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Tuesday, July 16, 2024

“Sri Lanka’s escalated corruption is a family business” – IMF, so what?

Prof. Srimal Abeyratna.
The IMF, in its governance report on Sri Lanka, has unveiled a comprehensive account of the country’s massive ‘white-collar’ corruption levels, perhaps for the first time. But many have a valid question to ask: “So what?”
Large-scale protests last year in Sri Lanka are also due to the country’s corruption malady.- IMF
Everybody knows and talks about them as “daylight robberies” and has been doing so over the past many years and decades. But there has been hardly any legal action against them. Any action as such is now a ‘political’ decision, without which nothing is going to happen.

The emperor’s invisible cloth

It was like the emperor’s invisible cloth. While walking in public in the procession under the canopy, the emperor could see his own nakedness, but he had reasons to pretend that he was wearing the most expensive and glamorous dress in the country, just like the life of a corrupted.
The Emperor’s followers behind him as well as the citizens gathered on either sides of the street to see the emperor’s procession, all could see him walking naked in public, and looking at them with his majestic pride. But they all had reasons to pretend that they have seen the most fabulous emperor’s clothing and to bow down and treat him as their king.
Everything went well and everybody admired the emperor’s “unseen” new cloth pretending that they all have seen its attractive elegance, the vibrant colours and the exclusive design, until a child in the arms of the mother shouted: “Chee…mom! He has nothing on at all”.

Impunity for corruption

The IMF finally broke the silence over Sri Lanka’s corruption nakedness. Last month, it released its 139-page long report on “Sri Lanka: Technical Assistance Report – Governance Diagnostic Assessment” unveiling the country’s corruption at “high places”. The IMF’s Extended Fund Facility (EFF) arrangement that was entered with the Sri Lankan government in March had included the need for addressing the country’s “governance weaknesses and corruption vulnerabilities”.
“The absence of visible progress on addressing corruption and holding officials to account for past behaviour raises popular concerns that officials will continue to enjoy impunity for their misconduct”.
The need for addressing the country’s governance and corruption issues has been recognised by the IMF as complements and essentials to sustain fiscal consolidation and inclusive social and economic growth. It is apparent that we must see its progress over the past six months, but it is obvious that there is nothing to see here; it was just like the silence over the emperor’s nakedness which could be seen by everybody.
However, the IMF was tough on the levels of Sri Lanka’s corruption as well as the silence of the authorities over corruption. The report says that “the absence of visible progress on addressing corruption and holding officials to account for past behaviour raises popular concerns that officials will continue to enjoy impunity for their misconduct”.
The point that the IMF is clearly revealing here is that there is no ‘visible progress’ on combatting corruption in the country. Because of the silence by the “responsible authorities” over this deep-rooted issue, corrupt officials (and other influential parties, including politicians) continue to enjoy impunity for their misconduct so that they can continue to engage in misconduct.

Corruption as a family business

As per the IMF analysis, corruption vulnerabilities in the country are aggravated by weak accountability of institutions “…including the Commission to Investigate Allegations of Bribery and Corruption”. The IMF has identified that the Bribery and Corruption Commission has neither the authority nor competency to fulfil their functions.
What is revealed by this finding is that, probably, it is the way that this critically important institution has been allowed to function so that there would be extended impunity for corruption to repeat and multiply. As per the IMF, “current governance arrangements have not established clear standards for permissible official behaviour, acted to deter and sanction transgressions, nor pursued individuals and stolen public funds that have exited the country”.
“The excessive concentration of authority in the hands of a group of individuals tightly linked by familial ties served to emphasise the political power of a small elite and perhaps assisted in the coordinated improper use of public power.”
Another shocking confirmation by the IMF report is the reluctance to technological upgrading with digitalised processes in the institutions such as those dealing with tax administration and customs procedures. When the digitalisation is not adopted, the manual processes require “direct interaction with officials” raising the difficulty of identifying the issues of integrity.
It is a straightforward statement in the IMF report that Sri Lanka’s escalated corruption is a family business: “The excessive concentration of authority in the hands of a group of individuals tightly linked by familial ties served to emphasise the political power of a small elite and perhaps assisted in the coordinated improper use of public power.” High-value corruption issues appear to be strongly associated with state-owned enterprises and highlight the close relationships between public institutions and private firms, including in the financial sector.

Exorbitant expressway costs

It is a popular perception that high levels of corruption have paved the way for Sri Lanka’s current economic crisis. The IMF report admits that widespread and persistent popular “Aragalaya” protests in 2022 were a public consensual response to corruption, which had finally led Sri Lanka’s economy.

“A comparison of construction costs revealed that highway construction costs per km in Sri Lanka were “three times” higher than the global averages.”

The domestic supply shortages, fuel and energy crisis, long queues for essentials, hyper-inflation, and the humanitarian catastrophe all these recent crisis issues have their roots in corruption too.
As the report also reveals, for example, a comparison of construction costs revealed that highway construction costs per km in Sri Lanka were “three times” higher than the global averages. The Report cites that “the explosion of domestic and external debt since 2005 has also closely tracked actions that have restricted the independence and competency of key institutions, increased the concentration of authority among closely connected individuals, and committed the state to financing mega-projects approved at the Cabinet level using opaque processes”.
Sri Lanka’s status over the rule of law and corruption is poorly positioned among the countries listed in the relevant international data reports, as the IMF too has noted. The Rule Index of the World Justice Project ranks a list of 140 countries in the world according to the status of their “rule of law” implementation. Sri Lanka’s position is 74 in 2022, indicating that the country is not even among the first half of the list.

International exposure

Similarly, according to the Transparency International’s Corruption Perception Index, Sri Lanka’s position is 101 among 180 countries in the world. What is strange about all these indices is that, even after revealing Sri Lanka’s shameless position for years and decades there has been no deliberate national attempt in order to get the country’s ranking position elevated over time.
Governance weaknesses and corruption risks as well as the silence of the authorities to deal with such issues are evident internationally in many other international reports, apparently eroding investor confidence over the Sri Lankan economy. As the IMF recognised too, Contract Enforcement and the Protection of Property Rights are two areas related to governance and corruption that constrain private sector development.
Among the 10 areas of performance that constitute the overall doing business index, enforcing contracts and resolving insolvency are the two areas where Sri Lanka has the “poorest” performance. Enforcing contracts is a measure of time and costs of resolving commercial disputes, while resolving insolvency is a measure of time and costs of dealing with insolvency issues of inadequate cash flow and overdue debt issues.
The report on Economic Freedom of the World also identified a number of areas under the Legal System and Property Rights as Sri Lanka’s lowest-performing areas: Some of these areas critical for governance and corruption issues are the judicial independence, impartial courts, reliability of police, and legal enforcement of contracts.

So, what next?

Since the time that the report is released, many parliamentarians too started off revealing high levels of corruption in “high places” involving the officials, parliamentarians and other influential parties. All the top-three democratic institutions – the executive, the legislature, and the judiciary, appear to be well aware of the depth and the breadth of the country’s corruption issue. But almost nothing has happened over the years and decades, so that it is a valid question for the citizens of the country to ask, “what’s next?”
Corruptions, together with robbing public funds, money laundering and tax evasion, have squeezed the potential fiscal consolidation that the IMF anticipated with its EFF arrangement. The issue has also prevented potential private investment flows due to the lack of investor confidence which is important for building the foreign reserve position. With these critical issues lying ahead of policy-making, the country’s recovery process with the IMF assistance remains a cynical issue in the coming years.
(The writer is a former Professor of Economics at the University of Colombo and can be reached at [email protected] and follow on Twitter @SirimalAshoka)

Original Caption: Corruption exposed; so what?

Image inserted by SLB.

Courtesy Sunday Times

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