Can the ECT buoy the Colombo Port?

In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

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Sri Lanka’s location at the midpoint of international trade routes, positioned at the centre of the Indian Ocean, is a fact that we probably know by heart. But what’s important is the question whether we are exploiting this position. Our ports and good policy decisions are the tools that allow us to change geography into tangible benefits. The performance of the Colombo Port has been exemplary. It recently handled its seven millionth container and was ranked the fastest-growing port in 2018. However, with the Colombo Port operating at approximately an 80% capacity, this growth and the benefits it brings have an expiration date.

What is the ideal role of the government in the shipping industry?
The government should most definitely not be both a player and a regulator. Right now, the Government plays both roles, and the potential for a conflict of interest is enormous. It also means that it is increasingly difficult for competitive neutrality to be maintained. However, the government should not be completely removed from the industry. The role of the government lies solely in being a landlord and regulator, for if the Colombo Port is to grow while remaining efficient and profitable, regulation is required to address anti-competitive practices, monitor performance, and enforce standards. Of course, when advocating for government regulation, one wants to steer clear of the miles of red tape that the government is fond of. A caveat of this argument is that a balance be struck, so that regulation does not stifle innovation or investment.

What makes economic sense?
Establishing the hard and soft infrastructure a port requires is a capital and time-intensive task. There also needs to be strong commitment, which the Government lacks. Colombo International Container Terminal (CICT), which is a joint venture between China Merchants Port Holdings Company Ltd. and the Sri Lanka Ports Authority (SLPA), signed a BOT agreement in 2011. The terminal was operational by 2013. In comparison, the construction of the breakwater for the Jaya Container Terminal (JCT) run by the SLPA took four years, from 2008 to 2012. CICT developed an entire terminal in less time than it took the SLPA to construct the breakwater for its existing terminal.

Lack of direction and consensus from decision makers in government have resulted in the East Container Terminal (ECT) – a strategically important terminal remaining unused and idle. It is clear that the Government needs to step aside and allow the private sector to come in. This is evidenced by the performance of the South Asia Gateway Terminal (SAGT), which is operated on a BOT basis with the Government of Sri Lanka and a consortium of local and international establishments, which was awarded the “Best Terminal in the Indian Subcontinent Region” for the third consecutive year in 2019 and won the “Best Transhipment Hub Port Terminal of the year” at the Global Ports Forum.

Percentage change in TEU handling from 2016 to 2017 (Source: Ministry of Ports and Shipping, Performance Report (2017), compiled by the Advocata Institute)

When comparing the success of the different terminals, the same conclusion can be drawn. Looking at the comparison of the number of Twenty-foot Equivalent Units (TEUs) handled by the terminals from 2016 to 2017, the CICT is the best performer. Interestingly, while both SAGT and CICT have enjoyed an increase of 10.9% and 19.3% in TEU for 2017, JCT has witnessed a 4.3% drop. The privately-operated terminals outperforming the SLPA Jaya Terminal speaks volumes.

“Seaports are interfaces between several modes of transport, and thus they are centers for combined transport … they are multi-functional markets and industrial areas where goods are not only in transit, but they are also sorted, manufactured and distributed. As a matter of fact, seaports are multi-dimensional systems, which must be integrated within logistic chains to fulfill properly their functions.”

— United Nations Conference on Trade and Development

Ripple effects of private ownership

This definition by the United Nations Conference on Trade and Development succinctly describes the importance of ports and port infrastructure, and accurately shows how ports cannot work in silos. They are an integral component in a wider network of business, infrastructure, supply chains and employment. If we want profitable and efficient ports, we need similarly performing ancillary services.

Ancillary services and ports enjoy a symbiotic relationship. On one hand, ancillary services are series of economic activities which provide services and create employment; which are dependent on the port. On the other hand, the port benefits from efficient ancillary services as they make the port and its terminals more attractive to clients and boosts its own performance.

Ancillary services include logistics, bunkering, marine lubricants, freshwater supply, off shore supplies and ship chandelling, warehousing and many more. These services, and their ability to grow is affected by the general functioning of the port, and therefore is affected by the ownership of the terminals.

For a port to survive, ancillary services need to constantly innovate and remain productive. There is no need for this article to expound on how the government is not the place to go to when in search of innovation. This is clearly the forte of the private sector. This is backed up by the fact that so far, private ownership of terminals and profitability go hand in hand. In short, if profitable and productive terminal creates a well-functioning port, allowing ancillary services to grow; then we should be looking to the private sector for investment and not the government.

What is happening with the ECT?

As mentioned above, the Colombo Port is fast growing. However, if you were to look at the Colombo Port from one of the many high rises in the Fort area, spotting the East Container Terminal would not be difficult – it’s the only terminal with nothing happening. No cranes, no ships, no activity.

The East Container Terminal is not significant simply for its disuse. Compared to the West Terminal, it is situated in the middle of the new port and the old port of Colombo. This gives it an advantage as it is closer to all other terminals and moves inter-terminal cargo a smaller distance. This gives it an important edge as inter-terminal cargo is an important component of transshipment. The depth of the ECT, at 18m allows it to handle container shipments, adding to its value. In short, the ECT has a clear operational advantage.

It is evident that the country has lost out in this scenario. In a port that is as fast growing as the Colombo port, the decision makers of this country have, for a variety of reasons, not developed the ECT. The Sri Lankan government has taken many stances over the years. It both invited expressions of interest and business proposals for the development of the ECT and cancelled tenders, insistent that the ECT will be run by the Sri Lanka Ports Authority – sending mixed signals to interested parties, and effectively ensuring that investors are reticent, and development of the port has stalled.

Politics have dictated the government’s decisions on the ECT, and the result is that the country has lost out. In shipping the government has an important role to play in regulation and ensuring standards are adhered to, but it cannot be both a player and a regulator. The performance of the JCT in comparison to the private terminals makes it clear that government is not as effective as the private sector, it should limit itself to the task of regulation. In conclusion, the ECT should be opened for private ownership as soon as possible, following the precedent set by the BOT models of the CICT and SAGT.

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Aneetha Warusavitarana is a Research Analyst at the Advocata Institute. Advocata is an independent policy think tank based in Colombo, Sri Lanka. They conduct research, provide commentary, and hold events to promote sound policy ideas compatible with a free society in Sri Lanka. She can be contacted at aneetha@advocata.org or @AneethaW on twitter .

Colombo's traffic: can solving the problem of schools help?

Originally appeared on Echelon

By Ravi Ratnasabapathy

Children hit the books; adults hit the brakes. Back to school for them, back to the gridlock for everyone.

Travelling in Colombo is now a test of patience, traffic having reached an impossible level.

For motorists, disorderly flows of vehicles, people and animals make the roads a nightmare to navigate. Toxic fumes poison pedestrians and residents alike, leaving an unsightly haze visible from the city’s high-rise buildings. Travel forums for tourists include discussions on ‘rush hour in Colombo’ and ‘the best time to miss traffic’.

Even if one gets through the traffic, parking is almost as big a hassle. School vans permanently occupy some streets, while rows of trishaws hog other parking spaces. Traffic congestion imposes a variety of costs, some obvious, some hidden, on businesses and individuals. At the most basic level, increasing congestion means longer travel times for passengers and higher operating costs for vehicle operators.

University of Moratuwa civil engineering and transport expert Professor Amal S. Kumarage estimates that Sri Lanka incurs an economic loss of around Rs. 40 billion annually due to road traffic congestion and air pollution.

Solving the larger traffic problem requires a proper public transport system, but one of the most peculiar aspects of Colombo’s problem is school traffic. The world over, school traffic creates some problems, but for policymakers elsewhere school-related traffic congestion is confined to the overcrowding and blocking of streets on or near school property. The problem with Colombo is that school traffic extends from one end of the city to the other. During peak school hours, some areas of the city are impassable. The reasons peculiar to Colombo include a clustering of popular schools in central Colombo and adjacent areas, growth in student numbers over the years, and an increasing tendency for students to commute daily from outside the city to schools within the city.

Growth in school rolls within the city has far outgrown the capacity it was designed for, and excessive centralisation of economic activity around the Western province in general and the city in particular, which draws in large numbers of commuters. In 2001, the floating population was estimated to be 400,000; today, it is thought to be 1.5 million.

“Traffic congestion imposes a variety of costs, on businesses and individuals”

A century ago, colonial rulers encountered a similar problem with congestion in the city. The Housing and Town Improvement Ordinance No. 19 of 1915 was introduced to check “the uncontrolled and irregular building spread” in the city. “These regulations attempted to control the size, orientation, spacing, height and spatial arrangement of buildings to permit sufficient direct sunlight to the buildings and maximise ventilation. The chief features of the bill were its preventive and remedial measures. These were four-fold:

1. No building was to be erected unless roads existed to serve them.

2. No building was to exceed in height the width of the street on which it was situated.

3. Rooms were to be provided with sufficient space, ventilation and light.

4. Open spaces were to be provided in the rear of the buildings as a common channel of ventilation behind continuous rows of houses.

Following this, the Geddes plan of 1921 set the boundaries of the city and designed it to make it “The Garden City of the East”. The tree-lined streets (Bauddhaloka Mawatha) and the grid system of roads in Cinnamon Gardens are legacies of that plan. The Abercrombie Plan of 1948 noted the high concentration of economic, trade and port-related activities in the city and emphasised the decentralisation of the city’s activities to the suburban areas of Ragama, Homagama and Ratmalana as satellite towns. The plan included a ring road to link these towns and the shifting of central administrative functions to Ratmalana. This plan was not implemented and neither was anything else. Despite subsequent plans in 1978, 1985 and later, nothing was enforced. The city grew organically, in an increasingly unruly manner that paid no heed to infrastructure, land or even safety constraints. The most recent spate of building apartment complexes and hotels threatens to overwhelm the water, sanitation and waste disposal infrastructure, what some now term a ‘cancerous’ development. Development, but of a malignant kind, that can eventually choke and poison the city.

Can schools be one place to start fixing things?

It is absurd that people should have to send their children halfway across the country to attend school. To the author’s knowledge, school vans routinely travel from as far as Embiliptiya and Hikkaduwa. This is a colossal waste of fuel and bad for children who are giving up family time or extracurricular activities in exchange for commute time. Parents are lured into these insane commutes by another insane system: the perception that job, marriage and all future prospects are tied to the school one attends, regardless of the actual quality of education. Previously, parents aspired to send children to central colleges within their district that provided excellent facilities, education and the opportunity to enter university.

One of the aims of expanding the system of central colleges in 1943 (when 11 were established) was to check the shift of the rural population to urban areas. The colleges, modelled after Royal College with properly equipped with science labs, libraries, playgrounds, etc, catered to students within a six-mile radius. The number was expanded to 23, and by 1944, there were a total of 54, on the basis of one per electorate.

The schools had good teachers and the principals were selected on merit (by the Public Service Commission), making them immune to political pressure and enabling them to discharge their duties without fear or favour.

“The selection of teaching and other staff was done according to a pre-designed specific cadre. The all-round educational needs of the children were reckoned as the all-important factor, and more than not, the principal was consulted in the matter of appointments. Sometimes he was invited to serve on the selection board. There was also the assumption that teachers selected to central colleges had to be necessarily proficient in some extracurricular activity and be willing to assist in the afternoons at no extra remuneration” – CTM Fernando

The purpose of the Grade 5 scholarship exam was not to send even more children to schools in Colombo, but to gain admission to the closest central college. In its heyday, the quality of the products of the central colleges was not questioned, and that “all central colleges without exception served the purpose for which they were established is borne out by the fact that a vast majority of our professionals and other governmental and non-governmental executives are the products of these central colleges” (Fernando).

The decline of colleges was due to short-sighted politics. People were clamouring for more central colleges and the MPs responded by simply renaming small schools as “central colleges,” lacking the facilities and teaching staff. The politicisation of teacher selection meant appointments of central college principals were taken over by the ministry. “This new breed of politically appointed principals were often accommodated to ‘look after the duties of the principal’, as they lacked the requisite qualification and the experience, not to mention personality, to be one. When some of them lacked any competence in English, it was argued that English was not needed in the “Swabhasha system”.

Their knowledge of education and educational administration was woefully pathetic; but none dared to comment” (Fernando).

“The recent spate of building complexities can be termed a ‘cancerous’ development”

Can this system be recreated? Central colleges lack ‘cachet’, so we can never return to that and, depending on the politicians who destroyed an existing system, to recreate one is far too optimistic; but could affordable private schools, teaching in English, restore the system of education in the provinces?

If the government has no money to spend building schools, the logical step would be to allow the popular Colombo schools to build branches outstation. Several smaller ‘international’ schools such as Lyceum already have branches outstation. Initial funding could come from investors, either local or foreign, but on the basis that fees would be charged, which is the case at international schools. That parents pay heavily in ‘donations’ to get into popular schools is well known. Paying for extra tuition is widespread. Add to this the cost of paying for long distance school transport. If the right model can be found, paying proper fees for a decent education, close to home, would be an attractive option for parents and ease some of the chronic congestion in the city.

The government would need to implement proper planning regulations to check the growth of schools in congested areas while encouraging them to set up in key locations elsewhere. Perhaps the buildings and facilities of the old central colleges could be upgraded and rebranded to attract students from the area. Instead of the proposed purchase of Mi17 helicopters (apparently for use in UN missions), the government should spend this money on school infrastructure. Volunteer teachers from overseas and teacher training programmes could help fill in the gaps for teaching staff.

These are only suggestions, but policymakers need to start thinking outside the box; even dusting off colonial era plans would be an improvement.

Yahapalanaya: A tale of confusion and ineffectuality?

Originally appeared on Echelon

By Ravi Ratnasabapathy

“Whenever we send papers for approval, authorities first look at how to stop it. The only way to activate it is to give something and because we don’t, we have to budget 12-18 months – wait 12-18 months where they (authorities) find different excuses not to give approval.”

Many businessmen are disgusted by the state of the government: rules are uncertain and nothing ever seems to get done. Many also claim that things have got more difficult under the Yahapalanaya regime.

Is this true?

The government has two components, elected representatives (politicians) and non-elected bureaucrats. Policies are normally the result of both political and bureaucratic intervention. There is no question that Sri Lanka’s bureaucracy has been decaying for decades, but it now seems to have almost ground to a halt. It is difficult to judge if the bureaucracy has become a lot worse in the past few years – there have been few obvious changes to the system that prevailed before.

What’s changed are politicians, and particularly, a change in the structure of power. What typically used to happen in the past was that when businesses encountered obstacles in the bureaucracy, they would simply approach a politician. Under the previous regime, power was centralised and resided in a few positions.

If a businessman complained to the right channel, a quick response and a firm decision could be expected. These decisions simply cut through all red tape and regulations, which meant the bureaucracy was simply bypassed. The inefficiencies of the bureaucracy thus remained hidden from view.

Under Yahapalanaya, power is diffused and split among warring factions, contributing to an uncertain policy framework. Lacking an overarching vision, few have a clear idea of policy and even fewer are willing to take bold decisions that cut through the bureaucracy. When businesses approach politicians for solutions, they are directed into the maze of the bureaucracy where they experience the grim decline of decades.

This may explain the dilemma, but what is the solution?

Investors shy away from countries where rules are unclear or are constantly changing, and where approvals are dependent on ad-hoc decisions. What is needed are simple, clear rules and standardised processes that deliver predictable outcomes. If X paperwork is submitted, an approval should be received within Y time with no further intervention.

“The solution is not to allow politicians to bypass laws, but to fix the processes”

The solution is not to allow politicians to bypass laws and regulations, but to fix the processes. This will not just help investors and businesses, it helps the public and small businesses who must get approval for many things from cutting a tree to digging a well or obtaining an electricity connection. Migrant women have to submit a myriad of documents beyond those specified in the Circular and make multiple visits to the DS office in order to obtain the Family Background Report.

Small businesses struggle with taxes. The Inland Revenue refuses to issue VAT registration to a new business unless they can show that they have reached the threshold (Rs3 million per quarter), forcing them to incur the additional cost of VAT. Once registered, even if the business later falls below the threshold, they are harassed for payment, even though they are technically no longer liable.

Small businesses and individuals lacking access to politicians have been dealing with these issues all the time. Fixing the processes should be a priority, but this is an enormous task. It can only be approached by multiple taskforces working together.

At the top, there needs to be a central “Administrative Simplification Agency” – promoting administrative simplification “across the board” for businesses, citizens, and the public sector. The central bureau must be supported by smaller teams working in all the departments to cut and simplify paperwork. Outside taskforces, perhaps supported by external consultants, can help with co-ordination and keeping up the pace of reforms. Relevant partners and affected parties can be involved in the administrative simplification reforms, which will contribute to gaining constituency.

The agency must have the highest level of political backing. The approach is to re-engineer processes, cutting redundant regulations, approvals or documents.

The challenge is to balance the use of administrative processes to implement public policies, minimising the interferences of these requirements in terms of the resources needed to comply with them.

All this is back office work that is dull, dreary, difficult and lacks political visibility. No politician will back such a venture as they will get no political mileage from this.

Transparency is needed in the cutting of red tape, which brings public support, builds political capital and sustain reform.

There is a useful model in Peru that set up a tribunal to gather and evaluate proposals from citizens for deregulation, and to check up on how various bureaucracies were responding to the law. To encourage public participation, bright yellow boxes were placed in the agency, government offices, and at all the radio, television and newspaper outlets to make it as convenient as possible for people to deposit their grievances. The media were encouraged to review the grievances they received, and when they saw an astonishing or outrageous story, they took up the cause, creating the kind of public pressure that politicians found impossible to ignore.

“The agency must have the highest level of political backing. The approach is to re-engineer processes”

The tribunal did not cut the red tape. What it did was bring the problems to public view, and involved the public in the process. The body that cut the red tape worked after the tribunal but in Sri Lanka, the mechanism to cut the red tape must be set up beforehand. This must be done without much fanfare, otherwise the public will once again witness the delays in setting up such a body. Ideally, some preliminary analysis should be done beforehand and several solutions must be kept ready for immediate implementation once the publicity campaign is launched. People should experience real results.

The process must also include evaluation and measurement of changes so further improvements can be done. The principle is to first organise and once this is done, as far as possible, to securely digitise. (Current government efforts to digitise are rickety and intrusive, requiring registration via social media accounts, and are prone to failure).

In Peru, over the years the Tribunal was in operation —with the President, by law, in attendance—more than 200 bureaucratic knots were untied. The time previously required to fulfill hundreds of different kinds of official procedures, including obtaining a passport, applying to university and getting a marriage license, was cut across the board by at least 75 percent.

At the end of President Garcia’s term in July 1990, 79% of the population (and 84% of the poorest among them) rated the Law of Administrative Simplification as the best law enacted during the 1985-1990 legislative period.

If the government is willing to take this approach, it can result in a win-win situation for politicians and the country.

In state business, the agency problem is on steriods

Originally appeared on Echelon

By Ravi Ratnasabapathy

Inefficiency in state enterprises is a common, if not universal, problem. Citizens are often frustrated by poor service at public institutions. Public hospitals are free, but how many senior executives use them? When holidaying overseas, Sri Lankans will use the railway, but when was the last time they rode on Sri Lanka’s subsidised railway?

Where there is a choice – private hospitals or cars – people may escape poor state services by using alternatives; but the poor aren’t as fortunate.

However, there is no escape from the cost of inefficiency. Inefficiency and waste in state enterprises must eventually be paid for, either by high prices (needed to cover all the waste) or higher taxes. Why is this common in Sri Lanka, but less so in developed countries? The issue is with governance, specifically the problem of agency.

The principal-agent problem is common to any enterprise, private or public, not directly managed by its owners. When an owner manages a business, the interests of the business and the owner are perfectly aligned. When the owner hires a manager to run the business, problems arise if the interests of the manager conflict with that of the owner.

“When an owner manages a business, the interests of the business and the owner are perfectly aligned. When the owner hires a manager to run the business, problems arise if the interests of the manager conflict with that of the owner”

The problem with state enterprises is that, apart from the standard agency costs of a business, they also suffer political costs. We will come to this presently, but in effect, two sets of costs must be managed for a state enterprise to function effectively, so the regime of governance needs to be much stronger than for private entities. In Sri Lanka, the governance regime is a lot weaker, leading to underperformance and abuse.

DEFINING THE PROBLEM OF AGENCY
Shareholders, the ultimate owners of a company, as principals, elect the management to act and take decisions on their behalf. Managers are supposed to employ the resources of the business in a manner that will maximize shareholder wealth. The manager’s best interest, however, is to divert these resources to enhance their personal status (through perquisites such as chauffeured limousines, business class travel) and maximise their own wealth (through excessive pay or corruption).

An example may be seen in recent news reports of a payment of Rs75 million paid to senior managers of People’s Bank and allegedly excessive payments to the top management of SriLankan Airlines. According to a COPE report, the ETF has paid incentives amounting to Rs74.8 million and bonuses of Rs44.5 million, contrary to treasury circulars. Another instance is Hunter and Company PLC, where the auditors were dismissed when they insisted that disclosure was necessary with regard to a bungalow that was being used by key management personnel. Later, a shareholder of the company moved to convene an EGM to call for an explanation from Hunters’ directors with regard to the “disappearance of a Rs2.5 million cheque in favour of a Mr Mahesh Gajanayake and about directors’ remuneration over and above the limit set out in the company’s Article 107”.

The reduction of agency costs is regarded as the essential function of company law and corporate governance.

THE PROBLEM IN STATE ENTERPRISES: POLITICAL AND AGENCY COSTS
State ownership creates its own agency problems, which are caused by the separation of politicians and bureaucrats who oversee SOEs from “the citizens” on whose behalf the enterprises are ostensibly owned. This creates an extra level of agency.

SOEs are ultimately owned by citizens, but run by managers, who are controlled by politicians. Politicians determine or otherwise influence the appointment of key management and must hold the managers accountable.

Unlike shareholders, politicians have not invested their own money in the business. As they have no stake, there is no particular interest in ensuring that it is well run. Politicians, however, have incentives to direct SOEs to achieve economically inefficient objectives for political purposes, giving rise to political costs. These may be benign, if policies enhance social welfare, even if they fail to maximize shareholder value, but most often they are malign, favouring political allies at the expense of public welfare.

The real owners, the citizens, have no voice and little interest in how the business is run.

CITIZENS AS SHAREHOLDERS: THE COLLECTIVE ACTION PROBLEM
Citizens are the ultimate “owners”, but cannot exert any meaningful oversight as:
(a) they have no legal standing as owners; and
(b) the fragmented nature of the “ownership” creates a collective action problem: no one citizen, even ones who are seriously interested, has an incentive to bear the costs required to monitor the managers.

Oversight is costly, as time and effort must be spent monitoring performance if malpractice is to be detected, a task made more difficult as citizens lack ready access to information. As no direct rewards accrue to a diligent citizen from such action, there is little incentive to expend the effort to do so; they will depend on politicians for this. As discussed previously, politicians have no incentives to do so.

The main mechanisms to address these two layers of agency costs are general corporate laws on the one hand, and general political and legal institutions on the other; but for reasons discussed later, they are weak.

Therefore, the performance of state-owned enterprises (SOEs) suffer from both political costs (i.e. costs associated with the control of firms by politicians who have political goals that differ from economic efficiency) and agency costs (i.e. costs resulting from managerial pursuit of private benefits at the expense of the firm), leading to chronic inefficiency and underperformance.

THE AGENCY PROBLEM: A DISTINCTION BETWEEN PRIVATE AND PUBLIC
As observed above, the agency problem is present in all corporate entities, but it is important to note a fundamental distinction between private shareholders and citizens.

Investors in private companies take a risk when they put money down, but it is one taken of their own volition. Shareholders subscribe voluntarily to shares; they are not compelled to invest.

Generally, people only invest in private companies if they know and trust the management. If the business does not perform to expectations, they will earn a lower return. If it fails, the shareholders will lose, but it is their own money, voluntarily invested, that is lost.

With SOEs, the important difference is that, unlike in a company where willing investors are taking conscious decisions, the investment in an SOE is by citizens who contribute involuntarily and unwittingly. Taxation is compulsory, and in the form of indirect taxation, all citizens contribute to SOEs.

In the most extreme case, if shareholders are disgusted and can find no remedy, they still enjoy a final option: exit. They may sell their shares. For citizens, unless they choose to migrate, there is no exit option.

Businesses must risk their own money when they go into trade, but governments risk other people’s money. If a business does not earn a profit, the owner will need to keep infusing funds, and this provides a powerful incentive to improve efficiency. If the owner is incapable of improving the business and is unable to infuse more funds, a mismanaged business will eventually close.

SOEs in Sri Lanka, however, enjoy implicit state guarantees and funding via state banks, which undermines even the threat of bankruptcy as a source of managerial discipline. The continuous accumulation of losses is only possible because of this factor. An example is SriLankan Airlines, which has accumulated losses of $1 billion and a negative net worth, but continues to operate with funding from state banks. For context, the current IMF facility (stand-by arrangement) is $1.5 billion.

THE PROBLEM OF AGENCY WITHIN THE POLITICAL CONTEXT OF SRI LANKA
As citizens lack the interest or wherewithal to monitor SOEs, efficiency is entirely dependent on the system of governance. Distorted incentives and weakened mechanisms present structural challenges to efficiency.

“Investors in private companies take a risk when they put money down, but it is one taken of their own volition. The investment in an SOE is by citizens who contribute involuntarily and unwittingly.”

• Patronage
  Politics in Sri Lanka is based on patronage. Ministers face pressures from constituents for jobs or favours. State sector jobs are especially prized for status and security. Politicians believe that granting jobs is a necessary condition for re-election. In general, lawmakers and ministers in Sri Lanka across party lines and ideological divides view SOEs as providing avenues to create employment.

  SOEs incorporated as limited liability companies enjoy greater autonomy in the management of their affairs, allowing the minister to bypass treasury or budget restrictions placed on recruitment. In the case of state banks, it is possible for the minister to exercise patronage by directing lending on preferred terms to selected constituents.

  This leads to problems of over-staffing. The more staff are hired, the greater the potential votes, leading to the chronic over-staffing evident in many SOEs. The allied problem is nepotism – the recruitment of people based on relationships instead of ability. Recruiting unsuitable candidates weakens the general level of competence within the SOE, which adversely impacts performance.

  Therefore, patronage is particularly harmful as it has a dual impact on performance; the hiring of excess staff adds to unnecessary costs, while nepotism leads to diminished efficiency.

  A COPE report highlights how the State Engineering Corporation recruited 4,512 employees when the available vacancies were only 41. The problem is pervasive. The Secretary to the Treasury Dr. Samaratunga noted that recruitments to SOEs take place without the approval of the Management Services Department of the Treasury. “All SOEs across the government—public corporations, statutory boards or government-owned companies—have effected recruitment without proper approval of the management services”.

• Corruption
  Corruption is endemic in Sri Lanka’s political system. The root of the problem lies in campaign finance. Changes in the 1978 constitution removed limits on campaign spending and the need to disclose sources of funding. This has led to a massive increase in spending with candidates seeking to outspend each other in order to win. Those who succeed come into office having either made major investments or incurred significant debts, usually a combination of both. This creates an in-built incentive for corruption. In the absence of strong governance mechanisms, it is hardly surprising if MPs do not succumb to temptation. spending a good deal of their time in office either recovering election spending or raising funds for their re-election campaign. This explains the scramble for positions in the government, which allows control over resources. The greater autonomy of SOEs makes them particularly tempting targets.

“Greater efficiency can only be expected through better governance, which requires addressing fundamental weaknesses in the political system and adopting a comprehensive system of corporate governance for state enterprises”

LACK OF A COMPREHENSIVE SOE CORPORATE GOVERNANCE FRAMEWORK
The Secretary to the Treasury has noted that SOEs have a “general lack of governance practices, lack of accountability mechanisms, issues associated with lack of clear policy and legal frameworks, and weak supervisory roles played by the management and board of directors”.

Many countries have adopted comprehensive corporate governance practices to strengthen the governing bodies that oversee and control (shareholders or owner meetings, board and management, internal monitoring structures), while defining clear rules of engagement between the different actors, as well as increasing transparency and accountability towards stakeholders.

These are lacking in Sri Lanka, and the overall system of governance still seems inadequate to hold SOEs to account.

Conclusion
Perverse incentives and weak governance greatly increase political and agency costs of state-owned enterprises. It is, therefore, not surprising that a study by Lalithsiri Gunaruwan found that “inefficiency is a common feature in all Sri Lankan SOEs, across all organisational categories”. Greater efficiency can only be expected through better governance, which requires addressing the fundamental weaknesses in the political system and adopting a comprehensive system of corporate governance for state enterprises.

The compelling case for greater economic freedom

Originally appeared on Daily FT

By Alexander C. R. Hammond

The Fraser Institute, a Canadian think tank, published the 22nd edition of its annual Economic Freedom of the World (EFW) report. For a long time, we’ve known that, on average, freer economies are richer, grow faster and have longer life expectancies.

But the 2018 edition of the EFW gives us more insight than ever before into the intrinsic link between economic freedom and other measures of human wellbeing — such as infant mortality, equality, happiness and extreme poverty rates. 

To rank the level of freedom for 162 economies, the EFW analyses 42 indices across five major areas (size of government, legal system and property rights, sound money, freedom to trade internationally, and regulation), using figures from 2016 — the most recent data available.

Yet again, Hong Kong takes the top spot in the EFW rankings — a position it has held since 1980. Singapore remains second, as it has since 2005. The remaining top 10 most free nations are: New Zealand, Switzerland, Ireland, the United States, Georgia, Mauritius, the United Kingdom, Australia, and Canada, the latter two being tied for 10th spot. The three least free countries are Argentina, Libya, and Venezuela. Out of the 162 countries the EFW report measures, Sri Lanka ranks in 106th place. Sri Lanka’s position in the report is a staggering 10 places lower than it was in 2017. Of all the areas the report analyses, Sri Lanka experienced the steepest decline in ‘Legal Systems and Property Rights’ – a drop from 5.28 to 4.93. Sri Lanka specifically lags behind in judicial integrity, openness to trade, and access to sound money. 

The positions of the economies in the EFW matter because there is a significant correlation between economic freedom and human wellbeing. To analyse this, the Fraser Institute splits the 161 measured countries into quartiles (i.e. each quartile represents a quarter of the economies) based on their level of economic freedom.

The average income in the freest quartile of nations is a staggering 7.1 times higher than the average income in the least free quartile ($40,376 and $5,649 respectively). The bottom 10% of income earners in the freest countries make, on average, 7.9 times more than the poorest 10% in the least free quartile. 

Comparatively, extreme poverty (as defined by the World Bank as an income of than $1.90 per day) is almost non-existent in the freest countries. By comparison, almost a third of all people in the bottom quartile of economies live in extreme poverty. It is clear, then, that for the absolute poorest in any given society, it is unimaginably better to live in a freer economy.

Of the four quartiles, Sri Lanka belongs to the third quartile, which is suitably titled “Non-Economically Free Countries”. With an average GDP per capita of $3,842, Sri Lanka’s average income is an incredible 2.9 times lower than the average income in this quartile ($11,465). As the freest nations have an average income of $40,376 it undeniable that on average, freedom and prosperity are heavily correlated.

But economic freedom isn’t just about money. Take life expectancy for example. In the freest countries, people live on average 15 years longer than those in the most restrictive systems. For many people, that amounts to a difference between knowing one’s grandchildren—or dying before their birth.

Infant mortality is another measure that highlights the immeasurable human cost of isolationist economic policies. Measured in the number of deaths per 1000 births, the devastating death rate in the least economically free nations is 6.8 times higher than the rate in the freest —42.2 and 6.2, respectively.

Problems of misogyny also creep in. When looking to the United Nations (UN) Gender Inequality Index, where zero represents complete gender equality and one represents complete inequality, the least free countries have an average score of just 0.46–compared to 0.18 for the freest quartile.

Free people are also happier people. The UN World Happiness Index asked respondents to rank their lives on a scale of zero to 10, with 10 representing the best possible life and zero representing the worst imaginable. The most economically liberal countries once more win out: the EFW shows that the freest quartile has an average score two points higher than the least free – 6.5 compared to 4.48.

There is more good news. Despite our tendency toward pessimism about the current state of the world, the EFW shows that economic freedom has increased substantially over the last 25 years and that the largest gains have been made in developing nations.

In 1990, the average economic freedom score for a “high-income industrial” country was 7.18 out of 10, compared to just 5.28 for the average “developing” country—a gap of 1.90. By 2016, that gap had narrowed by 46%: developing economies were a mere 1.06 points behind the industrial nations. The rapid increase in the EFW score by many developing economies was primarily driven by gains in the area of trade liberalisation and sound money (meaning the stabilisation of purchasing power by combating inflation.)

The result of these advances is that, when weighted for population, the average person now lives in a far freer economy. Consider this: if the world of 1980 were a country today, its economic freedom score would place it at 160 out of 163 nations — ranking two places below war-torn Syria. But if a 2016 world was a nation in 1980, it would be the 12th freest, with a score of 6.62 — slightly above 1980 Australia.

The latest EFW once again shows the deep and continued link between economic freedom and important indicators of human wellbeing, including; wealth, poverty alleviation, life expectancy, inequality, infant mortality and happiness.

It is clear that despite the many challenges that remain, the poorest in society continue to benefit the most from secure property rights, loosened regulatory barriers, and greater trade liberalisation. Long may policymakers remember this so that the march toward greater economic freedom continues.

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(The writer is the Research Assistant for HumanProgress.org. He writes about economic freedom, globalisation, and human wellbeing. Hammond is a graduate of History and Politics, from the University of Exeter in Great Britain).

SriLankan Airlines and the Case for Privatisation

Originally appeared on Sunday Times

By Aneetha Warusavitarana

The government’s policy document ‘Vision 2025: A Country Enriched’ positions Sri Lanka as a knowledge based, highly competitive, social market economy; and much of the content of the document is in line with increasing competition, productivity and efficiency.

The state of SriLankan Airlines, however, is in the antithesis of efficiency and productivity. The airline has been raking in losses for years now, and on Monday the 7th of January, the president appointed a committee to once again work on its restructuring. The new committee will assess the previous reports and restructuring plans and have now completed their recommendations.

It is evident that state ownership of this airline is not working, so what are the solutions?

Back when SriLankan Airlines was still Air Lanka, it was privatised. The government sold a 40% shareholding to Emirates Airlines in 1998, and contracted Emirates to manage the company for ten years with the government of Sri Lanka retaining majority shareholding. In 2008, the government took back complete ownership of the airline, and from then on, the losses began [1].

Source: Sri Lankan Treasury Annual Report (2008, 2018)

Privatisation has worked in the past, and the argument for privatisation of a state-owned airline is strong. To begin with, the aviation industry is an investment heavy industry, which requires expertise and foresight. Beyond procuring airplanes and terminal space, there is a web of domestic and international regulations to navigate, not to mention standards to adhere to. From then on, once you have the planes and are ready to start, the airline needs to be competitive in order to survive. It requires strong management and effective marketing, with a team that can adapt to external shocks in fuel prices, domestic and international politics, and changes in foreign exchange rates. Even if it has the money, a government is ill-equipped for this task, evidenced by the track record of the airline in state hands. During the period of 2009-2017, when the airline was under state management, it has accumulated losses of Rs. 148,707 Mn [2]. Repeated promises of restructuring or turnaround have remained unfulfilled.

While privatisation of SOEs, and specifically the privatisation of state-owned airlines is theoretically sound, appropriate implementation is necessary. The Organization for Economic Co-operation and Development (OECD) has done extensive research on privatisation of state-owned enterprises and has identified some key features that successful privatisations have had in common. Detailed below are some features that are relevant to Sri Lanka [3].

• Strong political commitment to privatisation at the highest level in order to overcome bureaucratic inertia and to resolve inter-institution rivalries in order to move the process forward.

• Clearly identified and prioritised objectives in order to provide the policy with focus and a sense of trade-offs that may be required.

• A transparent process to enhance the integrity of the privatisation process, gain credibility with potential investors and political support from the public.

• An effective communication campaign to explain the policy objectives of privatisation and the means by which they are to be achieved in order to respond to public concerns and to gain support for the policy.

• Allocation of adequate resources in order to meet the demands of the shift to privatization.

Partial privatisation of SriLankan as a more viable solution?

Privatisation does not always have to be full divestiture of the asset; the option of partial privatisation is open. In this scenario, governments sell a minority stake and retain a degree of control, while the enterprise reaps the benefits that accompany privatisation. The process of privatisation will bring with it a much needed infusion of private equity, new management, clearly defined guidelines and a more flexible financial structure. The focus of the airline will shift towards increasing profitability and efficiency, with the aim of increasing shareholder value. Given Sri Lanka’s past success story with the partial privatisation of Air Lanka, it is possible that this solution will be pursued or at least considered.

The pitfall of partial privatisation

Drawing from the experience of privatisation in other countries when governments remain the majority shareholder, the space for political interference continues to exist [4]. This is the biggest potential pitfall, and the SriLankan experience can attest to the damage this can cause. As of now the government is struggling to create interest in the purchase of the airlines, and the fear that the government will once again step in and interfere with the management is the most probable reason behind this.

If the government is considering partial privatisation, steps should be taken to ensure that the government’s interests remain those of a shareholder and not those of a political entity. Given past track records, assurances of non-interference are unlikely to inspire confidence.

In 2015 the Hon. Prime Minister, Ranil Wickremesinghe mentioned that the government was considering the Singaporean Temasek model of a holding company as a solution to the problems of SOEs in Sri Lanka [5]. Establishing a holding company for SOEs would help bolster investor confidence and improve the functioning of the airline. It would professionalize the management and create distance from local politics [6]. It is a shame that even though this idea was brought out in 2015, it was never implemented. The question that remains is whether the government will take this into consideration and take decisive action on this problem four years later.

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[1] Ratnasabapathy, R. (2016). The renationalisation of SriLankan airlines and the follies of state enterprise. In: The State of State Enterprises in Sri Lanka. Colombo: The Advocata Institute.

[2] Ten Year Review: SriLankan Airlines Annual Report 2016/17. Colombo.

[3] Privatising State-Owned Enterprises: An Overview of Policies and Practices in OECD Countries. (2003). Paris: OECD Publishing.

[4] Ibid

[5] Wettasinghe, C. (2015). Temasek model to make public enterprises viable. Daily Mirror. (Online - Accessed 16 Jan. 2019)

[6] Kim, K. (2018). Matchmaking: Establishment of state-owned holding companies in Indonesia. Asia & the Pacific Policy Studies, 5(2), pp.313-330.

The rationale for the Sri Lanka - Singapore FTA

Originally appeared on Echelon

By Ravi Ratnasabapathy

Small countries have small domestic markets; a focus on exports will help overcome this natural limitation.

Sri Lanka’s economic growth has been sub-optimal for decades. The standard excuse for this was the war. When it ended in 2009, there was renewed hope that the country would at last reach its potential, but this was not to be. After a brief spurt, post-war growth has reverted back to the long-term average (4%) in each of the five years over 2013-2017. This will not be any better in 2018. Post-conflict countries expect to experience a sustained “peace dividend”, but Sri Lanka’s 2009-12 boom was surprisingly limited both in scale and duration.

There are several issues in the structure of the economy, the most important of which is the lack of export growth.

Small countries have small domestic markets, and a focus on exports will help overcome this natural limitation.

Sri Lanka retreated from a policy of openness since 2000’s raising tariffs and regulatory barriers, resulting in a sharp contraction in exports as a share of GDP, which fell from a high of 33.3% to about 12.7% of GDP in 2016. Sri Lanka’s share in global exports has also declined. The country’s share in world manufacturing exports increased from 0.05% in the mid-1980s to about 0.11% in 1999, but has since declined, reverting to the level in the 1980s. In Malaysia, which has a similar population, exports are 71.5% of GDP.

THE ROLE OF FREE TRADE AGREEMENTS
The government has re-prioritised international trade as a driver of economic growth, and FTAs are a part of this process. FTAs open opportunities for Sri Lankan exporters and investors to expand their businesses into overseas markets. Imports under FTAs mean greater competition in the local market, but this is no less important as it helps to maintain and stimulate the competitiveness of local firms.

It is only constant competition that drives productivity, which is the basis of sustainable growth. To take an analogy from sports, if Sri Lanka’s cricketers focused mainly on domestic club cricket, they are unlikely to perform well in the international arena.

Apart from keeping firms efficient, competition benefits local consumers through access to an increased range of better value goods and services.

There is a cost to this, as some firms may lose out; we will come to this.

GLOBAL CHALLENGES
Sri Lanka’s already-weak export game is about to take another knock from BREXIT and Trump. Therefore, it makes sense to increase regional trade to offset the potential decline in current markets. Countries generally trade with their neighbours, except in South Asia.

Regional trade in East Asia & the Pacific makes up 50% of total trade; in Sub-saharan Africa, the figure is 22%, but in South Asia, it is only 5%. Singapore is the current chair of ASEAN and one of its most respected members. For a small country thus far ignored by ASEAN due to the conflict and inconsistent policies, the FTA provides an important signal of a policy orientation towards greater trade and investment with the region.

Greater openness brings many benefits, but there are many stakeholders with different interests, so policy needs to take into account these varying interests.

THE IMPACT OF PARA TARIFFS ON PRICES
The customs tariff, together with the para tariffs of PAL and CESS, are taxes that are imposed on imported products that are not applied to the domestic equivalent. Since foreign exporters do not change the price that they charge for the product, the domestic price of the imported product rises by the amount of the tariff. The impact of this on various stakeholders is discussed below:

Domestic producers
Domestic producers competing with equivalent imports do not have to pay para tariffs, and so have an advantage over the imported product. As the prices of imported products rise, domestic producers have the opportunity to raise their own selling prices because competing with imported products now costs more.

It is always the case that the prices of domestic products rise when tariffs are imposed on imports. If it were otherwise, it would make no sense. The very purpose of the tariff is to enable the domestic producer to sell his product at a higher price. Therefore, domestic producers gain when the government imposes a tariff on competing
imports.

Domestic consumers
Domestic consumers of the product are equally affected by the imposition of the tariff. They must pay a higher price for both imported and local products. It is domestic consumers who pay for the protection of domestic producers, not foreign firms.

Government
The government collects tariff revenue on whatever quantity is imported, although they do not collect it on the local product. The benefit the government creates for the local producer by raising the price of imports is collected by the local producer.

There are two domestic winners (domestic producers and the government) and one domestic loser (domestic consumers) because of the imposition of a tariff.

On the face of it, there appears to be more winners than losers, but in terms of sheer numbers, consumers in any industry far exceed the number of producers (or their employees). Consumers, however, are unorganized, so their interests may end up being overlooked.

MANAGING THE DOWNSIDE
As seen above, there are losers and winners in tariffs. When tariffs are cut, local producers may lose, although the government may still gain as a greater volume may offset a reduced rate. Managing the downside is necessary; local firms will need to compete, but they may need support to improve productivity and a period of adjustment.

The draft Trade Adjustment Programme (TAP) prepared by the Ministry of Development Strategies and International Trade provides a framework to tackle problems faced by affected industries. The underlying principle is to smoothen the transition of firms and workers to new market conditions, post liberalisation.

The government needs to work closely with each sector to tackle policy and regulatory constraints, and fix missing ‘public goods’-inadequate public services, infrastructure, etc, that sap the productivity of local firms.

LIBERALISATION OF SERVICES, MOVEMENT OF PROFESSIONALS
There has been much debate over the movement of people. Various professional associations have alleged that the FTA will lead to an influx of incompetent people who will undercut professionals or provide substandard services.

These fears are misplaced. As per the Schedule of Specific Commitments (Chapter 7, Annex 7A ), the movement of persons is restricted to intra-firm transfers of specific categories, which is no different from current provisions under the BOI. The movement of professionals outside this limited sphere is closed, hence, the question does not arise.

In fact, Sri Lanka faces shortages of both unskilled and skilled workers. A survey by the Department of Census and Statistics indicates that nearly half a million vacancies exist in the private sector (excluding micro enterprises). The state sector employs far too many people, burdening taxpayers, while depriving the private sector of people, but even a drastic reduction in the size of the state may not solve the skills shortages and mismatches.

Labour scarcities have an adverse impact on growth, while shortages of skills impacts both productivity and growth. Studies have shown that the migration of people benefits both the sending country and the receiving country (van der Mensbrugghe and Roland-Holst 2009). The welfare gain for the destination country is because immigration increases the supply of labour, which raises employment, production and thus GDP (Ortega and Peri 2009).

A strong case can be made to allow specialised skilled migration to fill gaps that exist in the market. The skills of migrants will be complementary to those of existing workers, therefore, all workers experience increased productivity, which in turn, can be expected to lead to a rise in the wages of existing workers.

EXPERIENCE WITH THE FTA WITH INDIA
The discussion so far has been abstract, how do we know how the FTA will actually work?

The experience of the much-criticised FTA with India that was signed in 1999 may indicate some of the potential.

The Indian FTA is a very restrictive document: it outright excludes many major sectors in which both countries have comparative advantages – i.e. the very rationale for trade. India subjects 15 out of the top 20 Sri Lankan products to either a tariff or quota. Sri Lanka, in turn, offered additional concessions (of only 3.5%) on only 7 of India’s top 20 products, the rest being either excluded or were already tariff-free.

It was, in fact, an agreement designed to fail, entered into only as a formality.

Despite this, export volumes have grown significantly and India has become the third-largest destination for Sri Lankan exports:
“…nearly 70% of Sri Lanka’s exports go to India using FTA provisions… While India has been the largest source of imports for Sri Lanka (even before the FTA) for many years, India has acquired the position of being the third-largest destination for Sri Lankan exports – a rank achieved through the benefit of the tariff preferences in the FTA.” (Institute of Policy Studies)

The export basket has also diversified:
“If one looks at the Sri Lankan export basket destined for India before the FTA, which was dominated by agricultural products such as cloves, peppers, areca nuts, dried fruits, nutmeg, etc., exports have now (after the FTA) become more diversified. It includes boats/ships, wires and cables, glass and glassware, apparel, woven fabric, etc. In 2013, the largest Sri Lankan export to India was boats and ships.

Sri Lanka exported 505 product items to India before the FTA in 1999, the product items exported increased to 1062 by 2005, and to 2100 product items by 2012, after the implementation of the FTA. This quadrupling of the product items during 1999-2012 provides further evidence for Sri Lanka diversifying its export basket to India after the FTA came into operation in 2000.”

The impact of the FTA is not well known because it did not affect prominent export industries. The beneficiaries were firms that were working in other areas. Neil Marine is not exactly a household name, but is among South east Asia’s largest manufacturers of fiberglass boats. The North Sails Group, the world’s largest producer of sails and a sail technology leader, manufactures many of its products in Sri Lanka.

Trade only takes place to mutual benefit. Given sufficient time, the FTA with Singapore will have similarly beneficial outcomes.

How import taxes drive up the cost of living

Originally appeared on Daily News

By Ravi Ratnasabapathy

“The Lanka Confectionery Manufacturers Association (LCMA) is actively seeking Government intervention to introduce a ‘negative list of manufacturing’ to safeguard local firms engaged in the industry before opening up the economy to giants like India and China.” - DailyFT 25 September, 2017

The above is an illustration of a phenomenon that is common in Sri Lanka – an industry seeking protection from foreign competition. This protection generally takes the form of a tariff – a tax that is imposed on the imported product that is not applied to the domestic equivalent. In the above instance the LCMA is requesting that the existing tariff protection enjoyed by the industry is continued even if a Free Trade Agreement (FTA) is signed. (An item in the “negative list” of an FTA is not subject to the FTA). For example imported biscuits are taxed at a total of around 107% of price, if biscuits are on the negative list this tax would continue, despite the FTA.

Although a tariff is imposed, this does not generally cause foreign exporters to reduce the price that they charge for the product. Therefore the domestic price of the imported product rises by the amount of the tariff.

Domestic producers competing with these imports do not have to pay the import tax so have an advantage over the imported product. As the price of imported products rise, domestic producers have the opportunity to raise their own selling prices because competing imported products now cost more.

Will the domestic producer raise his prices? Yes, it makes no sense otherwise. If the domestic producer were to set his prices at exactly the same level he would if imports were not taxed there would be no point in seeking tariff protection from imports. They very purpose of the tariff is to enable the domestic producer to sell his product at a higher price. The domestic producer is thus better off as a result of the tariff.

What happens to consumers?

Domestic consumers of the product are equally affected by the imposition of the tariff. They must pay a higher price for both imported and local products.

In other words, the protection for domestic industry is actually paid for by domestic consumers, in the form of higher prices.

What of the Government that imposes the tariff?

The government collects tariff revenue, on whatever quantity is imported, although they do not collect it on the local product. The benefit that the Government creates for the local producer by raising the price of imports is collected by the producer. This surplus is called a “rent”, of which more below.

We thus have two domestic winners (domestic producers and the government) and one domestic loser (domestic consumers) because of the imposition of a tariff.

The local producer who is able to charge a higher price from the consumer thanks to the tariff on competing imports is said to enjoy a “rent”. In economics, a “rent”, is an unearned reward. The producer is able to charge a higher price not because of superior quality or service but because a tax imposed by the Government.

If the producer was able to charge a higher price because of better quality, even while cheaper imports were available the producer would be earning the premium price. There is an important distinction here.

Consumers would only buy a more expensive product while lower priced products are available is if they valued what they were getting. The producer must do something extra to persuade consumers that his product is superior and worth paying a higher price.

When a tariff raises the price of imports, local producers are able to charge higher prices with no increase in value to the consumers. Given a choice consumers may well chose cheaper alternatives – but the tariff makes sure that the alternative is no longer cheap. Consumers are thus forced to pay a higher price, not because they want to but because there is no alternative. This is why the premium in this instance is said to be unearned. Consumers do not perceive better value but pay more.

Thus producers gain at the expense of consumers. As noted before, it is domestic consumers (not foreign producers) who pay for the protection of domestic industries. The net impact is a transfer of wealth, from consumer to producer that is facilitated by the tariff.  Is this good policy?

If it were confined to a handful of industries it may not matter much, but in Sri Lanka it is all-pervasive. Over thirty common household items affected are listed below. This is only a selection-many others are affected. It explains why Sri Lanka’s cost of living is so high. All necessities from food (fruit, meats, pasta, jams) to toiletries (soap, shampoo, toothpaste) to household products attract taxes from 62%-101%.

Sri Lankan consumers suffer a high cost of living in order to support domestic industries. There is an argument that supporting local producers to build an industrial base will accelerate growth in the long run.

Japan, Korea and Taiwan practiced industrial policy(IP), but even proponents of the policy admit that care is needed to pick the right industries. In Japan and Korea the main industries were steel, shipbuilding, heavy electrical equipment, chemicals and later cars. Taiwan had light manufacturing (electrical appliances, textiles) before moving to heavy and chemical industries and electronics.

Sri Lanka seems to want to emulate this in toiletries, household cleaning products and food: soap, shampoo, washing powder, floor polish, pasta, cheese and biscuits.

To succeed, industrial policies need to foster a structural transformation in the economy that leads to rapid creation of jobs, especially more productive and better jobs. Selecting the right industries is important.

“it matters how realistically the target industries are selected in light of the country’s technological capabilities and world market conditions” [1]

Krugman [2] summarises some criteria advanced by proponents of IP in selecting sectors:

1. High value-added per worker. Real income can rise only if resources flow to businesses that add greater value per employee.

2. Linkage industries-such as steel and semiconductors. Industries whose outputs are used as inputs by other industries can create a cycle of industrialization. In Japan cheap, high quality steel gave downstream industries-ships, automobiles, rails, locomotives, heavy electrical equipment-a competitive advantage.

3. Present or future competitiveness on world markets. If the industry can meet this test, we can presume that resources are being allocated efficiently. Competitiveness is critical for linkage benefits to flow.

The selected industries need to target exports (albeit not exclusively)– to achieve scale economies and because it provides a “tangible criterion for the policy makers to judge the performances of the enterprises promoted by the government” [3]. The failure to promote exports is the key reason for failure of industrial policy in Latin America. (Chang, 2009)

The exports focus also ensures competitiveness. The purpose of policy is not to protect inefficiency but improve productivity.

Therefore support for industry must be conditional-on meeting performance targets.

“The results of industrial policy (or indeed of any policy in general) depends critically on how effectively the state can monitor the outcome that is desired, and change the allocation and terms of support in the light of emerging  results” [4]

Deliberation Councils were set up in Japan and Korea which would set targets together with industry. To ensure targets were stringent they also involved independent technical experts, academics and others.

Performance would be monitored and targets revised. Where a policy was seen to be ineffective it would be revised. Industrial policy is not only about picking winners but also phasing out losers.

“The success of industrial policy depends critically on how willing and able the government is to discipline the recipients of the rents that it creates through various policy means (tariffs, subsidies, entry barriers). The point is that the suspension of market discipline, which is inevitable in the conduct of industrial policy, means that the government has to play the role of a disciplinarian” [5].

This requires a bureaucracy insulated from political pressure to take impartial decisions on the support to industry-and change or withdraw support, depending on performance.

“How closely the government interacts with the private sector while not becoming its hostage is very important.” [6]

It becomes clear that successful industrial policy is a sophisticated partnership between industry and state, governed by the underlying principles of competitiveness and productivity. Unfortunately what takes place in Sri Lanka is unlike that of East Asia but similar to Latin America.

“Import substitution policies got a bad name, especially in Latin America, because the industries that were created often only survived as the result of protection. It was particularly costly when countries protected intermediate goods, because that made goods farther down the production chain less competitive. Countries often paid a high price for this kind of protectionism, and the maintenance of this protection was often associated with corruption.” [7]

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[1] Chang, H. J, 2006. Industrial policy in East Asia – lessons for Europe. An industrial policy for Europe? From concepts to action EIB Papers, [Online]. Vol 2 No.6, 106-132. (Accessed 07 January 2019)

[2] Paul R. Krugman, 1983. Targeted Industrial Policies: Theory and Evidence. [Online] (Accessed 07 January 2019)

[3] Ibid

[4] M Khan, 2018. The Role of Industrial Policy:Lessons from Asia. [Online] (Accessed 07 January 2019)

[5] Ibid

[6] Ibid

[7] Joseph E. Stiglitz. Industrial Policy, Learning, and Development. [Online] (Accessed 07 January 2019)

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For the full list of taxes on Food Items, Household Items and Personal Care items, click here.

Import Taxes and the Cost of Living

Originally appeared on Echelon

By Ravi Ratnasabapathy

The Encylopaedia Brittanica defines the cost of living as the “monetary cost of maintaining a particular standard of living, usually measured by calculating the average cost of a number of specific goods and services required by a particular group.”

“Cost of Living is the most fundamental measure of well-being; how good a life we can lead, the degree of comfort we have, and the number and types of products and services that we can buy.”

In a modern society everybody is a consumer, no one is self-sufficient. The prices we pay for our food and clothing, our necessities and luxuries, and everything else in between are what determine our cost of living.

Naturally, for anyone other than a committed ascetic this is the most important aspect of life. For any politician sensitive to the public it should top the list of priorities.

A lot of our daily necessities, from food to household products are imported. This should allow us to take advantage global efficiencies to source the cheapest or best products, depending what people want. Unfortunately high taxes and poor trade policies drive up end-costs for consumers in Sri Lanka.

Sri Lanka imposes a variety of taxes on imports: customs duty, VAT, Port and Airport Levy, Nation Building Tax and Cess. Although the maximum customs duty is only 30%, once these other taxes are added the total tax can increase to anywhere from 50% to 100%.

Heavy taxes are imposed on food (meat, dairy, vegetables, fruit, coffee, cocoa, pasta, breakfast cereal, biscuits, jams); personal care (soap, shampoo, toothpaste, diapers, sanitary napkins, shaving cream, razors), household care ( washing powder, wet wipes, polishes, brooms, brushes),  children’s needs (diapers, pens, pencils, pencil sharpeners, toys).

Older generations who experienced pre-1970s Sri Lanka may recall people cleaning their teeth with fingers (using charcoal or something called ‘tooth powder’), scrubbing dishes with a pol-mudda (coconut husk) or washing clothes by dashing them on a rock.

Toothpaste, washing powder, soap and shampoo are no longer luxuries; if they were a high tax may be understandable but they are necessities, even for the less well-off. Perversely luxuries like perfumes, wristwatches sunglasses are taxed the most lightly.

This has a significant impact on overall household budgets and the standard of living.

Voters need to ask our politicians why they need to tax these items so heavily. Baloo, the bear in the Disney cartoon sang of the bare necessities of life. Our leaders need to understand just how far their tax and trade policies are putting necessities out of reach for ordinary people; the main reason why so many seek opportunities overseas. Local salaries cannot keep up with the cost of living.

For full list of taxes, click here.

Some of the tariffs generate revenue for the government but many are imposed to protect local industry. Tariff protection for local industry comes at a cost: high prices for consumers. Supporting local industry is laudable but instead of protection the support should be targeted to help improve competitiveness and productivity. Firm level productivity depends on:

1. the sophistication with which domestic companies or foreign subsidiaries operating in the country compete, and

2.  the quality of the microeconomic business environment in which they operate.

Government support to upgrade technology, worker skills, improve access to capital, R&D and infrastructure is positive. These, together with more efficient government processes, improved infrastructure, more advanced research institutions-in short a healthier business environment; can yield long term productivity gains for the economy and the firm. Competitive pressure provides the incentive to improve productivity; the Government needs to work with firms to help this happen.  

Price protection for local industry is a blunt tool that hurts consumers and incubates inefficiency. Industry has demanded this for centuries; the French economist Frederic Bastiat explored this in satirical essay in 1845 that addresses the essence protection. It is reproduced, in an edited form, below:

A PETITION

From the Manufacturers of Candles, Tapers, Lanterns, sticks, Street Lamps, Snuffers, and Extinguishers, and from Producers of Tallow, Oil, Resin, Alcohol, and Generally of Everything Connected with Lighting.

To the Honourable Members of the Chamber of Deputies.

Open letter to the French Parliament, originally published in 1845

Gentlemen:

You are on the right track. You reject abstract theories and have little regard for abundance and low prices. You concern yourselves mainly with the fate of the producer. You wish to free him from foreign competition, that is, to reserve the domestic market for domestic industry.

.....We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us so mercilessly we suspect he is being stirred up against us by perfidious Albion (excellent diplomacy nowadays!), particularly because he has for that haughty island a respect that he does not show for us. 

We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull's-eyes, deadlights, and blinds — in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat.

Be good enough, honourable deputies, to take our request seriously, and do not reject it without at least hearing the reasons that we have to advance in its support. 

First, if you shut off as much as possible all access to natural light, and thereby create a need for artificial light, what industry in France will not ultimately be encouraged? 

If France consumes more tallow, there will have to be more cattle and sheep, and, consequently, we shall see an increase in cleared fields, meat, wool, leather, and especially manure, the basis of all agricultural wealth. 

If France consumes more oil, we shall see an expansion in the cultivation of the poppy, the olive, and rapeseed. These rich yet soil-exhausting plants will come at just the right time to enable us to put to profitable use the increased fertility that the breeding of cattle will impart to the land. 

Our moors will be covered with resinous trees. Numerous swarms of bees will gather from our mountains the perfumed treasures that today waste their fragrance, like the flowers from which they emanate. Thus, there is not one branch of agriculture that would not undergo a great expansion. 

The same holds true of shipping. Thousands of vessels will engage in whaling, and in a short time we shall have a fleet capable of upholding the honour of France and of gratifying the patriotic aspirations of the undersigned petitioners, chandlers, etc. 

But what shall we say of the specialities of Parisian manufacture? Henceforth you will behold gilding, bronze, and crystal in candlesticks, in lamps, in chandeliers, in candelabra sparkling in spacious emporia compared with which those of today are but stalls. 

......Will you tell us that, though we may gain by this protection, France will not gain at all, because the consumer will bear the expense? 

We have our answer ready: 

You no longer have the right to invoke the interests of the consumer. You have sacrificed him whenever you have found his interests opposed to those of the producer. You have done so in order to encourage industry and to increase employment. For the same reason you ought to do so this time too. 

....The question, and we pose it formally, is whether what you desire for France is the benefit of consumption free of charge or the alleged advantages of onerous production. Make your choice, but be logical; for as long as you ban, as you do, foreign coal, iron, wheat, and textiles, in proportion as their price approaches zero, how inconsistent it would be to admit the light of the sun, whose price is zero all day long!

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For the full list of taxes, click here.

Looking back at 2018!

2018 has been nothing less than an eventful year for Sri Lanka. From growth friendly policies to growth shattering political turmoil, 2018 has indeed been a lesson. Advocata too had an eventful year. We launched our second flagship report “Price Controls in Sri Lanka” which explores the political mockery of price control policy. We hosted a discussion on whether protectionism or free trade is the country’s antidote, a lecture on accessing know-how for development, and spoke of what capitalism in Asia meant to Sri Lanka. Advocata also won $10,000 at the Think Tank Shark Tank Competition and was named in the list of Best New Think Tanks in the world by the University of Pennsylvania.

In case you’ve missed them, here’s a round-up of our most popular reads of 2018:

Ceiling price to floor bottled water industry

Originally appeared on Daily FT

By Joshua Karpinski

The recently instilled price control on bottled water seems like a positive for all consumers. How can a lower priced good hurt society? A recent report by the Advocata Institute “Price Controls in Sri Lanka” finds that price controls are of limited value in reducing costs. The report claims that price controls can cause significant welfare losses, deterioration in product quality, reduction in investment and, in the long run, higher prices. Hence, one must approach production and economic fundamentals to observe a price controls’ potentially detrimental outcomes.

As per the extraordinary gazette notification released by the government on the 5th of October 2018, the maximum retail prices of bottled water are as follows:

As shown (table), the new ceiling prices shave off a fair chunk of the bottled water seller’s margin (for instance, the cheapest common 500ml brand retailed at Rs. 45.00). This falling margin trickles down from the retailer/wholesaler to the distributor and eventually the producer (bottler). As with any economic activity, the goal is to generate profit. This aim remains with the producer to the retailer, and a ceiling price disrupts economic activity. We must observe how this industry operates.

The common water bottler sources his PET (polyethylene terephthalate) bottles from local plastic producers or importers. These bottles are a product of the petrochemical industry, a sector of rising cost due to increasing petroleum prices, internationally. Additionally, the ailing Sri Lankan Rupee has done no favours to importers.

The water is sourced from dug wells to springs and deep wells, and various brands treat the water using different techniques (like pricey reverse osmosis or cheaper chemical treatment). The water and the PET bottles need to abide by a predetermined SLS criteria and Health Ministry specifications. Additionally, they undergo licensing (with periodic renewals), site inspections, water and product testing and random checks (by the Consumer Affairs Authority).

The finished water bottles then make their way to wholesalers or retailers, to be purchased in large quantities (for events or corporates) or shelved at boutiques and supermarkets. This is done with the help of distributors, who range from large corporate in-house logistics departments, to the DIMO Batta owners outstation. This price control lowers the distributor’s margin, potentially removing the smaller distributors altogether.

The larger sellers, like Keells with “K Choice” water or Cargills’ “KIST Knuckles”, vertically integrate the entire process. It will no longer be in the interest of these supermarket oligopolies, to use up shelf space for rival brands (this is already apparent in some Keells outlets) and eventually the consumer suffers with few to no brand alternative. The price ceiling acts as a barrier to entry for new producers, as now they do not have the freedom to charge prices in line with economic forces. Existing producers may be forced out of the market or absorbed by larger entities. In economic terms, consumer choice falls.

A shift to aggressively cut costs could lead to lower quality plastic, (albeit still in line with health standards) being used and recycled. Furthermore, cheaper alternatives to water purification like chemical treatment will become the standard, despite poorer taste and lower healthy mineral content. A fall in research and development investment will lower innovation into current and future water products and services and this too will be at cost to the consumer.

Lower priced bottled water leads to higher demand and consumption. This does not bode well for the environment, owing to more plastic use and waste. Sri Lanka annually imports 9,600 tonnes of raw virgin plastic (PET) to manufacture bottles, packaging and for other requirements. 70% of this is processed and consumed as an end product in Sri Lanka and the used plastic waste creates monstrous environmental issues. Although recyclers are trying to address this issue, the price control in question could severely contribute to even greater plastic waste.

Tap water is the cheapest water option available. It usually goes through a process of basic filtration techniques like flocculation, which adds chemicals to the water to get particles to coagulate and float, so that they can be removed; sand filtration, which filters out large pieces of debris; or chlorination, which adds chlorine to kill bacteria and microorganisms. Despite tap water being considered drinkable (to some, purely out of convenience), it can lead to numerous problems. Chlorine is not ideal for human consumption (while our bodies can technically handle it, chlorine can lead to a variety of health complications and is potentially carcinogenic). The presence of microbes and impurities from pipes add health issues too. These risks have not gone unnoticed as we observe tourist forums and foreign travel bloggers strongly urging future visitors to avoid Sri Lankan tap water and to always opt for sealed bottled water. This leads on to the variety of bottled water available to consumers.

• Artesian Water: Water from a well that taps a confined aquifer (a water-bearing underground layer of rock or sand) in which the water level stands at some height above the top of the aquifer.

• Spring Water: Water derived from an underground formation from which water flows naturally to the surface of the earth.

• Purified Water: Water that has been produced by distillation, deionization, reverse osmosis, or other suitable processes.

• Distilled Water: Water that has been vaporized into steam, then cooled to re-condense it back into water. The water's minerals are left behind, leaving only pure tasting steam-distilled water.

• Mineral Water: Water that contains no less than 250 parts per million (ppm) total dissolved solids (TDS).

It is evident that a variety of water sources can be tapped and different purification methods can be employed to produce consumable water. This “clean, drinkable water” is then bottled and intensely marketed across a spectrum of brands, along with their source and unique purification methodology.

Below, tabulated, is a collection of some local branded water. (Source: bottle label/bottler website)

These bottles contain drinking water that was sourced differently. It was then processed (filtered/purified) differently. The plastic it is contained in is not standardized (it just has to fulfil a minimum health and quality requirement). These aspects of a seemingly simple good exposes variety with differentiability, and this may sway demand for one brand over the other. This should influence price and create a variation of prices for different brands, at the stimulus of consumer choice.

However, in essence, this price control has homogenized a differentiable good. The consumer now pays one price across a range of bottled water.

The price ceiling, although seemingly to help us buy cheaper bottled water, could cycle back to hinder the bottled water industry from giving the end consumer the best possible product. Water is not a scarce good (yet) in Sri Lanka and there are plenty of existing alternatives to bottled water. Has the government truly taken this into consideration? How have the new prices been calculated? What research has been carried out? Has a cost benefit analysis been performed? If so, where is it? Where is the data? Despite multiple attempts to communicate with senior employees at the CAA, we failed to gather any meaningful answers, useful information nor a compliant contact. Why does the CAA pass the buck to its ministry who in turn has no one willing to answer these queries? Does society truly benefit from this seemingly positive, yet irrational gazette? Who really stands to benefit from this decision in the long run?

Consumers rear-ended by reer depreciation?

Originally appeared on Echelon

By Ravi Ratnasabapathy

What really is driving the currency weakness? The Central Bank must consider both fundamentals and monetary factors.

Sri Lanka’s currency has fallen rapidly over the last two months, raising fears of yet another crisis. Sri Lanka’s Rupee depreciation over the past six months against the US Dollar is at a much higher rate than the historic annual average of around 10% over the last couple of decades. A stable exchange rate reduces transaction costs and uncertainty in international trade, thereby stimulating trade. It is one of the most important macroeconomic variables in the economy; it affects inflation, exports, imports and economic activity. Budget deficits are the source of much instability. The painful tax increases that addressed this issue were expected to result in stabilisation of interest rates, exchange rates and inflation. The recent depreciation of the currency is therefore puzzling and worrying.

The problem seems to be in the new inflation targeting regime based on the Real Effective Exchange Rate. What this means is that Sri Lanka will target an inflation-adjusted exchange rate index relative to competitors to keep the Rupee competitive. It appears that the depreciation of other currencies has led the Central Bank to loosen monetary policy, causing the currency to fall. What are the implications of such a policy?

Export growth is correctly identified as critical for development, and the Central Bank objective seems to be to keep the exchange rate competitive; but is this necessary? Previously, competitive exchange rates were seen to be crucial for exports, but a recent paper published by the World Bank in 2015 (Depreciation without Exports? Global Value Chains and the Exchange Rate Elasticity of Exports) suggests this is changing (although the view is not universal; other studies seem to contradict this).

The paper finds that the emergence of global value chains (GVCs) has resulted in a decline in the effect of real exchange rates on export performance. This has been linked with the emergence of GVCs through the following three mechanisms:
1. Firms need to import to be able to export; therefore, their exports contain not just domestic but also foreign inputs.
2. Stable supplier-buyer links are valuable, so the cost of switching suppliers in case of a real exchange rate change in a given partner’s country becomes non-negligible.
3. Large leading firms account for an increasingly larger portion of world trade, and these firms may find it easier to hedge against real exchange rate changes along their production network.

The study finds that when firms’ share of imported intermediates is greater than 30 percent, the effect of real exchange rates on export participation fades. Thus, as countries become more integrated in global production processes, currency depreciation only improves the competitiveness of a fraction of the value of final goods exports. The objective of Sri Lanka’s new export strategy is to integrate to GVC. If this paper is correct, the currency may not play a significant role in improving our entry into GVCs.

As yet, Sri Lanka is not well integrated into global value chains; so does the currency depreciation help existing exports? This does not appear to be the case.

“It appears that the depreciation of the other currencies has led the Central Bank to loosen monetary policy, causing the currency to fall. What are the implications of such a policy? ”

A Central Bank staff research paper by U P Alawattage in 2005 titled Exchange Rate, Competitiveness and Balance of Payment Performance examined the effectiveness of the exchange rate policy in Sri Lanka in achieving external competitiveness since the liberalisation of the economy in 1977. It analyses quarterly data covering the period of 1978:1 to 2000:4 and finds that the Real Effective Exchange Rate (REER) does not have a significant impact on improving the trade balance, particularly in the short term.

The other major concern is the impact of the currency on domestic prices and confidence. For small economies, changes in the exchange rate can have an important influence on prices. It not only affects prices of imports but also import-competing goods, and local goods that are tradeable internationally. When the currency depreciates, local prices of these goods and services tend to rise quite quickly, and by a similar amount as the depreciation of the exchange rate.

When import prices rise, demand is driven towards domestically produced goods and services. In the absence of offsetting factors, this results in more pressure on local production capacity and a bidding up of prices. This leads to increased demand for labour and capital pushing wages and interest rates.

The direct effect of the currency depreciation will generally contribute to an overall price level increase in proportion to the share of tradeable goods and services in GDP. Published as a Central Bank study in 2017, a paper by S M Wimalasuriya titled Exchange Rate Pass-Through: To what extent do prices change in Sri Lanka? suggests that the exchange rate pass-through into import prices is around 50%; that is, import prices increase by about 0.5% (and those of other consumer prices by 0.3%) as a result of a 1% depreciation of the Nominal Effective Exchange Rate.

Therefore, the overall cost of living will rise further. Tax increases – VAT from 11% to 15%, PAL from 5% to 7.5% – and the currency depreciation over the last couple of years has already added significant costs to household budgets. Add to this increases in fuel, gas – all necessary due to increases in global prices – and the combined burden is huge. To add even further inflation through currency depreciation will impoverish many and increase popular discontent. Pursuing unpopular policies is sometimes necessary but the combination of depreciation amid fiscal tightening looks dangerous and perhaps even unnecessary.

Exchange rates can move for a range of reasons, which can be simplified into two categories: “real” factors, or in other words, changes in relative fundamentals; and “monetary” factors. “Fundamentals” would, for example, include changes in the terms of trade and productivity, while “Monetary” factors are changes in the money supply.

In practice, policymakers may find it difficult to distinguish how much of a movement in the exchange rate is due to changes in the fundamentals and how much may be inflationary (or deflationary), although in the current situation, monetary factors seem to be the cause.

Thus, in Sri Lanka, where inflation expectations are not well anchored, the prudent monetary policy response would be to tighten rates, at least until there are grounds for being more confident that it was the fundamentals that had changed. The immediate political considerations suggest the same action.

A currency’s exchange rate contains important information about the country’s monetary position and the credibility of domestic monetary policy. The popular perception of the current stance is that it is either weak or out of control. For businesses, it is creating a new level of uncertainty, which is not being helped by ad hoc administrative measures (increasing LC margins on cars for example) to arrest some of the effects. For consumers, it fuels inflation, adding to the woes of fiscal tightening.

The Central Bank should revisit its inflation-targeting regime and tighten rates to stabilize the currency.

අර්බුදයේ ගැඹුර

චන්ද්‍රා ජයරත්න

පරිවර්තනය- Advocata Institute

හැම රජයක්ම  පසුගිය කාලයේ උත්සහ  කළේ උපයන ප්‍රමාණයට වඩා පරිභෝජනයට රටත් මිනිස්සුන්වත් පුරුදු කරපු එක. ආර්ථිකය දියුණු කිරීමට කල් පවතින ප්‍රතිපත්ති ගෙන ඒම වෙනුවට පැවතුනු හැම ආණ්ඩුවක්ම කළේ තමන්ගේ සමීපතම ගජ මිතුරන්ට වාසි සැලසෙන (Crony capitalism) ආරක්ෂණවදී ප්‍රතිපත්ති ඉදිරිපත් කිරීම සහ එම ගජ මිතුරු නිළධාරීවාදය එක්ක දේශපාලන සමීපතමයන්ට වැඩිපුර සල්ලි හම්බකරන්න පුලුවන්  විදියට නීති වෙනස් කරපු (Rent seeking) එක විතරයි.

මේ ව්‍යයසනකාරී ප්‍රතිපත්තියේ ප්‍රතිඵලය අද අපිට ලැබිල තියනවා. අපි රටක් විදියට අද ජීවත් වෙන්නෙ අපිට ජීවත් වෙන්න පුලුවන් ධාරිතාවයෙන් ගව ගණනාවක්  ඔබ්බට ගිහිල්ල. [“living beyond our means”]

අපේ ආනයන අපනයන වගේ දෙගුණයක්. එම පරතරය පියවන්නේ සංචාරක කර්මාන්තයෙන්, විදේශ ශ්‍රමිකයන් එවන පිටරන මුදල් වලින් සහ දිනපතා වැඩිවෙන මහා ණය කන්දරාවකින්.

ණය මුදල් වාරික සහ පොළී මුදල් ගෙවීම දිගටම ඉහළ යමින් පවතිනවා. රුපියල අවප්‍රමාණ වෙමින් වියදම එන්න එන්නම වැඩි වෙද්දි සාමාන්‍ය ජනතාව කබලෙන් ලිපට වැටෙමින්  දුක් කන්දරාවක් විඳවනවා. ණය ගෙවන්න යන මුදල් ප්‍රමාණය වැඩි වෙන නිසාත් ආර්ථික ප්‍රතිලාභ ලැබෙන ආයෝජන අඩු කරන්න වෙලා තියන නිසා දැන් ආර්ථික වර්ධනය එන්න එන්නම අඩු වෙනවා. අපි විදේශ විනිමය/ මුදල් උපයන වේගයට සහ ප්‍රමාණයට වඩා වැඩි වේගයකින් විදේශ මුදල් ණයට ගැනීම නිසා අර්බුදයේ සංකීර්ණම අවස්ථාවට දැන් අපි පැමිණ තිබෙනවා. එම සංකීර්ණ අර්බුදයේ සංකේත ආර්ථිකයේ දැනටම දැකිය හැකියි. [සටහන 1]

රටේ ආර්ථිකයේ [ සාර්ව ආර්ථිකයේ] පෙනෙන අර්බුදයට වඩා ගැඹුරු අර්බුදයක් සාමාන්‍ය මිනිසුන්ගේ නිවාස වල ආර්ථිකයේ ජනිත වෙමින් පවතිනවා. ආර්ථික වර්ධනය අඩුවීම, රුපියල අවප්‍රමාණ වීම, රැකියා අඩු වීම, අදායම අඩු වීම නිසා සෑම නිවාස කුටුම්බයක්ම ණය අර්බුදයක හිර වී තිබෙනවා [සටහන 2]

මේ මොහොත වනවිට රටේ ආර්ථිකයේ අර්බුදයත් ගෙදර ආර්ථිකයේ අර්බුදයත් එකිනෙකට එක් වෙමින් දේශපාලන අර්බුදය සමඟ එක්ව ඉතා තීව්‍ර ආර්ථික කැළඹීමක් ඇතිකර අවසානයි  

මේ අර්බුදයට විසඳුම කුමක්ද?

මුලින්ම අපි දැවෙන ආර්ථික අර්බුදයක සිටින බවත් එම අර්බුදයෙන් ගොඩ ඒමට පහසු මාර්ගයක් නොමැති බවත් පිළිගන්න අවශ්‍යයයි. මෙම අර්බුදයෙන් ගොඩ එන්න පුලුවන් එකම ක්‍රමය මහන්සි වී වැඩ කිරීමත් අපගේ පරිභෝජනය පිලිබඳ සිතා බැලීමත් පමණයි.

දෙවනුව සියලුම පක්ෂ ජාතික මට්ටමේ එකඟතාවයක් ඇති කරගත යුතුයි. සියලුම මට්ටම් වල සමාජ නායකයන් සහ ආගමික නායකයන් මහන්සි වී වැඩ කිරීම පිලිබඳව, තම තරඟකාරීත්ය්වයෙන් තොරව ව්‍යාපාර වලට වාසි ලැබෙන නීති රීතිවලට එරෙහිව (Rent seeking) , සේවයකින් ලබා දීමෙන් තොරව/ වටිනා කමක් එකතු කිරීමෙන් තොරව මුදල් උපයන රැකියා වලට එරෙහිව සමාජය දැනුවත් කලයුතු සේම සමාජ මතයක් ගොඩ නැගිය යුතුයි.

තෙවනුව , දූෂණය, නාස්තිය සහ සුපෝගභෝගී පාරිභෝජන රටාව නැවැත්විය යුතුයි.

සිව්වෙනුව යටිතල පහසුකම් දියුණු කිරීමේ ප්‍රමුඛතාව කෙටිකාලීන අවශ්‍යතා වලින් තොරව දිගු සහ මධ්‍යකාලීන ඉලක්ක කරා යොමුවිය යුතුයි. උදා: අධිවේගී මාර්ග වෙනුවට රේල් පාරවල්, විශාළ වාරි කර්මාන්ත ව්‍යාපෘති වෙනුවට කුඩා වැව් සහ වාරි කර්මාන්ත

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සටහන 1

2011 වසරේ විදේශ ණය වාරික සඳහා ගෙවීම ඇමරිකන් ඩොලර් බිලියන 1. එය වසර 7ක් තුල දෙගුණයක් කරමින් 2017 වසරේදී විදෙශ ණය වාරික ගෙවීම් සඳහා ඇමරිකන් ඩොලර් බිලියන 2ක් ගෙවිය යුතුයි. වසර දෙකකදි ණය වාරික දෙගුණ වෙමින් 2019 වසරේදී ඇමරිකන් ඩොලර් බිලියන 4 ක් ගෙවිය යුතුයි. අවුරුදු 5 ඩොලර් බැඳුම්කර සඳහා පොළී අනුපාතිකය 2016 දී පැවති 4% පොළී අනුපාතිකය දැන් 9% දක්වා ඉහළගොස් තිබෙනවා. විදෙස් ශ්‍රමිකයන් ශ්‍රී ලංකාවට එවන මුදල් ප්‍රමානය අවම වන අතර අපනයන, ආනයන වලට සාපෙක්ෂව වර්ධනය වන්නේ ඉතාම සෙමින්. සැබවින්ම භයංකාර අර්බුදයක්.  

සටහන 2

2016 දී ජන සහ සංඛ්‍යා ලේඛණ දෙපාර්තමේන්තුවේ ගෘහස්ත ආදායම් වියදම් සමීක්ෂණයට [House hold income and expenditure survey - HIES] අනුව නිවසක සාමාන්‍ය ආදායම රු. 62,227ක් වන අතර ගෘහස්ත මාසික වියදම රු. 54,999. සියලුම නිවාස වලින් 60% ක් පමණ රු. මිලියන 1.4ක ණය ප්‍රමාණයකට [ එක් නිවාස ඒකකයක් ] යටත් වී තිබෙනවා. ඒ අනුව රු. 7,238 ක ඉතුරු මුදලින් ණය මුදල පමණක් පියවීම සඳහා අවම වශයෙන් මාස 193ක [අවුරුදු 16ක් ] කාලයක් ගතවනවා. ආර්ථික වර්ධනය අවම වුවහොත් මෙම කාලය තවත් දීර්ඝ වනු ඇති.

සටහන 3

වාණිජ බැංකු ණය මුදල් ආපසු අය කරගැනීමේදී  ලක්ව ඇති අභියෝගය තහවුරු වන්නේ නිසි පරිදි නොගෙවන ණය ප්‍රමාණ වලින් [Non performing loans - NPL]. ස්වාධීන Moody’s ආයතනයට අනුව 2018 මාර්තු මාසයේදී නිසි පරිදි නොගෙවන ණය වල වාටිනාකම වත්කම් වල ප්‍රතිශතයක් [Non performing loan as a percentage of assets] ලෙස 2.7% සිට 3.0% දක්වා ඉහල ගියා.

Constitutionality of Sri Lanka's politics turmoil

By Suri Ratnapala

This opinion addresses the following questions presented by Upul Jayasuriya, Attorney-at-Law. 

1. Is the purported dismissal Ranil Wickremesinghe from the office of Prime Minister by the President constitutionally valid? 
2. Is the purported appointment of Mahinda Rajapaksa as Prime Minister constitutionally valid? 
3. Is the Presidential proclamation of 9 November 2018 purporting to dissolve the Parliament constitutionally valid? 

For the reasons herein stated, the answer to each question is negative.   

Purported dismissal of the PM and the appointment of another person as PM 

The President has no power to dismiss Wickremesinghe as Prime Minister. The argument that the power to appoint the PM carries an inherent power to remove the PM is incorrect. There is no such power under Westminster convention or the provisions of the Sri Lanka Constitution. 

This argument is founded on a misapprehension that the PM serves at the pleasure of the President. Even an employer at common law cannot lawfully dismiss an employee except in accordance with the terms of the contract and applicable legislation.   

The Prime Minister’s tenure in office is defined by Art 46(2) which provides: 

(2) The Prime Minister shall continue to hold office throughout the period during which the Cabinet of Ministers continues to function under the provisions of the Constitution unless he– 
(a) resigns his office by a writing under his hand addressed to the President; or 
(b) ceases to be a Member of Parliament. 

Wickremesinghe has not resigned his office. He has not ceased to be a Member of Parliament. (As stated in this Opinion, the purported dissolution of Parliament is null and void.) He has not vacated his office by death. The question then is whether the Cabinet of Ministers continues or has ceased to function. This matter is governed by Art 48 (1) and (2) which provides: 

48. (1) On the Prime Minister ceasing to hold office by death, resignation or otherwise, except during the period intervening between the dissolution of Parliament and the conclusion of the General Election, the Cabinet of Ministers shall, unless the President has in the exercise of his powers under Article 70, dissolved Parliament, stand dissolved … 

(2) If Parliament rejects the Statement of Government Policy or the Appropriation Bill or passes a vote of no-confidence in the Government, the Cabinet of Ministers shall stand dissolved … 

Wickremesinghe, to reiterate, has not ceased to hold office as PM by death or resignation or by ceasing to be a Member of Parliament. Therefore, the Cabinet of Ministers will stand dissolved during the life of the Parliament only if Parliament: 
(a) rejects the Statement of Government Policy,  
(b) rejects the Appropriation Bill, or  
(c)  passes a vote of no-confidence in the Government. 

None of these events has occurred. Since no event that could constitutionally terminate the office of Wickremesinghe has occurred, he remains the Prime Minister and there is no vacancy of the office of Prime Minister.  

It should be noted that even if there was a valid dissolution of the current Parliament, Wickremesinghe and the Cabinet would have remained as the Caretaker Government until the General Election by virtue of Art 47(1). Therefore, the President has no constitutional authority to appoint Rajapaksa as the Prime Minister.   

The Sinhala text of the Constitution leads to the same result 

The President has claimed the authority to dismiss Wickremesinghe from the office of PM based on the Sinhala text of Art 48(1) of the Constitution. This claim is unwarranted. The relevant Sinhala words are ‘dhoorayen ivath karanu labeemen ho illaa as veemen ho anyaakaarayakin’. These words in English translation means ‘removal from office, resignation or otherwise’. 

The words ‘removal from office’ refers to the circumstance of being removed from office according to the Constitution. Under the Constitution the power of removing the PM is vested solely in Parliament which could do so only by rejecting the Statement of Government Policy or the Appropriation Bill or by passing a vote of no-confidence in the Government.   

Therefore, the claimed power based on the Sinhala text of the Constitution has no merit.  

The purported dissolution of the current Parliament  

The President, by proclamation of 9 November 2018, has purported to dissolve the current Parliament. On 13 November 2018, the Supreme Court in response to several petitions, made interim orders suspending the effect of the Proclamation until 7 December 2018. The Court is scheduled to hear arguments on 4, 5 and 6 December.  

The Proclamation has been made in clear and direct violation of Article 70(1) which provides as follows. 

(1)The President may by Proclamation, summon, prorogue and dissolve Parliament: 

Provided that the President shall not dissolve Parliament until the expiration of a period of not less than four years and six months from the date appointed for its first meeting, unless Parliament requests the President to do so by a resolution passed by not less than two-thirds of the whole number of Members (including those not present), voting in its favour. 

Parliament has not made a request for its dissolution.  

The President is the sole authority under the Constitution with power to ‘summon, prorogue and dissolve Parliament’. (Art 33(2)) However this power is not absolute but must be exercised according to the Constitution. Therefore, it must be exercised in accordance with Art 70(1) as amended by the Nineteenth Amendment of the Constitution. Two important presumptions of statutory interpretation are relevant to this question.

First is the presumption that the general provision does not detract from the specific provision. (Generalia specialibus non derogant.) In other words, the general provision is qualified by the special provision on the same subject. The proviso of Art 70(1) qualifies and limits the power granted by Art 33(2) and Art 70.  

Second is the presumption that the later enactment prevails over the earlier contrary enactment. (Leges posteriores priores contrarias abrogant.) Art 70(1) as introduced by the Nineteenth Amendment is the later enactment that was clearly intended and has effect of qualifying and limiting the power of the President to dissolve Parliament.  

The Attorney-General’s argument has no merit 

The Attorney-General is reported to have made the following argument before the Supreme Court at the hearing on 13 November 2018.  

‘No provision of the 19th Amendment was called for a referendum and pruning of President’s powers must have been done via referendum. The 19th Amendment did not require a referendum because executive power was intact as it stood before the referendum. Executive powers cannot be eroded. It can be approved by people exercising the franchise. 

‘The Article 70(1) cannot be read in isolation when all provisions of the 19th Amendment taken together did not require a referendum because it did not erode the powers of the President’. (The Daily Mirror 13 November 2018) 

This argument is without merit.  

The Supreme Court considered and delivered its judgment on the Nineteenth Amendment Bill in S.D. Nos. 4-19/2015 heard on 1, 2 and 6 April 2015. Since the Bill was described in its Long Title as being for the amendment of provisions of the Constitution, the only question which the Supreme Court could determine was whether the Bill required approval by the People at a Referendum by virtue of the provisions of Article 83. (Art 120 proviso (a)) It determined that the Bill did not require referendum approval.  

The petitioners in that proceeding made precisely the same argument that the Attorney-General now makes, namely that the President’s executive power could not be restricted without the approval of the People at a Referendum. The argument was considered and rejected by the Supreme Court. 

The limitation of the President’s discretion by the establishment of the Constitutional Council was previously considered by the Supreme Court in its Judgement on the Seventeenth Amendment Bill. The Court held that the fetter on the Presidential discretion to make appointments to high offices was consistent with the sovereignty of the people established by Articles 3 and 4.  In the Judgment on the Nineteenth Amendment Their Lordships emphasised the President’s responsibility to Parliament established by Art 42 and concluded: 

Because the Constitution must be read as a whole, Article 4(b) must also be read in the light of Article 42. Clearly, the Constitution did not intend the President to function as an unfettered repository of executive power unconstrained by other organs of governance. (Emphasis added)  

The power to dissolve Parliament derives from the old Royal prerogative which was restrained in the past only by convention. It is not in the nature of strict executive power. In the UK, Australia, New Zealand and Canada it is considered part of the reserve power of the monarch. The limitation of the Presidential power to dissolve Parliament and its location in Parliament itself enhances the sovereignty of the people.  

Conclusion 

For the reasons stated above: 

(a) The purported dismissal of Wickremesinghe from the office of Prime Minister is unconstitutional. 
(b) The purported appointment of Rajapaksa as Prime Minister is unconstitutional. 
(c) The purported dissolution of the current Parliament by the Proclamation of 9 November 2018 is unconstitutional.  

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Prof. Suri Ratnapala is an Attorney-at-Law and Emeritus Professor of Law, the University of Queensland. He is also an advisor to the Advocata Institute and his views are his own.

Constitutionalism or Feudalism?

By Rohan Samarajiva

The events of the past few months (and indeed the past few years) in Sri Lanka have puzzled me. The President and his coterie are flagrantly violating the Constitution and laws. That is shocking, but what is more shocking is the casual acceptance of this behavior by all concerned. What is surprising is not that the President violates the law and disregards explicit directions from lawful authority, but that the citizenry seem to accept it. Not that the President tries to impress university teachers by inviting them to dinner at Temple Trees, but that most of them go, and some even kiss the hands of their host.

After much reflection, I have had to conclude that we are witnessing a head-on collision between Constitutionalism and Feudalism. Constitutionalism is respect for words on paper that say what power holders can and cannot do; it is basically about the widespread respect for law:

Constitutionalism as a theory and in practice stands for the principle that there are—in a properly governed state—limitations upon those who exercise the powers of government, and that these limitations are spelled out in a body of higher law which is enforceable in a variety of ways, political and judicial. This is by no means a modern idea, for the concept of a higher law which spells out the basic norms of a political society is as old as Western civilization. That there are standards of rightness which transcend and control public officials, even current popular majorities, represents a critically significant element of man's endless quest for the good life. (Fellman,1973-74: 491-92).

This basic idea of constraints on power may not really be Western, as evidenced by the story of the cow seeking and receiving justice from King Elara 2000 years ago. But perhaps, that story was told because it was so exceptional. In any case, the story is from the Anuradhapura era, the highest manifestation of Sinhala-Tamil civilization in this country (King Elara was Tamil). Our proximate connection is to the Mahanuwara era, the lowest form of Sinhala-Tamil civilization in this island, where the kings exercised absolute power, constrained not by abstract notions of justice, but only by the concurrence of the Sangha and the fealty of the Kandyan feudal lords (the British conquered Kandy when Sri Vikrama Rajasinha/Kannasamy and his feudal lords fell out).

One may differ from Fellman’s claim that Constitutionalism is a “Western” or Judeo-Christian construct. The Hammurabi Code, the oldest known body of law, is often used as an illustration of fundamental laws that even the king cannot change, and the acceptance of which constitutes Constitutionalism. This is not the place for an extensive historical digression, but one may hypothesize that complex urban civilizations with extensive divisions of labor require Constitutionalism, while the more primitive forms based on subsistence agriculture or hunting and gathering do not. This hypothesis suggests that the Anuradhapura and Polonnaruwa civilizations included forms of adherence to Constitutionalism, while the lower forms of the Kandyan period did not.

We were introduced to Constitutionalism by the colonial powers, especially the British. Through experiences such as the Bracegirdle incident of 1937, where the colonial Supreme Court overruled the colonial Governor, the local elites came to appreciate the practice of Constitutionalism and lived by its tenets for several decades after Independence. Election promises could be, and were, broken, but laws were respected and obeyed.

When the 1945 Soulbury Constitution, especially the entrenched Article 29(2) ("the Parliament of Ceylon shall not make any law rendering persons of any community or religion liable to disabilities or restrictions to which persons of other communities are not made liable, ...") and the provisions ensuring an independent civil service, proved too constraining, the politicians of the day did not simply disregard it as they do now; they carried out a Constitutional Revolution and got themselves a new, less-constraining fundamental law. Despite the revolution carried out by an unlikely coalition of Kandyan feudals (Mrs Bandaranaike was a direct descendant of a signatory of the Kandyan Convention) and assorted Marxists (some with first-hand memories of the Bracegirdle victory), the basic idea of Constitutionalism was still alive. Otherwise why did they go to all that trouble?

The 1972 Constitution was an abomination: it stripped the safeguards for minorities and broke the back of the administrative service; its adoption without the participation of the Tamil parties created the conditions for civil war. It was replaced by the 1978 Constitution fully within the amendatory provisions of its predecessor. Even the removal of Supreme Court judges was done within the letter, if not the spirit, of the law. JR Jayewardene kept fiddling with the 1978 Constitution, amending it over and over again and ruining its integrity. He was autocratic, but within the bounds of Constitutionalism; just like his friend Lee Kuan Yew of Singapore, who used the law to subjugate his opponents.

It took the next generation of Kandyan feudals to start eating away at Constitutionalism. The attack began with the appointment of a controversial Chief Justice under instructions to mangle the 1978 Constitution by interpreting it to permit cross-overs of MPs. Still the façade of Constitutionalism was preserved; just that an unprincipled Chief Justice was interpreting it in ways that served short-term interests of the then President. But by corrupting the highest court, that descendent of the Ratwatte Disave, commenced the insidious final assault on the last bulwark of Constitutionalism and prepared the ground for the restoration of feudalism as the political framework of Sri Lanka.

The cruder violations of the principle of Constitutionalism came with the 17th Amendment, ironically intended to be the ultimate constraint on the abuse of Presidential power. Now the façade of Constitutionalism was torn off. The President (not the current one) simply ignored the parts she did not like, a practice continued by her successor but in cruder form. The Supreme Court, then in the thrall of a lawless Chief Justice, proved no constraint. There is not enough evidence to assess the nature of the current Supreme Court, but given the grievous assaults the institution has suffered and the servility of the legal profession and the Bar Association, there is little cause for optimism. But, of course, there is always hope. Remember Pakistan.

So it appears that the political elite’s dalliance with Constitutionalism has about run its course, sixty years after Independence. We are reverting to our native Feudalism: not just the ruling family but large swaths of the populace, including opinion leaders and intellectuals. For example, Ven Maduluwave Sobitha Thero, an erudite and eloquent senior monk, was quoted some time back in the Lankadeepa, saying that the legislature was superfluous; all we needed was a President who would be elected periodically and a judicial system. In the past, our kings used to appoint whoever they wished as Ministers, so should our Presidents. There is no need to go through the complications of electing Ministers or having them be accountable to Parliament. Not pure feudalism, where the king can do anything, but close enough. And no suggestion that the Presidency can pass from father to son, though of course there is no prohibition against the son running for office (the only one available in this truly home-grown form of government).

It appears that Constitutionalism of the classic kind has been found wanting. At the end of five decades of Independence, we were still poor, still beholden to external powers, and still incapable of regaining sovereign control of the national territory. We had to shut down the city even to celebrate the fiftieth anniversary of Independence. This was not seen as a result of bad economic policy (which it was), but of Constitutionalism. When leaders with feudal mindsets gained power, there were no institutional brakes to stall their multifarious assaults on Constitutionalism, as there were in India, when Indira Gandhi tried it. The Left coalitions broke the back of the administrative machinery in the 1960s and completed the job with the 1972 Constitution, and the judiciary was corrupted in the 1990s. The assault on the media that began in the 1960s reached its apogee in 2009. The private sector could not get out of its “deal” mentality and professionals, with a few honorable exceptions, lacked spine.

Now, Sri Lanka is reverting to its Kandyan state: an all powerful king and royal family; assorted feudal lords who serve at the pleasure of the king, but have limited power of their own. In the old days, the regional feudals gave the king revenue and troops, in exchange for the right to extract rents from the peasants. Today, the regional feudals deliver votes to the king at the periodic elections, in return for the right to extract rents from the private sector. As in the old days, the Sangha are consulted and placated by the king with Benz cars and assorted gifts (a practice not started by the present President) and serve as a weak check on his power.

This is the larger context that explains the kissing of the President’s hands by university academics; the conversion of artistes to vandibhattayas; and the blurring of the lines between the king, the government and the state. When the President uses state resources to win elections or prints his visage on currency notes, he does not see that he is doing anything wrong, because he is no longer functioning within the “western” frame of Constitutionalism. When the President appoints his kith and kin and court favorites to positions of power and nominates them to run for political office, such actions are accepted by the more deserving party workers on the ground because they too interpret events from within the feudal frame. When I question the handing over of scarce broadcasting frequencies to political favorites without any form of transparent process, journalists question my motives, because I am the one outside the dominant feudal frame that allows the king to reward courtiers. Sri Lanka is no longer a country governed by law, but is a kingdom, with a thin veneer of Constitutionalism for external consumption. Dissonance exists only for a few like me, still unable to shed the western baggage of the Magna Carta and Montesquieu.

The real question is, therefore, not about which individual wins the Presidential Election, but about whether we can (or should) get back to Constitutionalism. All successful presidential candidates since 1994 have promised to abolish the executive presidency; all have broken their promises. Constitutionalism is not words on paper, but broad acceptance across society that certain kinds of words on paper have binding authority and must be respected. It is what will give meaning to the word of a candidate. Even if the executive presidency is abolished or the Constitution is amended, nothing has any meaning unless Constitutionalism is restored. What use are words on paper, when none respect them?

The larger question is the governing framework. Do university teachers rush to kiss the ring and vice chancellors prostrate themselves before Presidents in modern societies? Can we have a modern economy when the largest companies in the country obey patently illegal directions from regulators? Is it normal to name a government-owned, money-losing airline for the head of state and paint the tail of the leased aircraft with his campaign livery? These are symptoms of a transition from a Constitutional State to a feudal one.

It may be argued that today’s complex, globally-connected national economy cannot be effectively managed by a bunch of Presidential cronies and that the procedures of representative democracy and checks and balances are essential, and that therefore, there is no alternative to Constitutionalism. It may also be argued that every country has a Constitution and that over time, as the economy develops and matures, as was the case in South Korea and Taiwan, Constitutionalism also takes root. But if these were true, why is it that Sri Lanka is sliding back into feudalism, just as it is becoming a middle-income country? Myanmar is governed feudally, but can a feudal system handle a complex economy like Sri Lanka’s?

As a colleague who read the first draft stated:

“A society embracing feudalism in whatever guise can no longer expect, at the same time, certain other cherished ideals including, but not limited to:

• meritocracy: the best performing persons assured to get best public/academic appointments

• fairness: everyone treated as equals, irrespective of wealth or family connections

• due process: transparent, consultative policy making and policy implementation in the public interest

• equality before the law, affording protection to everyone irrespective of social status or political affiliation

Feudalism, on the other hand, is inherently and fundamentally incompatible with all the above and other values. In fact, there can be no public interest whatsoever in a feudal society; only vested interests. Mervin Silvas, Sakvithis, Potta Naufers and their ill will be the norm, not exception. There won't be a chance in hell for any bright, hard working, honest young man or woman with no family or political connections to rise in society professionally, intellectually, artistically or entrepreneurially -- unless they sell their soul to the ruling oligarchy/family.”

Are there autochthonous (why do I use this word? Because the sonorous radio broadcasts of the Minister of Constitutional Affairs in the 1970 government, Dr Colvin R. de Silva, imprinted it in my brain; it means “home grown”) checks and balances?

Devo vassathu kalena

Sassasampattihetu ca

Phito bhavatu loko ca

Raja bhavatu dhammiko (from the 1978 Constitution)

Is the mismanagement of the economy resulting in factory closures and job losses or the destruction of the value of the Employee Provident Fund the modern-day equivalents of the rains not falling in time, thus resulting in famine and pestilence throughout the land? As the kings then were seen as responsible for delayed rains because they failed to rule according to Dharma, will our modern kings also lose legitimacy, when and if the economy heads South? Is this it?

Zimbabwe and North Korea show that economic mismanagement by itself does not dethrone kings. A national conversation on Constitutionalism versus Feudalism seems a safer course. I am currently convinced that Constitutionalism, the rule of laws, not men, is what is most conducive to the happiness of our people. But I am open to persuasion that what is appropriate for the Sri Lankan climate is something else.

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References

Constitution of the Democratic Socialist Republic of Sri Lanka. 1978, as amended.

Fellman, David (1973-74). Constitutionalism, in Philip P. Wiener, ed., Dictionary of the History of Ideas: Studies of Selected Pivotal Ideas, vol. 1, pp. 485-92.

Questions of freedom: problems in Sri Lanka’s constitution, laws and institutions

Originally appeared on Groundviews

By Ravi Ratnasabapathy

““commander in chief of the army, navy and militia, with the power of making treaties and of granting pardons, and to be vested with an authority to put a negative upon all laws,... is in reality to be a KING” (An Old Whig,1787)

Citizens of Sri Lanka should heed this warning to the framers of the US constitution.

The Sri Lankan Presidency was, until recently, a fixed executive, not dependent or answerable to parliament and not removable except for limited reasons. Head of the State, the Head of the Executive and of the Government, and the Commander-in-Chief of the Armed Forces. With the power to appoint higher officials, Supreme Court judges, the Police Commissioner, Elections Commissioner it was, essentially an elected monarch.

Did Sri Lanka throw off the British crown only to replace it with local one barely half a century later? In theory at least, the colonial administrators of Ceylon were answerable to a British Parliament. For all practical purposes, Sri Lanka’s presidency answered to no one.

The 19th amendment restored some independence to institutions but mere independence is insufficient. Their proper functioning is dependent on the attitudes and competencies of their members, a question that must be addressed. The 19A is also incomplete, to erase the legacy of decades of authoritarian rule and secure rights further reforms beyond the constitution are needed.

The problem is best understood if viewed from the perspective of what matters to citizens: individual freedom.

If we call ourselves “free”, how must individual freedoms to be protected and advanced?

The basic political question

The fundamental problem in political theory is two-fold: on one hand there is a need for an “enforcing agent” which will protect the individual from violations of his/her liberty; on the other hand is the problem of how to ensure that any “enforcing agent” does not in its turn become a violator of the very same liberty it was originally set up to protect.

The Roman poet Juvenal expressed it as “Quis Custodiet Ipsos Custodes?” [who will guard us from these guardians?].

The solution that eventually emerged is government which was :

1. accountable to the people,

2. strictly limited in its powers, and

3. a rule of law based upon notions of individual liberty and private property; both terms carrying specific meaning

Individual liberty

Individual liberty, simply defined is freedom from coercion.

“Coercion occurs when one man's actions are made to serve another man's will, not for his own but for the other's purpose.” (Hayek) [1].

Coercion of a citizen: aggression, threats etc may arise from individuals, organisations (such as religious bodies) or the state.

"Free society has met this problem by conferring the monopoly of coercion on the state and by attempting to limit this power of the state to instances where it is required to prevent coercion by private persons”(Hayek) [2].

This means the state is given the sole right to exercise coercion, but it must do so only to protect citizens from the coercion of others.

“Freedom is achieved by limiting some kinds of actions – coercive ones – in order to encourage other kinds of actions – non-coercive ones. The result is the increase of voluntary exchanges within the parameters of the law”(Lehto) [3].

Property

Property is the difference between what is mine and what is yours.

In the classical liberal sense, it is the creation of a protected private sphere surrounded by limits that cannot be crossed without ethical transgression (Lehto) [4]. It is a person’s entire private domain, Locke considered property rights to consist of “life, liberty, and estate”.

Thus, you may not enter my house without my permission. Thus, you may not borrow my car without my permission. Thus, you may not violate my body (Lehto) [5].

Property marks the limits of permitted action in a liberal society, the personal domain which should not be intruded into under any circumstances.

“We may well detest other people’s religion, reject their political views, abhor their lifestyle, despise their manner and  loath their habits. We may be shocked by their ideas and opinions. We may even worry that they are damaging their own health with drugs or their own prospects with their anti-social behaviour. But none of these are valid reasons for using force to try to make them act differently.”(Butler) [6]

A regime of legally protected property rights, in the wide sense used here is a prerequisite for liberty: “the end of the law is, not to abolish or restrain, but to preserve and enlarge freedom (Lehto).

Limiting coercion by state

States exercise power through the machinery of state: bureaucracies, the bodies of state and local government, legislatures, judiciaries police and armed forces.

To prevent abuse, this machinery must be controlled. Power must be limited in how it may be used. This requires:

• Setting rules that circumscribe its use. It cannot be exercised arbitrarily by those in authority but only in defined circumstances and must follow set procedures. These are laid down by laws. Laws must be universal, applying equally to all including the government itself, no one is above the law(the rule of law).

• Distributing authority so no single organ of government has the practical ability to exercise power unchecked (separation of powers).

As the law is the principal check on power it is essential that the process of law-making itself be subject to checks.    

These are the principles that must be ingrained in the constitution and the organisation of government.  

How true is our system to these principles?

How true is our system to these principles?

1. Elections and accountability to the public

The president and parliamentarians are elected which creates accountability to the public. The weakness is that once elected, voters have absolutely no control over their representatives, except to remove them at the next election. Requiring candidates to submit to regular and periodic elections is important but other checks that restrain power on a day-to-day basis are critical.  

2. Separation of powers: Parliament as a check on Government.

At the apex, parliament must be a check on government. The two are not synonymous.

The political party that wins the most seats takes charge of government, until the next election. The Government is responsible for running the country.

Parliament is made up of MP’s elected by voters and is there to represent citizens interests and make sure they are taken into account by the Government. They are not a part of government. Government ministers may have seats in Parliament but most of their work is done in Government departments.

Parliament must scrutinise the activities of government- examining expenditure, administration and policy in detail, requiring the government of the day to explain itself to parliamentarians as representatives of the citizen. This happens through:

1. debate;

2. questions;

3. investigation.

Parliamentary Debates may be about legislation, government activity (policy or implementation), or issues of public concern.

“For government the purpose of debate is often to showcase the political argument or philosophy behind a particular policy or approach to an issue, or to test opinion on it. For the Opposition and backbenchers it provides an opportunity to demand an explanation of why a particular policy has been pursued, to identify weaknesses in the evidence base or formulation of a policy, or to provide new evidence or analysis.”(White, 2009)[7]

Parliamentary questions (in the UK tradition) allow MP’s to seek information or to press for action. They oblige Ministers to explain and defend the work, policy decisions and actions of their Departments.  

Investigation-drilling deep into issues, is carried out by Committees.

The ultimate form of parliamentary control is that it can force individual ministers, or even the entire Government, to resign in votes of no-confidence.

For these processes to work, MP’s must be independent. It requires opposition MP’s and backbenchers in government who will question their own policies but in Sri Lanka this is absent.

• MP’s not independent

According to the prevailing version of proportional representative system, the constituency votes for the party first and the individual later. The party hierarchy is empowered to expel any of its members who vote against the party and replace him/her with another member of the party. An expelled MP automatically loses his/her seat.

As MP’s who dare defy their leaders may be ejected independence is lost. Instead of representing the citizens interests, they represent the party leaders interests.

• Power of government strengthened in the legislature

MP’s cannot defy party diktat but a supreme court ruling allows them to cross-over without losing their seat. This enables the government to lure MP’s by offering them positions, securing a permanent voting majority. 

As MP’s fear to question, parliament becomes a rubber stamp, not a check. Laws are what limit power, but if parliament cannot check government bad laws may be passed.

Under bad laws, power is legitimately exercised but oppresses citizens, a situation of rule by law as opposed to the rule of law. The Emergency laws or the Prevention of Terrorism Act are examples.  

• Committees are weak

Debates and questions allow issues to be discussed but committees are concerned with fact-based investigation. They go into issues in-depth in a way that Parliament, as a whole, has no time for,  collecting and examine evidence to develop an understanding of what the government is (or is not) doing under its democratic mandate.

They can examine what the outcomes of activity (or inactivity) have been, including by requiring explanation from government. They can summon experts, stakeholders, demand answers from ministries, send for papers, and documents. In the UK, there is a strong emphasis on committee reports being based on evidence, primarily that collected by the committee. The Government is required to respond to reports.

Committees provide the greatest scrutiny but until the 19th amendment, Sri Lanka had only ceremonial “consultative” committees. Instead of opposition members chairing committees (as in the UK) Sri Lanka’s were chaired by a minister of government. The government was not required to respond to any reports, effectively rendering them useless.

The 19th amendment has charged committees with oversight and they are now chaired by an opposition MP which is big improvement but the reforms still fall short.

Recommendations:

• Upper House of Parliament

A single chamber legislature, if unchecked, could become dictatorial. Creating an upper house of parliament that checks and challenges government is one safeguard to bad laws. The Soulbury constitution had an upper house- the Senate consisting of 30 members; 15 elected by the lower chamber and the rest appointed by the Governor-General.

• Strengthening committees

Although the 19th has provided the framework of independence, creating a culture of scrutiny is harder. A generation of MP’s who hitherto toed the official line must learn to ask questions. This requires:

1. Specialised training - MP’s (and their staff), particularly those in committees would benefit from specialised training. Even established democracies (UK, Australia, Canada etc) have induction programmes for new MP’s.  At a minimum Sri Lankan MP’s must be made more familiar with their constitutional responsibilities, rules of procedure, human rights, gender equality and public finance.

2. Open committee hearings to the public - One way to improve scrutiny is to open the hearings to the public. The presence of media and interested citizens will have a salutary effect on the participants and allow greater public discussion on relevant issues.

3. Government must be required to respond to committee recommendations.

• Creating a committee on the Constitution

Sweden has a Constitution Committee that is tasked with ensuring that the Swedish government ministers follows the rules for the government—namely, the Swedish Constitution and Swedish law.

The committee consists of forty-four members representing all parties of and has the power to hold hearings, conduct investigations, and request classified materials from Mps. The Committee can act on its own initiative or in response to complaints from MPs (not citizens) and can initiate the prosecution of crimes committed by MPs in their capacity as MPs (decided by the Supreme Court).

• A Constitution committee of the upper house

The House of Lords Constitution Committee’s role is to examine all bills for constitutional implications (a check against legislation that infringes basic rights) and, even more importantly, keep under review the operation of the constitution. This prevents the constitution itself from being undermined by ensuring that changes are not made “without a full and open debate and full awareness of the consequences”.

It fulfils the second limb of its remit by carrying out investigative inquiries into constitutional issues, engaging a specialist advisers (external experts) and taking written and oral submissions.

Examples of constitutional implications include:

1. any substantial alteration to civil liberties, including the right to habeas corpus and trial by jury;

2. alteration to the powers of the courts or measures that would place the exercise of power beyond the purview of the courts, or which would affect the independence of the judiciary;

3. alteration to the balance of power between Parliament and government, including the conferment of unduly broad or ill-defined powers to legislate by order.

3. Separation of Powers – Judiciary not a check on power

Given the importance of laws in curbing power even two chambers is not a sufficient safeguard. Therefore citizens should have the right to challenge laws in the courts. The following must be dispensed with:

• Article 80(3) prevents the people from challenging provisions in laws that have been enacted by the legislature.

• Article 35(1) – (3) of the Constitution of Sri Lanka conferring immunity upon the President from civil or criminal proceedings.

• Power of the president to pardon any offender (Article 34) undermining the judiciary. In effect, associates of the president able call on his/her goodwill may be above the law. Article 89 disqualifies criminals from standing for office, but the President may overrule this under article 34.

Until the 19A all supreme court judges were appointed by the president, making the courts beholden to that office. The 19A restored this power to an independent commission. Steps to strengthen independent commissions are discussed in more detail below and the general remarks also apply to the judiciary.

Recommendations to strengthen the Judicial Services Commission

1. Clear criteria for selection of judges and a rigorous recruitment process based on competitive exams.

2. Standard criteria for promotion of judges based on merit and seniority.

3. Disciplinary procedures and standard criteria for removal of judges.

4. Initial and on-going training on new methods, laws, and related areas of knowledge including mandatory training in international human rights law.

4. Limiting coercion and delivering justice: controlling the police and attorney general

Rights are granted by laws but their enforcement depends on the system of justice. It must protect the rights of citizens against infringement by others, including the government and the powerful.

The police maintain the law, protecting people and their property, preventing crime. Courts provide redress for wrongs. The Attorney General prosecutes crime.

Sri Lanka system falls woefully short, according to the ICJ “efforts to seek justice are frustrated by investigative, prosecutorial and judicial lack of independence, impartiality and capacity, all of which continue to contribute to a pervasive culture of impunity within the system”[8].

I. Police

To provide security and maintain the rule of law the police are given special powers: to arrest and detain and the power to use force. This monopoly on the use of force place the police in a unique and sensitive position within the democratic State. Adequate control mechanisms are required to ensure that these powers are consistently used in the public interest. Risk of misuse include: police brutality, deaths in custody, torture and ill-treatment, extrajudicial killings, enforced disappearances and excessive use of force, including in cases of demonstrations.

Controls include:

• Laws specifying functions and powers of the police (in line with international human rights laws).

• Operational procedures/instructions that reflect the spirit and letter of the law.

• Complaints mechanisms, both to police leadership and external bodies.

• Procedures on dealing with misconduct, disciplinary and criminal, overseen by an independent body.

• Proper training, basic and on-going

• For example the UK police are subject to the Police and Criminal Evidence Act 1984, which set the powers of police on matters of stop and search; entry, search and seizure; arrest, detention and the questioning of suspects. Failure to follow these rules can result in failures to secure convictions because the courts render inadmissible any evidence which has not been fairly obtained. Codes of Practice created under the Act govern cautioning procedures, identification parades and a range of other responsibilities. Breach of the codes is admissible in evidence in criminal or civil proceedings against the police.

Separately the UK has a Human Rights Act, requiring all public bodies to respect human rights. They may be taken to court for failure.

Recommendations

1. Sri Lanka’s police ordnance of 1865 needs to replaced  by something on the UK lines along with standard codes of practice. 

2.  Sri Lanka needs proper legal protection for human rights. Currently human rights have weak protection under the (circumscribed) fundamental rights chapter, the ICCPR Act, No. 56 of 2007 and the Human Rights Commission .

• Article 15 of the constitution restricts fundamental rights in for a variety of reasons including parliamentary privilege, contempt of court, defamation.  Article 16 allows any pre-existing laws to prevail notwithstanding inconsistency with fundamental rights, effectively limiting its application.

• The Sri Lankan ICCPR Act makes a mockery of the International Convention on Civil and Political Rights. It contains only four main substantive rights-conferring provisions (compared to the 20+ in the international act) and these too in abridged form.

• “The Sri Lankan bill of rights is incomplete and structurally incoherent.”(Welikala &Edrisinha)[9].

• Therefore, repeal articles 15 and 16 of the constitution, amend the ICCPR act in line with international practice and consider a new human rights act.

ii. Attorney General’s office (AGO)

The Attorney General’s Office’s (AGO’s) must be willing to pursue prosecutions independently, even against other state actors and courts must ensure fair and timely trial.

In Sri Lanka, the Attorney General is the Chief Legal Advisor to the Government and appears on behalf of the Government or its agents in any Court or Tribunal. It is also the chief prosecutor, which creates a conflict of interest where the state or its agents are involved. The ICJ notes “a lack of will to prosecute State actors in human rights cases, particularly those relating to the conflict”. 

The practice of drawing judges from the AGO creates a further conflict: “the judiciary has an entrenched institutional loyalty in favor of the executive”[10].

Recommendations:

1. Create an independent Director of Public Prosecution (DPP) to handle all prosecution. The police should no longer prosecute but confine themselves to investigation. The AGO should be limited to acting as advisor to the government.

2. The UK Royal Commission on Criminal Procedure, looking at the role of the police as prosecutors, the Commission found that a police officer who carries out an investigation, inevitably, and properly, forms a view as to the guilt of the suspect. They felt, however, that without any improper motive the officer may then be inclined to shut his mind to other evidence which undermines that view or overestimate the strength of the evidence gathered. In the absence of effective oversight, there was also greater opportunity for police corruption.

3.  The DPP must be governed by a code of practice that sets out principles on which to prosecute. One of the most important tasks is to review the evidence in the file in order to decide whether it justifies the charge laid by the police, applying criteria set out in the Code of practice. They must determine if evidence is sufficient, reliable, credible and if prosecution is in the public interest.

4. The practice of drawing the judiciary from the ranks of the AGO or the DPP should cease.

5. Limiting coercion by the bureaucracy

The administrative machinery is, for many citizens, the only ‘face’ of the state that they experience. As it is responsible for the delivery of basic services it wields real power over the lives of ordinary people.

Lack of information-on regulations, compliance procedures; insistence on meaningless procedures, unjustified fines or burdensome inspections that violate an agency’s own protocols are examples of bureaucratic oppression-actions that impose unnecessary and harmful burdens on citizens. These stem from poor organisational practices and the attitudes of officials. Although all citizens suffer, minorities and the poor are more frequent victims.

More sinisterly, political opponents may be persecuted using particular provisions.

For example, the Inland Revenue Department is known to have ‘raided’ opposition politicians during the election in 2010[11]. Instead of impartial tax administration, the powers of the department were being abused, turning it into a tool for harassment. Similarly, the immigration department has revoked visas of journalists and aid workers without warning.[12]

The administrative machinery needs to be neutral, delivering services without discrimination. Politicians are inevitably subject to short term and selfish pressures so the administration must be insulated from political pressure. The careers of the staff should not be dependent on politicians but vested with independent commissions, which must control recruitment (on merit, based on competitive exams) promotions and transfers. Politicians should not be able to appoint cronies, punish or reward officials. Independent mechanisms should handle complaints. 

The 1978 Constitution originally vested in the President the power of appointing several “independent” commissions including the Public Service Commission, the Judicial Service Commission, the Bribery Commission, the National Police Commission and the Human Rights Commission.

The 19A removed that executive power. The President still appoints people to these and other independent commissions but only those recommended by the Constitutional Council. In establishing the Constitutional Council, the President is entitled to appoint five members, but is required to accept the nominations of the Prime Minister and the Leader of the Opposition. 

The problem is independence will not change the staff or practices of the bureaucracy overnight. Some staff will be political appointees only familiar with executing political directives and may continue to do so out of habit or loyalty.  A set of general recommendations follow.

Recommendations (for all institutions)

1. Independent complaints mechanisms to check malpractice.

2. Develop Standard codes of practice and staff training to ensure work is carried out fairly and impartially.

3.  Regular reviews of procedures, simplifying and standardising rules, increasing the use of electronic and web-based platforms.

4. An overarching civil service code which sets out the standards of behaviour expected of bureaucrats.

5. Parliamentary  Ombudsmen tasked with ensuring that the administration acts impartially and respects citizens’ constitutional freedoms. Acts on the basis of complaints from the public on central government agencies , municipal agencies, and other public institutions

6. Adequate resources including access to external specialists

7. Committees must have proper resources- their reports claim they are hampered by lack specialist skills (legal, accounting etc), equipment and research capacity. Addressing these shortcomings is a must.

Conclusion

The substance of democracy lies in systems of checks and balances; the division of power and processes to hold those in power accountable. Although not comprehensive, the foregoing highlights some serious shortcomings in Sri Lanka. Citizens should press political leaders to address these issues, the ongoing political crisis underlines urgency for further reform.

---

[1]. The Constitution of Liberty, F. A. Hayek

[2]. Ibid

[3]. Otto Ilmari Lehto. 2015. THE THREE PRINCIPLES OF CLASSICAL LIBERALISM ( FROM JOHN LOCKE TO JOHN TOMASI ) : A Consequentialist Defence of the Limited Welfare State. [ONLINE] Available at: https://helda.helsinki.fi/bitstream/handle/10138/155211/Lehto_KaytannollinenFilosofia.pdf?sequence. [Accessed 11 September 2018].

[4]. Ibid

[5]. Ibid

[6]. Classical Liberalism, A Primer E. Butler, 2015

[7]. Dr Hannah White, Institute for Government. 2009. Parliamentary Scrutiny of Government. [ONLINE] Available at: https://www.instituteforgovernment.org.uk/sites/default/files/publications/Parliamentary%20scrutiny%20briefing%20note%20final.pdf. [Accessed 29 October 2018].

 [8]. International Commission of Jurists. 2012. Authority without accountability: The crisis of impunity in Sri Lanka. [ONLINE] Available at: http://www.refworld.org/pdfid/50ae365b2.pdf. [Accessed 15 October 2018]

 [9]. ROHAN EDRISINHA & ASANGA WELIKALA. 2015. GSP PLUS AND THE ICCPR: A CRITICAL APPRAISAL OF THE OFFICIAL POSITION OF SRI LANKA IN RESPECT OF COMPLIANCE REQUIREMENTS. [ONLINE] Available at: https://www.cpalanka.org/wp-content/uploads/2015/01/ICCPR-Chapter-Final.pdf. [Accessed 15 October 2018].

[10] International Commission of Jurists. 2012. Authority without accountability: The crisis of impunity in Sri Lanka. [ONLINE] Available at: http://www.refworld.org/pdfid/50ae365b2.pdf. [Accessed 15 October 2018]

[11] The Sunday Times, Sri Lanka. 21 March 2010. Tax sleuths go after opposition candidates. [ONLINE] Available at: http://www.sundaytimes.lk/100321/News/nws_06.html. [Accessed 15 October 2018].

[12]. The Guardian, UK. 2010. Why the media silence on Sri Lanka's descent into dictatorship?. [ONLINE] Available at: https://www.theguardian.com/commentisfree/libertycentral/2010/jul/12/sri-lanka-journalists-threatened. [Accessed 15 October 2018].

සංවර්ධනයට දොර හරින ආගමනය

•  ශ්‍රී ලංකාව මුහුණ පා ඇති අපනයන සීමා වීම හා ඍජු විදේශ ආයෝජන මඳ බව යන ගැටලුවලින් මිදීමට ආගමන සීමාකරණ ඉවත් කිරීමේ දැඩි අවශ්‍යතාවක් පවතින බව හාවඞ් මහාචාර්ය හඋස්මාන් පෙන්වා දෙයි.

• පවතින ප්‍රචලිත විශ්වාසයට පටහැනිව යමින් ආගමන සීමාකරණ ඉවත් කිරීමෙන් රැකියා අවස්ථා, ආයෝජන සහ වැටුප් වැඩිවීම සිදුවන බව කියයි.​

• ප්‍රගතිශීලි ආගමන ප්‍රතිපත්තිවලින් හෙබි රටවල්  ආර්ථික වර්ධනය ලබාගත් අයුරු වර්තමාන උදාහරණ කන්දරාවකින් පෙන්වයි.​

• ශ්‍රී ලංකාවේ යල් පැනගිය නීති ප්‍රතිසංස්කරණය කොට සරල හා පුළුල් වීසා කාණ්ඩ ඇති කිරීමේ අවශ්‍යතාව මතු කරයි.

• නිපුණතා රට තුළට ගලා ඒමෙන් ලැබෙන ආර්ථික ප්‍රතිලාභ පිළිබඳව නොදැනුවත් මිථ්‍යා මත නිසා වෘත්තිකයෝ නොමඟ යති.

ආගමනය පිළිබඳ නීති සංශෝධනයට ලක්කොට වඩා ප්‍රගතිශීලී වූ නීති හරහා ජනයාට නිදහසේ සංචරණය වන්නට ඉඩ හැරීම මඟින්, අපනයන අඩු බව, ඍජු විදේශීය ආයෝජනවල මඳ බව, නවීකරණ සීමාවීම යන ශ්‍රී ලංකාවේ කාලයක් පුරා පවතින ආර්ථික අභියෝගවලට විසඳුම් සොයා ගත හැකි බව ඉහළම ගණයේ ආර්ථික විශේෂඥයෙක් පසුගියදා දින ප්‍රකාශ කළේය. ශ්‍රම වෙළෙඳ පොළ විවෘත කොට කඩිනම් ප්‍රවර්ධන අත්කර ගත්තා වූ රටවල් පිළිබඳ උදාහරණ දක්වමින් හෙතෙම මෙම පැහැදිලි කිරීම කළේය.

එම දේශනය ඉදිරිපත් කළ මහාචාර්ය රිකාඩෝ හඋස්මාන් හාර්වඞ්හි අන්තර් ජාතික සවර්ධනය පිළිබඳ අධ්‍යක්ෂවරයාත්, කෙනඩි රාජ්‍ය විද්‍යාතනයේ ව්‍යාපාරික ආර්ථික සංවර්ධනය පිළිබඳ මහාචාර්යවරයාත් වෙයි. කොළඹ ඇඞ්වොකේටා බුද්ධි මණ්ඩලය විසින් සංවිධානය කරනු ලැබූ සංවර්ධනය උදෙසා විශේෂඥ දැනුම වෙත සමීපවීම යන තේමාව ඔස්සේ සිය දේශනය ඉදිරිපත් කළ මහාචාර්ය හඋස්මාන්ද වෙනිසියුලාවේ සිට ඇමෙරිකා එක්සත් ජනපදයේ පදිංචියට පැමිණි අයෙකි. වඩා හොඳින් කළමනාකරණය කරනු ලැබූ ආගමන විගමන ක්‍රියාවලියක් රටක ආර්ථිකය වර්ධනය කරමින් යහපත සැලසීමට මහෝපකාරී වන ආකාරය ඔහු පැහැදිලි කළේය.

“සංවර්ධනය වෙමින් පවතින ලෝකයට නෙළා ගන්නට පහතින්ම තිබෙන ඵලය එයයි. ඵලදායීතා වැඩි කිරීමට ඇති වේගවත්ම මඟ එයයි. එමඟින් ශ්‍රී ලංකාව කෙරේ ආයෝජන ඇද ගනු ලැබ එය වඩා ශක්තිමත් රටක් බවට පත් වනු ඇති”

“සංවර්ධනය වෙමින් පවතින ලෝකයට නෙළා ගන්නට පහතින්ම තිබෙන ඵලය එයයි. ඵලදායීතා වැඩි කිරීමට ඇති වේගවත්ම මඟ එයයි. එමඟින් ශ්‍රී ලංකාව කෙරේ ආයෝජන ඇද ගනු ලැබ එය වඩා ශක්තිමත් රටක් බවට පත් වනු ඇති” ලක්‍ෂ්මන් කදිරගාමර් ආයතනයේ පිරී ඉතිරී ගිය ප්‍රේක්ෂක සමූහය ඉදිරියේ ඔහු කීවේය.

ඔබට ඇති නිපුණතා සමඟ, ඔබට ඇති රට ඔබට හිමිවෙයි. එහෙත් ඔබේ නිපුණතා ලද පමණින් ඔබට අවශ්‍ය රට ඔබට නොලැබෙනු ඇත. එමනිසා ඔබ නව නිපුණතා සොයාගත යුතුය. අනෙක් ජනයා ශ්‍රී ලංකාව තුළ පදිංචියට එන්නේ නම් එසේ එන්නේ, අනෙක් අයගේ රැකියා සොරා ගන්නට නොවේ. නිත්‍ය වශයෙන්ම ඔවුන් මෙහි එනුයේ රැකියා අවස්ථා වඩාත් නිර්මාණය කරන්නට සහ ස්වදේශිකයන්ට වැඩිපුර මුදල් උපයා දෙන්නටත්ය. ඔවුන් ශ්‍රී ලංකාවට එන්නට තීරණය කිරීම නිසා එමඟින් ඔබේ රට පිළිබඳ යහපත් හැඟීමක් ඇති වන්නේය. එහි අරුත ඔබ නිවුණු ජන කොට්ඨාසයක් බව සිතන ජනයා ලොව  තවත් ඉන්නා බවය. එතැන ජීවත් වීම සඳහා අනර්ඝ තැනක් වග ඔවුන් සිතනා බවයි’ ඔහු කීවේය.

සීමාකරණ ඉවත් කළ ශ්‍රම වෙළෙඳ පොළ තමන්ට තර්ජනයක් යයි වෘත්තිකයන් සිතා සිටීම ස්වාභාවික දෙයකැයි මහාචාර්ය හඋස්මාන් පිළිගත්තේය. එහෙත් රටවල් එකින් එක ගත් විට ආගමන නිසා රැකියා අවස්ථා නිර්මාණය වීම සහ වැටුප් ඉහළ යාම සිදුවනු විනා එහි විරුද්ධාර්ථය සිදු නොවීම පිළිබඳ උදාහරණ ලැබෙන බව ඔහු අවධාරණය කළේය. ශ්‍රමය නිදහසේ සංචරණය වීමට ඉඩ හැරීම මඟින් ආර්ථිකය වඩා තරගකාරී වන බවත්, කර්මාන්ත වඩා ලාභදායී බවට පත් වන බවත් ස්ථිර ලෙස කියා සිටි ඔහු ආගමනය නිසා රැකියා අවස්ථා උදුරා ගනිතැයි යන අදහස ආර්ථිකය පිළිබඳ සංවේදී බවකින් පළ නොකරන්නකැයි සඳහන් කළේය. 

ශ්‍රී ලාංකීය තොරතුරු තාක්ෂණය උදාහරණයට ගත් ඔහු වඩා සමෘද්ධිමත් ඉන්දියානු වෙළෙඳ පොළ හා ඒකාබද්ධ කළහොත් ලැබෙන වාසි පිළිබඳව කරුණු දැක්වූයේය. එසේම ඉන්දියානු, තොරතුරු තාක්ෂණික වෘත්තිකයන්ගේ පැමිණීමෙන් ඊට බලපෑමක් ඇති නොවන්නේ ස්වදේශීකයන්ට වඩා වැඩි වැටුප් ඔවුන් ලබන බැවිනි. එම හේතුව නිසාම සිංගප්පූරු නිදහස් වෙළෙඳ ගිවිසුමට එරෙහිව වෛද්‍යවරුන් ඉදිරිපත් කරන තර්ක ද, නිශේධ වන බවට ඔහු කරුණු ඉදිරිපත් කළේය.

අවසානයේ ප්‍රශ්න ඇසීමේ හා පිළිතුරු දීමේ වාරයකින් සමන්විත වූ පැයක් පුරා පැවති මෙම දේශනයේදී අඩු ඵලදායිතාවකින් සහ වැඩි නිෂ්පාදනයකින් හෙබි කෘෂි කර්මාන්තය වැනි කර්මාන්ත පිළිබඳව මහාචාර්ය හඋස්මාන් විස්තර කළේය. “ලෝකයේ විවිධ රටවල එකම අවස්ථාවකදී වෙනස්කම් පවතින්නේ තාක්ෂණික දැනුම පිළිබඳ සම්බන්ධතා අධිකව පැවතීම හෝ නොතිබීම හේතුකොට ගෙනයි. කාර්මික රටවල ගොවීන්ට වඩා දියුණු වෙමින් පවතින සාම්ප්‍රදායික ගොවීන් දැනුමෙන් පොහොසත්ය.” 

එසේ වුවද දියුණු රටවල ගොවීහු නවීන ගොවීහු ආම්පන්න (යන්ත්‍රෝපකරණ), ඉහළ අස්වනු ලැබෙන බීජ, වඩා හොඳ පොහොර හා හොඳ වෙළෙඳ පොළ සම්බන්ධතා නිසා සාම්ප්‍රදායික ගොවීන්ට වඩා ඉහළ ආදායමක් ලබා ගනිති. සිංගප්පූරුව, මැලේසියාව, බංග්ලාදේශය, තායිලන්තය හා වියට්නාමය යන රටවල් සමඟ සැසඳූ විට ශ්‍රී ලංකාව තම අපනයන ගොන්නට නව නිෂ්පාදන එක් කර ගන්නට අපොහොසත්ව ඇති බව මහාචාර්ය හඋස්මාන් සඳහන් කළේය. එසේ අපනයනවල පවතින සීමිත බව ඊට අනුරූපව සෑම අංශයක් කෙරෙහිම පහසුවෙන් පැතිර යයි. මෙම තත්ත්වය හා බැඳුණු ඍජු විදේශ ආයෝජන හිඟය ඇතුළු ශ්‍රී ලංකා ආර්ථිකයේ අනෙකුත් ගැටලුවලට ආගමනය මඟින් විසඳුම් ලැබීමේ හැකියාව පවතින බව ඔහු පෙන්වා දුන්නේය.

“ආර්ථිකයක් වර්ධනය වනුයේ එහි නිෂ්පාදන ගොන්නට නව භාණ්ඩ හා සේවා එක්වීමෙන් විනා එකම වර්ගයේ භාණ්ඩ තව තවත් නිෂ්පාදනය වීමෙන් නොවේ. එවැනි විවිධාංගීකරණයකට දොරගුලු හැර දෙනුයේ නව තාක්ෂණික දැනුම කෙරේ ප්‍රවේශ වීමේ ක්‍රියාවලියයි. නිරන්තරයෙන්ම එම නව විශේෂඥ දැනුම විදේශයන්ගෙන් පැමිණිය යුතුයි. මෙසේ වනුයේ නිරන්තරයෙන්ම දැනුම රැගත් මොළය අලුත් රටකට ගෙනයාම, නව දැනුම මොළයකට ගෙනයාමට වඩා පහසු වන නිසාය. සිංගප්පූරුව, ඉන්දියාව, වියට්නාමය සහ අනෙකුත් ගතික (ප්‍රගමණයට ලක් වන) ආර්ථිකයන්ගේ අත්දැකීම් අනුව නව දැනුම/ විශේෂඥ ඥාණය හුවමාරු වන ප්‍රධාන ධාරා තුනකි. ඒවා නම් ඍජු විදේශ ආයෝජන, ආගමන සහ ඩයස් පෝරා දැල් රටාය. (ඩයස් පෝරා දැල් රටා යනු මවුබිමෙන් ඈත වෙසෙන පුද්ගල කණ්ඩායම්වල ව්‍යාපාරික දැල් රටා) යයි ඔහු ප්‍රේක්ෂක සභාවට පැවසීය.

වෙනත් රටවල විදේශයන්ගෙන් පැමිණ ඒවායේ ජීවත් වන විදේශිකයන් එම රටවල ජනගහනයේ වැදගත් ජන කොටසක් බවට පත්ව ඇත්තේ කෙසේද යන්න මහාචාර්ය හඋස්මාන් දත්ත ඉවහල් කරගෙන පැහැදිලි කළේය. ඇමරිකා එක්සත් ජනපදයේ පුද්ගලයන් හත් දෙනෙකුට එක් අයෙකු විදේශිකයකු යයි ගණන් බලා තිබේ. ඒ අතර සිංගප්පූරුවේ දෙදෙනකුට එක් අයෙක් විදේශිකයෙකි. ශ්‍රී ලංකාව තුළ තත්ත්වය මීට හාත්පසින් වෙනස්ය. මෙහි පුද්ගලයන් 535 කට එක් අයෙක් විදේශිකයෙකි. ඇමරිකා එක්සත් ජනපදයේ ඩෙට්රියොට් හා සිලිකන්වැලී වැනි වාහන නිෂ්පාදනාගාර ඇති මහා පරිමාණ කර්මාන්ත ආරම්භ කොට ඇත්තේ රට තුළට විදේශවලින් පදිංචියට පැමිණි අයයි. ෆෝචූන් (ත්‍දරඑමබැ) සඟරාවේ ශ්‍රේණිගත කිරීම්වල මුල් 500ට අයත් සමාගම් ආරම්භ කොට ඇත්තේ විදේශවලින් පැමිණ පදිංචිවූවන් හෝ ඔවුන්ගේ දරුවන් විසිනි. බංග්ලාදේශයේ වඩා සාර්ථකත්වයට පත් ඇඟලුම් කර්මාන්තය ආරම්භ කොට ඇත්තේ කොරියානු සමාගමක් විසිනි. එහි සේවය කළ සේවකයෝ පසු කලෙක තමන්ගේම ව්‍යාපාර ආරම්භ කළහ. බැංගලෝරය සහ හයිද්‍රාබාදය නිදහස් ආගමන සම්බන්ධතා නිසා සමෘද්ධිමත් බවට පත් නගර දෙකකි. ඉන්දියානුවන් තොරතුරු තාක්ෂණය පිළිබඳ ව්‍යවසායකයන් බවට පත්වූයේ ඒවා නිසාය.

විදේශ සහයෝගය සහ විශේෂඥ දැනුම ලබා ආරම්භ වුණු ලෝඞ්ස්ටාර් (ඛද්ාිඒර) වැනි ශ්‍රී ලංකා සමාගම් කිහිපයක් ඇති බව ද මහාචාර්ය හඋස්මාන් සඳහන් කළේය. ඵ්ී වැනි ලාංකීය ඇඟලුම් කර්මාන්ත ශාලා ලෝකයේ හොඳම කර්මාන්ත ශාලා බවට පත්ව ඇතැයි ඔහු කරුණු පැහැදිලි කරමින් කීවේය.

මේ සියලුම ධනාත්මක වූ සාධනීය ගති ලක්ෂණ පැහැදිලි ආගමන විගමන ක්‍රියාදාමයකට ඉඩ සැලසීම හරහා ප්‍රචාරණය කළ හැකි යයි ඔහු තවදුරටත් කීවේය. අප ශ්‍රී ලංකාවේ ආගමන ප්‍රතිපත්තිය, සිංගප්පූරුව, මැලේසියාව, හොංකොං, පැනමා, සවුදි අරාබිය, තායිලන්තය, වියට්නාමය යන රටවල් හා සසඳන විට වඩා සාර්ථක රටවල, වඩා සාර්ථක ආගමන ප්‍රතිපත්තියක් ඇති බව පැහැදිලි වනවා. ඒ සමඟම ඒවායේ ඇති නීතිවල ස්වභාවය ද ඉන් පෙනී යනවා. උදාහරණයක් දක්වන්නේ නම්, නුපුහුණු ශ්‍රමිකයන් උදෙසා විවිධ වීසා නීති ඔවුන් සතුයි. එසේම අර්ධ පුහුණු ශ්‍රමිකයන්ට, පුහුණු වන්නන්ට, කළමනාකාරවරුන්ට හා ඉහළ වෘත්තිකයන්ට වෙනම වීසා එම රටවල හඳුන්වා දී තිබෙනවා. ඉහළ නිපුණතාවෙන් යුතු අයට ශ්‍රී ලංකාවට පැමිණීමට සාමාන්‍ය පරිදි අවසර දෙනවා. එහෙත් ඔවුන්ගෙන් යැපෙන්නන්ට වැඩ කිරීමේ අවසර දෙන්නේ නැහැ. සාමාන්‍යයෙන් වෘත්තිකයන් විවාහ වී සිටින්නේ බොහෝ විට තවත් වෘත්තිකයකු සමඟයි. ඔබ විවාහ වී සිටිනා විට ඔබේ භාර්යාව එක්කර ගෙන එන්නට ඉඩ නොදෙන්නේ නම් ඇයට වැඩ කරන්නට ඉඩ නැත්නම් එය ගැටලුවක් වෙනවා.

“මගේ අදහසේ හැටියට ශ්‍රී ලංකාව ආගමන ක්‍රියාදාමය සරල බවට පත් කළ යුතුයි. වීසා ලබාදීමේ කාණ්ඩ නැතහොත් ප්‍රවර්ග වැඩි කළ යුතුයි...”

‘මගේ අදහසේ හැටියට ශ්‍රී ලංකාව ආගමන ක්‍රියාදාමය සරල බවට පත් කළ යුතුයි. වීසා ලබාදීමේ කාණ්ඩ නැතහොත් ප්‍රවර්ග වැඩි කළ යුතුයි. එවිට ඔබේ රට අන් අය වඩාත් ඇදගන්නා ආකර්ෂණීය ස්ථානයක් බවට පත්වෙනවා. පදිංචිය සඳහා මාවතක් සකස් කළ යුතුයි. බොහෝ රටවල කරන ආකාරයෙන් එවැනි අයට පුරවැසිභාවය ලබාදීමට කටයුතු කළ යුතුයි. ඇත්ත වශයෙන්ම දැන් ශ්‍රී ලංකාවෙන් පිටතට සංක්‍රමණය වී පුරවැසිභාවය අත්හල ශ්‍රී ලාංකිකයන්ට නැවත ශ්‍රී ලංකාවේ පදිංචි වන්නට අවසර නැහැ. මෙය ඇදහිය නොහැකි තත්ත්වයක්. මේවා පවතින ක්‍රියා පද්ධතිය තුළ ඇති අකාර්යක්ෂමතා බැවින් ඒවා නැවත හොඳින් සකස් කළ යුතුයි.’

කෙසේ වුවද ශ්‍රී ලංකාව තුළ පවතින සියලුම ආර්ථික ගැටලු ආගමන ප්‍රතිපත්තිය මඟින් විසඳාලිය නොහැකි බව ද ආචාර්ය හඋස්මාන් පිළිගත්තේය. රජය විසින් වෙළෙඳ පොළ ප්‍රතිසංස්කරණය, මූල්‍ය සංස්ථාපනය සහ යටිතල පහසුකම් සංවර්ධනය ආදී අනෙකුත් ප්‍රතිපත්ති නිසි පරිදි පවත්වාගෙන යා යුතුය.

“කරන්නට වටිනා ඕනෑම දෙයක් වඩා හොඳින් කිරීම වඩාත් වටිනවා. එනිසා වර්ධනය කළ යුතු අනෙක් බොහෝ දේ තිබෙනවා. මා සිතන අයුරු ශ්‍රී ලංකාව, ආයෝජකයන් දැඩි ග්‍රහණයට ගෙන, ඒ අය පාලනය කිරීමෙන් ඔබ්බට යා යුතුයි. පිටරටවලට ගොස් ආයෝජකයන් සෙවීමෙන් සහ ආයෝජකයන් මෙහි ආ යුත්තේ මන්දැයි කරුණු පහදමින් සිටීමෙන් ඔබ්බට යා යුතුයි. අප එම දිසාවට හැරවීමට උත්සාහ ගනිමින් ඊධෂ (ආයෝජන මණ්ඩලය) සහ ෑෘඊ (අපනයන සංවර්ධන මණ්ඩලය සමඟ කටයුතු කර තිබෙනවා. මම පැය පහක් තිස්සේ මහනුවරටත් පැය පහක් තිස්සේ මහනුවර සිටත් රථය ධාවනය කළා. මම නැවත නම් මහනුවරට එසේ රථය ධාවනය කරාවි යයි සිතන්නට බැහැ. අනිවාර්යයෙන්ම යටිතල පහසුකම් ක්‍රියාත්මක විය යුතුයි. එය වියදම්කාරී වුවත් ඒ සඳහා ඔබ මූල්‍ය අවකාශ පාදා ගත යුතුයි’.

සියලු රටවල ආගමන විරෝධී හැඟීම් මූලික කරගත් මතවාද පැවතුණ ද එම මතවාද ශක්තිමත් විනිවිද පෙනෙන සුළු ආගමන නීිති මඟින් සමනය කළ හැකි බව ඔහු සඳහන් කළේය. එක්සත් රාජධානිය පවා බ්‍රෙක්සිටිවලින් පසු (අන්‍ය යුරෝපීය ජාතීන්ගෙන් වෙන්වීමේ ප්‍රතිපත්තියෙන් පසුව), ආර්ථිකයේ ශක්තිමත් බවට පහර වදින වෙනස්කම් ඉක්මනින් නවතා දමන අතරතුර වීසා නීති සිත් ගන්නා ආකාරයෙන් සකසන්නට ක්‍රියා කළ බව ඔහු සඳහන් කළේය.

නව වීසා නීති සකස් කිරීම උදෙසා කැබිනට් අනුමැතිය ලැබී ඇතැයි ආගමන හා විගමන පාලක එම්.එන්. රණසිංහ මහතා පැවසීය. එමඟින් නව වීසා කාණ්ඩ, වීසා ලබා දීමේ ක්‍රියාවලියට ඇතුළත් කිරීමට නියමිත බවත් පැවසීය.

මහාචාර්ය හඋස්මාන්ගේ දේශනයේදී පැනනැගුණු ප්‍රශ්නයකට පිළිතුරු දෙමින්, මෑතකදී කැබිනට් පත්‍රිකාවක් අනුමත වී ඇති බව සඳහන් කළ රණසිංහ මහතා, වර්තමාන අභියෝගවලට මුහුණ දිය හැකි පරිදි ශ්‍රී ලංකා ආගමන නීති යථාවත් කිරීම ඉතාමත් වැදගත් වන බව සඳහන් කළේය.

“මේ වනවිට අප කටයුතු කරන්නේ 1948 හඳුන්වා දුන් නීතිය අනුවයි. එමනිසා ආගමන අභියෝගවලට මුහුණ දෙන්නට එම නීති යාවත්කාලීන කොට වැඩ සැලැස්මක් හඳුන්වාදිය යුතු වෙනවා’ ඔහු කීවේය.

‘එසේම අලුත් කැබිනට් අනුමැතිවලින් ආගමන හා විගමන දෙපාර්තමේන්තුවේ පාලකවරයාටත් අනෙකුත් ඉහළ නිලධාරීන්ටත් තීරණ ගැනීම උදෙසා වැඩි බලයක් ලබා දී තිබෙනවා’ ඔහු තවදුරටත් කීවේය. වර්තමානයේ නොපවතින කාලීන අවශ්‍යතාවක් සේ දිස්වන වැඩ කිරීමේ අවසරය ලබාදෙන වීසා ඇතුළු නව වීසා කාණ්ඩවලින් හෙබි කාර්ය පද්ධතියක් උදෙසා වූ, පරිපූර්ණ ප්‍රතිපත්ති ස්ථාපනය කිරීම කෙරෙහි දෙපාර්තමේන්තුවේ අවධානය යොමුකර ඇති බව ද හෙතෙම සඳහන් කළේය.

එසේම අන්තර් ජාතික වාණිජ හා උපාය මාර්ග සංවර්ධන අමාත්‍යාංශය ද ඊළඟ සති දෙක තුළදී කැබිනට් පත්‍රිකාවක් ඉදිරිපත් කිරීමට නියමිතය.

ස්වදේශික වෘත්තිකයින්ගේ සංවිධානවලට, වීසා ඉල්ලුම් පත්‍ර ඉදිරිපත් කොට ඇති තමන්ගේ නව වෘත්තීය සුදුසුකම් ඇත්තන් පිළිබඳ පරීක්ෂණ කරමින් සහ සම්බන්ධතා පැවැත්වීමට ඉහත කී කැබිනට් පත්‍රිකාවෙන් ඉඩ සැලසේ.

මෙම පියවර ගෙන ඇත්තේ වෘත්තිකයන්ගේ විවිධ සමිති සමාගම්වලින් උපදෙස් ලබා ගැනීමෙන් අනතුරුව බව නිලධාරියා පැවසීය.

උදිත ජයසිංහ විසිනි ඬේලි එෆ්.ටී. පුවත්පතේ පළවූ ලිපිය සිංහලට පරිවර්තනය කළේ සමන් පුෂ්ප ලියනගේ.

Game of charades: The lackadaisical implementation of price controls on basic foods

Originally appeared on Daily News

By Ravi Ratnasabapathy

The Government has imposed price controls on a number of basic foods in order to control the cost of living. For the purpose of study, we wanted to ascertain the products subject to controls, as well as the prices at which they were supposed to be sold.

A list of price controlled items is a straightforward piece of information that should be readily available to any consumer.

Unfortunately, this does not appear to be available anywhere. The website of the Consumer Affairs Authority (CAA) lists a few items; gas, cement, milk powder, chicken, rice, and pharmaceuticals. The other items were not listed.

The information on the CAA website is outdated (eg. A controlled price from 2014 is listed for chicken although chicken was removed from the list of controlled items in April 2017). On inquiring from the CAA over telephone, we were asked to refer to the website. A list was eventually compiled after a field visit to the CAA by extracting the relevant information from copies of the gazettes.

How are price controls to be enforced if a list of items subject to control is not readily available?

The proper approach would be to ensure that list of controlled prices is displayed at every outlet, so customers know if they are being overcharged and can then make their purchasing decisions accordingly.

Having compiled a list, we compared the controlled prices with the weekly market prices published by the Department of Census and Statistics in its survey of the main markets in the Colombo district in the period September 1, 2017 to June 30, 2018.

It is evident from the table we have collated that the controlled prices are not being followed in most instances.

The surveys of traders by Breakthrough indicate that 67% of retailers and 46% of wholesalers react to raids by the CAA by temporarily adjusting prices. They later revert to business as usual. Trying to enforce retail level price control across the informal trade and public markets is a practical impossibility. The CAA annual report (2014) states that 22,402 raids were carried out that year and 25,287 in 2013. This is small fraction of 205,573 retail outlets (general as well as those specialised in food, beverages and tobacco) in the country.

In any case if the controlled prices were strictly enforced, then the usual distortions such as shortages and queues would become obvious with unpalatable political consequences.

The CAA is successful in enforcing prices on items supplied by large businesses or corporates such as in cement or milk powder. Whether this actually keeps prices low is questionable.

Large businesses are relatively easy to monitor and they are open to pressure to supply even at a loss; on the implicit understanding that they will be allowed to recoup this at some point, as noted in the articles included in the appendices to this report. It is very clear that the only item consistently being sold at the controlled price is milk powder produced by a multinational. Wheat flour, which is also produced by large corporates tends to track the controlled price closely. The majority of the other items were being traded at prices above the controlled price.

During the period under survey, price controls were imposed on Nadu rice (December 26, 2017) coconuts (December 6) and revised on dhal and kata (December 6) with minimal impact on prices.

The impact of taxes on prices is particularly interesting. When some taxes were reduced in November 2017 (dhal, potatoes, Big onions), prices declined on these items over period of weeks, sometimes falling below the controlled price. When taxes were later raised (potatoes to Rs.30/kg on February 24, B onions to Rs.40 on May 2) prices rose again eventually breaching the controlled price. In the case of dhal prices eventually fell below the original controlled price (159/kg) following the reduction in tax – but prices did not respond significantly when the controlled prices was reduced to Rs.130 (December 6, 2017).

This underlines the case for reducing specific food taxes if there is any serious intention to control prices.

It is also worth noting the difference in prices between imported and local items, potatoes, and big onions. Locally produced items are not subject to tax or price control, but when available, these retail at prices higher than the controlled price and are sometimes higher than the (taxed) imported items.

Instead of attempting to protect agriculture through taxes (which raises prices for consumers) the government should facilitate the modernisation of the sector, supporting investments that improve productivity (eg. mechanisation, drip irrigation, greenhouses, quality seeds etc).

“Using controls to reduce prices does not appear to work.”

Addressing the inefficiencies within local agricultural is the sustainable way to lower prices: increased productivity raises farmer incomes and lower consumer prices in the long term.

The scheme itself is ill-conceived and there seems little intent or capacity to enforce. Reducing taxes, increasing competition and productivity in local agriculture is a surer path to lower consumer prices.

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“Price Controls in Sri Lanka: Political Theatre”, a new report by the Advocata Institute finds that consumer price controls lead to unintended outcomes including lower quality.

To read more on Price Controls and download full report: www.research.advocata.org/pricecontrol

A video documentary: https://youtu.be/zG5hV94G7Qc

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Sri Lanka tariffs, land stumbling blocks for factories

Originally appeared on Economy Next

By Chandeepa Wettasinghe

State regulations, protectionist para-tariffs and lack of industrial land in Sri Lanka has stopped competitive new industries from taking root in the island, a research from US-based Harvard University said.

“There was a broad environment of policy uncertainty. Tax policy and land policy tended to promote existing industries in Sri Lanka as opposed to new industries.”

"Because of taxes and para-tariffs and the limited land in industrial zones, the government had to regulate who came in and went out," Harvard University Center for International Development Research Fellow, Tim O'Brien said.

"It favoured Sri Lankan companies with proven track records rather than newer companies,"

O'Brien was speaking during a Facebook Live online event held by the Advocata Institute, a Colombo-based free market think tank.

He said that newer industries may have made more competitive export products.

A new Inland Revenue Act which came into effect in April 2018 put an end to a complicated tax structure with loopholes, which companies with political clout had exploited.

Though established domestic or foreign companies with BOI status were able to get some raw materials without incurring para-tariffs, many international investors had found the complex legal systems off-putting, according to some reports.

Sri Lanka's exports to gross domestic product had fallen from 33.3 percent in early 2000s to 12.7 percent in 2016 as the economy became more protectionist, and non-tradable sectors such as government driven infrastructure projects gained more importance, according to one analysis.

However services including software, where there is no protection and is competitive, and tourism has also grown, especially outside the capital Colombo, where there are no state mandated price floors on hotel rooms.

The Harvard team had found that the lack of industrial land, in the form of zones, was the biggest stumbling block for Sri Lanka in attracting foreign direct investments for competitive export products.

Sri Lanka has 14 Board of Investment industrial zones, which have not rapidly multiplied.

O'Brien said that with more industrial zones planned, and the BOI expected to move away from regulation of investments to attracting investments, new competitive industries such as solar panel and medical equipment manufacturing are expected to start in Sri Lanka.

It is not clear what role Sri Lanka's relatively robust environmental regulations play in setting up factories, compared to poster child Vietnam or China

Hoteliers in Sri Lanka for example had managed to find land, though it sometimes takes up to a year to get approval from multiple domestic and national authorities.

They also face higher construction costs, food and drink prices, which tend to undermine their competitiveness compared to East Asia which has free trade.

Sri Lanka's labour markets are also tight especially for so-called 3-D (Dull-Dirty-Dangerous) jobs and there are vacancies in BoI zones for jobs at existing salaries amid currency depreciation.

Currency depreciation may be causing an net outflow of better qualified IT workers, according to some analysts.

But workers are leaving for factories in countries with stronger currencies such as Korea, Japan, the Middle East, where strong currencies have forced firms to boost labour productivity and pay higher salaries.

Is a Currency Board solution to depreciating rupee?

Originally appeared on Daily News

By Ravi Ratnasabapathy

Sri Lanka’s rupee depreciated rapidly over the last month. The Government has claimed the problem is mainly due to global pressures and has reacted with a series of import restrictions on vehicles, consumer durables and perfumes. Bankers report that similar controls were imposed in 2009 during another episode of devaluation.

Currency instability has been a recurring phenomenon in Sri Lanka.Money is the medium of exchange, and a sound, widely accepted currency promotes trade. Trade was vital to ancient Rome which introduced a uniform currency throughout their empire. Historically, the use of money arose due to the inconveniences of barter. Money serves three fundamental purposes:

1. It is the medium of exchange: Money is used for trading goods and services. In the absence of money trade could only take place through the cumbersome process of barter.

2. Unit of account: Money is the common standard for measuring relative worth of goods and services.

3. Store of value: It is the means by which wealth is stored. Without money people would need to store their wealth as goods, which is cumbersome and expensive.

Money oils the wheels of trade; it is obvious that it performs its functions best when its value is stable. If the value of money fluctuates widely it undermines it’s fundamental purpose. A simplistic example drives this point home.

Imagine being contacted by a broker about a 2,500-square-foot house, only to visit and find a house half the size. The prospective buyer would have very little trust in the broker. This is purely hypothetical given that a foot is a foot. Since its definition is unchanging, 2,500 square feet means the same today as it did 20 years ago.

Whatever the level of trust buyers have in their brokers, square footage will never be a factor; that is, unless the length of the foot is allowed to “float,” and its length declines. Suddenly, 2,500 square feet could very well mean 1,500 square feet in real terms, and trust in brokers will plummet.

This illustrates the effect of an unstable currency. Sound money has underpinned the growth of Singapore and Hong Kong. What lessons do these hold for Sri Lanka?

Hong Kong has a Currency Board, which means all currency issued in the territory must be at least 100 per cent backed by foreign reserves. Singapore’s monetary policy, although no longer a fixed board (which it once was) retains the key characteristics of a currency board. A currency board is similar to a fully backed gold standard.

As the currency is fully backed by hard reserves it is freely convertible and immune from depreciation. The exchange rate can remain fixed but in practice many countries that run currency board arrangements allow a small fluctuation in the exchange rate to reflect trading conditions. The exchange rate may also be revised periodically, to ensure it remains consistent with the underlying fundamentals of the economy; which is what Singapore does.

The currency board guarantees the convertibility between the local currency and foreign currency at the foreign exchange rate in the currency board system. The local currency is linked with the foreign currency by the guarantee of convertibility and the fixed exchange rate. Therefore, the confidence in the local currency is linked with that in the foreign currency by the currency board arrangement, and the local currency acquires the properties of the foreign currency with respect to the basic functions of the money.

The Currency Board cannot create money, except when actual reserves are available nor can it lend money to the Government, usually described as printing money (or, euphemistically, quantitative easing).

Since the Government cannot borrow from the Central Bank (a source of ‘easy’ money) it must rely on taxes or debt to finance spending, which imposes a degree of fiscal discipline. This in turn results in low inflation. As the money supply also changes only with movements in reserves, interest rates remain fairly stable and are generally low.

Currency board systems assure convertibility, instill macroeconomic discipline limiting budget deficits and inflation, provide a mechanism that guarantees adjustment of balance-of-payments deficits, and thus create confidence in the country’s monetary system,

In other words; the perfect way to impose discipline when grappling with difficult financial problems.

For this reason Currency Boards were adopted in several East European countries when transitioning from Communism. The transition from communism caused severe monetary shocks in Eastern Europe. To manage the transition several countries including Estonia, Lithuania and Bulgaria implemented currency boards with great success; inflation declined and economic growth picked up.

IMF studies show that historically, countries with currency board arrangements have experienced lower inflation and higher growth than those with other regimes. The lower level of inflation is explained partly by the greater monetary discipline imposed but also by the greater level of confidence engendered by adopting the Board.

Note that a Board is not a simple exchange rate peg (which is what Sri Lanka had pre-1977) the requirement for the currency to be fully “backed” by reserves, the restriction on lending to the state and a long-term commitment to the system usually enshrined in law are crucial differences that underwrite the stability of the currency.

To date no currency board has had to be abandoned as a result of a crisis. The Asian currency crises of 1997 provided a severe test: all currencies of SE Asia depreciated rapidly except those of Hong Kong and Singapore. The worst affected was the Indonesian rupiah which dropped from $1=Rp2,400 to $1=Rp14,500, the Thai Bhat fell more than 50% and the currencies of South Korea, the Philippines and Malaysia were all battered.

Alone amongst its neighbours, the Hong Kong Dollar was unaffected, despite repeated speculative attacks. Although Singapore allowed its currency to depreciate by around 20%, to adjust to the relative weakness of its trading partners during the crisis, it was a matter of choice by policy makers rather than an event forced on them by circumstances.

Currency boards were once the norm. Invented by the British they provided the stability that allowed foreign trade to flourish throughout the Empire. With the decline of the Empire the boards were gradually dismantled by the newly independent states, except in a few places such as Singapore and Hong Kong.

Adopting a Currency Board would address Sri Lanka chronic currency problems and provide the platform for long term growth.