Columns

• No fresh supplies until end of this month
• India sets conditions for bridge financing, Govt. has no options but to agree
• IMF assistance delayed for a few months, as uneasy peace remains between Gotabaya and Ranil
• Controversy and confusion over 22A; critics say it strengthens President’s hand instead of reducing his powers

By Our Political Editor

They are sure only about one thing — there will be no fuel stocks arriving in the country until the end of this month.  The reason: no orders have been placed for the import of fresh stocks. Sagala Ratnayaka, (‘Chief of Staff’) who now goes as Senior Advisor to Premier Wickremesinghe, tasked with fuel issues, set a deadline of July 22 before they could arrive. However, the PM’s office later clarified officially that he had not set such a date. That means there is more uncertainty even in the weeks to come thereafter.

Separately, the Indian Oil Corporation said it had placed orders for three different shipments of diesel and petrol. Shipments would only arrive beginning mid this month and thereafter, they said. Here again, it is inadequate to meet the countrywide needs and will not last for more than a few days.

Concerned over Indian demands

That the Government, which has been grappling with the crisis for months, has failed to plan to avert a complete shortage is very clear. It was lulled into complacency by the generosity of Indian credit lines that ensured supplies despite limited interruptions. As New Delhi signalled, it was not simply a uniflow to Colombo. India had its own constraints and had to be mindful of the Sri Lankan Government’s ability to repay in the midst its mounting fiscal commitments. A similar message, the Sunday Times learned, had also been conveyed by Indian Foreign Minister Dr Subrahmaniam Jaishankar to Sri Lanka’s High Commissioner to India, Milinda Moragoda, during a recent meeting.

Government leaders are concerned over India for what they say are new conditions to the already agreed in principle of bridge finance of around two billion US dollars in three tranches. Though details of the conditions are still not clear, Sri Lanka has no alternative but to agree to the terms set. India is the only country that has committed to any significant amount as bridge finance. In return, India is also seizing the opportunity to consolidate its foothold by securing as many strategic assets as possible. The high-level visit by the Indians during the same time as the team from the International Monetary Fund (IMF) was in Colombo was to ensure that any staff-level agreement reached is consonant with the terms set by India as well. Both President Rajapaksa and Premier Wickremesinghe gave assurances that almost all new conditions will be acceptable to Sri Lanka. However, formalising these arrangements, which in turn delayed the signing of the Staff-Level Agreement with the IMF, could apparently take at least a few weeks, according to experts familiar with the current developments. India’s ruling Bharatiya Janatha Party (BJP) government has also come under political pressure from its opponents over why large amounts of money are being pumped into Sri Lanka.

Premier Wickremesinghe told Parliament in a special statement (on June 22) that “we intend to enter into an official level agreement with the IMF by the end of July.” However, the IMF delegation, at the conclusion of their visit to Colombo, declared in a statement on June 30 that “discussions will continue towards reaching a staff-level agreement on an Extended Fund Facility (EFF) in the near future.” More on that aspect in the later paragraphs.

The consequences for the economy, which has collapsed, as officially declared by Premier Wickremesinghe, have been disastrous, so much so the process of reversal is badly hampered. Take for example tea, the country’s largest export. Power cuts dealt a crippling blow to factories causing a drop in production. Now, lack of fuel is preventing the transport of green leaf from the plantations to the factory for processing. That this will lead to a drastic drop in foreign exchange earnings is no secret. Similarly, production in several industries has come to a halt.  Some key government departments dealing with the public remain open only for two days a week. Public transport is at its minimum level of operation and state sector employees have been asked to work from home. Schools are closed. Vehicles on the roads have dwindled. Taxi services are at their minimum and many scooter taxi drivers are selling their fuel in the black market. A litre of petrol is at a premium between Rs 2000 and Rs 2,200 in the black market. All these, and other adverse developments, are having a collective impact on the nation’s productivity.

If there is no governance, or the lack of it, which is the main cause for these worrying developments, the focus by the ruling leaders has been to place more and more burdens on the people. Food prices have shot up, transport costs have been increased. Hires for school service transport have risen. To be raised are electricity tariffs, water rates and taxes. The collective impact of these measures would see the elimination of the middle class. Most of them will soon be poorer. They already find it difficult to make ends meet. The race is to raise money to convince the International Monetary Fund (IMF), as well as other international lending agencies, of the Government’s financial sustainability. It is akin to the case of killing the goose that lays golden eggs. Ironically, they must make up for the national wealth which the ruling politicians have plundered due to humongous corruption.

Yesterday, the Foreign Relations Committee of the United States said in a tweet: “Any @IMFnews agreement with Sri Lanka must be contingent on CBSL (Central Bank of Sri Lanka) independence, strong anti-corruption measures and promotion of the rule of law. Without these physical reforms, Sri Lanka could suffer further economic mismanagement and uncontrollable debt.”

The tragic irony of all this is two-pronged. One is the critical question whether there is a stable government in Sri Lanka, one that can inspire confidence domestically and internationally. The answer seems to be a “no.” This is why some western governments have been cautious enough to add a caveat when they choose to provide humanitarian assistance by saying “to help the people of Sri Lanka.” The latest is Canada, which is funnelling its assistance through international agencies. So did Britain. However, the United States finds itself in a paradoxical situation. On the one hand, it heads the core group of countries that have moved resolutions before the Geneva-based UN Human Rights Council (UNHRC) over human rights violations and alleged war crimes by the Mahinda Rajapaksa government during the military defeat of Tiger guerrillas. A new resolution is also due in September deals with the President Gotabaya Rajapaksa government. New evidence gathering mechanisms have been put in place. They are uncovering fresh evidence.

Successive US envoys have spoken vigorously against abuses by the Mahinda Rajapaksa and Gotabaya Rajapaksa administrations.  On the other, the US has announced assistance, mostly humanitarian, to help revive the country’s collapsed economy. A corollary to that would be strengthening the hand of President Gotabaya Rajapaksa, who together with his brother ex-Finance Minister, Basil Rajapaksa, have homes in Los Angeles, in the US. It is no secret that many an investigation in the past, stalled under political pressure, saw money trails extending to banks in the US.

The President’s Media Division (PMD) has also been at it trying to spin the foreign governments and envoys’ meetings and messaging. The US envoy Julie Chung met the President with the visiting senior US government officials on Monday, June 27 and then again on Thursday, June 30. The US Embassy did not make this meeting public. However, the President’s Media Division did and spun on it as envoy Julie Chung saying that she “stated to the President that she understands the current situation in Sri Lanka and is confident that a quick recovery will take place” giving the impression that the US is in support of the President and his actions. Or one wonders whether other geopolitical interests are making the US shift stance like it has done in other countries raising grave doubts over its trustworthiness and credibility. Examples are far too many.

A diplomatic source explained that roping in international agencies in such measures was intended to prevent assistance from getting into wrong pockets or abuse. In fact, one of the highlights of the IMF delegation’s statement underscores this reality. It notes: “The objectives of the new IMF-supported programme would be to restore macroeconomic stability and debt sustainability, while protecting the poor and vulnerable, safeguarding financial stability, and stepping up structural reforms to address corruption vulnerabilities and unlock Sri Lanka’s growth potential.”

The US Ambassador also tweeted last week highlighting the importance of corruption-free distribution of funds. She said, “Oversight and transparency are critical components of our assistance programmes. US aid is only awarded to partners that adhere to globally recognised monitoring and evaluation standards. This ensures that funding is accounted for, and assistance reaches those who need it most.”

Contradictory signals from different arms of the government, is another issue. A case in point is how a government letter was issued to their Russian counterparts that an aircraft of their national carrier Aeroflot would be allowed to operate flights to Colombo without impediments. Moscow protested that an Aeroflot aircraft was seized, and Colombo had to later extend an apology.  One arm of the government did not know what the other was doing. Now the government is extending an avalanche of apologies. In a call to Russian President Vladimir Putin, President Rajapaksa also extended an apology.

The other reason, much more significant, is the operation of two power centres. President Gotabaya is running the main one from the President’s House where he has found safety and does not move out for any engagements. Last Monday, he chaired a meeting to discuss the import of fuel noting what the President’s Media Division said was “using existing funds.”

Taking part at this meeting, a statement said, were “Kanchana Wijesekera, Minister of Power and Energy, Gamini Senarath, Secretary to the President, Lalith Weeratunga, Principal Advisor to the President, Anura Dissanayake, Chief of Staff to the President, Dr. Nandalal Weerasinghe, Governor of the Central Bank, Finance Secretary K.M.M. Siriwardena, Mapa Pathirana, Secretary to the Ministry of Power and Energy, and the Heads of Energy Institutions and Fiscal Institutions.”

However, neither Premier Wickremesinghe, who is also the Minister of Finance, nor the newcomer tasked by him to handle fuel acquisition, Sagala Ratnayake, was present at this meeting. They are working independently to find sources of fuel supplies. Their decisions would naturally have to receive the approval of the Central Bank for funding purposes. It is known that there have been frictions. Complaints have also reached President Rajapaksa. The statement points out that “the Governor of the Central Bank has agreed to pay the outstanding payments due to the relevant companies for the fuel supply with a plan.” This is not the first time such parallel meetings have taken place. Earlier, both the President and the Premier had two separate conferences on tourism promotion and agricultural development.

Overseas suppliers have been reluctant to provide fuel to the state-owned Ceylon Petroleum Corporation (CPC), which has been blacklisted by some. This makes clear why Energy Minister Wijesekera now wants foreign oil firms to operate from Sri Lanka — a move which drew a protest demonstration on Thursday in Colombo Fort from CPC employees. He has thus planted the seed for trade union unrest in another sector during these troubled times. Surprising enough, who should oppose the privatisation of the petroleum sector? Believe it or not, it is the Opposition Leader, Sajith Premadasa. He told a media briefing that his Samagi Jana Balavegaya (SJB) was opposed to the move. Many of his parliamentary colleagues are livid. The general impression he has created among the faithful and others is that he makes policy statements on the hoof. Some even accused him of following the Janatha Vimukthi Peramuna led National People’s Force policies.

The instability factor is highlighted further by a recent meeting between President Rajapaksa and Premier Wickremesinghe. A source familiar with the meeting said there were heated moments and a letter from Wickremesinghe, who is also Minister of Finance, recommending an extended tenure for Nandalal Weerasinghe, as Governor of the Central Bank was discussed. Earlier, Wickremesinghe had declined to issue such a letter and had his own nominee as CBSL Governor. Such a letter is mandatory, and the source said President Rajapaksa tossed the idea of a new Finance Minister who could be appointed to undertake that task. That is if there was refusal on the part of Wickremesinghe again. In fact, another source confirmed, that former Minister Ali Sabry was being lined up and pressure was brought on him not to back out. However, the Prime Minister’s Office has  sent in the letter to Presidential Secretary Gamini Senarth. An uneasy peace remains.

Though not designated as a Minister, Mahindananda Aluthgamage has become an advisor and aide of sorts to the President. He held a news conference this week to announce that President Rajapaksa would travel to West Asian countries to talk to leaders there about obtaining fuel. However, he said, no date has yet been set for the event. According to him, the President has a “comprehensive plan” to ensure the smoother supply of fuel after July 10 but did not disclose what it was. Just this week, Power, and Energy Minister Kanchana Wijesekera, returned empty-handed to Colombo after a visit for talks with leaders and officials in Qatar. He was accompanied by Minister Nazeer Ahamed. The outcome of a visit by Minister Susil Premjayantha to Moscow for the same purpose is now being awaited. A special envoy is also to fly out to Saudi Arabia.

It is not immediately clear why Aluthgamage had to announce through a news conference that President Rajapaksa plans to visit West Asian countries to seek fuel. If the information was credible enough, that should have been the task of the Ministry of Foreign Affairs. Even if he or any other minister or dignitary chooses to travel, the question is how payments will be made for those procurements. As reported in these columns last week, therefore the IMF programme is crucial to access bridge financing from sources such as the World Bank, the Asian Development Bank, and lending from other friendly countries. Various stakeholders, including bondholders, expect the IMF visit to give clarity on how much debt Sri Lanka can repay and what haircuts investors may have to take.

As I noted last week, the timing of concluding a staff-level agreement by the end of this month, as declared by Premier Wickremesinghe, “may seem too optimistic.”

Shattered hopes

Now, the IMF has set the likely timeline as “in the near future.” Anne Marie Guide Gulde Wolf, Deputy Director of the Asia and Pacific Division, arrived late last weekend to join nine of her colleagues in Colombo. Hopes were raised on the prospects of an agreement being signed ahead of the team’s departure.  However, it did not materialise, and the exact reasons are not known. Hopes were so high that the CNBC, a satellite television channel that provides market information and business news, reported as its main headline story “IMF-Sri Lanka bailout talks end without a deal.”

The fact that a senior member of IMF for the region took flight and arrived with an intention to sign the staff-level agreement but had backed off from signing raises concerns over the current state of Sri Lanka’s economy and its prospects. Team members Peter Breuer and Masahiro Nozaki issued the following statement before their departure from Colombo. Here is the full text in the light of its importance:

“Sri Lanka is going through a severe economic crisis. The economy is expected to contract significantly in 2022, while inflation is high and rising. The critically low level of foreign reserves has hampered the import of essential goods. During the in-person visit, the team witnessed some of the hardships currently faced by the Sri Lankan people, especially the poor and vulnerable who are affected disproportionately by the crisis. We reaffirm our commitment to support Sri Lanka at this difficult time in line with the IMF’s policies.

“The authorities’ monetary, fiscal policy and other actions since early April were important first steps to address the crisis. The team had constructive and productive discussions with the Sri Lankan authorities on economic policies and reforms to be supported by an IMF Extended Fund Facility (EFF) arrangement. The staff team and the authorities made significant progress on defining a macroeconomic and structural policy package. The discussions will continue virtually with a view to reaching a staff-level agreement on the EFF arrangement in the near term. Because public debt is assessed as unsustainable, Executive Board approval would require adequate financing assurances from Sri Lanka’s creditors that debt sustainability will be restored.”

“In this context, discussions focused on designing a comprehensive economic program to correct the macroeconomic imbalances, restore public debt sustainability, and realize Sri Lanka’s growth potential. Discussions advanced substantially during the mission, including on the need to reduce the elevated fiscal deficit while ensuring adequate protection for the poor and vulnerable. Given the low level of revenues, far-reaching tax reforms are urgently needed to achieve these objectives. Other challenges that need addressing include containing rising levels of inflation, addressing the severe balance of payments pressures, reducing corruption vulnerabilities, and embarking on growth-enhancing reforms. The authorities have made considerable progress in formulating their economic reform program and we are looking forward to continuing the dialogue with them.

“The IMF team held meetings with President Gotabaya Rajapaksa, Prime Minister, and Finance Minister Ranil Wickremesinghe, Central Bank of Sri Lanka Governor Dr. P. Nandalal Weerasinghe, Secretary to the Treasury K M Mahinda Siriwardana, and other senior government and CBSL officials. It also met with Parliamentarians, representatives from the private sector, civil society organizations, and development partners.”

Even when the staff-level agreement is eventually made, this does not allow IMF direct funding which is generally referred to as Extended Fund Facility (EFF). To achieve this, as reported in these columns in previous two weeks, the IMF board has to be satisfied as to (i) Official bilateral creditors provide the IMF with adequate assurances that they will take steps to help restore debt sustainability; and (ii) In cases where a restructuring of debt to private creditors is needed, if the member has taken credible steps towards completing the debt restructuring process in a way that will achieve debt sustainability.

As reported previously, this board-level agreement could take months. So, the real money (EFF) to help pay for immediate needs and to revive the economy will come at the earliest during the fourth quarter of this year. The staff-level agreement would, however, facilitate an Extended Credit Facility Arrangement (ECF) and give confidence to multilateral and bilateral lenders to give bridge financing until the EFF is achieved.

The indefinite delay in reaching a staff-level agreement with the IMF did cause anxiety to President Gotabaya Rajapaksa. He tweeted last Friday that he “had an extensive zoom discussion with Dr. Indrajit Coomaraswamy, Prof. Shantha Devarajan and Dr.Sharmini Cooray on the future of IMF procedures and the methods to overcome the challenges Sri Lanka faces.”

Although this was a prearranged meeting to discuss post-IMF-team-visit-related issues and next steps, one key person was not invited to this virtual meeting. It was Premier Wickremesinghe, who is also the finance minister and played the key leadership role in all the various stakeholders’ meetings including with the IMF, Indian and the US delegations. Besides the advisors, the only other participant was the President’s Principal Advisor, Lalith Weeratunga.

The receipt of the Extended Fund Facility from the IMF notwithstanding, efforts have been made to raise bridge finance from other international agencies and countries. The response from one leading Asian country, the Sunday Times learned, has come as a reminder again about the disparaging way the country’s foreign policy has been conducted. An official in that country’s capital has declared that they were not willing to commit any bridge financing, not until President Gotabaya Rajapaksa remains in office.

In his special statement to Parliament on June 22, Premier Wickremesinghe said “that the government aims to reach a staff-level agreement with the organisation and also have a framework in place for debt restructuring by the end of July.” There is no hope that a framework could be achieved for debt restructuring by the end of this month, those who are familiar with the Sri Lankan process say.  The best-case scenario, they point out, would be achieving a staff-level agreement; that too, as the IMF says, “in the near future.”

Premier Wickremesinghe tweeted on June 2 that “Discussions with the IMF are proceeding, and we expect negotiations to conclude by the end of the month,” -  intentionally or unintentionally giving the impression to the people that all negotiations will be over by the end of June and funds would be available to alleviate sufferings from July onwards. He then tweeted on June 20 that “Today, I met the visiting IMF Team and commenced discussions. Looking forward to reaching a staff-level agreement and finalizing the programme soon.” By then, he had changed his end of the month pitch to “soon.”  In his special statement to Parliament on June 22, his estimation went to “by end of July.” Since the departure of the IMF team from Colombo on Thursday, June 30, Premier Wickremesinghe has kept away from commenting on any timing about the IMF staff-level agreement or the board-level agreement – the one that will give Sri Lanka real dollars, something which is at best a few months away if not more.

Going ahead with 21A

Notwithstanding the economic collapse, the Gotabaya Rajapaksa-Ranil Wickremesinghe government wants to go ahead with the 21st amendment to the Constitution. It has been titled 22A though it will still be enshrined as the 21st amendment to the existing constitution. It was finally approved at the weekly meeting of the Cabinet of Ministers last Monday. It was published in the gazette on Wednesday in the name of the Minister of Justice, Prison Affairs and Constitutional Reforms, Wijeyadasa Rajapakshe.

If the passage of the constitutional amendments remains an uphill task, the claim by government leaders that it will reduce the powers of the President remains a controversial question. It is being projected as an exercise which has the blessings and support of President Rajapaksa. In other words, to create the impression that President Rajapaksa continues in office after making several sacrifices of his powers under the constitution for a later date. Is this true?

One of the main areas is bringing back the Constitutional Council under the aegis of Parliament. Abraham Sumanthiran, Jaffna District Parliamentarian, and spokesperson for the Tamil National Alliance (TNA), told the Sunday Times :

“The amendment is framed in a such a way as to bring at least six persons from the government side. That means there will always be a bent towards the government.

“In the 17th Amendment, the Constitutional Council was an apolitical body where seven of its members were selected from outside and three from among the political parties in the House. In the current amendment (22A), it is the other way around. The whole point is lost in the process when President must approve such appointments as well.

“Another element is that the proposed changes cannot be applicable to the current (ninth) Parliament as the amendment says the Act comes into operation and ends on the date of dissolution. Therefore, we are of the view that this is worse than the 19th Amendment and to put it simply, a fraud on the people. People are protesting across the country demanding to unseat the President. The Government also wanted to create an impression that there has been a constitutional amendment in place to reduce the powers of the President. However, the President will continue to remain in the office even after the passage of the amendment.

“If the government is genuine about abolishing the Executive Presidency, it could have gone ahead with the private member bill submitted by the General Secretary of Samagi Jana Balavegaya (SJB).  Parliament could have passed it called for a referendum. It could have helped the people of this country to decide on the matter, not Parliament alone. Parliament could have passed it and put it for a referendum so it will be the people of this country who will be able to decide on the matter, not Parliament alone. However, this amendment even failed to achieve the level of 19A.”

A salutary feature in the 22A is provision being made for the Commission to Investigate Bribery or Corruption (CIABOC) to initiate investigations on its own volition. These powers existed but were removed through 20A after the government assumed office in 2020. This provision is to take immediate effect after the amendment is passed by Parliament.

A tweet from lawyer Luwie Niranjan (Ganeshathasan) notes that the 22A is weaker. He is a researcher at the Centre for Policy Alternatives (CPA).  Here are some of the key points he has raised. Some parts have been edited for clarity.

=   The Constitutional Council is a continuation of what is under 20A. The government will have control of seven of the ten members when the President and the government are from the same party or a coalition.

=   If the Constitutional Council is controlled by the government, then the “independent commissions” are no longer independent. So, it does not matter how many commissions you add. This is not what was there in 19A.

=   The changes proposed in the Bill (22A) to the President’s powers to appoint Cabinet of Ministers, allocate subjects and functions to ministers will only come into operation from next Parliament. Hence, the current President’s powers remain unchanged as they are today.

=   The President’s power to prorogue Parliament whenever he wishes and dissolve Parliament after two and half years without the approval of Parliament has not been changed. So, the President retains control over Parliament “over the life of Parliament.”

=   The President will continue to be able to appoint all Secretaries to Ministries at his own discretion. It is these Secretaries who exercise supervision and control over the institutions that come under a Ministry, particularly those relating to financial control.

=   The 22A provides for Secretaries to function despite the dissolution of the Cabinet of Ministers until new ministers are appointed. Is this not an admission that the President acted outside the Constitution when he appointed Secretaries without a Cabinet of Ministers when then Prime Minister Mahinda Rajapaksa resigned?

=   Among the improvements is a main one that the President can only retain the subject of Defence with him. If experience is anything to go by, the President will have a broad interpretation of what comes under Defence.

=   The Attorney General’s Department has argued that economic security is part of national security.

=   To recap, the 22A is the weakest proposal so far to reform the Presidential system. It does not go to the level of even 19A. More importantly changes will not have any impact.

When 20A to replace 19A was passed in October 2020, the present Minister Rajapakshe declared, “It gives extraordinary powers to the President which is a very dangerous trend. 20A is the way to make Sri Lanka a colony of America. I believe that 20A has not been made in a manner suitable to the country.” Yet, he voted in favour of the amendment in Parliament.

This time he has given one reason after another for 21A which has been rebranded 22A. First, it was to keep ex Finance Minister, Basil Rajapaksa away from Parliament. He has since resigned. Second, it was to reduce the powers of the President. Third, was to prevent anarchy. The fourth was to restore stability in the country. The fifth is yet to come. There are still strong doubts whether this pyrrhic exercise by one of the foulest critics of the Rajapaksas would see the light of day. If it does, he will make President Gotabaya Rajapaksa stronger during the rest of his term which he is determined to complete. If it does not, he and the ilk that are trying to make Sri Lankans believe the President’s powers are being reduced would sure be exposed for their political skullduggery.

Even in an economically battered Sri Lanka, there are the privileged. Shortage of essentials do not affect them. Their vehicles are contained in a list that is passed down to fuel pump operators at certain CPC’s installations.