Sri Lanka is heading for a debt crunch: Ravi K

The Sri Lankan economy is dragged out – the country is over-borrowing, underperforming and leading into a debt crunch, claims United National Party Colombo District Parliamentarian Ravi Karunanayake. Karunanayake accuses the Rajapaksa administration of damaging the country’s social fabric, which he says is Sri Lanka’s biggest asset.

Following are excerpts of an interview:

Q: What do you think about country’s present economic situation?

A: I have been constructively criticising this Government and its economic policies. Just because the Government is in power, it does not mean that what they do is correct. They are far from correct. This Government is sub optimising the opportunity that is there. The Government is rather glorified, thinking the little they have done is the maximum they could do.

As the opposition our job is to ensure that ‘we fly the flag’ for what is good for the country and not for what is good for the Government. Therefore, from that point of view, we find that the economy is dragged out, we are over-borrowing and underperforming and we are leading into a debt crunch, which is not very far away.

Sri Lanka has always been a manufacturer and an exporter and the service industry is playing the role ensuring Sri Lanka is a superlative service over and above what India, Pakistan and Bangladesh could. Unfortunately our poor country is fast losing this opportunity, simply because on one side the competitiveness externally through the dollar is being overvalued and on the other side the benefit that can be accrued through the rupee is overpriced because our cost inputs are expensive.

When we take these factors together, we don’t have a comfort factor from either. This is exactly why Sri Lanka is experiencing a rough and tumble time. It has been almost three years since the war ended, but the country is yet to receive any benefits.

Q: In 2011 Sri Lanka recorded an economic growth of 8.3% and the figure is expected to be over 8% for the current year. Don’t you agree that the Government does focus on economic development although the opposition claims otherwise?

A: If we are to look at facts and figures I would tend to lose this argument. But is the 8.3% growth better than the last year? What do these figures mean to an ordinary man in this country? If an ordinary man feels that his lifestyle is 8.3% better than last year, that can be defined as economic growth. But unfortunately that is not the case; the majority of this country does not feel it.

The Government boasts of an average person’s per capita being Rs. 26,000. Is this actually happening? Even a Police officer who maintains law and order gets a mere Rs. 14,800 per month. If a person who stops corruption and maintains peace in country gets a salary below the per capita, what are all these ratios for?

Q: Although the opposition question the lack of foreign investments, giant investors such as Shangri La and Sheraton have agreed to invest in Sri Lanka. Don’t you feel your accusations are baseless?

A: ‘One swallow doesn’t make a summer’. Shangri La coming into Sri Lanka does not mean the country is overflowing with foreign investments. On the other hand, does the Government act in a way that could boost the confidence of foreign investors? No sane investor would dare to invest in this country when they know that failure to perform up to the expectations down the line will result in the expropriation of his assets by the Government.

When J.R. Jayewardene in 1977 opened up the closed economy, he ensured to deliver what was expected by investors; low tax regime, low production base and an opportunity to capture the world market. Unfortunately all these were eroded by the subsequent governments.

This Government in particular should decide whether they want to close the open economy and go for a closed economy or otherwise ensure what is expected by the investors. If the Government expects an eight to nine per cent economic growth, we must have sufficient investments and savings in this country. But if the savings are in the range of 20 to 21 per cent, how can the Government have eight to nine per cent economic growth?

Shangri La was given a prime plot of land that was not available to any other investor in Sri Lanka. This opportunity was the very reason that made Shangri La invest in Sri Lanka. If the same opportunity was given to a Sri Lankan company, it would have made a similar investment. Retaining the existing investors that are already here is much more beneficial than struggling to bring in new investors.

When we talk about foreign investments, we have to be additionally careful because of countries like Myanmar, which is emerging as Asia’s next hotspot. Sri Lanka would have been an ideal what ‘Hong Kong was to China’ to India, unfortunately day by day, activity by activity, we moved away from this opportunity.

India used to embrace the strengths Sri Lanka had; sadly today we are neither competitive, nor are we efficient. We have been doing too little and too late. Even what is being done is so corrupt. Myanmar today is positioning itself as a low cost production place.

It is a well known fact that Aitken Spence, one of the blue chip and 10 top companies in the country, has decided to move away from the South Port development. The South Port Harbour is the first BOT container terminal going into the private sector; in this project Aitken Spence had 30%, Ports Authority 15% and the remaining 55% was held by China Merchant Company.

The cost that was envisaged was US$ 475 million. The amount suddenly went up to US$ 650 million. China Merchant Company in the clauses says that it will not bear any extra costs. Aitken Spence and the Ports Authority had to bear the increase. But Aitken Spence moved out, giving the reason as the unexplained increase of US$ 150 million. Now we hear that Aitken Spence’s 30% is also given to China, totalling 85%. Would you envisage India allowing Indian manufacturers to go through a Sri Lankan Port which is Chinese-owned?

This Government is selling every square inch that is possible, ensuring that Sri Lankan businessmen are let down at every possible avenue. They bring in the Chinese at the drop of a hat. What has happened to the so-called nationality this Government was talking about?

There is a lot of hue and cry about the recently-presented EPF Amendment bill. The money in EPF and ETF are not funds of the Government. But this Government takes people’s money into their hands and frolics. But they give a return that is far lower than what is expected.

Look at EPF; just at the whims and fancies of the Central Bankers they buy minority rights of banks, they buy institutions such as Galadari shares to extricate Nawaloka from some problem. Then they buy LAUGFS Supermarket shares. They do all this for the ulterior benefits of a few people.

The stock market today is on a downward trend. Six months ago they said this was the best stock market in the world; then why is it now losing every single day? A mafia is riding the stock market today and nothing is being done about that. I take my hat off to Indrani Sugathadasa for able to withstand the frills that are in the Government and walk out, saying she is resigning on principle. I have lot of respect for what she did when she could well afford to enjoy the frills of the Government.

Still whether Malik Cader resigns or Indrani Sugathadasa resigns, they have not been able to stem the tide on the loss in the stock exchange. The mafia still operates, doing what they want, and fundamentally it is wrong.

Q: What are your views on the Government’s decision to devalue the rupee in order to boost local production and exports?

A: The Secretary Finance and the Governor of the Central Bank are two important positions that should not be politicised. But the persons holding these positions are playing a politicised role; they are opening places, making statements and announcing certain Government decisions louder than the politicians. The neutral role they are expected to perform is already damaged.

The Monetary Board is defending the rupee and putting in almost a thousand billion rupees to defend the rupee. On the other side they are devaluing the rupee by 3%. On the very same day the rupee was devaluated we lost Rs. 81 billion. This was the loss of the value of the rupee.

The Secretary Finance was instrumental in defending the rupee; then why did he allow the rupee to be devaluated? Without protecting it, they should have allowed the rupee to devalue itself. Then we wouldn’t have lost such large amount of money.

India devalued the Indian rupee by 23%. The production in this region needed to be competitive, in order to achieve that India devalued the Indian rupee from 47 to 52 and Sri Lanka has gone from 111 to 113. The impact is hardly effective. It is neither competitive nor is it leading to warding off competition.

Q: You have been critical about defending the rupee. How healthy it is to defend the rupee and keep the monetary policy steady?

A: It is a competitive edge situation the country has to take. Either we have to import and trade and survive on services domestically or we have to manufacture and export and use that as a competitive base. Unfortunately, we are doing neither. The rupee is useful to use as a tool to achieve those two objectives. The two ends are import and trade or manufacture and export; we can’t do both together. We must either defend the rupee or defend the cost increases and the devaluation requirement.

Oil prices in the world market have come down. Why hasn’t this Government brought down oil prices and given that benefit to the consumers? We are competing in the world with one-third artificial high prices. It is the same situation in electricity as well. The Government brought Chinese power projects to Sri Lanka for the Norochcholai power plant and for the past year the plant has been broken for 45 days. In one year it was broken for 45 days; imagine how this will last for 30 years.

Electricity generation is coal generated; six months of the year due to rough seas, coal is brought to Trinco and then transported to Norochcholai, making the cost unbearable. When we highlight this inefficiency, incompetence and corruption in Parliament, we are labelled as national traitors. People who increase prices are considered patriotic.

Mihin Air is another classic example. The loss is Rs. 10 billion. I asked this question last week in Parliament and they said from the time it originated, Mihin Air has flown 546,000 passengers. The loss incurred was Rs. 10.1 billion. If we divide the loss by the number of passengers flown, for each passenger a loss of Rs. 17,000 has been incurred. If we give that 17,000 rupees to the passenger and ask them to fly in whatever airline, it is a saving to the country. When I highlighted this in Parliament when Mihin Air commenced operations, they said the UNP was jealous of their progress.

Q: How do you see the ongoing conflict between the Treasury Secretary and the Governor of the Central Bank?

A: The two people’s egos are certainly affecting the country. One of them has to give in to the other. But unfortunately we don’t see that happening. We don’t have the correct professionals in the Government to tell these people that it is the two of them who are ruining the country’s economy. It is pity that the Government is allowing these two officials to play their own games at the expense of tax payers.

As I mentioned before, the same Monetary Board defends the rupee till 17 November and in the same evening they devalue the rupee by 3%. So the money defending the rupee was an utter waste. These are white collar crimes. Sadly these officers who are running amok at the expense of tax are thinking they are performing a holy service to the country.

Q: President Mahinda Rajapaksa has assured visiting Indian External Affairs Minister S.M. Krishna that the Government would deliver on its promise of implementing the 13th Amendment Plus. Your views?

A: Today the Government is basically putting the country in international jeopardy. In 1987 when J.R. Jayewardene brought the 13th Amendment, there was such a hue and cry in the country, claiming it was going to create a disaster. Today the same lot who opposed the 13th Amendment are saying that it is the only saviour for the country. They talk about 13th Amendment Plus, but have never revealed what it actually means. When they use this kind of terminology, the international community tends to inquire about what’s happening inside our country.

When the External Minister of India S.M. Krishna came to Sri Lanka, he reported this in Sri Lankan media. Our Foreign Minister kept mum. What is this all about? Is it some number game or a trick? The biggest asset in this country is its social fabric. This Government is making tremors and shaking the confidence.

Is Krishna the Spokesman for Sri Lanka? G.L. Pieris standing next to him says nothing about this, but later goes and tells the Mahanayakes that the Government never gave such an assurance. We are asking the Government to come forward and educate the people about what is happening to our country. Don’t think that the opposition will be standing by and waiting to see the Government and the Tamil National Alliance do a mockery.

The opposition is not impotent or weak. We as a responsible opposition have given an opportunity for the Government and other stakeholders to come forward with a solution and then get our blessings to go forward. The UNP is not sitting and twiddling its thumbs and waiting – we are seeing the hypocrisy and lack of accountability that is taking place.