C.A.Chandraprema Courtesy The Island

Options available for Sirisena as LG elections loom
Elections Commission at last justifies its existence
RW heading for another bond fiasco

December 2, 2017, 7:57 pm
With the Minister of Provincial Councils and Local Government Faizer Mustapha being forced to engineer the withdrawal of the six petitions against the delimitation gazette, the obstacle to holding elections to all the local government institutions vanished and now the long awaited election is to be held in early February. It was the Elections Commission that forced the hand of the government by declaring elections to 93 LG institutions where there was no dispute with regard to the delimitation of wards and fixing dates for nominations. Once the die was cast with elections declared for 93 local government institutions, the government had little option but to give way and have the six petitions they filed in the Appeal Court withdrawn. The ease with which Minister Mustapha managed to get the six petitions withdrawn made it only too plain that it was the SLFP group in Parliament that had filed them just as the Joint Opposition said.

If the elections were held in a limited area, all the Joint Opposition activists in other areas would have converged in the few areas in which elections were being held and the government would have had a tough time. However, when elections are held countrywide JO activists are forced to remain in their own areas – which is better for the government. This was also why the government both metaphorically and literally moved heaven and earth to postpone the elections to the Sabaragamuwa, North Central and Eastern PCs which stood dissolved by October 1 this year. It was better for them to allow the PCs to cease to exist and to take the inevitable fallout without allowing the elections to be held in a limited area and allowing Joint Opposition activists to converge on the areas going for elections.

One thing that this whole sorry episode highlighted is how easy it is to use the rule of law to undermine democracy in this country. If the government wants to postpone an election, all they have to do is to send some catchers to court claiming that their rights were infringed and the election is postponed. The Puthukudiirippu and Martime Pattu Pradesheeya Sabha elections were put off for several years in that manner. Be that as it may, the declaration of the local government election has put President Sirisena into a spot. What he is looking at is complete irrelevance after February next year if he fields his own list. He has several options before him. One is not to field a separate list and claim that he is not doing so because he does not want to split the SLFP. By not contesting the JO, he can lay the groundwork for future reconciliation of the two SLFP factions. He may have realized by now that he has no hope of being able to hold his own as a party leader beyond his term as President.

By not contesting the JO he can create positive vibes among the JO rank and file – they literally loathe him now. Thereby he can also ensure the political futures of the SLFP ministers who are with him today. On the other hand, if Sirisena decides to go ahead and contest the election in the midst of an anti government wave in the country, that may place the political futures of all those who follow him in jeorpardy and it may in fact precipitate some defections from his side simply for the sake of political survival. Since the Sirisena faction is not agreeable to leaving the government to contest on the same list with the JO, the next best option he can take is not to contest the JO on the ground. If he contests the JO and comes in as a poor third, that will be the end of his political career. However if he refrains from contesting his weakness would not have been revealed to the public and he would have kept the door open for future reconciliation with the JO as well.

No advantage for JO by teaming up with SLFP

It will be easier for President Sirisena if he simply gives up any delusions he may have of contesting the presidential elections again. The UNP rank and file members are not going to vote for him and for that matter neither will the rank and file of the SLFP. It was only after the talks between the SLFP and the JO commenced that the JO itself realized the extent of the visceral dislike that the SLFP voters at the village level had for Sirisena. If the JO forms an alliance with the SLFP to contest the local government elections, there is the very real possibility that they will lose more votes than they would gain by having the SLFP contesting together with the JO. The anti-government sentiment at the ground level is stronger than one would think. One must say that the mood even among the rank and file in the run up to the August 2015 election was different. At that time, there was the generally prevalent feeling that the two factions should contest together against the UNP under MR’s leadership.

However, even in August 2015, the SLFP/UPFA constituency defeated almost all SLFP candidates identified as loyalists of Sirisena. Only three managed to survive – Duminda Dissanayake, Mahinda Amaraweera and Ranjith Sitambalapitiya. This time, even that level of tolerance appeared to be absent. Moreover, under the new system of elections, if SLFP candidates are nominated for the wards on the JO list, there is the danger that JO voters may not vote for that candidate and the UNP may get a walkover in that ward. So accommodating SLFP candidates on the JO list would not be as easy as it sounds. Before the JO can think of attracting new voters, it stands to reason that they will have to retain their existing voters.

Even though the UNP has been saying that they will win the wards automatically if the SLFP vote splits, that may not hold true at this election, because the polarization has taken place on the basis of being anti-government or pro-government. It’s not as if the voting public is deaf and blind. They know that the Sirisena faction is a part of the government and that it is they who provide the UNP with the extra votes needed in parliament to do what they are doing. Furthermore this is not like the parliamentary elections of August 2015 when the yahapalana government was still new and to a large extent untested. By August 2015, all that the people knew was that the new government had given all government servants an allowance of Rs. 10,000 a month and reduced the prices of fuel, gas and electricity just as they promised during the presidential election campaign. There were no serious negatives to be seen against the yahapalana government at that time. It was the yahapalana government itself which started undermining itself from the very beginning by making the persecution of the opposition their main business in government and by bungling everything they touched.

Today the situation is very different to that which existed in August 2015. And electoral strategies will have to be decided on in a different manner. The next couple of weeks is going to be crucial in this regard.

RW to do his own bond investigation

Last week Prime Minister Ranil Wickremesinghe announced in Parliament that his government would launch a special probe into the direct placement of bonds from 2008 to 2014. He stated that bond sales had been made from 2008 to 2014 on direct placements without informing the Monetary Board of the Central Bank or Parliament and that 90% percent of those bond sales had been done on private placements using EPF, ETF and National Savings Bank funds as captive sources. He had also stated that these bond issues had been carried out according to whims and fancies of certain persons and that these are more or less similar to pyramid schemes. Many people would be left wondering how the direct placement of bonds can be likened to a pyramid scheme.

Pyramid scheme is more or less another term for a Ponzi scheme where deposit takers promise extraordinary returns but will be able to provide those returns only so long as the number of investors continues to increase. Neither of these two essential requirements of a Pyramid scheme apply to Central Bank bond issues. Firstly, the direct placements during the Rajapaksa government did not offer ‘extraordinary returns’. In fact direct placements were the one of the principal means by which interest rates were kept low during the previous government. Secondly, there was no need for an ever increasing investor base to keep paying the bond holders because they were paid out of government revenue. The PM seems to have forgotten that the central matter examined by the Committee on Public Enterprises with regard to the bond issue under JVP parliamentarian Sunil Handunnetti’s Chairmanship was this very question of selling bonds by auction versus private placements.

Back in May 2016 when this writer interviewed former Central Bank Governor Arjuna Mahendran, the way he justified his decision to hold bond auctions instead of direct placements was to say that in the modern economy the government can’t manipulate market prices and the determination of interest rates should be left to market forces but that under the previous government, it was being done administratively by the people in the Central Bank. Mahendran argued that the rate of interest should be determined at an auction and that in the past they (meaning the Rajapaksa government) were using the EPF, the Insurance Corporation and the state banks to fund the government’s borrowing and administratively set the interest rate at whatever level they wanted. Mahendran charged that because of this system, EPF contributors were being short-changed by not being given the kind of interest they would otherwise have got.

However the Auditor General has held solidly in favour of direct placements, the majority of the COPE has also endorsed what the Auditor General said on this matter and finally even the UNP group had agreed to the recommendation that when the government needs to raise money through bonds, priority should be given to the state institutions that have the capacity to provide funds – which is what direct placement is about. So every political party represented in parliament ended up endorsing one of the mainstays of the Rajapaksa era economic policy. In discussing this matter, Handunnetti’s  COPE report observed that the Central Bank started issuing bonds in 1997 and that according to a Monetary Board paper that was issued that year, from March 1997, bonds would be sold to primary dealers through auctions except when there was a dearth of money in the market or in instances where interest rates were spiraling upwards, in which case money could be obtained through direct placements with the EPF. Later in 2008 another Monetary Board paper had authorized the issuance bonds through direct placements with the EPF and other captive sources. In the course of its inquiry, COPE found that the 2008 decision of the Monetary Board had not been incorporated in the handbook used by the Public Debt Department and Central Bank officials had said that the handbook still states that bonds should be sold ‘as much as possible through auctions’.

As could be expected in the circumstances, this point was seized upon by the UNP in the footnotes they added to the COPE report. They argued that when in 2008, direct placements were given priority by a Monetary Board decision, that was only for specified periods during 2008 and that the Monetary Board decision was not valid beyond the end of 2008. Furthermore they pointed out that the Operational Handbook of the Public Debt Department had stated very clearly that when raising money they had to do it ‘as much as possible through auctions’ and that the Auditor General has erred in considering direct placements to be the accepted system. Elsewhere in the footnotes, the UNP had contended that since the Monetary Board had not made a decision to give priority to direct placements after 2008, the direct placements that had been made between 2009 and 2014 were illegal and needed to be investigated. That basically is the straw that the Prime Minister is trying to cling on to.

The Auditor General had given COPE the breakdown of the manner in which money has been raised through auctions or direct placements between January 2014 and May 2016. The contrast between the practices of the previous government and the present one couldn’t be starker. From January 2014 till January 2015, money was raised mostly through direct placements. Auctions were certainly held during this period, but only for very small amounts compared to the amounts being sold through private placements. But after the new government came into power in January 2015, and especially after March 2015, direct placements cease completely and bonds are sold exclusively by auction. Pages 11 to  52   of the COPE report is in fact devoted to an examination of this question of auctions versus direct placements and the manner in which the auction of 27 February 2015 and other auctions were conducted.

The preferred method of the Rajapaksa government was direct placements which the former Governor Mahendran sneered at in the aforementioned interview with this writer as a case of the government administratively fixing interest rates – an outdated system which even Cuba has given up and was followed only by North Korea! However on page 44, the COPE report quoting the Auditor General has observed that the auctions system has increased the cost of raising money for the government and worked to the benefit of the primary dealers who have been able to dispose of their bonds in the secondary market at higher rates. The Auditor General had observed that this has resulted in a benefit that should go to the government going to the primary dealers instead. The UNP responded to this with a footnote that said that legally, priority had to be given to auctions according to the operational handbook of the Public Debt Department.

So the PM will be plumbing a technicality for all he is worth, while everybody else will be talking about the harm that the auctions system did to the economy. It is not too difficult to predict that all that the PM will succeed in doing with a bond investigation of his own will be to give everyone else another opportunity to keep on harping about the loss incurred by the UNP’s bond scam.

The COPE report also noted that the Auditor General has held that because of the switch to auctions, state institutions like the EPF and the state banks who are also primary dealers have fallen behind and had not been able to derive any benefit from the auctions. The Auditor General had also observed that the auctions system had given rise to a situation where primary dealers had begun putting in bids at very high rates of interest – in excess of what the Central Bank was willing to pay and this had led to all bids being rejected on five occasions between January 2015 and May 2016. One of the key recommendations of COPE which was endorsed by all its members was that in trying to meet the financial needs of the government, priority should be given to state institutions – which in effect means giving priority to direct placements. COPE had also recommended that the operational handbook of the Central Bank and other documents should be amended for this to become the norm and the UNP group also endorsed that recommendation.

Thus the entire COPE committee has ended up endorsing the Rajapaksa government’s policy of selling bonds mainly through direct placements. This mind you was in a situation where of the 26 members of the COPE Committee, only three – Mahindananda Aluthgamage, Chandrasiri Gajadeera and Weerakumara Dissanayake were members of the Joint Opposition with the other 23 being members of the yahapalana coalition. So how far can the PM hope to get with his investigation into direct placements? The only thing he will succeed in doing is showing the whole world once again that the system followed by the previous government was far better than that followed by his government.

Champika’s queer quest

Champika Ranawaka addressing a press conference last week said that his quest was to ensure that those rose to the top did so through merit and not through family connections. Though he is a member of parliament elected on the UNP, the example he took was from the Joint Opposition. He said that Mahinda was to be succeeded by Gotabhaya and Gotabhaya by Namal and so on and that this was the system that he wanted to put an end to. Why would a UNP parliamentarian have any concern as to who succeeds whom in the Joint Opposition? There’s not a snowflake’s chance in hell of Ranawaka ever being able to join the Joint Opposition so one would think that he should have been talking of the succession issues in the UNP or the SLFP rather than in the JO. As far as the Joint Opposition is concerned, everybody seems to be quite content to allow Mahinda, Gota and Basil do what they are doing for as long as they are physically capable of doing so because each has his own special ability which the JO is highly appreciative of.

One gets the distinct impression that even though Champika took the Rajapaksa family as an example, he was actually talking to the UNP where the likeliest candidates to succeed Ranil Wickremesinghe are Sajith Premadasa and Ruwan Wijewardene both of who are in politics due to family connections. Why are we not surprised?