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Sri Lanka: Economic reforms, corruption and reconciliation

BY Dr. Ameer Ali.

Economic reforms to rebuild a devastated economy and under the direction of IMF are underway in spite of certain important and legitimate criticisms against IMF’s one size fits all approach. After nearly one year of its operation, President Wickremesinghe, his UNP-SLPP acolytes, and the Governor of CBSL are busy selling to the public the short-term gains made so far. Electricity tariffs and gas prices have come down, no regular power cuts, queues have disappeared, inflation is sliding, interest rates are falling, the rupee has gained limited strength, and street protests have subsided.

Yet, more and more people are pushed to the border of or under the poverty line and their number is expected to remain around 25% for the next few years. There is growing malnourishment especially among children which will have deleterious effect on their growth and development, and the so-called income support aswesuma scheme of RW is not only insufficient but also inundated with complaints about administrative deficiencies and discriminatory selection of beneficiaries. Public hospitals are in a state of crisis with fewer doctors, unqualified nurses, and inferior medicines. As a result, casualty rate among patients is on the rise. At the bottom of all these problems is the income shock faced by the vast majority, and queues that once stood before retail outlets are now appearing before foreign embassies to get visas to migrate. There is indeed an exodus.

Yet, without achieving ethnic reconciliation and ending corruption economic development and prosperity can remain a distant dream. No amount of foreign advice, foreign capital and reform programs is going to be effective without those two.

The little stability and progress made so far, as pointed out in previous columns, is the result of a deliberate disinflationary policy. That policy has to come to an end sooner or later. And more importantly, debt restructuring (DR) with foreign creditors is yet to begin, and whether those creditors would accept a 30% haircut as suggested by CBSL chief Dr. Weerasinghe, is doubtful because of the complexity of the creditors group and its geopolitical wrangling. However, once restructuring is completed debt servicing must resume at the newly agreed terms and conditions, which would place an additional burden on the meagre stock of treasury funds.

IMF’s austerity measures

A number of restrictions that are currently in place on imports, capital transfers, and currency transactions have to be removed and the economy has to face market challenges. IMF’s austerity measures which had already impacted different strata of society disproportionately would continue to do so, and the post-DR economy would no doubt worsen the economic conditions of the lower strata. Even if one were to ignore these realities and give some credit to the IMF initiative there is one institution, yes, it is an institution, which would make the reforms ineffective, and that is corruption.

382 of the 105,000 registered companies had been responsible for paying 82% of tax incomes. Isn’t this a sad reflection on the efficiency/inefficiency of tax administration?

Corruption is civil murder committed by people and organs in power. In Sri Lanka, corruption is a part of governance and an institution. In tracking the country’s compliance with IMF’s program commitments, Verite Research discovered that of the 33 trackable programs, Sri Lanka had failed in eight by the end of June 2023. One of those eight is the commitment to enact a new anti-corruption legislation. There is one that was passed by the parliament to the delight of President RW, but according to his Minister of Justice, that is also said to be threatened to become diluted at the committee stage to suit the interests of one component of the ruling coalition. Even then, passing legislation is one thing but implementation is quite another.

Many a progressive legislation in the past had lost their effectiveness at their implementation stage. From top to bottom there is corruption. The Inland Revenue Department (IRD) is a classic case. Very recently, the Chairperson of the Sectoral Oversight Committee on National Economic and Physical Plans revealed a startling statistic, according to which only 31,000 of a total of 500,000 taxable income earners had fulfilled their tax obligations, and just 382 of the 105,000 registered companies had been responsible for paying 82% of tax incomes. Isn’t this a sad reflection on the efficiency/inefficiency of tax administration?

Similarly, the non-ministerial customs department is notorious for corruption. So much so, it is commonly believed that a job in this department is a guaranteed route for one to become a multi-millionaire. To cite a third example, soon after the electricity tariffs skyrocketed after the last budget, it was revealed that a cabinet minister failed to settle his Rs. 800,000 electricity payment. His excuse was that the department failed to send him the bill. Now, the very same minister who is holding the health portfolio has permitted importation of inferior medical drugs manufactured by unregistered companies in India following his visit to that country.

Was there a secret deal between the minister and the exporters? No wonder there is hunger strike demanding the minister to quit. Thus, corruption has not only grown as an institution and become part of governance, but also as an inseparable element of the country’s political culture. Therefore, no economic reform is going to be effective unless this evil is rooted out.

Sinhala Buddhist majoritarian democracy

That conditionality also applies to the issue of ethnic reconciliation. In fact, the country’s post-independence ethnic discord is not an accidental outcome but a calculated result from an aggressive Sinhala Buddhist majoritarian democracy. This ethnonational democracy, rewarded its champions with a social license to build their private fortunes with no accountability to anyone. Thus, corruption flourished on the lap of ethnonationalism. Even judiciary lost its independence and was turned into a tool to strengthen the link between corruption and politics. While these champions of Sinhala Buddhist nationalism were given a freehand to amass wealth and prestige, an army of saffron clad belligerents and Buddhist demagogues supported by archaeologists, and security forces took upon themselves the task of transforming Sri Lanka into a country owned only by Sinhala Buddhists. What is happening now in Kurundoor in Mullaitivu is the latest among a series of such incidents which are part of the main agenda.

The issue of reconciliation is heating up with continued pressure from UNHRC, and the Government in an attempt to reduce that heat has yet again proposed a National Unity and Reconciliation Commission to tackle it. Appointing committees to avoid finding solutions to problems is a well-known tactic of unwilling governments. This commission is one such exercise. In addition to this, RW, before leaving to Delhi, has called for talks with Tamil leaders on implementing the 13th Amendment. There is no point in talking to Tamil leaders, because the obstructionists are not Tamils but Sinhala Buddhist chauvinists. It was they who earlier forced RW’s immediate predecessor to retract the promise he made to Prime Minister Modi in 2020 regarding implementation of the same Amendment.

RW’s political aspirations are obviously making him not to topple the apple cart by talking to the majority and provoking its anger. Will Modi insist on the same this time also given the growing opportunities for Indian capital to colonise Sri Lankan economy? To RW also Adani is more important than Sambanthar, Sumanthiran or Wigneswaran.

Yet, without achieving ethnic reconciliation and ending corruption economic development and prosperity can remain a distant dream. No amount of foreign advice, foreign capital and reform programs is going to be effective without those two. But those two are the products of the same political culture that governs this nation. That culture has to change or be changed. Of all the political parties only NPP seems to have realised this. Will they be given a chance to do this?

(The writer is attached to Murdoch Business School, Murdoch University, Western Australia.) 

Daily FT 26.07.23

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