100 days of failure: the price of regime change
Posted on May 1st, 2015

By Ecconomist Courtesy Island

The change promised at the January presidential election was encapsulated in a 100 day program which was agreed on to unite all opposition forces. But after 100 days, nobody is convinced that anything worthwhile has happened. The executive presidency will not be abolished thanks to the Supreme Court ruling. The executive presidency is to be continued. Whoever wins the next parliamentary election will be saddled with Maithripala who will be the head of state, head of government, commander in chief, minister of defence and Minister of Mahaveli development and environmental affairs.

What we finally got was just 100 days of mudslinging against former president Mahinda Rajapaksa who defeated the LTTE. A statement was made by the cabinet spokesmen that the former president and his wife and sons have US$ 1.2 billion in a Dubai Bank. A special mission was dispatched to find the money allegedly kept by Rajapaksa in the Seychelles. The houses of Rajapaksa’s friends were searched for hidden assets. Nothing was found and Mahinda Rajapaksa has categorically denied having any such funds in secret accounts in any foreign bank. It was clear that the attempt was to discredit him and destroy him politically. Inquiries into corruption eventually found only the corruption under the Maithri/ Ranil administration. The treasury bond fiasco involving the Governor of the Central Bank Mr. Arjuna Mahendran is a clear case of insider trading which has caused a loss of Rs. 50 billion to the country. Mahendran has been interrogated for 6 hours at the Bribery Commission.

Mahendran directed the Public Debt Department to accept Rs. 10 billion at 12.5 percent interest and 30 year maturity from a public tender for treasury bonds to the value of Rs. 1 billion even without a formal request from the treasury. The government was raising funds at 9.5 percent till this date. After this, the interest rates have increased and now everybody is paying for this crime. The profit from this single transaction is Rs. 500 million. The very person who spoke against debt financing and high interest rates while in opposition, Dr. Harsha de Silva has come forward to justify this patently corrupt deal. In the meantime, the Appeal Court is hearing a money laundering case against the finance minister filed by the exchange controller.

All that happened in the Seychelles was to find fault with the Bank of Ceylon for opening a branch there arguing that it is not worthwhile to have a bank in a country where only 50 Sri Lankans live. Then why are the Americans maintaining a CITY bank branch here, and the British the Standard Charted, bank, the Germans the Deutsche Bank and the Indians the Indian Overseas Bank in Sri Lanka? The Seychelles is a growing tourism economy like the Maldives. It is in the best interests of our country and the Bank of Ceylon to maintain a bank branch in that country. Only those who have a vision can see the value of such business development.

The kith and kin of the president, prime minister and ministers have been appointed to high posts. The president’s brother has been appointed to head the country’s largest state owned telecom company, which is listed on the Colombo stock exchange. His son in law was appointed to the defence ministry. It is clear that the so called ‘rainbow coalition’ was formed only to change the regime and create political instability in Sri Lanka, which India as well as the West have always wanted. The national anthem is sung in Tamil. Restrictions on LTTE diaspora organizations have been removed. Modi launched the next Indian intervention in the Island 25 years after Rajiv’s visit. No less than 125 days of fishing rights have been given to India to the detriment of our northern fishermen.

The 100 day program pledged a low cost-of-living, the abolition of the executive presidency and the adoption of electoral reforms and good governance. The new government reduced the prices of petrol, diesel and kerosene, capitalizing on the low international price of oil. Motorcycle owners, three wheeler drivers, truck operators, tractor operators, bus operators, van operators, and even the Railway Dept. and the CTB benefited. Two weeks later, the import duties on wheat grain, sugar, green gram, black gram, canned fish, Maldive fish, dried fish, sprats and coriander were also reduced by large margins. Capitalizing on the low import price of milk powder, milk powder suppliers were forced to reduce milk powder by Rs.50/ per kg. Furthering the cause of Senaka Bibile, the National Drug Legislation was hurriedly passed in parliament generating the hope that the people of Sri Lanka will be able to obtain pharmaceutical drugs at low cost.

The fictitious revolution

After all this, the cost of living is no lower. The prices of rice, coconut and chilies are higher than 100 days ago. Now in desperation, price controls have been imposed but no one has yet found a cup of tea at Rs. 10 and a hopper at Rs. 10. Apart from this, nobody has still found cheap green gram, black gram, dried fish, mMaldive fish and bakery products. People still pay the same price for kimbula banis and roast pan.

The bulath vita is still Rs. 20.00. Those who eat rice with pol sambol and have a bulath vita afterwards have to pay more than on the 8th of January. The prices of medicine have not changed and people can’t get basic medicine even from government hospitals.

All who built unusually large houses in the past few years were required to pay the mansion tax of Rs 1 million per house. The companies that had over Rs. 2 billion in profit in the 2013/2014 tax year were required to pay a 20 percent extra tax. Telephone companies, satellite cable network operators, sports channels, casino operators, betting centers and liquor manufactures have all been made liable to high taxes. This gave the impression that the government had a taxation strategy to tax the rich and make Sri Lanka a socialist state. The interim budget also assured a guaranteed producer price for rice at Rs. 50/Kg, green tea leaves at Rs. 80/Kg, and rubber at Rs. 350/kg. Assurance was also given that fertilizer will be supplied at Rs. 350/ per bag. The majority of the beneficiaries of guaranteed producer prices and the fertilizer subsidy are small holders. Thus we should be having reduced consumer prices, the lowest fuel prices in 5 years and the best producer prices ever in the country.

Mr. Ravi Karunanayake, travelled to Washington and met the Managing Director of the International Monetary Fund (IMF) to appraise her of this revolution. She of course wished him luck and whispered to her staff, “God save Sri Lanka”. What Sri Lanka finally got in terms of a change is only a break from accepted economic norms. Such populist policies have saddled the country with huge costs while nobody is really better off. The reduction in taxes has costs over Rs. 50 billion per annum – more than twice the amount spent on Samurdhi beneficiaries. Furthermore, the reduction in import duties of certain commodities has encouraged imports. Black gram farmers in the North, green gram farmers’ in the South, fishermen engaged in producing dried fish and Maldive fish, local fish canning factories all have lost their business to importers. The low price of milk powder has discouraged the consumption of fresh milk. Those who invested in the setting up of dairy farms and the manufacturing of milk powder have lost out to the companies that import milk powder from New Zealand and Australia.

The reduction of import duties on cement and steel has not helped the users of such materials but has hurt cement and steel manufactures in Sri Lanka. This too has only encouraged importers. No construction company has found cheap cement or steel for their construction work. The revenue loss from the removal of import duties and Cess on cement and steel is around Rs. 10 billion. Reduced duties on cement, steel and fuel should theoretically have created a construction boom but the construction industry is the worst hit. The cost of building materials such as brick, sand, and even cement and steel is higher than 100 days ago. The jobs of at least 100,000 people who are engaged directly and indirectly in this industry have been put at risk. People who thought that Mr. Sajith Premadasa will truly help the poor are still waiting to get a house from his 50,000 houses within 100 days programme.

Decimation of revenue sources

The 100 day revolution has reduced revenue from petrol, diesel, kerosene, wheat grain, milk powder, sugar, green and black gram to the tune of Rs. 50 billion. Even Champika has admitted in public that the fuel price reduction has not yielded the expected results. If so who is responsible for the loss in revenue? The crude oil price will not remain at the current level for long. Even after 100 days nobody has seen the new revenue legislation. This means the government has not been able to tap any additional revenue to meet its new expenditure – which is largely on salaries and pensions. Simple arithmetic shows that the extra cost of salaries and pensions for 1.3 million public servants and 500,000 pensioners is around Rs. 7,000 million per month. How can the government meet this expenditure? The only way to meet this on a monthly basis is to defer or default on payments for ongoing development work.

Most of the divisional secretaries, provincial councils and local authorities have gone on record saying that they are unable to cope up with the people coming to collect unpaid bills. The estimated deferred payments and arrears during the 100 day program is over Rs. 70,000 million. People will lose livelihood activities associated with the construction industry. Banking and financial agencies will be the next causalities. What the 100 Day Program essentially has done is the suspension of development to pay underperforming public servants, retired public servants and over 70 ministers. Although public servants have got some extra money, they too have not found tea, rice, coconut or vegetables at affordable prices. As at the last working day before the new year holidays, the elderly have not got their Rs. 2,000 monthly allowance. The Rs. 20,000 ‘poshanamalla’ has been distributed only in 20 out of 300 odd AGA divisions.

The desperate financial condition of the country became clear when finance minister Ravi Karunanayake introduced a resolution to get Parliamentary approval to increase the treasury bill borrowing limit by Rs. 400 billion just two months after he presented the interim budget. This move was essentially to get legal sanction to print money. Luckily, Mr. Bandula Gunawardena saw the danger and rallied opposition MPs to defeat the motion. In the meantime, the country’s economy is on a downturn. Both the ADB and the World Bank projected a growth rate below 7 percent. Some independent analysts project a growth rate below 6 percent considering the contraction in the construction and plantation sectors. Rubber and tea prices have drastically declined putting small holders in difficulties. The country’s international reserves have declined from US$ 8.3 billion in December 2014 to US$ 7 billion by 15th April. In spite of the trust placed on the UNP government for private sector led development, the All Share Price Index fell to 6901.1 (on Friday the 10th April) from a high of 7438.5 on January 8th.

The 100 day programme promised a cabinet of less than 30. Accordingly 28 cabinet ministers were appointed along with a few state ministers and deputy ministers. But very soon the number of ministers was expanded to 77. Now the treasury is waiting for the gazette allocating functions and duties to rework the budget allocations through a supplementary budget or through the treasury allocation procedure. In the meantime new additional ministers, deputy ministers and state ministers are being found office facilities, vehicles and staff.

Advisors have been appointed to each ministry and it is they who run the operations unofficially with selected officials – not the duly appointed secretaries and heads of departments. A former secretary to the treasury in the 1990s runs the treasury – not the present secretary Dr. Samarathunga. Petroleum tenders are handled not by the board but by the secretary to the power and energy ministry Dr. Batagoda. Mr. Faiz Moheideen a retired ministry secretary runs the highways ministry along with a retired chairman of the RDA. Who is accountable ultimately is the million dollar question among public servants.

Well established foreign relations with Australia and China were destroyed by insulting the Australian government and canceling Chinese projects to satisfy the Indians. India itself has secured US$ 20 billion worth of investments from China. Chinese funding comes with the same conditions as any other Exim bank. Exim bank credit from India is given to an Indian designated contractor and British Bank credits are given to British contractors. Even the US exim bank works on the same basis. So why should it be any different when it comes to China? Is this because the Americans don’t like China helping the Sri Lankan economy or India does not want to see Sri Lanka prospering?

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