Columns

Weeks after the November 14th decision of the Supreme Court with the majority holding gross failures in fiscal and monetary discipline by the Rajapaksa-led regime from 2019-2022 had comprised an extraordinary breach of the Public Trust triggering Sri Lanka’s bankruptcy, it does not seem that political leaders or their cheering squads have learnt important lessons reflected therein.

How the mighty can fall

Debates on both the majority (four judges) and minority (one judge) rulings are primarily driven by political partisan agendas. Predictably, the cherry on top of this pedestrian squabbling is a ridiculous distinction drawn between whether the majority decision had said that the Rajapaksas were ‘responsible’ for the economic crisis or (merely?) that their actions were ‘contributory’ thereof.

But analysing the sequence of reasoning in the majority opinion makes it quite clear that this so-called distinction is without a palpable difference, legally and factually. Some aspects of the majority ruling have been remarked upon in these column spaces previously. This includes the Court’s  assessment that the late 2019 policy decision to revise taxes leading to an enormous loss of revenue was a direct factor in the collapse of the economy.

Appropriate remedial action to offset the adverse consequences had not been taken in time. But what could not be remarked on earlier due to constraints of space is the manner in which that judicial assessment is laid out, offering the public a fascinating glimpse into how a nation is driven to ruin by a cabal of political, corrupt, inept and incompetent opportunists.

A different set of tricksters in play

That result came about, I might add, despite laws, procedures and mechanisms in place to prevent just that disastrous eventuality. That included the Monetary Law which obliged the Monetary Board to detail measures it should take when the country’s international reserve seriously declines. Currently, a plethora of new laws, including brand new statutes ensuring the so-called ‘independence’ of the Central Bank of Sri Lanka and the Monetary Board have been enacted by the Wickremesinghe Presidency.

But there is no measurable public confidence that these same sorry tricks will not be played again by a different set of tricksters. Indeed, the President’s scoffing at the Public Trust doctrine in Parliament just before he took wing to Dubai to speak on climate justice was discussed last week. Meanwhile his claim at the UN climate summit this week that Sri Lanka needs US 100 billion to become a net zero emitter by 2040 has led to a fair amount of unkind chuckling.

Perchance the President may be better advised to stay back at home and address the vexed question of Governance Justice given that precious little of this is reflected in his administration. That includes the decision to peremptorily sack a Minister of Sports who spoke hard and fast on gargantuan corruption in the country’s apex cricket regulatory body. That dismissal was justified on the basis that the Minister in question had publicly spoken out on matters that should have been discussed internally in the Cabinet.

A deadlier form of
anger on the street

Nevertheless, the Sri Lankan electorate has been unimpressed by these acrobatic twists and turns, attributed to the malign influence of a few and contrary to the public interest. The mood on the street is clearly ugly, turning towards an even more deep-seated rejection of the ruling political establishment beyond the ‘Aragalaya’ (protest) of last year. Then, it was spontaneous anger combined with an idealistic demand to ‘send the crooks home.’

What is surfacing now is deadlier and vastly unpredictable in form. Even so, this does not seem to perturb the President and his loyalists who rest secure in a net of ever growing draconian laws aimed at stifling and punishing dissent while encouraging corruptors. But no nation in the world has ever been able to govern its angry electorate through repression alone. That lesson of history appears to have singularly escaped their attention.

That apart, it must be reiterated that issues emanating from the November ruling of the Supreme Court must be looked at in a manner that transcends partisanship. There is little doubt that the 2015-2019 Sirisena-Wickremesinghe ‘yahapalanaya’ coalition’s corruption scandals including the Central Bank bond scam, relaxing rigorous exchange control restrictions and increasing the country’s vulnerability through foreign borrowings formed part of the unhappy backdrop to the 2022 financial collapse.

Failure to govern on all fronts

However, the Court had been moved on a different question in this instance, namely whether specific acts of the Rajapaksa regime in managing fiscal and monetary discipline had been so arbitrary and unreasonable as to violate the Constitution. That question was answered by the majority in the positive. Differing however, the minority ruling concluded, inter alia that the impugned policy decisions were not grossly arbitrary as to occasion a rights violation.

The majority’s assessment took into account, the Government’s summary ignoring of frequent warnings of impending disaster from early 2020 onwards, made worse by sweeping politically motivated tax reliefs by the Gotabaya Rajapaksa Presidency. These reliefs were judicially observed to have been decided without consultations or discussions with the Central Bank or the Monetary Board.

The Government also failed to consult with the International Monetary Fund (IMF) despite an ongoing Extended Fund Facility (EFF) in regard to which, however, the Government had failed to request the release of the last tranche due in April 2020. Indeed, there seemed to have been a significant gap in deciding whether, in the first instance, to continue with the EFF or not.

A true vicious circle

In the context of the impending serious economic crisis, that failure was deemed by the majority Bench to be ‘irrational and arbitrary.’ The Government had also disregarded warnings by the IMF regarding an impending problem of serious debt sustainability. Further, then Governor of the Central Bank Professor WD Lakshman had formally reported not once but several times as required under the Monetary Law on the perilous state of the pandemic impacted Sri Lankan economy.

Those reports were submitted to (then) Finance Minister Mahinda Rajapaksa and (later) Basil Rajapaksa. ‘Confidence and appetite for Sri Lanka’s equity and bond markets’ had deteriorated (see at page 79). Continuous downgrading by international rating agencies became marked. It was a true vicious circle with calamitous consequences for the country. By mid July 2021, those warnings had become shrill if not hysterical. Gross official reserves had depleted to a ‘critical’ level.

This was projected to deplete further ‘without any further significant foreign exchange inflows in the pipeline’ (see at pages 84-85). Earlier, relevant committees of the Monetary Board had already recommended immediate engagement with the IMF. That was pointed out to be imperative given that this was the ‘first time that reserves had declined below USD 5 billion since 2009 (at page 81).

Fragile safeguards and the
‘political capture’ of institutions

Even so, officials and political leaders of the time persisted in emulating the proverbial ostrich by burying their heads in the sand, (this, by the way, is a linguistic excess not found in the ruling), until it was far too late. In the wake of this ruling, we need sustained debates examining how decades long established fiscal and monetary systems of accountability collapsed like a pack of cards. That must be examined against new laws and policies that are supposedly meant to guard against the repeat of such a disastrous scenario.

Certainly that critical public focus would be more constructive (albeit require more effort) rather than screaming to the heavens to criminally  ‘lynch’ the Rajapaksas or any other as the case may be.