Tuesday, January 20, 2015

Who was worse JR or MR ?

Sbarrkum had put up a post comparing JR and MR. This is my take on the question.

It is a tricky question, undoubtedly JRJ's regime was a turning point, he set the stage for autocracy and escalated the conflict to the level of a real war.

But what of MR, the man who took the maximum use of JR's constitution and then made it worse, via the 18th amendment?  After the conflict ended he expanded the draconian PTA, which now incorporates the key provisions of the emergency regulations, so that we are now effectively under permanent emergency regulations.

What of his dismembering of the judiciary?  JR started it but it is at a whole new level now.

What of MR's stoking of new inter-religious tensions? Against the Muslims and Christians. New tensions were created out of nothing. International pressure resulted in the genie being placed back in the box, but trust between communities is fractured.

We still do not know what happened in the last few months of the war. Even I have been surprised by what is emerging on corruption. Who knows what will emerge on the war?

We may have to wait awhile before we can assess the real legacy of MR, so a favourable comparison with JR may be premature.

Fortunately it appears that both of these are now in the past, perhaps we may hope for a better future?

Related posts here and here.

Tuesday, January 06, 2015

Presidental election 2015: Assessing the candidates

Some people, while acknowledging the shortcomings of the present administration are still doubtful about voting for the common opposition candidate. They wonder if there will be real change, the new man may not make the constitutional changes promised, so we end up with the same situation as before. They also worry that the infrastructure projects may stop. How can we assess the candidates?

A study of the manifestos is not very helpful, the two don't seem very different, even the President has now promised to reform the constitution. In any case they are a list of promises, what we need to know is if they will be implemented. 

The election campaign may offer us a clue, since it is recent and ongoing. We have witnessed a wave of violence, the abuse of state resources and violations of election law. The list is longer than in 2010.  (See lists of incidents compiled here and here). To no great surprise, the majority of victims of the abuse have been the opposition. Despite repeated provocation the cleaner campaign by the opposition is welcome and sends a positive signal.  

With regard to improved governance since the opposition candidate has not occupied positions of real power or influence we don't have much of a track record to go on. This is similar to the situation in 2005 when the President was first elected, he was a largely untested quantity.

However the opposition is a coalition which includes the constituents of the UNF Government of 2002-2004 which took significant steps to improve governance. The 17th Amendment which gave a measure of independence to the judiciary, police, the public administration and the elections commissioner was passed under their watch. They also passed the fiscal responsibility act which improved transparency.

Therefore there is a positive record to go on, which the candidate has pledged to support. Indeed the common pledge to reforms is the main factor that unites the disparate members of the coalition drawn from across the political spectrum. Having done it once before we may take it that the UNF will support these reforms.

What of the other members? Amongst the opposition are those who have in various ways felt the direct abuse of power (Sarath Fonseka and Hirunika Premachandra to name two) and therefore have real incentive to see reform. What if Sirisena simply buys over/ignores his partners and tries to hang on to power?  To an extent it boils down to personal dynamics.

The real beneficiary he reneges will be Sirisena, everyone else in the coalition will be the loser. If there were just a couple of players a backroom deal to renege or abandon the promise of reform in return for a slice of the spoils is a possibility. With a larger group it will always prove to be more difficult, especially when it involves strong personalities and players with a deep personal interest in it. Overall I reckon there is a good probability that the reforms will be pushed through.

The reforms of 2002-4 were passed through the usual parliamentary process, not smuggled through as  an urgent bill, which was the case with the 18th amendment and the expropriation act. Along with the impeachment of the Chief Justice and the expansion of the PTA these are the most significant political acts by this regime. Parliamentary checks have been subverted by cross-overs (47% of MP's are now with the executive) and other means. Overall we have seen a significant centralisation of power under the current administration. Given this record the new found interest in reform by the President sounds like election propaganda, like the reduction in prices of electricity and fuel. What is more worrying is the trend- towards ever greater centralisation of power and subversion of proper process. 

In terms of the infrastructure projects there have been concerns raised about costs and people wonder if the new Government will stop these projects, especially since some contradictory statements have emerged. It is worth noting that the Southern Expressway was actually started in 2003 under the UNF government. It was finished in 2011 and the President took all the credit. I don't think there is a serious issue with necessary infrastructure with the opposition but the financing will be different. The Southern Expressway was funded by the ADB and the Japan Bank for International Cooperation and cost far less per km than the Katunayake Expressway.

The debate on governance and the rule of law is esoteric but the consequences are very real, very fundamental. It was only six months ago that we had an outbreak of racial violence, the culmination of many smaller incidents. Preceding this was violence in Rathupaswella, Katunayake  and Chilaw which form a troubling pattern, symptomatic of the breakdown of the rule of law. Why do they keep recurring? Is it because people can get away with it? A call to the right person and the police will not investigate, the courts will not convict ? Are certain people untouchable?

In isolation they may be ignored, but taken together they form a dangerous, disturbing trend that calls for arrest. Things tend to get swept under the carpet and after a while we forget about them. Because we have not been directly affected we can allow ourselves to be lulled into a state of dangerous complacency. 

So what do voters have to assess the candidates? The record of the incumbent is clear. Clearer still is the need for reform. Will the contender stick to his promises?

In my own assessment I think there is a fair probability that he will.

Further Reading:

For an excellent critique on the decline of the judiciary see Nihal Jayawickrema's piece here.

Friday, January 02, 2015

Putin and Mahinda: Strong leaders, their policies and our fate

Some analysts, including the irrepressible Dayan Jayatilleka have a fascination with strong leaders. Strongmen, they believe will lead to strong nations. Vladimir Putin mesmerises such people, a man who they claim has taught the West a lesson in defiance and developed his country.

Mahinda is compared favourably with Putin and people are urged that if this model is followed it will surely lead us to greatness. The comparison between Putin and Mahinda is apt. Both share similar sentiments and follow similar policies.

But is this good for Sri Lanka?

After collapsing in the 1990's Russia's economy recovered from around 2000 onwards. Putin happened to be in charge and claimed the credit. The truth is that the economy recovered only due to high oil prices.

Historically this has been the case with the Soviet Union and Russia - the economy has largely been dependent on oil and natural resources. The Soviet Union collapsed after a period of sustained low oil prices in the 1980's.

After some decline in oil prices Putin's Russia faces a similar situation today. KAL's cartoon from The Economist sums it up.

Sanctions from the West have exacerbated the crisis in Russia - but are not it's primary cause. Russia's sclerotic economy is sustained largely by natural resources. Even if it is argued that sanctions are the cause of the current crisis it only serves to underline the folly of Putin's policy (like Mahinda's) of anatagonising the West. If Russia's economy with all the natural resources at its disposal is tottering what would our fate be?

Sure, we can all be proud of having a strong leader like Putin but Russia's fate will be ours.

Is that what we really want?

Some further reading herehere and here.

Wednesday, December 31, 2014

The LTTE and the Presidential election

The President has proclaimed that he has won the war and defeated terrorism. It is claimed to be the first and perhaps only victory against terrorism. Prabakharan is definitely dead, not even the looniest elements of the diaspora cling to the belief that he is alive, even his son and family were killed. In the minds of some the killing of the children and family were necessary to prevent a resurgence of the movement.

After such total annihilation how then that the LTTE now appears to be in the forefront of this election? 

The whole hullabaloo seems to have intensified after the cross over of the SLMC and the announcement that the TNA will support the opposition. The Nation laments that the TNA has finally ended up in Maithri's camp. Was anyone seriously expecting any of the minorities to support the incumbent? After the series of attacks on the Muslims and the Christians which the state did little to prevent or investigate? And which linked the attackers to the State itself?

Perhaps they were optimistic. Perhaps they felt that enough cash would keep them in the fold?

One would be forgiven for thinking that we were back in 2005, when the LTTE did in fact play a crucial role in the election. It is undisputed that the LTTE called for a boycott, but why where the number of polling booths in the North and East reduced? Why were people forced to travel outside the LTTE areas to vote? Was it to make it easier for the LTTE to blockade roads, to enforce the boycott? Why was public transport curtailed on election day? Was the Government playing into the hands of the LTTE or was there something else? These are troubling questions that feed the speculation of a pact. (Some further info here).

Coming back to today's "issue", with all this history of dealmaking, even if the LTTE did exist in some form a pact would hardly be surprising although the Government media would by hypocritical in highlighting it now, particularly since Karuna, KP and several other former LTTErs are busy working for the Government. Pacts with the Government are in order, but not with the opposition?

Given the state of the LTTE today the accusation is merely absurd, one hopes it will be treated with the with contempt it deserves by the public. 

Wednesday, December 24, 2014

The Dictator's Handbook

Germany and Japan were militarised societies that glorified war and conquest, held human life to be cheap and regarded obedience to the state as the highest virtue.

This quote is from The Economist's review of two books on the second world war. It made me wonder if all the world's dictators are playing from the same rule book.

Years ago I listened to a satirical feature on the BBC World Service called The Ruler's Guide to Repression which set out the basic principles that any self-respecting dictator should follow.  Now, something similar has appeared in book form.

Subtitled "A Practical Manual for the Aspiring Tyrant" and carrying chapters on "Coming to Power Through Your Family", "You are the State", "The Range of Repression", and "Building Your Financial Empire"  it appears to be inspired by the Prince and is therefore a must-read for both for rulers and subjects, so pay heed.

The website carries some excerpts from the book which are hilarious, yet seem well grounded in fact. 

The book may be bought from the publisher here.

Jayawewa! Jayawewa! Thank you for voting!

Monday, December 22, 2014

Who will pay off Sri Lanka’s loans ?

Cerno wondered who should pay Sri Lanka's loans. I'm not sure but I certainly don't want it to be me!

I woke up from a dream the other night. I had been dreaming of Chinese loans and lying a awake in bed a solution to the problem came to me.

The Chinese loans are mostly project-based therefore the logical thing to do would be to swap the loans for equity. In other words, give the ownership of the projects to the Chinese in return for the cancellation of the loan.

In plain language, we default on the loans but dress up the process in enough financial fig leaves to make it appear that we are not. The Chinese will not go away empty handed either, they will gain ownership of the project together with whatever income that it generates. The projects have obviously cost far more than they are worth, but that is a question the lenders will have to ask of themselves. The citizenry and parliament were not privy to the full details of either the loans or the projects so will feel little responsibility for repayment. 

The Chinese will of course have to manage the regular operations of the project, whether it is the harbour, the airport or the highway; as the new owners the onus is on them to make the assets pay their way.

The Government will need to set up a regulator (such as OFGEM in Britain which regulates the energy industry ) to ensure that the pricing is not unreasonable and that basic service standards are met. We do not want the toll on the highways suddenly raised to Rs.10,000/- a trip just because the Chinese want their loans repaid.

The country is overburdened with debt and trying to service these loans will be a punishing experience  for citizens, therefore a default at some point  seems almost inevitable. Given a choice between defaulting on the international bond market and defaulting on China, the Chinese options looks a lot safer, especially since we will not technically be defaulting at all, we will be assigning the project assets to the lenders.

It may not be possible to convert all loans in this manner due to geopolitical considerations-the harbour may be particularly problematic. The alternative would be to sell the assets to private investors (privatisation) and use the money raised to repay the debt but the problem is that due to the massive cost overruns on the project it will never be possible to recover more than a fraction of its value through a sale on the open market, which is why the debt swap option is the most attractive.

Moreover the Government can sweeten the deal further by liberalising regulation that will stimulate business activity, giving the projects a better chance of success. The Government has spun a web of red tape that is strangling business. For example reintroducing the automatic visa on arrival and removing the minimum pricing on hotels can be an imediate boost to tourism.

The debt/equity swap will involve a lot of legal paperwork, even more work will need to go into the role of the regulator and the formula for pricing but this is an option that is worth exploring. 

Monday, December 15, 2014

Groundviews: The Contest.

Groundviews had published an analysis on the election. I wrote this as a comment:
The problem, which the business community and anyone else who argues for continuity has ignored is the state of the public finances.

We have an unsustainable level of public expenditure, which is being funded largely by foreign borrowings. Thanks to a general slowness in the economies of Europe and the US we have been able to raise debt at reletively low rates, to finance our expenditure.

We cannot expect such a benign situation in the debt markets to continue indefinitely. Sooner or later interest rates will rise (as soon as the US/EU cut back on quantitative easing) and we will then face a steep rise in debt service costs, which will push us into the same debt trap that Greece faces.

This is not just my view, it is also the view of the IMF and the international rating agencies. Those who want to continue on this path are advised to peer over the cliff face, first.