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, Jos├ęphine, 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.