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.

Thursday, December 04, 2014

What I wish for in a President

People dissatisfied with the choice of candidates at an election a may sometimes engage in wishful thinking speculating on an ideal leader. Someone of stature to whom we would unhesitatingly cast our vote. Nelson Mandela, for example or Lee Kuan Yew, a name that crops up frequently in Asia, or perhaps even Mahathir Mohamed.

Dayan Jayatilleka wishes for Deng Xiaoping the leader who reformed China and a worthy candidate,  although he then goes on muddle his argument by praising Putin forgetting that a Putin is what we are already saddled with.

I am much more practical in my approach. Sri Lanka is a small country, the talents of Mandela, Lee or Deng are suited to a much broader canvas. Why be so ambitious? Why not choose a lesser leader, one who while better than what we have is not such a world figure and is therefore more likely to take up the position?

I would settle for Omar Bongo.

 Not many many have heard of him but for 42 long years he ruled Gabon. Western concepts of governance he could not understand. He saw no distinction between himself and the state.

The suggestion of fiddling public finances flummoxed and infuriated him. Corruption, he once explained to a reporter, was not an African word. No more was nepotism: he simply looked after his family, supplying them with villas in Nice as well as the ministries of defence and foreign affairs. When French judges in 2009 froze nine of his 70 bank accounts, he was outraged. An attack on him was obviously an attempt to destabilise his country. (from the Economist obituary)
Gabon's mineral wealth helped to ease his rule.
A timber concession here, a stretch of paved road or a Bongo stadium there, disarmed anyone who objected to his way of doing things. Even Pierre Mamboundou, his most diligent opponent, was soothed after many years with $21.5m spent on his constituency. Business visitors to the capital found it chic, feudal and hospitable, like an Arab emirate; in Mr Bongo's time, Gabon's consumption of champagne was said to be the highest in the world. Everyone could be suborned or sweetened except his first wife, Joséphine, who became a pop singer after the divorce and sang cutting songs about her young replacement. (the Economist)
Whatever his faults, Mr Bongo did allow a modicum of prosperity to trickle down to his people, who enjoyed a slow but steady increase in living standards. He also brought relative tranquility, and order; rare commodities in Africa. There was apparently genuine mourning by the population at his passing.

This is all I would wish for in Sri Lanka.  They don't seem like much but I wonder if even that is too much to ask for.

Sri Lanka is not a rich land, so if Mr Bongo were to rule he would have little wealth to ease his passage. However having made so much in Gabon, he could surely be persuaded to serve here for more modest pickings. After all, some minister here made the very same argument; that it is better to have the old hands who have already made money than to get someone new who would need to start all over again.

Cerno says he has grown to fear speculation,  about the process of change and hopes that Sri Lanka will not (despite what far away analysts think), become a Somalia, a Pakistan, or some other third world hell hole.

I fear Cerno that we are already just that. We passed the Banana Republic stage some time back and we now seem headed in directions that even I don't want to contemplate.

Tuesday, November 25, 2014

Democracy, constitutions and politicians: what citizens need to know

Shammi has reminded me that today is my blog's birthday. I was not sure so I had to go back and check, but it indeed the anniversary.  What shocked me is that it has been nine years since I started.

It seems a very long time indeed. Ironically I started with a post criticising the President, shortly after he was elected to office and seem to have spent much of the time since criticising his administration.

I have been playing around with a primer on democracy. It's not finished yet but now that I feel obliged to put up something to celebrate the annivesary here it is.

Democracy is a highly complex political system. The original meaning of the term “democracy” was rule by the people, as opposed to rule by a monarch. In practice it meant rule by the people’s representatives.

In a democracy the ruler is only a representative, a servant of the people. The problem is that once elected, the servant is tempted to become the master. If he controls the state he becomes a king. How do we prevent this?

In a democracy this is prevented by:
a.      Not giving power to a single person. Sounds simple, but how is it done? Principally by sharing power.
Power is shared between several bodies including:
                           i.          Parliament, which makes laws. The president cannot make laws. Laws must be made by parliament.
                          ii.          The parliament itself has both government MP’s and the opposition MP’s. The opposition is there to ensure that parliament is simply not a rubber stamp of the president or the Government .
                         iii.          The laws made by parliament must be obeyed by all. But if an unjust law is passed what happens? People should be able to go to court to challenge the law. This is why independent courts and a judiciary are necessary. Judges are appointed independently and can review and change laws if they are not in keeping with the constitution or are otherwise unjust.
                         iv.          Laws are administered and enforced by the police and public servants. Appointments to the police and the public service must not be under the control of the president or ministers. If the police and public service are appointed by ministers/president, they only do what the politician’s want, not what the people need. This is why we need an independent police force and administration. Entrants to the police and public service should be chosen by way of competitive exam and the promotions, salaries and transfers must be determined by an independent commission. Not the MP’s, not the president.
                          v.          Many of the controls that limit power described above are set out in the constitution. This is why the constitution is important-it sets out the limits on power.

b.      Keeping the people informed of events. Despite all the checks above things can still go wrong. In order to correct anything we need to know what has gone wrong, so the media should be free. The Government should not own media outlets or control what is broadcast through censorship or by licensing. People should be free to criticise the rulers.
           The active participation of the people, as citizens, in politics and civic life. It is not only the president and the parliament who have a say. Ordinary citizens should also take and interest and participate in political debate, either as individuals or in groups. Groups that participate in political debate are usually called Non Governmental Organisations (NGO’s) – because they participate in politics but are not a part of the Government. Participation by citizens must be encouraged because along with the media they can help inform the people of what is happening.

Based on this scale how do we rank democracy in Sri Lanka today? Citizens need to observe and make up their own minds but here are some facts that they should consider:


1.      Parliament – opposition MP’s have been bought over by giving various ministerial positions and fat salaries. This is why we have a jumbo cabinet – opposition ministers are bribed to vote with the Government and no longer check power.

2.      Appointment of judges is no longer independent. The Chief Justice was removed arbitrarily and replaced by a Presidential aide. This has both weakened the independence of the judiciary and placed it under presidential control.

3.      Independent police and public service commissions have been removed. The independent commissions were set up under the 17th amendment which has now been repealed. All appointments, promotions, transfers are now subject to political control.  If police or public servants do not carry out political orders they will be punished (transferred, denied promotions or increments). They no longer serve the people.

4.       By eliminating the independent media and demonising NGO’s the government has prevented full participation by citizens.

These are just some of the issues, there are others that do not come immediately to mind but if citizens observe political processes carefully and understand the importance of process and procedure they will easily detect abuse.



Sunday, November 16, 2014

More expropriation of assets: estate companies now in the gunsights of the Government

The Government has issued a menacing statement on the status of the privatised estate companies warning that "underpeforming" companies would be taken over by the Government.

Taken at face value the statement seems innocuous - what is wrong with cancelling the lease and taking over something that is underperforming?

The question is, what is defined as "underperforming" ? Returns below par?  Losses? For a start, lets assume that the definition means a company that is making losses.

The next question is: who bears the losses of a private company ? The answer is the financiers of the company - the shareholders and the banks. What happens when the State takes over the company?

The state becomes the financier-and naturally assumes responsibility for the losses. This means taxpayers and citizens. Why are we in an unseemly hurry to impose additional burdens on the public?

Any losses are a burden on the public, unless, by some magic, performance improves under Government control.  We have plenty of evidence to the contrary

For example Srilankan Airlines was consistently profitable under the management of Emirates. The Government, in a fit of pique, took over the airline, paying Emirates US$53m for its stake. Last year Srilankan lost some Rs.30.1bn (around US$231m). In just one year, the State managed to lose almost 5 times its original investment, a truly mind boggling feat.

The Committee on Public Enterprises (COPE) in its review for 2012 reported that only 11 of  235 state enterprises reported a profit. This should be sufficient evidence to stay the case against any state interference to "improve" management in any so called "underperforming" business. Things will be infinitely worse in the hands of the State.

This also raises an interesting question on the remaining estates owned and managed by the JEDB and the SLSPC. Not all the estates were privatised, there were some that were unsaleable at the time and these remained in State hands.

An excellent test of the Government's fitness to manage estates would be to publish a summary of the performance for the Government estates for each year between 1992 and 2014. We need the basic crop/yield figures, selling price per kilogramme, the turnover and the net profits or losses.

This can then be compared with a similar summary of the performance of the privatised estates. To be fair, what we need to compare is the relative change in finances (in percentages) from the starting position of 1992.  It does not matter if the State companies are still making losses, what we need to know if the position is better of worse against the starting point, with similar information on the private sector.

We can then draw an informed conclusion on the wisdom of this latest proposal en route to our Nationalist, Socialist Utopia,  

Related post: Felling Timber on estates to pay EPF/ETF dues.


Friday, November 14, 2014

Ranil’s House Of Tards - A response to Indi

Indi has written something more on the election, specifically on what appears to be the opposition's main platform-the abolishing of the executive presidency.

He highlights an issue that also worries me "Nobody is going to put themselves out of a job to see some other mutton-chop get it. "

This is a real danger. Power, once tasted is rarely given up. Remember that CBK  promised to abolish the presidency when she campaigned in 1994? She then went on to serve both presidential terms. What guarantee do we have that even if an opposition candidate wins, the presidency will be abolished?

No real guarantee at all. If it is a joint candidate or a coalition pushing for the abolishment there is a slightly better chance- the coalition partners or alliance will have to hold the incumbent to the promise-and the deed will need to be done in the white-hot heat of the immediate aftermath. Any delay will be fatal.

As an added safeguard, the steps or the process that will be followed to abolish the presidency must be made public as part of the campaign. it may include the formation of a constitutional committee, perhaps with international observers to guarantee that its objectives will be met.

People will then understand that there is a serious process in place to which some thought has been applied, not simply an electioneering slogan or gimmick.This will naturally add weight and substance to an opposition campaign.

An interim option could be that the 1978 Constitution be repealed entirely immediately on the change, restoring the 1972 constitution.  My personal preference would be for the restoration of the 1946 constitution, the only truly good one that we had but it is politically impossible - the name of the country, the position of Buddhism being two of the issues that no politician will contemplate touching. The next best thing is the 1972 constitution. Flawed though it is, it is better than what we have.

Under the 1972 Constitution the office of the president will still remain, but in a purely ceremonial role.  This will also have the added benefit of abolishing the evil provincial councils and banishing the horrible creatures who inhabit those bodies to eternal political limbo.

The constitutional committee can then either make amendments to the 1972 one or have the fresh on drafted. I wonder if the UN or some other body has a template of a constitution that can be adopted rapidly with few changes?

Any further thoughts on this?

Thursday, October 23, 2014

Voting rights to expatriates - a bad idea

Serendipity had put up a post endorsing the call by the BBS to grant voting rights to expatriate Sri Lankans.

I think this is a very bad idea.

Expatriates who live overseas have no stake in affairs here. The do not pay tax, their lives are unaffected by the standard of governance. Their jobs are not impacted by economic policy, the purchasing power of their salaries is impervious to inflation in their homeland.

They do not have to rely on the public services of the country, their liberties and rights are dependent only on the situation in their country of residence.

Doubtless many are Sri Lankan at heart. Granted that they love visiting the 'home' country but when they visit they are little more than tourists, enjoying the sights and sounds. They may speak the language and may have grown up here, have family and friends here, yet they remain only visitors.

Although their roots and attachment may be deeper than an ordinary tourist, they will eventually return to their regular lives overseas.

For me, this is the deciding factor. Their real lives are overseas.

If they have such little stake in affairs here, why should they vote?

Serendipity thinks that they will be less likely to be 'bought'. Possibly, but I fear that many of them view Sri Lanka through the eyes of tourists, rather than residents, as I pointed out here.

In fact, if we stop to reflect, the expats have already voted - with their feet. For whatever reason; economic, political, social, they have left, seeking a better life elsewhere.

No better testament is needed as to their real convictions. If we give expats the vote, we may as well give it to all tourists.

Friday, October 17, 2014

Why This Election Is Going To Suck : response to Indi

Indi had written a post on the upcoming election and I was rather surprised by his assessment of the current regime. It was a relative assessment, in comparison to its predecessors but I find it difficult to believe that we have seen anything other than steady decline since the 1950's.

Are they less racist?

True, JRJ is one of the biggest villains; he promoted the language issue before SWRD, sabotaged the B-C pact and orchestrated (not ignored) the 1983 riots, plus of course the stupid new constitution.

That sounds like fairly high bar to beat, but the new lot is now stoking new religious hatred between Buddhists and minorities. They also seem to be trying set the minorities against each other - Hindu v Muslim/Christian and also Christian v Muslim. 

They are also seem to be busy executing N.Q Dias's strategic vision to militarise and garrison the North - see the posts that I linked to here.

They have not (yet) ended by shedding the same amount of blood that JRJ's policies eventually did (perhaps partly because international scrutiny - witness the ebb and flow of the BBS before and after CHOGM, UNHCR summits) but in terms of intent I would say it’s pretty disastrous.

In terms of the productivity and the economy I admit that they have poured a lot of concrete all over the countryside, but so did the leaders of Greece and Spain.

Fueled by cheap credit from European banks Spain and Greece embarked on grandiose, ego-boosting infrastructure. From Olympic stadia, to opera houses to airports gleaming new infrastructure dotted the countryside. They looked impressive and generated a great deal of pride and while the money was flowing no one worried. No one understood the cost or felt the pain - until the debt needed to be repaid.

Sri Lanka is no different, the glittering façade, funded largely by Chinese and international debt gives the appearance of development and prosperity but is ultimately unviable. As long as the world economy remains in the doldrums and relatively cheap international credit is available, no one worries about the price. 

Official Government debt (including loans guaranteed by the Ministry of Finance) has ballooned by 64.5% between 2009 and 2013 (from Rs.4,328,495m to Rs. 7,120,075m). (This excludes debt raised direct by state owned enterprises and other agencies).

Sri Lanka’s Government revenue has been consistently below its recurrent expenditure, which means we are borrowing to repay interest on current debt, all the while taking on further debt to finance new capital expenditure.

Eventually lenders will begin to wake up and once the inflow of funds slows we will be faced with a debt crisis – being unable to repay debt and therefore unable to borrow further. Since public services are also (partly) paid for by debt these will either have to be cut back (painful austerity measures) or money will be printed locally leading to high inflation. Interest rates may spike when the Government starts borrowing locally with the knock on effects of driving private businesses down. This leads to declining investment, growing unemployment and all the rest that we have witnessed in so many other debt crises before and are particularly apparent in Spain and Greece today.

The well-oiled propaganda machinery which now paints Chris Nonis a gate crasher and denies an assault even took place will spring in to action blaming the international banks and lending agencies.

Of the politicians who hoodwinked the lenders with false statistics and promises and then pocketed the money (which is the main incentive for building white elephants in the first place), not a word is said.

As the Guardian says

As one of the smallest countries to host the event, the Greeks still speak of 2004 as a defining moment, when the country crackled with optimism, confidence and pride. The defiance of the doomsayers who believed the Olympiad would never get off the ground – given the chaotic countdown to the opening – still elicits cries of delight.

"For a short time we were the centre of the world, people knew that a place called Athens existed," said Dimitris Evangelopoulos, Greece's national track and field coach. "And we pulled off a good Games, everyone says it. "

And look where they ended. 

Our great moment of pride was in 2009. Since then the regime has taken Sri Lanka from flawed democracy to Banana Republic. We now seem to have set a course in the direction of a Pariah State.

Wednesday, October 08, 2014

FM 97.8: New Chinese radio station in Sri Lanka

I don't often listen to the radio but a friend of mine rang me yesterday and told me to listen to 97.8 FM - he said it was a new Chinese station.

I tuned in briefly today and it does seem to be manned by Chinese (judging by the accents) and it seemed to carry some news about China. According to my friend, he heard advertisements for Sinhala and Tamil classes, so it seems to be aimed at the growing population of Chinese workers in the country.

China is heavily involved in Sri Lanka, the presence of a radio station that appears to be catering to Chinese workers is an indication of the depth of the involvement. There was a report (towards the bottom of this article) of a Chinese-run restaurant catering to Chinese workers.

I have no objection to free movement of labour provided it is happens within a competitive open market. If the projects were awarded on the basis of open competitive tenders and the winning bidders found it cheaper or more productive to employ foreign workers then there is no major issue.

Local workers should have the opportunity to work for the Chinese projects, if
they were unable to recruit locally at the wages offered or if the skills were lacking then relying on expats would be acceptable. This is not the case with these projects, everyone from the sweepers to the cleaners to the cooks come from China presumably because they prefer to work with their own people.  This I think is wrong.

Related post: Chinese aid not working

Addendum: Does anyone know if the new station is a part of SLBC? Due to lack of funds/programming the SLBC used to rebroadcast the BBC on its own frequency during the day (from about 9am to about noon and then again from around 1pm or 2pm until around 5pm). The BBC pulled out of the arrangement after the SLBC started to censor some stories. Could this Chinese channel be a replacement for the BBC ? 

Update : The programmingin the morning (at around 7-8am) is in English. During the middle of the day it is in Chinese.  


Tuesday, October 07, 2014

What do we expect from a Government?

There is a discussion to be held next week on the need for an alternate government.
It is worth posing the question: What do people expect from a government? Why do we need one in the first place?

The nation state is something that evolved over time. At its most basic, the role of the state is to provide common services that would not otherwise be available and to maintain the peace - some semblance of law. 

Today we expect rather more, the state sets economic and monetary policies that have a huge impact on the lives of people, therefore we rightly hold them responsible for the management of the economy. This is an abstract concept that many citizens may find difficult to grasp but it can be broken down into more basic questions.

  • Are there sufficient job opportunities? If there are, why are so many seeking employment abroad ? 
  • Do we have an affordable cost of living? Not many will track their expenses in detail but have citizens been able to save more, and perhaps invest, over past few years?  Are they enjoying a richer or more varied lifestyle? Do they have to get into debt, credit card or otherwise to meet household expenditure?
  • We have witnessed some improvement in roads but how do you find the bus and train services? How useful are the new roads if you cannot find a bus? 
  • How do you find the health service and the schools? What was your last experience in a Government hospital ? The police? How easy is it to put a child into a school ? And why must we pay for tuition?

These are only a few questions that occurred to me, there will be plenty of others that we may ask.

Different age and socio-economic groups will have different problems, but if we start to think about what we may expect, we then get a yardstick with which to measure the performance of the Government.
Nine years in office is a long time.  How far has the current regime provided answers to your problems? Have the problems become better or worse?  

Ask the right questions, then you will know if you need an alternate Government.