Columns

Nowhere is it more reflected than in the once gloriously hailed, “rainbow coalition,” formed after the January 8, 2015 presidential election. Storm clouds have replaced this arch of colours. That heavy ‘thunderstorms’ are now building within the Maithripala Sirisena-Ranil Wickremesinghe Government is no longer a secret. The public actions and utterances of those in the United National Party (UNP) and the Sri Lanka Freedom Party (SLFP), the two main partners, in recent weeks, are replete with accusations against each other.

They lay bare not only serious cracks within but also the reality that the two sides are fighting their political battles openly in public. Thus, the critical question is whether they can reconcile their widening differences to make peace in 2017 or agree to disagree and go their own ways. Such peace could still revive hope that pledges to deal with the corrupt remain and national reconciliation is yet possible. Parting of the ways would only shower Sri Lankans who ensconced the two parties into power with disappointment in the New Year.

COPE debate

Tensions began to heighten in the aftermath of the Central Bank of Sri Lanka (CBSL) bond scam. Giving it credence were the findings of the Committee on Public Enterprises (COPE) in Parliament. A parliamentary debate on the COPE report is due in the third week of this month. Some senior UNP Ministers have stoutly defended the bond issue publicly claiming there was no wrongdoing, though privately saying it is indefensible. SLFP Ministers have with equal or even more vigour also argued publicly that the matter should be probed further. They insist that it is in the ‘national interest’ to ascertain how public funds were ‘plundered’ in what they call a daylight bank robbery and to identify the perpetrators and punish them. The debate in Parliament is sure to see bitterness and even some acrimony as the two sides pitch their positions.

There have been considerable behind-the-scenes developments in this regard in the past weeks. President Maithripala Sirisena has been consulting legal opinion to determine the course of action he should take. He assured SLFP Ministers who handed in a report of their party that he would initiate action no sooner the COPE report debate is concluded. The six-page report was revealed exclusively in the Sunday Times (Political Commentary) of December 11 last year. It called upon Sirisena to appoint a Presidential Commission of Inquiry comprising a sitting Justice of the Supreme Court or one who is retired. This was together with an expert in the field of finance and a professional expert in the field of audit.

Some Ministers are now busy formulating a draft Bill with the assistance of their own legal advisors to set up Criminal Justice Commissions (CJCs) “to punish those responsible for frauds, corruption and misuse of funds.” This is to include the CBSL bond scam. They want the draft Bill to be taken up for discussion at a ministerial meeting together with a 19-point Joint Cabinet Memorandum a group of Ministers have submitted. Spearheading this initiative are Ministers Sarath Amunugama and Patali Champika Ranawaka. The Joint Cabinet Memorandum was revealed exclusively in the Sunday Times (Political Commentary) of December 18 last year.

Thus, a source close to the Presidency said, “the bond issue will not be allowed to fade away.” The source declared that President Sirisena had three different choices before him – Criminal Justice Commission (CJCs) with wide powers, a Special Presidential Commission of Inquiry with provisions for evidence transpiring therein being admissible before a court of law, and a Police investigation with the assistance of experts in the relevant field. As revealed earlier, some UNP ministers are signatories to the Joint Memorandum calling for the setting up of CJCs. However, their official support explicitly on a probe into the CBSL bond scam is highly unlikely. This is in accordance with their position that there was no wrongdoing in the issue of those bonds.

It is in this backdrop that the first in a series of public accusations came to be made by the two partners in the Government. State Minister Dilan Perera accused some UNPers of having “secret talks” at a house in Battaramulla with former Minister, Basil Rajapaksa. Perera told a news conference these talks were for the formation of a “new front.” UNPers threw back that charge of consorting with the pro-Mahinda Rajapaksa loyalists of the SLFP on Dilan Perera and some of his colleagues. Colombo Central parliamentarian Mujibur Rahman held his own news conference at Sri Kotha, the UNP headquarters, to make the counter-charge.

One of the underlying reasons for the escalating issues then was the claim that some UNP Ministers were assisting members of the Rajapaksa family, providing details about investigations that were ongoing against them. The issue heightened after Police Chief Pujith Jayasundera answered a telephone call from a person identified only as “Sir,” where he was heard giving assurances that a ‘Nilame’ would not be arrested. SLFPers were livid after it was recorded by a television journalist and broadcast over a channel with a wide reach.

The political cauldron on slow boil began to heat up over two other major issues, ones that caused considerable embarrassment and even anger in the UNP. The first was the Government’s proposal to hire Sports Utility Vehicles (SUVs) to 58 parliamentarians. They were for Chairmen of District Co-ordinating Committees (DCCs) at a monthly rental of Rs. 700,000 to oversee “district development work.” This is after withdrawing an existing scheme where MPs were given a Rs. 200,000 allowance or ‘spending money’ and no questions were asked thereafter. They were thus able to find their own means of transport including the use of their private vehicles. A considerable number of MPs, particularly those from the SLFP, were not in favour of the new move. They would not receive any financial benefit. Moreover, rightly or otherwise, they contended that the benefit went to the leasing company.

The new scheme could not be enforced. The man responsible for executing it – Nimal Bopage, Secretary to the Ministry of Mass Media and Parliamentary Affairs – refused to sign a document (on behalf of the Government) authorising a private company to provide the fleet of vehicles. This was not even after a request to him from Premier Wickremesinghe. Bopage, a political appointee, hand-picked by President Sirisena went a step further. He called a news conference and declared that his Ministry, which is responsible for hiring those SUVs, had not called for tenders for the purpose. In other words, he accused UNP ministers of violating tender procedures in trying to hire a fleet of SUVs. It was only after a service provider had been selected without the official knowledge of his Ministry that a request had been made to place his signature on the document, Bopage claimed. As a result of all these rumblings, the proposal to hire SUVs at a monthly rental of Rs. 700,000 has been abandoned. That he, a Ministry Secretary, was able to over-turn a cabinet decision had a lot of meaning to it.

Development Bill setback

For the UNP, the worst blow came when it readied to introduce the Development (Special Provisions) Bill. Its officially declared purpose was to “facilitate the formulation of a National Policy on all subjects including Accelerated Economic Development of Sri Lanka and to provide for matters connected therewith or incidental thereto.” The highlights of provisions in this proposed legislation, approved by the Cabinet of Ministers, appeared in the Sunday Times (Political Commentary) of November 27 last year.

Concerns were raised over the Bill broadly on two main issues – it was argued that it sought to create an all-powerful ‘Super Minister’, and also usurped the powers now vested in the Provincial Councils. This is despite assurances given during a meeting with Chief Ministers by Prime Minister Ranil Wickremesinghe on December 23 last year that the legislation was only designed “to speed up development.” Responsible under the proposed law would have been the Minister of National Policies and Economic Affairs, a portfolio now under Premier Wickremesinghe. It is this ministry that has earned the sobriquet of being a “super ministry.”

An Agency for Development, was to be set up under the proposed law, to be vested with 16 different objectives including “modernising the economy, promoting export of goods and services, ensuring consumer welfare and generating employment.” As is clear, many of these functions are now the responsibility of different ministers. Hence, there is validity in the claim that some ministerial functions will be placed in the hands of the Minister of National Policies and Economic Affairs. The very fact that some of these ministerial functions were to be vested elsewhere raises questions about the efficacy of the ministers who are in charge. Evidently they did not function as expected though shifting the responsibilities may not be the answer.

For example, the proposed law was to make it the lawful responsibility for the Development Agency to give directions to the Board of Investment, the Sri Lanka Export Development Board, the Information and Communication Technology Agency (ICTA), the Civil Aviation Authority, the Sri Lanka Ports Authority, the Water Supply and Drainage Board and the Sri Lanka Tourism Promotion Bureau. These institutions came under different ministers. Where the Board of Investment seeks to develop any venture in any such economic development zone, it was to make an application in that respect to the Development Agency and it was to grant its approval. Similarly, where the Sri Lanka Tourism Development Authority seeks to develop any venture in any such economic development zone, it shall make an application in that respect to the Agency.

This draft Bill has been rejected by Provincial Councils in Uva, North Central, Sabaragamuwa, Central, Southern and North Western Province. The Northern Provincial Council had declared earlier that it too would reject it. Opposition to the Bill has also come from the two warring factions of the SLFP. Those supporting President Sirisena have declared that they would not support the Bill in Parliament. So has the Joint Opposition. The question that now remains is whether the draft Bill would be abandoned or introduced without some of the provisions which are being described as “highly controversial”. Some UNP ministers are in favour of going ahead with this legislation notwithstanding the fact that the majority of Provincial Councils and the pro Sirisena SLFP group have expressed disapproval raising constitutional questions as well as going counter to the UNP’s avowed policy of supporting devolution of power.

There is a paradox to the Development (Special Provisions) Bill. It was gazetted after the Cabinet of Ministers granted approval. Only a few Ministers raised issue at the ministerial meeting. President Sirisena and Finance Minister Karunanayake declared at the meeting that they would move amendments at the appropriate stage in Parliament. It is amusing to see some of the Ministers who voted in favour in cabinet now publicly expressing concerns and their opposition to it. Quite clearly, they do not seem to study the Cabinet Memoranda sent to them. One cabinet minister said the Cabinet is so large that sometimes they don’t even hear what’s going on inside it. Otherwise, they could have opposed it at the ministerial meeting where decisions are made. Minister Rajitha Senaratne who is also the Government spokesperson complained this week that those who drafted the Bill, which conferred unprecedented powers, had made provision to grant immunity to the Minister of National Policies and Economic Affairs. He charged that even the President of Sri Lanka did not enjoy such immunity and severely criticised those responsible for drafting that provision. He made these comments after the Cabinet had approved the Bill.

One is reminded of the ministerial meetings that were chaired by the late President J.R. Jayewardene. Ministers in his Cabinet avoided public and private engagements on Tuesday evenings, the day before Wednesday’s weekly meeting then. That was to give them time to study the issues that would come up through different memoranda from different ministers. They studied them and formulated their own positions. There were lively discussions. Alas, many a controversial piece of legislation has simply passed through the assembly line – the Cabinet of Ministers – only to generate controversy thereafter.

It is amidst these issues, a high ranking source said, that President Sirisena mulled over the idea of a reshuffle of his Cabinet of Ministers this month. The idea is to pick on a robust team that could work to a more efficient agenda and thus obviate further public criticism over different issues. Some of those found wanting or faced serious allegations were to be shifted around. However, sections within the Government, particularly those in the UNP, strongly opposed the displacement of their Ministers. Not that some of the SLFP Ministers were not a trifle worried. Thus, the issue of a reshuffle now hangs in the balance. Such a stalemate comes, as some SLFP sections are renewing their efforts to ensure a re-unification of the party. Publicly, Minister S.B. Dissanayake made an appeal inviting those in the newly formed pro- Rajapaksa Sri Lanka People’s Party (SLPP) to join the SLFP.

Public battles between the UNP and the SLFP spilled over beyond the realm of the Government in the past days. Leading Polonnaruwa rice mill owner Dudley Sirisena, brother of President Sirisena, held a news conference to accuse a UNP Minister of manipulating prices of rice. He named Rural Economic Affairs Minister P. Harrison, a mill owner himself. A sharp response came barely 48 hours later from Harrison’s party, the UNP.  Deputy Power and Energy Minister Ajith Perera summoned a news conference and accused Dudley Sirisena of being the culprit running a rice mafia in the country; very serious allegations to be made against the President’s own brother.

These recent developments underscore an entirely different reality from the purpose for which a “National Unity” Government was formed by the two premier political parties in Sri Lanka. Both wanted to put aside party differences and work jointly for the common public good. Their functioning, bereft of a communications strategy to keep the public informed, has seen contradictory viewpoints creating greater confusion. The demonstrated lack of dialogue among the partners has also led to a feeling of instability both within themselves and the Government.

The SLFP’s Pro-Sirisena loyalists fear the main political threat to them emanates from former President Mahinda Rajapaksa. Of the 95 United People’s Freedom Alliance (UPFA) MPs elected at the parliamentary elections in August 2015, more than half support Rajapaksa. On the other hand, for the UNP such a threat from Rajapaksa or his family members is non-existent. Many of the UNP stalwarts have not targeted Rajapaksa or his relatives in their political rhetoric lately. Nor have they been campaigners in the recent past to expedite investigations against some of them. This may perhaps be in the belief that a divided SLFP is politically beneficial to the UNP. However, the move, like treading on thin ice, could boomerang on the UNP if Sirisena, in the wake of mounting heavy pressure from his own loyalists, chooses to act. Even if he fails in the long drawn task of reconciliation within the SLFP, he retains many options.

It is in this weakening political environment that the official spokesperson of the SLFP, State Minister Dilan Perera, declared that a decision on continuing their alliance with the UNP would be made in August this year.  Even if one uses cricketing parlance to describe Perera as a member of the SLFP “B or C team,” no one in authority has so far said that the views expressed by him were his own. That begs answer to the question whether he has the blessings of his leadership to make those pronouncements. Many in the pro Sirisena SLFP believe he does. And that begs answer to an even more critical question — can the drift of the two sides from one another be stopped? If not, what happens to the many development programmes and the resuscitation of the country’s economy, an item of high priority?

China deals

Dogged by the lowly volume of foreign investment, with little assistance from Western nations, the Government has been forced to lean heavily on China. The Cabinet of Ministers will on Tuesday examine the final text of the Concession Agreement between the Government and China Merchants Port Holding Company Limited for the Hambantota Port. The Government proposes to sign it on January 7 in Hambantota. The financial benefit to the Government through this transaction is now being placed at US $ 1.2 billion.

However, a related issue will be the move to provide China with 15,000 acres for an industrial complex. Some SLFP ministers are to raise issue at Tuesday’s ministerial meeting over the release of this land. They have already protested to President Sirisena that such a vast extent of the country’s land should not be handed over to any foreign country-company. It is relevant to note that the line ministry – the Ministry of Ports and Shipping — or the Sri Lanka Ports Authority (SLPA) wanted to sign the controversial deal. Recently, China’s Ambassador to Sri Lanka, Yi Xianliang met President Sirisena. Though no details of what he discussed are known, a source said, one issue raised was China’s concern over adverse reportage creating public opinion against it. This was at a time when Beijing was making a contribution to Sri Lanka’s economy by involving itself in projects, is the argument.

Financial institutions

Other than going into projects, particularly with China, the Government is also embarking on other measures to control financial institutions in the country. Last month, Finance Minister Ravi Karunanayake sought the approval of the Cabinet Committee on Economic Management (CCEM) to finalise a draft Bill to establish the Financial Asset Management Agency (FAMA). Such draft legislation, to be submitted to the Cabinet of Ministers for approval, will incorporate a “Special Purpose Vehicle (SPV) under FAMA in terms of the provisions of the Companies Act, No 7 of 2007 where the investors of the SPV will be selected after calling for Expression of Interest, to facilitate restructuring of failed finance companies.” Here is the full text of the note Karunanayake submitted to the CCEM:

“Background

“The Budget 2016 proposed setting up of a financial institution restructuring agency to assist failing finance companies to be recapitalised and their troubled assets to be taken over by this agency for the purpose of restructuring. The Cabinet of Ministers, at its meeting held on 09.08.2016, has approved inter alia, to:

(1)    Prepare the legal framework, terms of reference and the operations procedure to establish FAMA , and

(2)    Release the initial staff from the Ministry of Finance and the Central Bank of Sri Lanka (CBSL) to commence the establishment of FAMA.

Re-confirming the above decision, the Budget 2017 allocated the initial capital of Rs 10 million as equity and also to issue Treasury bonds to the value of Rs 10 billion with a tenor of 7 years for the FAMA.

“Status of finance companies

“Finance companies which are licensed under the provisions of the Finance Business Act, No. 42 of 2011 (FBA) are playing a key role in providing credit facilities to businesses and households with their outreach across the country. As a result of high non-performing loans (NPLs) and deteriorated capital buffers in a few companies, the public confidence on the sector has deteriorated and funding costs of the entire non-bank sector have increased, resulting lower profitability and higher intermediation margins affecting both depositors as well as borrowers.

“This requires such distressed finance companies to be restructured and re-capitalised which would include ( i ) addressing high NPLs, ( ii ) recapitalisation of financial institutions, ( iii ) reconstituting boards and replacing senior management and ( iv ) strengthening regulation and supervision of non-bank financial institutions.

“Proposed structure for restructuring
of distressed finance companies

“The procedure for restructuring finance companies in distress covers four inter-related steps.

“First: The Monetary Board of the CBSL, with the concurrence of the Minister of Finance, will designate whether a finance company is in distress/or is likely to become (sic) distress under the provisions of the FBA. Re-organisation of the finance company such as removal and appointment of Directors will be conducted by the CBSL.

“Second: The FAMA will acquire, manage and dispose of eligible assets of distressed finance companies once the CBSL determines that the company is in distress.

“Three: Re-capitalisation and restructuring of finance companies which have already been identified as distressed is to be made through a SPV. Part of the funds for the recapitalisation may come from a consortium of financial institutions and strategic investors together with funds from the Government. The CBSL has announced that the Monetary Board approved a resolution mechanism for repayment of depositors of three finance companies out of such distressed finance companies, in the near future.

“Fourth: Strengthening of regulation and supervision by the CBSL with relevant amendments to FBA and other regulations.

“Draft Bill and salient features

“In order to establish the FAMA, a draft Bill has been prepared. This draft has been prepared considering the international best practices/standards set by the International Monetary Fund, the World Bank and the Bank for International Settlement (Basel), and the legislation/procedure of countries where successful state owned public asset management companies have been operated to resolve troubled assets of distressed financial institutions such as Malaysia, Thailand, Nigeria and Ireland. The salient features of the said draft are given below.

“Objects

“Acquisition, management and disposal of troubled assets of distressed finance companies in order to facilitate restructuring such companies.

“Capital

“As per Budget 2017, the Government will provide the initial capital of Rs 10 million as equity and also to issue Treasury bonds to the value of Rs 10 billion with a tenor of 7 years for the FAMA.

“Designation of finance companies and eligible assets

“The CBSL or the FAMA may with the concurrence of the Minister of Finance to propose to the CBSL to designate a finance company as a distressed finance company based on a set of pre-determined early warning indicators.

“Out of the troubled assets of a designated finance company the FAMA will acquire assets which have been determined as eligible assets by the CBSL.

“Manage, restructuring and disposal of eligible assets

“The FAMA will make a consideration to the designated finance company, after a valuation with government securities issued to the FAMA.

“Restructuring of debt, disposal of assets so acquired and out of court debt settlement, inter alia, will be carried out by the FAMA.

“Asset managers, recovery agents and receivers may be appointed.

“Assets so acquired will be disposed by exercising parate rights and special speedy procedure for litigation will be conducted through a Commercial High Court.

“Special powers

“The FAMA will have powers to acquire, manage and dispose assets irrespective of rights of debtors, creditors and shareholders of finance companies.

Decisions taken by the FAMA will not be reversed by Courts and Courts will only be permitted to grant compensation/damages.

“Exemption from the applicability of the provisions of the Inland Revenue Act and the Stamp Duty Act.

“Stringent penalties for offences to be committed under the FAMA Act.

“Conclusion and approval

“As a result of difficulties faced by a few finance companies, the public confidence on the sector has been deteriorated requiring such distressed finance companies to be restructured and re-capitalised. A state owned public asset management agency will be established with sufficient powers to resolve assets of distressed finance companies including the incorporation of the SPV. In view of the foregoing, the approval of the Cabinet Committee on Economic Management is sought to

“( I ) finalise the draft bill to establish the Financial Asset Management Agency and to submit the draft bill to the Cabinet of Ministers for approval, and

“( ii ) incorporate a Special Purpose Vehicle under the Financial Asset Management Agency in terms of the provisions of the Companies Act, No 7 of 2007 where the investors of SPV will be selected after calling for Expression of Interest.”

The tough new measures proposed by Finance Minister Karunanayake will ensure tighter Government control of finance companies and related financial institutions. However, there will be critical and controversial areas to be studied when the draft bill is gazetted after the Cabinet of Ministers grants approval. Here again, the political climate within the Government will have to remain stable if new legislation is to be adopted.

On Friday, President Sirisena met a group of UNP MPs for a discussion at the Presidential Secretariat. It is they who sought the appointment to project their own viewpoints on the current political situation in the country. There was a lot of finger pointing at the meeting where Sirisena defended some issues and assured he would resolve the others that were raised. That, no doubt, is a silver lining. The question however is whether all this would be obscured by the heavy political thunderstorms developing.

In a last minute development, the UNP MPs were accompanied by their party’s General Secretary Kabir Hashim. Hours after the meeting had ended, one source said a smaller group had sought another meeting with President Sirisena.

In his 2017 message, President Sirisena dealt with global warming but made it a point to emphasise that “our goals could be achieved if we manage our work efficiently and productively, and do the right thing at the right time with unwavering commitment to serve the greater good.” Those words ring so loudly for the two alliance partners, the UNP and the SLFP.