has been done to determine whether these measures achieved the desired result.”

He lamented that there is a lack of economic data readily available in our country.  This prevents proper monitoring and analysis of various actions resorted to by the government and hinders future planning. He cited an example of how the Central Bank has filed a court case to prevent access to certain data relating to the bond scam. They retained expensive lawyers from private practice as opposed to those from the Attorney Generals Department. The government is resorting to local borrowing to bridge the budget deficit, and by keeping the lending rates below inflation, the government is borrowing at zero cost. Our economy is in a precarious position.

 

The Need for a Formula for Pricing Fuel

Those who have some knowledge and understanding of how the government should manage the economy have been of the view for several decades that the government needs to price the supply of fuel, electricity, gas, and many other commodities and services based on a formula ofcost-plus profit. In 2018, the Yahapalana government did introduce a price formula. They were subjected to both criticism and ridicule. With an impending election, the practice was hastily withdrawn. A document prepared as far back 2003 proposed that the fuel price formula should be based on:

CIF price (FOB + freight + insurance + evaporation losses) to which the following costs be added (port + jetty charges + customs and excise duty + financial charges + storage and terminal charges + marketing and distribution charges) to arrive at the wholesale cost.

The retail price was to be arrived at by adding the following to the wholesale cost (profit margin of 5% + retailer and dealer margin of 2.5% of the wholesale price + VAT).Fuel prices should be revised monthly to reflect changes in Singapore Platts average FOB price and exchange rates.

It was a simple enough formula to have been implemented. No doubt there would have been periods when world oil prices spiked well above US 100 per barrel, the retail price would have been high. However, we all know that no commodity or service can be provided below costother than for a short period. Unfortunately, this type of logic has escaped those who have governed our country for so many decades.

Actually, it is a case of not being able to take tough decisions at the correct time. Short-term political popularity has overridden the compelling need for sound economic management. That our country has lacked visionary leaders since Independence is evident. However, we, the masses, are equally culpable for our predicament. The quotation “people get the government they deserve” is quite apt.

In addition, high fuel prices hopefully should also act as a catalyst for car owners to adopt practices such as car-pooling. The benefits extend beyond just financial to also reducing traffic jams on our roads, pollution etc.

The Losses incurred by Ceylon Petroleum Corporation (CPC)

At the outset, I must express my disappointment that the latest CPC Annual Report available is for the year ended December 31, 2018. This reflects the overall inefficiency that pervades state institutions where the work ethic is deplorable. Many companies listed on the Colombo Stock Exchange releases their Annual Reports within 90 days of the end of the financial year. An examination of the financial statements of CPC for 2018 reveals the following.

CPC posted a loss of Rs. 105 billion, of which Rs. 82.7 billion was on account of foreign exchange rate variation and a further Rs. 12.9 billion due to interest costs. Unfortunately, even at a Gross Profit Level (Revenue less direct costs), there was a loss of Rs 3 billion. TheBalance Sheet as of December 31, 2018, reflects that CPC has accumulated losses of Rs. 325.6 billion. The net assets are a negative of Rs. 281.7 billion. Borrowings were Rs. 296 billion,although there was Rs. 110.6 billion of bank deposits, investments in treasury bonds and bank balances. Other liabilities of Rs. 313 billion included foreign bills payable for imports of Rs. 245.5 billion.

CPC is insolvent, and the Auditor General has qualified his report by stating, ” The Corporation’s ability to continue as a going concern without the financial assistance from the Government is doubtful.”

I have included a table (2) detailing the eight-year history of the performance of CPC and some essential information. The absence of the financials for 2019 and 2020 prevents me from doing a 10-year analysis. As can be observed in 2011, 2012, and 2018, CPC made a loss even at Gross Profit Level and posted a loss before tax in five out of eight years. In 2011 and 2012, the average price for a barrel of Brent crude was in the region of US $ 112, and the consequences of not adjusting the fuel price are apparent. On the other hand, in 2013, despite the average cost of a barrel of Brent being US $ 109, CPC was able to post a Gross Profit of Rs. 26 billion as fuel prices were adjusted to reflect the cost.

 

Poor Management of CPC

Given the pivotal role that CPC plays in our economy, there is a need to ensure that people of skill, proven competence, and experience be appointed to both the Board of Directors and the key management positions. I have noted from perusing the corporation’s Annual Reports that the Executive Chairman post is like a merry go round. In the year 2017, there were three different Chairmen, whilst in 2018, there were two separate Chairmen. No organization, let alone one as large as CPC, can function effectively without continuity. In addition, the calibre of people appointed to the post of Chairman is a cause for concern.

In 2017, the Minister of Petroleum appointed his brother as the Chairman. Under any circumstances, this appointment can only be deemed as nepotism. In addition, the Chairman being a former cricketer, had no relevant experience nor proven competence and maybe the skill sets required to hold this position. The infamous hedging deal that cost the country’s taxpayers a sum over Rs. 14 billion between 2007 and 2008 occurred when another former national cricketer was the Chairman of CPC. 

Do we ever learn? Another who served as Chairman in 2018 is a person whose career was in the Sri Lanka Administrative Service. With all respect, having dealt with various senior public servants in our country during my career in the private sector, I have grave reservations about their capability to hold a position that requires proven commercial acumen and expertise. A question that needs to be posed and answered by the Chairman and the Board who served the CPC in 2020 is whether they took advantage of rock bottom prices in the world market to secure our future supplies.

 

Auditor General’s Report On CPC

The Auditor General’s (AG) Report for 2017 and 2018 of CPC and subsidiary run into 29 and 18 pages, respectively.  They are a damning indictment of maintaining poor accounting records, lax internal controls, non-adherence to Sri Lanka Accounting standards, lack of evidence for audit, non-compliance with laws, rules, regulations, poor management decisions, operating inefficiencies, and transactions of contentious nature.

 

Due to the constraint of space, I shall only list a few of them, although any reader interested can access the annual reports of CPC on their website www.ceypecto.gov.lk

Differences in balances payable/receivable as reflected in the accounting recordsof CPC and other parties:

A difference of Rs. 670.93 million in the inter-company balance between CPC and the Subsidiary – Ceylon Petroleum Storage Terminal Ltd., as of December 31, 2017, increased to Rs. 2.47 billion by December 31, 2018.

A balance difference of Rs. 436.78 million observed between CPC and the Department of Inland Revenue (IRD) regarding Income Tax, Economic Service Charge, and Value Added Tax payable/recoverable.

There is a balance difference of Rs. 778.3 million between CPC and the CEB as of December 31, 2018

An amount of Rs. 2.7 billion is reflected in excess as payable to Sri Lanka Customs compared with Sri Lanka Customs’ records.

No basis disclosed or audit evidence provided for the provision of Rs. 142.92 million made on inventory items to be written off.

An amount of Rs. 4.59 billion payable to the People’s Bank on account of hedging transactions between 2007 and 2009 has been excluded from the financial statements of CPC. In addition, Commercial Bank of Ceylon Plc has filed a case at the Commercial High Court, Colombo, claiming US $ 8.65 million from CPC. The total estimated loss due to the hedging transactions between 2007 and 2009 is estimated to be Rs. 14 billion.

An estimated loss of Rs. 1.5 billion because of non-implementation of collecting a monthly utility fee from CPC- owned dealer operated filling stations and Treasury owned dealer operated filling stations from January 01, 2014, onwards.

CPC has borne Rs. 53.57 million and Rs. 259.9 million during 2017 and 2018 respectively as PAYE Tax of its employees without deducting it from their personal emoluments.

A sum of Rs. 307.8 million incurred in purchasing seven motor vehicles in 2017 without the approval of the Ministry, General Treasury and the Department of Public Enterprise.

An agreement has been entered into with Hyrax Oil SDN BHD to build a Lubricant Blending Plant on a BOT basis in May 2016. No comparable proposal has been obtained, which is the acceptable procedure. The AG’s report also mentions that they could not ensure that a properfeasibility study had been conducted for the project.

The list is much longer. The Auditor-General and his staff need to be commended for their work.  In most countries, an audit report of this nature would result in action against officers responsible. I believe most audit reports compiled by the Auditor General on state enterprises would be equally bad or even worse.

 

The Impact of fuel Prices and politicization

The Minister, in justifying the price increase said, CPC has borrowed around Rs. 600 billion from People’s Bank and Bank of Ceylon, and any further borrowing might destabilize the entire banking system.

There is no doubt that an increase in fuel prices has a ripple effect that runs across from the cost of transport to goods, resulting in hardship to some population segments. It mainly impacts the poorer segment struggling to make ends meet. The popular euphonism in Sinhalese that most opposition politicians say “gahen watuna minihata gona anna” which is equivalent to the English “from the frying pan to the fire.”

In the 2018 Annual Report, it is disclosed that CPC lost Rs. 14.7 billion due to selling kerosene below cost. The loss per litre is Rs. 56.86. The annual report states, “The subsidy on kerosene is largely misused by the transport sector when the price gap between the diesel and kerosene is more.” However, as Jafferjee said, the solution to avoid this pain is to make a cash transfer to those in the poverty net and not benefit the rest of the population.

I came across a Sri Lanka review done by the World Bank in 1996 where they say “Sri Lanka’s large array of safety nets are both costly and poorly targeted. They typically have transferred resources, albeit modest, to a large fraction of the population above the poverty line and inadequate sums to the very poor.” Unfortunately, 25 years on this statement is still applicable.

It is deplorable that politicians of both the main parties try to politicize fuel prices despite being aware of the massive negative economic impact of not pricing fuel based on the cost-plus profitformula. Their job is also to educate the public and stop childish symbolic acts of riding bullock carts, cycles and three-wheelers. The decision to import expensive vehicles for MP’s needs our unreserved condemnation. One must live hoping that action will be taken against the members of the CPC Board who in 2017 ordered seven vehicles for Rs. 307 million with no covering approval.

 

Conclusion

In my view, the need to privatize the Ceylon Petroleum Corporation is compelling. The government can maybe hold a majority stake of 51%. However, the management of CPC by an independent professional team outside government interference is a must. This is equally applicable to many other state corporations like the CEB, the National Water Board and Litro Gas.

I can imagine the howls of protest this will draw from the JVP, other left-wing parties, and trade unions. The opposition by the trade unions is understandable given that the staff cost at CPC for the year was Rs. 6 billion, which increased to Rs. 12.7 billion inclusive of the subsidiary company. As to whether the Rs. 259.9 million borne by CPC as PAYE tax on behalf of its employees is included or on top of this is anybody’s guess. The cost to company (CTC) of anan employee at CPC (excluding the subsidiary company) is approximately Rs. 180,000 per month.

The government must draw upon the success of the part divestiture and independent management of Sri Lanka Telecom and Sri Lankan Airlines under Emirates to restructure all loss-making institutions. These changes should have been implemented long ago, but as the panel of experts said in the Face the Nation talk show, it is better late than never.



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Prospects for NPP/JVP at the next election

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by Kumar David

Several months ago I brought to my reader’s attention a straw-poll that I had conducted among my friends on the left of the political spectrum, university colleagues and liberal intellectuals on two matters; (i) their own voting intentions, (ii) what they perceived were the electoral prospects of the NPP/JVP. The replies were consistent. Most said that they would vote for the NPP/JVP or that they were mulling over it. Almost all declared that would not seriously consider Sajith or Ranil led outfits and that anything linked to the Rajapaksa-Porotuwa garbage heap was out of the question. Regarding whether the NPP/JVP could win an election most people in my straw-poll had reservations. While they were themselves satisfied that the JVP would never again repeat the madness of 1971 and 1989-91 they reckoned that the electorate at large was still anxious (minissu thaama bayai). I am grateful to all who wrote to me (actually everyone I contacted replied) for their frankness and careful evaluation of ground realities.

The National Peoples Power (NPP), an alliance of about 28 political parties, trade unions and grass-roots organisations conducted a public seminar on January 24, 2023, which was jam packed, not enough seating room. The keynote speaker was Anura Kumara Dissanayake (Anura hereafter) who was very clever in how he handled the seminar by declaring right at the start “People are concerned about our economic policies; they want to know how we will handle the economy”. Now indeed this is true, but it also let him off the hook about the insurrectionary folly of 1971 and 1989-91 and allowed him to skirt the concerns of the ethnic and religious minorities. I will touch on all three issues, economy, minorities and political adventurism in this short article while giving priority to the economic discussion in the light of the enormous success of the January 24 Seminar/Symposium/Consultation.

Yes, there is considerable interest in the JVP’s economic programme since it has never been explicitly spelt out in the past except as simple anti-imperialist and anti-neoliberal slogans. Anura, as expected focussed on the great hardships the people were suffering because of the ongoing economic crisis, the unbearable increase in prices and the breakdown in public services – hospitals for example are short of medicines, dressings for wounds and beds.

I will begin by picking up six crucial economic issues that arose from the January 24 seminar without stating whether the questions were or were not adequately addressed by the panellists on the stage. It is the right answer to the questions that matters most not whether the panellists got it right or are still working towards adequate solutions. What’s the rush, the elections aren’t tomorrow?

Will an NPP/JVP government be friendly to private-sector businesses?

How will Small and Medium Enterprise (SME) be encouraged and financed?

What is the attitude of the NPP/JVP to loss making state enterprises?

How will foreign investment be encouraged?

What is the is the right approach to Free Trade Agreements with other countries?

How will digitisation of production and of enterprises be encouraged?

I will now proceed to comment on these seven economic issues without indicating whether my comments are the same or different from what the panel members said. There is lots of time more to the next election; we are in the midst of a discussion in progress. Let’s go step by step. Yes, the NPP/JVP should aim to consolidate a mixed economy and therefore the role of the private sector must the recognised. As will become clear when I answer questions lower down what has to be consolidated is a dirigisme economy where the state directs fundamental policy, emphasis being on the word fundamental. In Singapore, South Korea and above all in China (Deng Xiaoping onwards) the private sector prospered although the directive role of the state in the broad sense was retained.

Making resources available for SMEs has to be undertaken as a matter of policy. Certain banks must be identified for that purpose, policy instruments create and funding provisions made via the Treasury. Support for SMEs has to be a state responsibility.

In my view policy towards loss-making state enterprises needs to be well defined. White elephants like Sri Lankan Airlines should be sold off. Loss making state enterprises have to be divided between those who make a loss because they carry a huge consumer subsidy (electricity for example) and others which are fattening an excessive work-force (some portions of the petroleum industry). In respect of the former the NPP/JVP has to decide to what extent and for how long a subsidy is a political necessity, and in respect of the latter a ruthless but time diversified closure policy adopted. Time has to be given for people to learn new skills to find alternative employment avenues. Digitisation is a specialist topic and I was pleased with the response of the relevant member (I am unable to recall his name) of the Seminar Panel who spoke briefly on digitisation and showed an expert grasp of his subject.

From a left propaganda point of view to speak of the tremendous hardship that the sudden economic crisis and the post-Covid and post global-recession period, had created is straightforward. Anura drew attention to the great hardships of the masses, the need to provide additional resources and made a fairly straightforward moral argument. The practical point is how to get this done without cutting other contending demands and how to persuade China to restructure rather than defer (postpone) debt repayment. Though I am a member of the NPP and have been an electoral candidate on the NPP National List slate what I say in this article is not NPP policy, rather is an open-ended contribution towards the ongoing discussion and it is intended to help formulate NPP policy. There is a long way to go before the next election and the lot more water will have to flow under the bridge before the NPP finalises its positions.

It is in this spirit that I make the comment that the NPP needs to openly declare that its model can, broadly, be described as social-democracy. Obviously, it is absurd to focus on prescriptive details but alternatives such as a USSR type state directed economy or the outdated Cuba-Venezuela-Angola-Ne Win Burma models are out of the question. Pakistan with the tacit approval of the Imran Khan opposition, Bangladesh, Malaysia, Indonesia and Mongolia de facto, in the context of post-Covid, global recession threatened world, have explicitly or all but explicitly endorsed social democracy. The NPP must have the gumption and the courage to explicitly state that it stands for social-democracy. It must tell the JVP that the old model of in the Wijeweera days is all dead and useless.

“Pepe” Mujico (Jose Mujia) the 40th president of Uruguay from 2010 to 2015 is described as the world’s humblest head of state. He donated 90% of his $12,000 monthly salary to charities. He was an outspoken critic of capitalism. A former guerrilla with the Tupamaros, he was tortured and imprisoned for 14 years by the military Uruguayan dictatorship (1973-85). Military dictatorships are the foulest and most abominable of regimes in the world. In Argentina for example the military dictatorship (1976-83) threw its opponents, alive into the sea out helicopters and that included pregnant women. Have no doubt that a military dictatorship in Sri Lanka will do the same. Have we not had enough experience of what unfettered military power can do? Sixty thousand young men and women perished when military power ran unchecked in 1989-91. But this comment is by the way, what I wish to say is something else; it’s about social-democracy. Pepe’s most famous quip is that if Uruguay was a big European country it would have become famous as the home of modern social-democracy. The point then is that in this complex and uncertain period the correct model to explicitly assert is social-democracy. The NPP must openly and explicitly declare itself a social-democratic entity.

I promised to comment briefly on minority concerns and the insurrectionary history of the JVP before I sign off. I would like to see the NPP explicitly reject the Wijeweera-Somawana storylines. That is reject Wijeweera’s fifth lecture and his general antipathy to plantation Tamils. Likewise, I would like to see the NPP dissociate itself from the Somawansa – Sarath Silva intervention that dissolved N-E provincial unity. More broadly I would like to see the NPP declare itself in favour of devolution to minority communities and to provinces. Obviously specific details remain to be clarified and that should be the topic of many fruitful discussions in NPP forums.

On the matter of apologising for the insurrectionary excesses and anarchist folly of 1971 my friend Prof Eich persuaded me that this is an unrealistic expectation and I should drop the matter. I agreed and remained silent for about two years. But as the NPP/JVP influence spreads more broadly into the Sinhala petty-bourgeois and rural classes the topic is raising its head again – (minissu bayai). An election winning strategy cannot plaster over that. The pathological madness that, as in the Cultural Revolution, the past has to be utterly destroyed in order to build the world anew may have influenced some in the extremist ranks of the JVP some decades ago. I have indeed run into many admirers of the Cultural Revolution in “those” times. However now the NPP must be uncompromising; there is no room for sympathy for any of this in its commitment to social-democracy.

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75 Years: How a halcyon start became a horrible sorrow – A tale of two compacts and two economies

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by Rajan Philips

Sri Lanka, then Ceylon, became independent in the best of times. Almost all contemporary accounts said so. A model colony was becoming independent unexpectedly soon with no struggle or sweat. No other emerging polity apparently had it so good. The economy was on a roll by the measures of foreign reserves and local consumption levels. As a small island it was easy to be overcome by modernization. Road and rail networks crisscrossed the island, telecommunications and postal services were bringing people closer. Public education was free and public health was looked after, the two anchoring a robust welfare system that was unique among comparator colonies. The population was under seven million and even though the vast majority of the people were relatively deprived, there was optimism that there was opportunity for everyone.

Universal franchise had been introduced 17 years earlier, in 1931, and the people had had a head start in experiencing electoral democracy – uniquely among non-western polities and well ahead of quite a few western ones. Independence arrived on the back of a new constitution, which was a simple text crafted by unassuming legal drafting and not the exalted product of a ponderous constituent assembly. Yet Sri Lanka’s first constitution, unlike its successors, was a compact document that possessed too many virtues and too few faults. Most importantly, it underwrote the communal compact that was the necessary and sufficient prerequisite for the colonial rulers to handover power to their local successors.

“Communal Compact” (AJ Wilson) is the idea that the (Soulbury) Constitution and the granting of independence were the result of a political agreement among the country’s constitutive “communal groups.” Put another way, the British had to either assume or believe that there was such an agreement among the Sinhalese, the Tamils and the Muslims before deciding on the timing and the terms of their departure. Before long, however, the communal compact came under stress and eventually broke.

After 75 years, the controversy is over a different and somewhat narrower compact – the ‘devolution compact.’ Equally, the seemingly salubrious economy that greeted independence in 1948, has now become a deflated and damaged economy requiring intensive treatment in 2023. Hence, the tale of two compacts and two economies. But how did we get here?

Broken Economy

The answers go back to the circumstances in which Sri Lanka became independent. There was more to them than the rosy pictures painted by contemporary accounts. There were already economic fissures and sociopolitical fault lines. These fissures and fault lines defined the political questions of the day and the political alignments that arose out of them. How they unfolded is the story of Sri Lanka after independence. It is an overtold story, but there are always new takes on them as new generations come along to live through the same old problems.

For all its consumption complacency, the economy in 1948 was the “classical colonial export economy”. Plantation exports paid for consumption imports and left a not too small Sterling surplus as bonus. However, the situation was structurally unsustainable. A fast growing population and a politically demanding consumption culture could not be supported indefinitely by the export earnings from tea, rubber and coconut alone. Within a decade, foreign reserves fell from one year worth of imports to four months of them. There has been no looking back since, albeit the wrong way.

The decades following saw severely imposed import restrictions that did not, however, serve the textbook purpose of stemming consumption and accumulating aggregate savings for productive investments. Import scarcities also had to pay a heavy political price. Unemployment became the new scourge along with the chronic mismatch between the outputs of free education and the labour needs of the economy.

Free education expanded the imparting of academic learning and not the technical mass education needed for the development of industries. Industrial development itself was circumscribed by the small national market of the island, its total lack of non-agricultural raw material resources, and indiscriminate import restrictions. State led industrialization proved to be too capital intensive and addressed neither the unemployment problem nor the needs of consumers.

The open economy alternative did unleash the potential for private industrial development and shifted the economic base from its sole reliance on plantation exports. But skyrocketing consumption levels, privatization of education that serves no social or economic purpose, criminal neglect of and corruption in the vital energy and transport sectors, and economically inappropriate and graft generating infrastructure investments have brought the national economy to its current parlous state.

In the assessment of Sri Lanka’s current President, there is no economy left to be reformed! He is promising, among many other promises, a new take off for a better landing at the hundredth anniversary of independence, which neither he nor his followers and critics will be around to witness.

One beam of light that needs to be added to this rather bleak recounting is the story of domestic agriculture, which has been an impressive one in terms of overall growth, if not quite so in terms efficiency of input allocations and certainly not in terms of the distribution of its outputs. Whether comparatively advantaged or not, agriculture is the bulwark of livelihood for the majority of Sri Lankan households; and inclusive of the plantations, it also provides the main domestic base for local industries. Any government can ignore agriculture only at its peril, and the punishment for anyone choosing to monkey with it will be the swiftest and the severest. The organic fertilizer fiasco just proved that, and rightly so.

In 1966, concluding his monograph, Ceylon: An Export Economy in Transition, Donald Snodgrass saw only one certainty “from the historical perspective of 120 years of modern Ceylonese economic development;” and that was, “the search for an economic system that will provide a politically acceptable and economically viable replacement for the classical export economy will continue.” The economy now is far more diverse than what was there in 1948. But the point about the elusiveness of the search for a “politically acceptable and economically viable replacement,” is spot on, 75 years on.

Broken Politics

Of the two, political acceptability and economic viability, it is the political part that has been playing the weightier role in Sri Lanka’s political economy. Politics itself has been swayed by non-economic pressures and compulsions than it has been informed by economic imperatives. The current debate over devolution would suggest that nothing might change even now. Economic doldrums, notwithstanding.

Political divisions along party lines were in their embryonic stage at the time of independence in 1948. The newest political party, the United National Party, had just been formed by DS. Senanayake to contest the 1947 parliamentary elections on a rightwing platform. GG Ponnambalam had formalized his Tamil Congress a few years earlier. And the country’s oldest political party, the Lanka Sama Samaja Party, that had just been freed of its proscription was already in two parts marking the second of its many splits. Rounding off the Left was the Communist Party that had come into being as the first splinter of the LSSP.

Many candidates ran as independents in 1947 and an unhealthily large contingent of them were returned as MPs. The UNP did not win an overall majority (50 of its 92 candidates lost in the elections) but was able to form the new government with the help of independents and Appointed MPs. The efforts of non-UNP MPs, through their historic gathering at Yamuna, the Havelock Road house of highly respected lawyer politician, Herbert Sri Nissanka, to present an alternative bid for power ended in failure, marking the first of many such failures to come. (To be continued).

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Sri Lanka at 100

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by Ram Manikkalingam

Sri Lanka’s future is hanging in the balance as we turn 75.

On its 75th birthday Sri Lanka is divided. There is a stand-off between the people and the political institutions. The people reject Parliament and the President. And Parliament and the President fear the people. This standoff cannot last indefinitely. It will lead to authoritarianism, anarchy or reform. The decisions made, not only by politicians who control our political institutions, but also by the people who want them changed, will determine where we end up.

If there is one person, who has a decisive role in where our country will be in 25 years, it is President Wickremesinghe. While parliament and the people can no doubt make a difference, their decisions must come through political persuasion and mobilization. But President Wickremesinghe can act on his own.

He was picked by the Rajapaksas to protect their interests. But he is not of the Rajapaksas. He protects the Rajapaksas indirectly, by protecting the system that they, and other politicians have benefited from. This system is a combination of rentier capitalism and majoritarian democracy. Businessmen make their money from permits, contracts and quotas provided by politicians. In turn, these businessmen fund the politicians, who run campaigns that favour the majority. Breaking out of this is not what the leading politicians of Sri Lanka want. When the Aragalaya peaked, and the Rajapaksas found themselves rejected, they looked for the next best leader. Someone who would maintain the system the Rajapaksas required for their survival. So Ranil Wickremesinghe was chosen. But he also has a choice.

He can hang onto the Rajapaksas and let the Rajapaksas hang onto him. Or he can begin a serious process of reform that by its very definition will require ditching the Rajapaksas and their ilk.

If he chooses the former option, he will preside over the rapid erosion of the economy and the gradual deterioration of democracy. Because the Rajapaksas very much represent the faction against both political and economic reform. This would prevent him from making the kind of economic reforms required to restructure our debt with the creditors, attract investors, promote equality, and improve public services. As anti reformists, the Rajapaksas would prevent Wickremesinghe from making critical changes required to move the country forward. Instead, they will act as a reactionary force, hostile to any democratic impulse and economic changes that reduce their corrupt grip on power.

This alliance between Wickremesinghe and the Rajapaksas would, in terms of policy, transform itself into an alliance between Sinhala extremism and neo-liberalism. This would precipitate political opposition, not just from political parties, but also from newly mobilized political groupings, including the youth, the students, the middle class, the trade unions and civil society. This opposition, in turn, can lead to state repression, as the government uses its control over the security forces to crack down on the newly revitalized Aragalaya, leading to authoritarianism or anarchy.

Ordinary people, spooked by threats and suffering under the burden of a rapidly deteriorating economic situation, would not even have the wherewithal to protest. They would be struggling to make ends meet, feed, clothe and educate their children, while taking care of the elderly and their struggling kin. The result would be a dispirited country, submitting, once again, to the authoritarianism of a narrow political elite, that unites in the face of popular mobilization.

Instead, the crackdown may also lead to greater mobilization, spiraling out of control despite the armed forces using excessive force. And in an echo of last year, gets rid of the President and this time the parliament, as well. In the absence of a sensible political programme, this systemic change brings neither reform nor revolution. Instead, Sri Lanka becomes saddled with a series of unstable governments that lack the capacity to advance democracy or the economy. Sri Lanka becomes a country where governments come and go, not because of fundamental political changes, but because an influential faction in or out of government is dissatisfied with a particular policy or leader.

This leaves Sri Lanka with a narrow path to political and economic reform that must be picked within the next couple of months.

At the end of February, President Wickremesinghe would have the power to dissolve parliament. He may fear doing so, because the new parliament will be dominated by political parties that are his rivals. He will then have to negotiate reforms with a prime minister who may have more popular support than he does. But does he really have the power to enact reforms, today? Even his positive efforts to release military occupied land and PTA prisoners, and implement the 13th Amendment are being met with hostility by his own faction in parliament. Moreover, any effort to balance the budget, strengthen welfare measures for the poor and vulnerable, raise taxes, restructure loss making State Owned Enterprises – would require a government that has the support of the people, not one that fears them. It is not too late for President Wickremasinghe to lead such a government that includes all political parties.

Sri Lanka has a narrow window to begin a process to deepen democracy and enact economic reforms that would bring us dignity and equality when we celebrate our centenary.

(Ram Manikkalingam is Director of the Dialogue Advisory Group. He was an adviser to then President Kumaratunga and was a Visiting Professor at the University of Amsterdam)

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