Columns

• New cabinet with more young faces likely tomorrow; axe on two ministers facing corruption allegations; crackdown on protesters also on the cards
• Sirisena-led 42 independents present formula for new stable national government, with Prime Minister being a technocrat appointed through national list
• President rejects the proposals; insists Mahinda should be Premier whatever the government
• China places fresh demands for financial help; stark truth is no known source of revenue to support imports after Indian assistance is exhausted by next month

He hooked ex-President Maithripala Sirisena confidant Shantha Bandara, a relative from his wife’s side.  According to Dayasiri Jayasekera, the former arch UNPer who is now General Secretary of the Sri Lanka Freedom Party (SLFP), the bait was a premium bonus and he swallowed it. With only 105 MPs, the President is still short of seven for a simple majority of 113 in the 225-member Parliament. Yet, the ruling Sri Lanka Podujana Peramuna’s strength has not been tested through a vote. That is holding back his plans to swear in a new Cabinet of Ministers. He then wants to go ahead with a plan of action, which his confidants say, could include a crackdown on protestors. A strongman who wanted to “take control” of the situation earlier was told to stand down.

However, a high-ranking government source who spoke strictly on grounds of anonymity said there were 117 MPs now backing the coalition. He said President Gotabaya Rajapaksa will swear in a new Cabinet of Ministers tomorrow (Monday) and added there will be a “lot of young faces.” Some of the four ministers already sworn in will remain. He also said that at least two senior ministers against whom there were widespread allegations including corrupt activity are to be dropped. He said pro-government protests are also being planned in different parts of the country tomorrow to coincide with the new ministerial team. All this is ahead of Tuesday’s sittings of Parliament.  President Gotabaya Rajapaksa is due to discuss the lineup of ministers with brother, Prime Minister Mahinda Rajapaksa, today. The latter is due to return to Colombo from Tangalle where he was during the national new year. Also planned for tomorrow is a march from Beruwala to Colombo by the Janatha Vimukthi Peramuna (JVP)-led National People’s Power (NPP).

Unending chain of errors

Quite clearly, neither President Gotabaya Rajapaksa, his advisors, nor the intelligence top brass, who have floundered many a time in the past, appear to have a grasp of the real situation countrywide. They have caused an unending chain of errors. That included the declaration of a State of Emergency, the imposition of a 36-hour curfew and a total ban on the social media, measures that were sheepishly wrapped up in embarrassment. A colossal intelligence failure led to the incidents outside the Mirihana private residence of President Rajapaksa.

Once a model, the Mirihana Police flopped. So did the top brass of the division whose offices are just a few metres away from the police station.

Herein lies the enigma of Gotabaya Rajapaksa, the sixth President of Sri Lanka.  As hero, he re-wrote both history and geography. His standing has now plunged downwards to subzero. He had to give up living in his private residence in Mirihana and move to a secret location. Other than his only address to the nation on March 17, he has not reached out to the people. He has avoided public engagements. By all accounts, there is a countrywide swing against him. There is anger and public outpouring. Sri Lankans living in world capitals have come out vociferously against him. Varied video footage bears testimony. What does all this show?

Is he oblivious to them or is fraught about the consequences that would follow if he quit? Many western governments are keeping a close watch on Sri Lanka and adventures by ill-informed officials and intelligence bosses could only lead to further devastation. One area where Foreign Minister G.L. Peiris will not be able to boast of “overwhelming” support by foreign countries is when issues emerge at the UN Human Rights Council in September, this year. Reams of Ministry of Foreign Affairs (MFA) propaganda media statements will be of no help for the new resolution in the making is to say it all.

That the conduct of the country’s foreign policy is in shambles is all too well known. Recently, there were moves by the diplomatic community to band together as an aid group and help Sri Lanka with funds for urgent needs like fuel and medicine. One inexperienced senior official scoffed at the idea. He said Sri Lanka would not accept “anything” from the core group that was making accusations of human rights violations. His logic would mean that Sri Lankans would have to live in the dark, starve and suffer without medicinal drugs.

It is still noteworthy that President Gotabaya Rajapaksa has acknowledged some of the matters arising directly out of the ongoing protests. One is the fact that there were too many members of his family in the Cabinet of Ministers. He thus chose to remove Chamal, Basil and Namal. An international news channel reported recently that family members shared 72 percent of the government resources. Equally important, because of the protests, he also removed Central Bank Governor Ajith Nivard Cabral and Finance Ministry Secretary S.R. Attygalle. Earlier, the then Finance Minister Basil Rajapaksa had told President Rajapaksa that he could undertake the mission for talks with the IMF only with Attygalle accompanying him to Washington DC. However, he was not in favour and was not happy about brother Basil’s performance both in and outside the ministry.

Setting up of National Government

There was acute embarrassment for President Rajapaksa last Sunday when he invited to a meeting the 42 MPs, who have chosen to become “independents”. He was still on his new task, assisted by ousted ministers Wimal Weerawansa and Udaya Gammanpila, towards forming a new “interim” or “national government.” As revealed in these columns last week, the move had its origins at a news conference where the duo had called for such an administration.

Ahead of last Sunday’s meeting, the parties the 42 MPs belonged to had discussions on what they wished to discuss with President Rajapaksa. They formulated a set of documents. Its Executive Summary noted that there were two approaches for improving governance – 1. Establish a new, stable national government. 2. Improve how our administrative system works. “The necessary steps to achieve a national government can be summarized as follows:

=   Pass the 21st Amendment to the constitution repealing the 20th amendment and comprising of an improved 19th Amendment to curtail the powers of the President.

=   Design a new cabinet structure with 28 cabinet ministers (or less) and no deputy ministers or any kind of non-cabinet ministers.

=   Ask all current 29 national list MPs to resign from Parliament.

=   Ask all parties to nominate new members with specialized skills needed to occupy the 26 cabinet positions and the prime minister’s role.

=   President invites the identified national list member to form a national government consisting of only national list members and appoints the identified person as the prime minister without the President or PM taking any portfolios.

=   All political parties agree to support the national agenda as defined by this national government.

The Executive Summary adds: “The necessary steps to improve our administrative system can be summarised as follows:

1.    Stop appointing random private individuals as secretaries of ministries.

2.    Introduce the necessary public sector reforms to enable organizations to function

3.    A complete moratorium on any new recruitment to the government sector unless supported by retrenchment.

“Executing the plan proposed in this document can result in a government structure that can face the economic problems head on and solve them. This result is a victory for the people and provides the political system the opportunity to serve us rather than serve themselves.”

The document was handed over by former President and SLFP leader Maithripala Sirisena. SLFP members claimed that the decision to hand over the documents was collective. However, former Minister Tissa Vitharana (leader of the Lanka Sama Samaja Party and one of eleven constituents in the coalition before) accused them of acting “on their own.” He charged “they never gave us time to discuss the documents.”

It is laughable that former President Sirisena and his 41 other colleagues have come up with a proposal that both the President and the Prime Minister, should not hold portfolios. How would that help with power cuts, fuel, and cooking gas shortages? It borders on being Utopian. There is constitutional provision at present for the President to not only hold portfolios but also swear in ministers. The Prime Minister too is entitled to portfolios. Are such changes necessary for an interim national government? Why did ex-President Sirisena list them as high priorities? Was he trying to gain some political mileage in the wake of criticism against him over the Easter Sunday massacres?

In any case, much to their chagrin, the participants at the meeting realized that President Rajapaksa had changed his mind. Whatever government that is formed, he made clear, Mahinda Rajapaksa would remain the Prime Minister. He was not willing to remove him. Thus, he had recanted on his own proposal. The meeting ended there. The next round, due to take place on Wednesday, was boycotted by the 42 after news reached them that the SLFP’s Shantha Bandara had walked back. So much for principled politics. They are now seeking his expulsion from the party.

There is also some embarrassment both for Udaya Gammanpila and Wimal Weerawansa. The duo had declared they had enough backers to topple the Government in Parliament. Even if they have the will, they have no money, not even those printed recently. Therefore, a third colleague, Minister Vasuvdeva Nanayakkara told the Sunday Times “As the eleven parties, our future plan is to hold discussions with Prime Minister Mahinda Rajapaksa and urge him to appoint a cabinet that we (11 Parties) suggest.” It is like the Sinhala saying of kissing the hand one cannot cut off. He added, “We plan to hold the meeting as soon as possible; however, a date is not confirmed for the meeting. Appointing Shantha Bandara in a state ministry portfolio was an action taken against us. It is an underhand move. We have already expressed our objection. Though the Government claims it has the numbers, it is on the fence. We are unsure whether the Government has 113 MPs.”

Focus shifts to Premier

Instead of a new government, the Presidential Secretariat shifted focus to the Prime Minister’s Office. They wanted the Premier to make a televised statement. The idea was first to make clear he would not quit. Backers of the move said Premier Rajapaksa had more charisma and they should now cash in.  Here is the full text of the Premier’s speech:

“I speak to you at a crucial time as we grapple with many challenges that have overcome our people. These challenges are not new to me having overseen the journey our nation has undertaken in my fifty plus years of politics. Friends, I am sure by now that you are very aware of the deep economic crisis that has befallen our country following the battle we fought, to keep our citizens safe from the Coronavirus pandemic. Although we ensured the safety of the lives of the people from the pandemic, we were unable to avoid falling into this economic abyss.

“With the closure of our international borders and the travel ban within the country, foreign exchange inflows were halted and subsequently, foreign reserves dried up as they were used up for sustenance. You know the situation has become serious when tankers providing fuel have arrived at the port, but we are unable to clear it for want of foreign exchange. My mind goes back to when I addressed you following the 2010 presidential election after the culmination of the war. I promised you a future free of power cuts.

“Power plants were built for this purpose to ensure the fulfillment of those promises. However, because the previous government stalled the development of these projects, we were not able to fulfil those expectations and upkeep those assurances. That is the truth. I understand the fatigue of the people who have been queuing for days in the fuel queues and I empathise with the pain of our citizens queuing up for gas. I feel that pain.

“We intimately understand the suffering of the people in the face of the skyrocketing price of goods. Friends, although we have extended an invitation to all parties to come forward in unity to address the current situation, they have not stepped forward. This is not a time to prioritise party affiliations over the resurrection of the country’s economy. With this call being unanswered, we as the party commanding a majority have taken up this responsibility. We will overcome these challenges.

“Thirty years of a terrorist threat and the fear of death that existed among the people of this country were eradicated; not to further endanger the people and to relegate them to a fate of hardship and pain. We built highways, modern roads, and infrastructure — not so that you can stand in queues on those roads. We built ports, not to suffocate supply chains and halt tankers carrying fuel because we’re unable to pay for it.

“When thousands died in neighbouring countries due to the Coronavirus, treatment centres equipped with facilities were mobilised. Indigenous medicines such as Koththamalli (coriander) were dispensed, medicines were given and the whole country was largely vaccinated. All this was done, not so that our people would be victimised by tear gas and bullets. Historically, we have spared no sacrifice to protect our people from every challenge. As in times past, we will make every effort to overcome this crisis.

“Friends, this Government restricted taking loans from international stakeholders and prioritised working with and empowering our people to make Sri Lanka a debt free country. This Government has always strived to protect the independence of the country even from international influences under trying circumstances, to the point that at times, we withdrew opportunities to bring in large scale investments to Sri Lanka when public opinion dictated so.

“Friends our responsibility is to uphold the sovereignty of the people. We will never take decisions that will undermine the democracy, the country’s governance structure or its Supremacy. We work with that purpose in mind. In politics we are accustomed to letting go. Friends, the chant ‘No to 225 in Parliament’ today echoes through the streets. That immediately translates to a rejection of this democratic system. While it may sound good, I urge you to understand its danger from a historical perspective. We have witnessed the tragedy of the bombing of Parliament and attempts to destroy it. The blood of our youth flowed along the streets as those parties’ rejected democracy. Thousands of young people were burned alive in tires as that movement took wind. So much so that 1988/1989 proved to be the darkest age in our history as this rebellion claimed over 60,000 young lives.

“Your elders will remember the massive effort we put in to saving those young lives then. I want to remind the youth of the North as well as the South about it. Your parents will attest to the bloody past that shrouded our history. A movement was birthed in the North of our country during the 1970s and 1980s by the youth who killed elected people’s representatives on the streets as they protested governance, by declaring their refusal for elections and a parliament. The ensuing distress affected not only those in the North but also those in the South of Sri Lanka for over 30 years due to that political movement. Tens of thousands paid with their lives as landmines and bullets claimed Sri Lanka’s children. People lost their homes and gradually, schoolchildren began to take to the streets in protest. The next inevitable step was to forcibly conscript schoolchildren into this evil war.

“I urge our sons and daughters this evening to consider this carefully and protect our nation from once again slipping into a time as dark as that in our history, through these actions. Friends, we are embarking on an enormous programme to overcome the crisis we face today. Every second spent by the President and this Government is used up exhausting avenues to rebuild our country. This Government has historically imbued our farmers with the highest relief packages to aid their industry. However, today the farmers stand against us.

“No matter how honorable the notion of organic fertiliser is, it is not the time for it to be implemented. As such, we will be reinstating the fertiliser subsidy to once again equip our farmers to optimise their craft. The country needs to urgently recover from this debilitating crisis which includes the unbearable cost of living and the requisite shortages.

“Even if it is not possible within the next two or three days, we have initiated action to address these crises with the highest urgency. Friends, every second you protest on the streets, our country loses opportunities to receive potential dollars. The reform that is being sought is currently secondary to the collective responsibility and the urgency that is required to stave off this crisis. To facilitate this, we have extended an open invitation to all those who have the courage to join us in serving our great nation. Remember that the country right now needs the patience of all of us to endure this hardship a little while.

“Dear daughters, dear sons, we know that you all love your homeland passionately. I undertook many miles of protest walks in the past for the sake of the youth who were being oppressed from the violence that was prevalent. However, the infinite grains of sand that I trampled do not begin to compare with the humiliation and insults that my family and I have been levelled with.  We can bear it. We can face it. My one humble plea is that you do not harass or insult those who serve in the police or the tri-forces who have dutifully served our country.

“Remember that today you walk the streets without fear of oppression protesting, because those war heroes sacrificed their lives to save this country for you. Keep in mind that these very same war heroes came back to battle for you during the recent pandemic. My sons and daughters, I see how proudly you wave our national flag during your protests, and it fills my heart with joy. However, do not forget those who laid the foundation for that flag to be freely hoisted anywhere in our homeland.

“Today, despite the many challenges, there is one thing is not lacking — our courage, and determination to fight this crisis together once again. We will fight and we will overcome, as we have in times past. May the blessings of the noble Triple Gem be with you!”

Premier Rajapaksa, 13 years after the military defeat of Tiger guerrillas in the separatist war, sounds a note of caution not to offend the military or the Police — a forewarning which could easily be used later to say, “did I not say so?” In fact, such comments were not relevant since neither the troops nor the police were at issue. Premier Rajapaksa’s speech did little good for him or the Government. If the Premier’s advisors later persuaded him to issue a statement inviting the protestors for talks, amidst a very poorly rated televised address, his credibility nosedived even further. The protestors said he should have talks with his brother, President Rajapaksa and not with them. Another brother, former Finance Minister, Basil Rajapaksa entered a private hospital. There were moves yesterday to fly him to either Dubai or Singapore in an air ambulance. He had planned early this week to fly to Los Angeles where he has a home.

It is no secret that the worst is not over when it comes to shortages — food, fuel, cooking gas, medicinal drugs, and a variety of other items. Thanks to the generosity of the government of Prime Minister Narendra Modi, limited fuel stocks have helped restoration of power with cuts for long hours. Of course, Sri Lanka must remember there are no free lunches. There has been heavy public criticism over how some of the country’s most valuable national assets are being frittered away. A case in point is China from which the Government asked for additional funding recently. The reply came – they want the Government to issue a political order to the technocrats to conclude the Free Trade Agreement. They say that these technocrats have been difficult. In addition, they are also asking for some prime property in Colombo Fort. Come early May, Indian assistance would be exhausted and there is no known source of revenue to fund for new imports. That is the stark truth. One can only hope this would not lead to more national assets being frittered away by a handful of politicians who are able and willing at any time.

It will take six to nine months for first IMF tranche to come Newly appointed advisor Devarajan outlines path ahead for economic recovery; calls for tax increases, expenditure cuts and targeted help for the poor It could be six to nine months before the first tranche from the International Monetary Fund (IMF) could be expected, one of the government’s advisors said yesterday. Talks between the IMF and a Sri Lanka delegation-led by Finance Minister Ali Sabry on an economic recovery package will get under way in Washington DC tomorrow. Shanthayanan (Shanta) Devaraja One of the three advisors, Shanthayanan (Shanta) Devarajan, who will be part of the delegation, answered questions posed to him by the Sunday Times. He is Professor of the Practice of International Development at the Edmund A. Walsh School of Foreign Service, Georgetown University. Here are the highlights: WHETHER POLITICAL STABILITY WILL BE AN IMPEDIMENT TO RECEIVING IMF FUNDS: Political instability is not necessarily an impediment to receiving funds from the IMF, the World Bank, or other international organisations.  These organisations look at whether the government has undertaken the prior actions (such as tax increases, expenditure cuts and targeted cash transfers for the poor) of the programme.  If it has, they can disburse the money.  Whether it is a minority government or marginally majority government does not matter if the government has undertaken the prior actions. NOW THAT THE CENTRAL BANK HAS PUBLICLY AND FORMALLY INFORMED ALL CREDITORS THAT SRI LANKA CANNOT FULFIL ITS REPAYMENT OBLIGATIONS, DOES THIS AFFECT GETTING IMF HELP? The announcement that Sri Lanka will temporarily suspend debt service payments and undertake a debt restructuring, already announced by the Central Bank, will increase the chances that Sri Lanka can get financial resources from the IMF, the World Bank, etc.  The IMF cannot provide resources to a country whose debt is unsustainable.  The debt restructuring negotiations will lead to a debt that is sustainable, paving the way for an IMF programme with financial resources that, in turn, will enable budget support from the World Bank, the Asian Development Bank, and others. WHAT IS YOUR VIEW ON CURRENT ECONOMIC CONDITIONS, INCLUDING DEBT SERVICING, INFLATION, FOREIGN CURRENCY CRISIS, INTEREST RATES, SHORTAGES, INDUSTRY AND MANUFACTURING? The current economic conditions are dire. Official foreign exchange reserves were at $1.9 billion at the end of March, but usable reserves are likely much less.  Meanwhile, the Government had debt service payments of over $1 billion through July.  The shortage of foreign exchange (and the practice of meeting the debt service payments in January and February) has led to the shortages of food, fuel, and pharmaceuticals in the country, as well as the power cuts of 10 hours a day in some places.  Real interest rates (the nominal interest rate minus inflation) were negative until the recent increase by the newly appointed Governor of the Central Bank.  The prospects for growth this year are grim, as there has been very little investment and the manufacturing and services sectors are, no doubt, constrained by the power cuts.  Agriculture is also lower this year because of the disruptions from the fertiliser policy. WHAT ARE IMMEDIATE REMEDIAL MEASURES THAT CAN BE IMPLEMENTED? The immediate measures should try to increase the foreign exchange available so that people can get some relief from all the shortages.  The two short-term measures are: (i) appointing a legal and financial advisor who can then negotiate a postponement of the upcoming debt service payments, thereby saving some foreign exchange.  (ii) Obtaining some bridge financing from friendly nations to buy essential imports over the next few months. WHAT CAN BE EXPECTED IN THE IMMEDIATE, NEAR-AND MEDIUM-TERM FUTURE BY PEOPLE OF SRI LANKA? If the above measures are implemented soon, the people can expect some of the shortages to ease.  But to achieve a debt restructuring and a programme that could lead to additional financing from the IMF, the World Bank, and others, the Government will have to cut the fiscal deficit.  The people could expect to see some increases in taxes (either the lowering of thresholds or an increase in rates or both); restructuring of state-owned enterprises such as SriLankan Airlines, the CPC and CEB; and an increase in fuel and electricity prices to reduce subsidies.  Although the lion’s share of these subsidies goes to the rich, an increase in fuel and electricity prices will also hurt the poor, so we can expect to see some targeted cash transfers to them to compensate for the increase in prices.  There is likely to be further increases in interest rates to dampen inflationary expectations and to attract foreign currency.  In the medium term, if there is a debt restructuring and an IMF programme, and tourism recovers, the people can expect an easing of the shortages and a gradual resumption of economic growth. HOW FUTURE POLICIES OF THE GOVERNMENT, PARLIAMENT AND THE CENTRAL BANK CAN IMPACT ON THE PUBLIC: The policies described above–debt restructuring, tax increases, expenditure cuts, targeted cash transfers, SOE (state owned enterprises) restructuring and interest rate increases–will improve conditions facing the people although in the short run, some of them such as the expenditure cuts may seem painful.  That is why it is important to accompany these cuts with targeted cash transfers to the poor.  These policies are necessary because the alternative is that Sri Lanka undergoes a disorderly default, which could be devastating.  Countries such as Lebanon that have had such a hard default have seen their GDP fall 20 percent in one year, currency depreciate by 100 percent and inflation reach over 120 percent.  And the effects of a disorderly default last for years since countries don’t regain access to capital markets for that long. HOW LONG WOULD IT BE BEFORE IMF CAN BEGIN GRANTING ITS FIRST TRANCHE? Negotiating an IMF programme, assuming there is a debt restructuring under way, can take 6-9 months.  The process works as follows:  The Sri Lankan Government initiates a debt restructuring by appointing a legal and financial advisor.  As mentioned above, these advisors can help Sri Lanka postpone debt service payments that are due in the next few months.  Meanwhile, the IMF advises Sri Lanka on the debt restructuring by providing an analysis of the level of debt that the country can repay (called the “debt sustainability analysis”).  This analysis serves as a credible benchmark against which Sri Lanka, with the legal and financial advisors, can negotiate a debt restructuring with the creditors, including bondholders and official bilateral lenders. At the same time, the Government, led by the Central Bank Governor and the Treasury Secretary, begins discussions with the IMF staff on the adjustment programme (tax reform, expenditure reform, targeted cash transfers, etc.)  The greater is the fiscal adjustment that Sri Lanka is willing to make, the greater will be the “haircut” that the creditors will be willing to take, because the fiscal adjustment is a signal of the sustainability of the programme.  When there has been an agreement on the programme between the Government and the IMF (and the debt restructuring is proceeding well), the IMF Board will vote on the programme and, if it is approved, will likely allocate financing for the programme. The financing from the IMF could be up to $1 billion a year for three years.  In addition, having an IMF programme in place enables the World Bank and the Asian Development Bank to lend Sri Lanka budget support.  Finally, other bilateral lenders and some private investors may resume lending since the IMF programme gives them confidence that the country is getting on a sustainable path.