11th August 1996

Mahindapala and the muddy rut

My concern, in my letter to Minister G.L. Peiris, published in The Sunday Times of August 4, was with communal harmony.

My conviction was that the 'devolution package' more than a chance of the merest superficial, short-term success, because the discriminatory provision of a 'foremost place' for Buddhism contained in Article 9 of our constitution was, under the Peiris proposals, to be retained in the new constitution, 'barbed' - what was more - with assurance (given by Dr. Peiris) to the Buddhist hierarchy that the Government would be required to consult the Supreme Council of the Buddhists and implement its proposals for the advancement of Buddhism. 'The existing prohibition of inland fisheries', I added, "is ominous fore-shadowing of the extent to which non-Buddhists may be coerced", if Dr. Peiris had his way.

The current situation is that the minorities, the Tamils, in particular, feel and consider that they do not enjoy democratic equality with the Sinhalese. And the prime and incontestable proof of that representation is the "foremost place for Buddhism" in Article 9 of the present constitution.

I do not need to labor the point here. I have set the position out forcefully and coherently in my letter to minister Peiris. The 'Collective Property' constitution of the Sirimavo-Colvin Alliance, mangling the good sense and democratic rectitude of Soulbury Article 29 (2), created the 'muddy rut'. That is really all I need to say on Mr. Mahindapala's "criticisms", but I would like to entertain your readers by dealing with those criticisms serially until I tire of doing so.:

(1). Mr. Mahindapala says, "The 'Wirasinha logic' tries to make out that if Buddhism is given the foremost place as stated in the Kandyan Convention then democracy goes out of the window". Now, with the possible exception of a pikestaff nothing is plainer than the language of the Kandyan Convention, printed most recently as Chapter 167 of the 1980 Revision of the Legislative Enactment. The text is as precise as it is plain; but, of course, you would not know what the convention contained unless you read it, and understood it.

The convention was one compacted exclusively between the British governor on behalf of King George III and the Regent on the one hand, and the chiefs and the other inhabitants of the Kandyan provinces on the other. No chiefs or other inhabitants of any of the maritime provinces were present, and the convention did not apply to them. This is clear from the 'proclamation' of the convention.

Article 5 of the convention reads, "The religion of Boodhood professed by the chiefs and inhabitants of these provinces is declared inviolable, and its rites, Ministers and places of Worship are to be maintained and protected."

There is no provision whatsoever for the foremost place for Buddhism anywhere in Ceylon. And the territory covered in the convention, such as it is, is only the Kandyan provinces. At no time during British suzerainty here did the British extend the coverage to any of the other provinces - it is unthinkable that they could even contemplate extension.

Wherefore it is the "Mahindapala logic", not the "Wirasinha logic" that is the curiosity.

(2) Mr. Mahindapala asks why, when the "foremost place" for Buddhism had remained innocuous (as I had admitted), except for the ominous prohibition of inland fisheries as Anglicanism, the established religion, had been in England, I was throwing a fit about the former. I have inferred that to be the meaning of his at least equally inelegant expression, "What is his beef?", an expression I had never encountered before. In this vegetarian country I might have been happier with "What is his mukunuwenna?" or "unfertilised egg?"

There are two answers, one of which he has suggested himself in quoting me. There has already been a departure in the prohibition of inland fisheries. Dr. Peiris has, reportedly, assured the Buddhist hierarchy that he would (in my words), provide teeth to the foremost place potential of Buddhism.

The Peiris militancy affrights even me, a Sinhala govigama Christian, who is an admirer of the Sinhalese language, in particular, its range and flexibility, power and capacity to express the gamut of human emotions clearly, beautifully and imaginatively, as I have most immediately experienced in attempting translation of two plays of Sophocles into Sinhalese. I greatly admire the work of Martin Wickremasinghe and Sarachchandra especially, but I am a multi-culturalist. I 'adore' Sophocles, Michael Angelo, Phidias, Beethoven, Shakespeare, to name a representative few.

My being Govigama, although, had I been a Buddhist, it would have qualified me to enter the Malwatte Chapter as a Samanera, I have no use for.

The second answer is that there is not, at present, any community in England protesting against the situation of Anglicanism there, as the Tamils are, here, far more affrighted than I, from experience - including physical violence - of discrimination. Remember the 'holocaust' of 1983, which even incapacitated J.R. Jayewardene for prompt declaration of an Emergency

(3) Mr. Mahindapala's misreading of the Kandyan Convention vitiates the following too, which comes peppered with acrimony and delightfully spiced with humor and venom, "If the WASPish colonial masters who recruited Mr. Wirasinha into the Civil Service in 1935 found that there was good reason to give Buddhism the 'foremost place' during the British raj, why is it wrong for the Sri Lankans (Query; Sinhalese ?) in the post-independence era to follow that conventional (Kandyan or otherwise) wisdom ? Where is the Aristotelian logic in this ?

Aristotle has no cause to be ashamed of me, his pupil. It is Mr. M's slip that is showing, again his misreading of the Kandyan convention, in spite of all the assistance of my pellucid exposition, that, omne - to "sprinkle a bit of Latin" - tulit punctum = takes the bun, cake and biscuit (May Prof. Merlin Peiris forgive my quoting Horace out of context!) - and thrusts him deeper in the muddy rut !

The waspish - is it not ? - dig at me for being recruited into the Civil Service, Oh, the shame of it ! by the colonial masters, is irrelevant and ungracious. Truth to tell, my recruitment, like others' after 1934 was due largely to progressive Ceylonisation at the instance of the State Council. In 1934 eight were recruited for posting in 1935, four Sinhalese, two Tamils, one Burgher and one Ceylon Moor. In 1935, five were recruited for posting in 1936, four Sinhalese and one Burgher. We were recruited on the results of a competitive examination. I was no one's blue-eyed boy, nor were any of the others of my batch.

I shall not expend much more time on Mr. M's "criticisms" (my word). He deplores my "sprinkling (my) diatribe with bits" from various sources, not making historical comparison of policies and practices here with what has occurred elsewhere, from time immemorial, my defective historical approach, my lack of coherence, the superficiality of my presentation.

What he has neglected to appreciate is that my concern has not been to institute such historical comparison as he has in mind, but to address the current appalling situation, which, whatever the mistakes made and atrocities committed, whether by the Sinhalese or by the Tamils in the distant past, stems from the "foremost place" accorded to Buddhism in the "Collective Property" Constitution of the Sirimavo - Colvin Alliance, which should never have found a place in a democratic constitution - not that of a plural in religion - country such as ours.

"Not much more time". I can scarcely refrain from referring to Mr. M's hilarious congratulatory note on our national flag. Firstly, he has forgotten "little England's" flag, the Union Jack, which recognizes Scotland and Ireland and the Wales and the United States of America's flag which has a star for every state. Secondly, the flags of other nations, like the maple leaf flag of Canada are racially neutral in their design. The leaf is neither British nor French.

On our flag the Tamils and "Muslims" are recognized each by a narrow rectangular strip, with the big golden Sinhala Lion facing them. I should have been better pleased myself with the inclusion of a bull for the Tamils and a lamb for the "Muslims", a tidy little pluralistic menagerie ! A dove too! perhaps, for Christians, of whatever race or denomination.

Numerous readers who appreciated what my central concern was and is - Siddhartha Gautama Buddhists included, have seen no superficiality or incoherence in my letter to the Honorable Professor, but have congratulated me on both the substance and the presentation of that letter. On the courage too, although I do not feel particularly brave, and my fanatical (?) dedication to democracy. I do not agree with "fanatical" I abhor the Clintonian approach to Cuba and Iraq.

"Who should apologize to whom" ? My period is 1931 to the present, and my answer is apology by the Sinhalese to the Tamils for the Pan-Sinhala Board of Ministers under the Donoughmore Constitution, "foremost place" provision and omission of Soulbury 29(2) in the Sirimavo-Colvin "Collective Property Constitution." I am not interested in working out who owes whom apologies for misdemeanours before 1931. Whoever is has my good wishes.

I apologize myself to the British High Commissioner here for Mr. Mahindapala's jibe in poor taste, "little England" no longer Great Britain. My understanding, which is clearly not Mr. M's, is that Great Britain means the old Roman Britannia together with Caledonia (Scotland), Hibernia (Ireland), and Cambria (Wales). The connotation is merely geographical. "Great" here is not a hurrah word.

Govt. Policy leading to a major financial crisis

By our Economic Correspondent Naarani

A government can finance its budget through taxes or by debt. The other alternative is printing money. Our Treasury had resorted to increased borrowings, both domestic and foreign to bridge the budget deficit over the years.

Government borrowings which stood at Rs. 366 billion in 1991 have escalated to Rs. 631 billion by the end of December 1995. The domestic debt has increased from Rs. 152 billion in 1991 to Rs. 285 billion in 1995 while foreign debt has ballooned from Rs. 214 billion to Rs. 346 billion. Between July 1994 and June 1995, the Government went on a borrowing spree of adding Rs. 45 billion.

What are the economic implications of this huge debt of Rs. 631 billion? It is equivalent to 95 percent of the Gross Domestic Product. Each man, woman and child carry a debt of Rs. 35,000 on his or her head. This level of debt can only be seen in very few countries. Perhaps the only country with such a huge debt is Israel because of its war with the Arabs.

The ratio in India is around 50 percent of its GDP. There is an economic argument that there is no such thing as a "burden" of public debt. Burden may be inter-group and perhaps be even intergenerational. Government can keep on borrowing from one section of the community and pay another, unlike raising and paying of private debts.

While there is sense in this argument up to a point, one has to go into the composition of the debt, and see whether it is local or foreign, and who lends to the government.

Foreign debt is a real burden on the country. If we take the total government's debt, Rs. 346 billion or 55 percent of the debt is due to foreigners. Although 97 percent of it is on concessionary terms, still the country has to amortize annually.

In 1995, such payments amounted to Rs. 14.5 billion. The Central Bank claims that the debt service ratio (amortization + interest/export of goods and services) was 13.8 percent in 1995.

However, if one takes a realistic view of the estimation, the value of export of petroleum products, which are entirely imported and exported at a loss amounting to Rs. 4.4 billion in 1995 has to be excluded from exports. As the value of the fabrics imported for use in the export of garments is 75 percent, about Rs. 65 billion has to be also excluded to arrive at a realistic debt-service picture. It may be in the region of 20 percent or so.

Apart from this, the hidden cost in a typical debt service ratio estimation is the additional element of the foreign exchange the country has to incur to make up for the huge appreciation of currencies like Japanese yen and may be the German mark. The estimated figure as at 1995, to cover this cost is in the region of Rs. 28.7 billion. In the years ahead we may have to rely more and more on yen based projects and commodity loans. Therefore, continuing appreciation of the yen vis-à-vis the dollar can plunge us really into a serious financial bind.

For example, a few years ago the yen-dollar parity rate was 240 yen to one US dollar. Today it is 109 yen to a dollar. Thus, burden of a loan raised a few years ago will be virtually doubled in dollar terms, even more so in rupees, and will far out weigh the concessionary interest charged.

The government should ensure that a proper study to be undertaken of these hidden costs, and also look at the returns on the investment of borrowed moneys and assess repayment capacity by the beneficiary projects. Resorting to the easy way of borrowing is courting economic disaster. Japan lends abroad to prevent its exports becoming uncompetitive and also to please the USA. It has to reduce its Balance of Payment surpluses. Can we continue to borrow and get buried because these loans are coming easily?

There is yet another dimension to the borrowing of the government. The EPF and ETF hold nearly 7.0 percent of the rupee securities. Private employees have no pension scheme and the only saving is their provident fund. The interest paid to EPF is well below the rate of inflation. The average credit balance of a worker is around Rs. 10,000. If one takes the inflation during the last 10 years, the value of, say, Rs. 5,000 in 1985 would be only a third of it even if the amount of interest earned is added on. In other words Government jobbery of workers' savings will be two thirds.

What is even unjust is the tax of 10 percent on the interest earned on the balances of the accounts of ordinary workers. Tax paying executives get tax breaks such as on the contributions made to the EPF, but non-tax paying workers get nothing but are called upon to pay a tax of 10 percent on the small interest earned on their balances. So, the burden of financing the budget and the war is unduly heaped on poorer workers and not on those who can afford to bear.

They contribute as indirect taxes 13.5 percent on their essential consumer expenditures and further suffer by compulsory subscription to the rupee loans. They are in fact robbed of their meager savings. Ten years ago, a worker could have put up a small house with Rs. 10,000 or Rs. 15,000. Today, it is not enough even to construct a toilet. It is high time the government remedied this unjust taxation of workers' small savings, in financing its ballooning wasteful expenditures through negative interest rates and further tax the interest earned on small savings.

In 1996, the Government will spend nearly Rs. 58 billion on public service, salaries and pensions. Interest on the public debt will amount to Rs. 48 billion. These two outlays will absorb 73 percent of the revenue. What is left is just Rs. 42 billion for capital and other current expenditures. Defense expenditure alone will be in the region of Rs. 50 billion. We will have a huge and unprecedented budget deficit not only this year, but even in the years ahead, unless fiscal restraint is put in place.

To mobilize additional debt funds for the government, the Central Bank may adopt a higher reserve ratio even coupled with a high liquid asset ratio for the commercial banks and make government debt picked up.

The government through these mechanisms could also push down the interest on new borrowings below, even the rate of inflation. If the real value of workers' savings in provident funds is not to be eroded, the interest rate should really be set at least two percent over inflation. Assuming a fair deal on these savings, the interest burden of a soaring debt could very well exceed Rs. 55 billion in 1996. As a ratio of the projected GDP for 1996, it may rise to 7.5 percent. At a time when the economic growth is around four percent, interest burden above the economic growth rate is a clear sign of an impending financial crisis.

India, our neighboring country, has adopted a sensible policy on debt financing. Borrowing has now been on a positive interest rate and the interest burden is around 6 percent of the GDP in 1994/95, in the context of an economic growth of 6.2 percent. Besides, their private saving rate is 20.5 percent of the GDP with a public saving of 1.2 percent.

The savings investment gap within the domestic sector is just 1.6 percent. Sri Lanka faces an astounding savings investment gap of 7.5 percent or more. We need additional private and public savings, if we are to avoid inflationary pressures in our search of an investment ratio of 23 percent of the GDP.

Attracting foreign savings is perhaps the only available path. However, the trend of the inflow of private foreign investment has declined from Rs. 9.4 - 8.2 billion in 1993-94 to a meager sum of Rs. 3.2 billion in 1995. Even portfolio investments which were in the region of Rs. 10-14 billion in 1993/94 have taken a nose dive to Rs. 5.3 billion in 1995.

Indeed, the prospects for 1996 and 1997 are very very bleak because of the loss of investor confidence.

What is alarming is the out-turn of the overall balance of payments. The country experienced continuous overall balance of payment surpluses from 1990 to 1994, thanks to sound economic management. The total surplus accumulated during this period was US dollars 1463 million. The country has experienced for the first time since 1990 an overall deficit in 1995 of US dollars 62 million. The out-turn for 1996 will be even worse despite high prices for our tea and rubber.

Who is to be blamed for this?

All these developments seem to indicate that the country is probably heading for a financial crisis. This calls for a serious and rational budgetary policy.

Current expenditures of the budget contain a plethora of wasteful activities and projects. These have to be pruned. Flour subsidy costing Rs. 8000 million has to be scaled down. It was really foolish to have scaled down flour prices in 1994, when in fact the commodity's futures indicated a sharp increase in wheat prices. The mounting losses of the CTB and Railways and a host of other Corporations have to be eliminated.

The expenditure on defense and security has to be cost-effective. One is reminded of the heroic performance of the Royal Air Force of the UK during World War II, in meeting Hitler's powerful air strikes. They adopted a technique called "Operations Research", to maximize the effectiveness of limited number of aircraft's and meet the challenge. In fact the Royal Air Force emerged victorious.

This quantitative technique is now a common place management tool. Perhaps, the security forces should adopt this in use of resources which is limited and not seek more and more money.

There is clearly no political will to take corrective economic policy decisions. Things are drifting and will perhaps continue to be so. The country will be the loser and it will take years to repair the damage.