Hypocrisy or backing Indian deals: Will Pathfinder find the correct path?

Sri Lankan Prime Minister Ranil Wickremesinghe (L) and Indian Prime Minister Narendra Modi shake hands at a joint press conference following their meeting in New Delhi on September 15, 2015.   The Sri Lankan prime minister is on a three-day visit to the city - AFP

By Priyanga Dunusinghe

The Pathfinder Foundation (PF) generally issues very useful analytical pieces on Sri Lanka’s much-needed economic reforms and promotes economic and other cooperation with countries with diametrically opposing political systems and foreign policies. 

Its latest opinion piece, ‘Indo-Lanka Relations: Building Confidence and Boosting Bilateral Cooperation,’ which has been published in almost all English dailies, is however instigating the readers to wonder whether the Pathfinder Foundation has failed in finding its own path or whether it is attempting to find a booby-trapped path for Sri Lanka’s forward march. This is because the article seems consisting of statements which contradict basic principles of economic theory and practice, and which are not anchored in the framework of Sri Lankan interests.

 

CEPA and FTA

The entire piece found as if Pathfinder Foundation’s justification of likely Indian agenda for the meeting of the Modi-Ranil meetings and subsequent interactions to be followed at official level. First of all, the PF statement emphasises that it has consistently advocated the signing of CEPA. It is surprising as to how the learned team of analysts at the Pathfinder Foundation can recommend signing of an agreement which has not been finalised and most importantly not seen by anyone other than, possibly, those who have drafted it. Of course it might be possible that the PF is among them, and has the access to the draft. 

More surprising is that the statement of the Pathfinder Foundation does not emphasise the need for proper and full implementation of already existing FTA prior to the negotiation and finalisation of another trade expansion agreement, in the context that it admits the existence of barriers “which continue to reduce effectiveness of Indo-Lanka FTA”. In this regard, we observe that PF, either purposely or by omission, ignores the research literature which have highlighted the necessity of addressing the present shortcomings found in the Indo-Sri Lanka FTA before considering further deepening of bilateral trade concessions. 

If PF’s position were to be considered anchored within the framework of Sri Lankan interest, it could not have missed this imperative. Besides, by doing so, the Indians could prove their genuineness in entering into a mutually rewarding trade partnership, which could be reflected through accommodation of more Sri Lankan exports to India. Of course political leaders and bureaucracy in less developed countries consider it a privilege to sign more and more agreements during their tenure with minimum concern to the implementation of such agreements to the letter and with zero consideration for long term negative impact of the binding clauses.

The readers also might wonder how and why Pathfinder Foundation, always promoting competition, freer trade, and level-playing field, has contradicted itself with regard to prescribed bilateral favouration. The fact that one among many trading partners is favoured, it amounts to discrimination, and possibly to market distortion leading to inefficiency in consumer choice and resource allocation. We as readers in Economics are eagerly waiting to see how the free trade champion theorists react to these propositions of seemingly self-contradicted PF in the weeks to come.

 

Lines of credit

Another surprisingly self-contradictory or hypocritical paragraph of the Pathfinder article reads as follows: “With constrained headroom for commercial borrowing and ineligibility for foreign aid (ODA), priority should also be attached to increasing Indian ‘Lines of credit’ for infrastructure projects.” Isn’t it funny that the learned economists in the PF do not see the Indian lines of credit are “borrowings”? How can PF, having been quite independent and liberal in its postulations, prescribe more foreign borrowings for a highly foreign debt ridden economy such as Sri Lanka? 

Besides, do the analysts at PF consider Indian lines of credit as “concessionary credit for development”? If so, could they report for the benefit of the readers the rate of interest, repayment duration and grace period applicable to Indian lines of credit, and make a comparison against JICA, Chinese or other bilateral agencies, letting aside development financing multilaterals such as World Bank or ADB? Any layman will understand that if there is no headroom for commercial borrowing there should not be any room for borrowing from Indians or Chinese, through so called credit lines or even currency swaps. 

On the other hand a surprising link had been made by the PF analysts to promote the credit line to improvement of infrastructure in Sri Lanka such as railways. In other words what the Pathfinder Foundation promoting is borrowings from India tied to purchases from and constructions by Indian enterprises.

It might be worth that these PF analysts, prior to making their recommendations, study the findings on railway projects funded through Indian lines of credit, reported in the recently produced expert committee recommendations on railway projects hitherto undertaken through bilateral lines of credit. The committee has found them non-competitively bided, non-transparent and also having violated the very conditions stipulated in the Indian Exim bank terms and conditions. 

The report also has highlighted design inappropriateness, quality problems, and technological issues. It is, however, consoling to learn that the Ministry of Internal Transport, under the leadership of the former Minister Ranjith Maddumabandara, has already obtained Cabinet approval to float public tender to competitively procure material for railway projects and turn them out locally as much as possible, particularly emphasising competitive bidding by enterprises from many countries with different funding sources at their own credit terms and conditions. 

We hope that this progressive strategy will be followed by the present administration too, so that corruption, mismanagement and unnecessarily wasteful borrowings on expenditure could be avoided. 

 

Seemingly-biased opinion

It is depressing to note that an independent think tank such as PF has opted to disseminate seemingly biased opinion in favour of Indian credit for infrastructure such as railways, while disregarding the necessity to go for the most competitive supplier/lending agency combination, clearly contradicting their longstanding stance for economic good governance.

As concerned citizens of Sri Lanka we firmly believe that the current Government of Maithripala-Wickremesinghe will uphold these principles of transparency, international competition based biding for this kind of development activities. We firmly believe that the resourceful think tank like the Pathfinder Foundation should stand for such principles, policies and practices rather than intentionally or unintentionally promoting corrupt deals of foreign parties whether those are Americans, Chinese, Indians, Japanese or British. Then we all will have found the correct path for progress. 

(The writer is Senior Lecturer (Economics) at the University of Colombo.