Sri Lanka: Year 2015 In Review – Analysis

By Dr Kumar David

An annual review of the political conjuncture of Lanka to be useful to overseas readers must deal with six matters: (a) the still fluid situation in governmental and state power, (b) the deal with the UN Human Rights Commission on investigation of war crimes, (c) indeterminacy in economic direction, (d) an economic relationship with India in the context of Make-in-India (MiI), (e) receding prospects of a new constitution but nevertheless urgent need for electoral reforms and devolution of power to Northern Tamils, and (f) the return to Lanka’s tradition of non-alignment, and in the Twenty-first Century context a balance between India and China consistent with global and regional realities.

State and government

The shortcomings of the Ranil-Sirisena (R&S) government so far are not fatal and it is working as well as a coalition contraption can be expected to. Its positive achievements are limited but it is not a rotten den of thieves and alleged homicidal ‘sons of the great’ like the previous one. The Mafia State erected during the Rajapaksa presidency has not been dismantled; only the surface scratched. Rajapaksa’s defeat, exposed a web of crime, intrigue, and a network of family based infamy. Herein lies the crux of an unenviable dilemma for S&R whose government is not a similar den of thieves but it has done nothing to bring to book the crooks and criminals of the outgoing regime. [Ranil Wickremesinghe (RW) is prime minister and leader of the UNP, Maithripala Sirisena (MS) president and leader of the SLFP]

What has happened about the alleged coup on January 8-9 night about which PM and Foreign Minister were outspoken at one time? Nothing! A Sri Lankan Airlines probe exposed glaring malpractices, the Chairman even diverting flights to arrange sexual encounters with female cabin crew; but no follow up action. The Highways Ministry (of Mahinda Rajapaksa) where billions were robbed has not been probed. The return of military occupied land has up to now been a cosmetic exercise. Thousands languish in prison under draconian anti-democratic laws without trial. The previous regime was so debauched that not being as bad as it is no achievement.

Challenges

The next period will throw up two challenges on the Tamil issue; devolution in the proposed new constitution (more on this later) and the agreement with the UNHRC to probe human rights violations and war crimes during the civil war. A few political knuckles may be rapped, lightly, but military personnel will be whitewashed, but there is little point in rejecting the process. The best hope is that the loathsome brutality (LTTE included) will be dragged into the sunlight and Lanka will benefit from this cathartic experience. For Sinhala chauvinists however this is an explosive opportunity. The hybrid investigative mechanism with foreign participation that is to be set up is dynamite in chauvinist hands. There will be a battle to get the process going at all. The balance of forces however is favourable and the January 8 and August 17 electoral mandates can be used to smash the racists on the streets.

The economy

The first reading of the Budget showed a deficit of SL Rs 1.35 trillion (million-million); at 11.8% of GDP this was appalling! It is more comprehensible in dollars – $ 9.51 billion at SL Rs 142 to a $. The job of finance minister Ravi Karunanayake was to bridge the gap but this has not done to the satisfaction of business, the wage earning classes or economists. The second reading does not chart a development strategy; it is just a bookkeeping exercise, a reconciliation of revenue and expenditure. This is acceptable if elsewhere a policy framework, a strategy for economic development existed. It does not! In advanced capitalist countries the budget is indeed only a bookkeeping exercise in taxation and balancing revenue and expenditure. Such is the bill US presidents send to Congress or British Chancellors table in Parliament. There are no directives detailing specific investments; these are left to the wisdom of companies. Lanka has chosen this incongruent path.

The PM said in the House in January 2015:

“The state of public finances exposes the shady operations of the previous government. The façade of duplicity has to be removed and the actual position made known. (i) The previous government gave Rs 524 billion as Treasury Guarantees to commercial banks to implement infrastructure projects by state-owned enterprises (SOE). (ii) The outstanding debt of SOEs to the local banking system is Rs 593 billion. (iii) Foreign borrowings of SOEs at end-2014 was US $ 2.36 billion or Rs 308 billion. The outstanding government debt at end-2014 including these three items is Rs 8.8 trillion”. [Rs 8.8 trillion is 78 % of GDP].

A medium term (3-5 year) program that avoids two mantras canvassed by the business classes is imperative. One mantra is that it must be an all export oriented effort and the other intones that it must all be left to the private sector. Both suggestions, in moderation, have a point but it is a balanced approach that is more to the point. Export performance is crucial to correct the foreign trade account, wind down the huge debt burden and create employment, but domestic concerns are of greater concern. The private sector is dynamic, efficient and can raise capital, but it not be allowed the freedom of the wild ass to evade directive principles of state economic policy. The problem is that obsession with exports is accompanied by considerable ideological baggage. A stock in trade is anti-working class legislation euphemistically called ‘labour market reform’ (easier firing, curbs on collective bargaining and trade unions, physical and legislative hostility to strikes). Strangely there is greater pressure to implement such measures in the third-word than in the West.

Extreme export orientation is accompanied by heavy reliance on foreign investment and a frame of mind driven by this obsession overwhelms policy makers. Over- reliance on the private sector implies surrender to big business and neglects the interests and needs of the less well-off. Then there is the matter of the product mix which should not only earn profits for capital but also satisfy people’s needs. Lanka is weak in food security except rice and marine products; nutrition and protein deficiency is also a concern; the dilapidated state of the national housing stock is a shocker. Resources have to be set aside to improve deplorable public education and healthcare. Colombo needs a suburban railway.

This is a centre-right government; the centre is its populist and democratic mandate, the right the strong business interests represented by the UNP and SLFP. Therefore policy could drift anywhere from mild social democracy to anti-populist austerity. It could lean on mass and civil society action to thwart a chauvinist backlash against the war-crimes probe. If it opts for this populist political response, it will also move in social-democratic directions in economic matters. On the other hand the PM (the President counts for less) may shift into authoritarian gear mimicking Lee Kuwan Yew.

Another crucial point is that policy makers and planners in Lanka neglect or are hostile to the informal sector. However, this sector is nimble, productive and generates large amount of employment. Economic policy must include recognition, credit facilities and regulatory assistance for this sector. A national planning framework with a light touch, staffed by intelligent people not bureaucrats can do much to guide the government. The state must assert itself. I have in mind more than the conventional triple-task of managing interest rates, exchange rate and capital controls. Lanka’s experience of the Rajapaksa state pushing people around has been revolting, but the public understands that a greedy dictatorship is not the same as the guiding hand of the state in setting directions of growth. The citadels of Asian capitalism – South Korea, Taiwan and Singapore – were the pioneers; China and Vietnam were late comers to the concept of the state directing private, public-foreign and public-foreign-private development models.

Economic link with MiI

Is Modi wedded to capitalist development? Well yes and no. RW’s oxymoron “social-capitalism” bears a caricatured but better fit to Modi than to himself. Modi wants changes which will delight business but he also pushes reforms that are needed whatever the system; overhauling the leviathan bureaucracy, cutting inefficiency and curbing the licence-raj. The centrepiece is ‘Make in India’ which seems to be paying off. India has overtaken China as the world’s fastest growing large economy in percentage rates; estimated at 8% for 2016 and set to rise to 10% in 2017. Absolute growth still lags China – the Indian economy grew $6 trillion in 2015, China’s $17 trillion. Twenty-five priority areas are identified in MiI. Lanka can participate to advantage and with the world’s fastest growing economy at our doorstep it is foolish not. Below I include areas suitable for standalone local investment, areas that may attract foreign direct investment and topics that can be linked to MiI. Some are good for private business or for public-private partnerships and possible joint ventures between the Lankan state and foreign capital.

Optical products: This is not photonics but conventional illumination, fittings, shades and chandeliers.

Photonics: The infant photonics industry in India. India has only 25 photonics (light emitting devices, optical fibres, lasers, connectors, and components) manufacturers. Compared to China its capability is minuscule. If where China has gone is where India will have to go, the sky is the limit and Lanka can cash in as a partner.

IT, IoT and Data Mining: Lanka turns out large numbers of IT graduates in private colleges and universities, but compared to other Asian countries makes scant use of them. IoT (Internet of Things) is products packed with sensors wirelessly connected, or via smartphones, to service and alarm centres to order spare parts, transmit alerts, enhance inventory control and assist supply-chain management. Data Mining relies on open-data availability; the vast number of databases coming on-line can be used for GPS, mapping, transport timetables, tele-medicine, traffic monitoring, data logging and other apps.

Health Tourism: Private hospitals have core facilities but a state sponsored health tourism programme is missing; coordination of health service provision with long-term stay facilities and tax policy. The programme can be predicated on a compulsory requirement that private hospitals open-up parallel medium or low priced outpatient, hospitalisation and surgical facilities for locals.

Arrack, cigarettes and the sin industry: China is the world’s largest cigarette market with an insatiable demand. Scotland, France, Australia, Spain and Italy, and newer Chile, Argentina, New Zealand, Georgia and Albania are into a huge wine and spirits market. All target sectors for a Make-in-Lanka strategy.

Value added agricultural products: Cinnamon, fruits and Lanka’s expertise in agricultural research. Thailand has superb quick-cooked-and-frozen sea food exports – shrimp, squid, crab and small to medium sized fish. The great benefit of this industry is its backward depth, aqua-culture. Sea fishing cannot satisfy local demand so export success implies large scale aqua-culture. In China the visitor sees aqua farms as often as normal agriculture and in interior provinces no sea or river products are on the menu – it is all aqua farmed. Lanka with bountiful rainfall and lots of flat terrain is perfect for aqua-culture.

Toilets: Modi is campaigning against a millennial tradition of alfresco crapping making the country a market for sanitary-ware and sewerage products. Lanka has firms in ceramic and sewerage related lines.

A new constitutional dispensation

UNP, SLFP and JVP have ruled out the federalism word. TNA leader Sampanthan proposed a sensible compromise. He proposed three to five regions with devolved power: “Rather than so many ministers in the centre why not have three to five regions vested with substantial powers of governance? There are many young members of Parliament who could be ministers and chief ministers in these regions. Allow each part of the country to be ruled such that people are served best. India has 29 states; the country is united and stays together because people’s aspirations are respected, honoured and implemented. States have preserved linguistic, cultural and religious interests”.

The devil is in two details; what powers to devolve and what retain at the Centre, what should be the units of devolution? Direct devolution to local governments from the Centre without an intermediate regional layer will not be helpful, nor will it address the Tamil people’s desire for a unit of their own. Five regional units seems correct. Three is too few for people to feel they have a unit of their own or provide openings as regional leaders for “young members of parliament”.

Salvaging non-alignment

The R&S government is sensitive to the need to return to genuine non-aligned foreign policy. It is unthinkable to let relations with China go down the tubes; China is important for economic development. While tilting back to a balanced stance such as renewing long cherished ties with India and repairing damaged links with the West, we must have the survival instinct to sustain friendship with China. The mandarins are no fools, they see that our disarray is of Rajapaksa provenance and understand that the new government must act against manifest sleaze. If the Rajapaksas are locked up or strung up, not a tear will be shed in the Middle Kingdom.

China is holding up the Colombo Port City project as a link in its Maritime Silk Road and staunchly defends it: “We believe Sri Lanka will act in its long-term interests, advance practical cooperation with China, properly handle relevant issues, keep Chinese companies interested in investing in Sri Lanka and protect their lawful rights and interests” said Assistant Foreign Minister Liu Jianchao and added “It meets Sri Lanka’s needs and can bring tangible benefits to the people”.

Colombo is waffling over the project, it does not want to alienate Beijing, but neither can it back off on key anxieties. The sticking point is ceding land to a foreign power. In my view, the concept of turning Colombo Fort into a pseudo-Shanghai artifice of neon lights, high-rises and a fake enclave of finance-capital will neither serve the people of Lanka nor promote robust development. It is harmful irrespective of graft, sovereignty and environmental stumbling blocks. But alas the trap has been sprung and we are so ensnared that finding a way out may be impossible.