Business leaders silent over foreign bond

Why have we not seen a war dance nor heard the beating of war drums against the floatation of the foreign bond of $500 million? Is it due to convinced support, fear of reprisal or ignorance? Are dominant players hoping for a share of the cake? Have the internal economic units of Chambers failed to alert the leadership? These are questions; a young owl (YO) asked the Wise Old Owl (WOL).

The YO had just read the following extract from the key note speech – ‘Common Economic Challenges Facing East Asia and Latin America’ by Toru Yanagihara, Professor, Faculty of International Development, Takushoku University, Japan where he said, “Most countries in Latin America experienced episodes of debt crisis and underwent the lost decade of the 1980s. Growth returned in the 1990s but was typically at reduced rates and with increased volatility. Much of East Asia was hit by the crisis of 1997, with resultant (partial) loss of economic dynamism and diminished prospects for sustained development. Both regions undergo a period of structural reform and adaptation --- structural reforms in terms of changes in the rules of the game and structural adaptations in terms of changes in the plays of the game.

The process of reform and adaptation is neither simple nor painless. New rules cannot be effectively instituted by the mere stroke of the governmental pen. They need to be dovetailed to specific conditions and be accepted by the players and the referees to be effectively implemented. In other words, they need to be evolved over time through a process of mutual adjustments on the part of the players and the referees.

Structural adaptations, as exemplified by new modes of business management or inter-firm transactions, are typically initiated by economic actors themselves, sometimes with explicit or implicit support from governmental bureaucracy. In many cases, they are prompted by drastic changes in business environments, either on the demand side or on the supply side. Such adaptations might call for underpinnings of reformed legal frameworks and new administrative functions to become operational and institutionalized. It is all the more important, therefore, to be able to identify essential and urgent reforms and to see to it that necessary preconditions be in place in time and that unavoidable side effects be addressed.”

YO asked WOO, “Did you publicly demand for a better governance accountability framework prior to national foreign debt being committed, seeking;

• clarity of information available in the public domain
• transparency within the deal process
• justification challenges of ‘effectiveness’ and ‘fairness’ of the deal
• confirmation that all available alternative options have been assessed and the best option selected
• compliance certification with acts and regulations, including Fiscal Responsibilities Act
• a due process compliance sign off from the Secretary to Treasury, Monetary Board, Auditor General, Attorney General and Finance Commission or equivalent
• indication of the specific purpose of borrowing
• an assurance that adequate cash flow based returns are available to service the debt
• details of duration based asset liability and cash flow mismatches
• effective risk management processes and mitigation action plans
• continuous half yearly disclosure of information for public review and assessment of the status quo?

YO went on to enquire,” Did you criticize previous borrowings in foreign currency, especially those taken in the last year, stating;

• they failed compliance tests for good governance
• though taken for an announced longer tenor, the borrowings being rated short term with short term rate renewal options for lender, were in fact short term borrowings in debt service computations
• lack of risk mitigation in the event the rate increases in global markets due to country situation/rating or market environment
• non disclosure of the purposes and the debt service capacity as key systemic weaknesses.

WOO concluded “the proposed borrowings requires much more checks, balances, due processes and transparency, due to

• long term nature and needs;
• justification of related long term project cashflows and returns
• risk management
• best commercial terms, applicable conditions and warranties
• fairness by the future generations”

“In the present external environment and development status of Sri Lanka, long term low cost borrowings may not be an option. However, development funding, multi lateral and bi lateral offers and borrowings from IFI's may yet be available. All such options have to be pursued in any justification of ‘Effectiveness’ and ‘Fairness’ and compliance sign off. If the government is not pursuing any of these options, due to policy or political reasons or due to reluctance to accept expected good governance norms and usual conditionality, then the justification decisions must specifically address them transparently.”

Why are the business and Chamber leaders silent? Why has the Media not displayed the amber light? Is it not time yet to wake up to their responsibilities?