Ranil’s take on market and governance

Following is the address delivered by UNP Leader Ranil Wickremesinghe at the Business Today Top Twenty Award Ceremony

Venerable members of the clergy, Ministers, Parliamentarians, leaders of the corporate world and friends, in a moment of forgetfulness I had promised Mathi sometime back to attend one of the award ceremonies. And as usual whenever I was reminded, I kept putting it off, but then I thought ‘look, both Mathi and wife have done such a wonderful job, if not for anything else, I should come and say well done and thank you’. So that is the main purpose that I have come here.

But when I came and looked at the awards that were given at the Top Twenty awards, I was rather confused. On one hand you are giving Harry Jayawardena, the Distilleries Company and Aitken Spence an award for being in the Top Twenty while the Government is punishing him saying his subsidiary Pelawatta Sugar has underperformed all this time.

One of the two has to be true. So I was thinking to myself – I hope you don’t get angry with me – what is the use of having a Top Twenty when the Underperforming and Underutilised Assets Act has a big schedule? It includes not only Harry but also my political colleague Daya Gamage of the Daya Group and Daya Wettasinghe and many others. Anyway, thank you for somehow recognising them and for keeping them going.

So I asked Mathi: ‘What on earth do I speak when I come here?’ He said: ‘You were one of those who were involved in starting the market economy, you have done the reforms; why don’t you say something about it?’ I said: ‘Everyone has forgotten that the UNP was responsible for the market economy. That is as much a part of history as much as Mahasen building the Minneriya Tank. Then what do I talk about?’

Thank you

But looking back I first have to say thank you to the corporate world. They have done a good job, especially during the war. From the time we started in 1977 when we started the market economy then the round of liberalisations I did with the strategy for industrialisation which President Premadasa encouraged; things have changed; but during a difficult time you all have kept the economy going. That is where I have to commend you.

But at the same time I have to say the world has changed, and the slack that was created by the war has now been filled in the last two years. We can no longer say that the war is over and the economy is going to boom. To get that opportunity you have to capitalise and go ahead, instead of which there are other factors which we have to face and do not for a moment think that the global economy is not going to have an impact on us. It is going to have an impact on us and that is the key issue, also what is happening here.

International capital flows

I was surprised this morning, this afternoon actually, I must say morning in London but afternoon here when I read it, I read two Occasional Papers published by the Bank of England over the weekend. Here they are praising the Bretton Woods Agreement and finding something good. A concept which had been derided and attacked in the last decade look like it is coming back in fashion.

The Occasional Paper is not the view of the Bank of England but it is basically the scouts who go ahead to find the reaction. So having read it, I thought I should read it out to you because it had two papers, ‘the future of international capital flows,’ and they said the experience of the past decade has demonstrated challenges that international capital flows can pose for financial stability. And among those that they are recommending is the use of capital control. The use of capital control is done by the Bank of England’s Occasional Paper. And they are talking about the reform of international monetary and financial system.

The next paper which deals with it admits that the present system has not been able to tackle the three issues of internal balance, allocative efficiency, this is what we all say, the market is the best act and financial stability. And what are they talking of? They are talking of a rules-based system which should prevail; rules-based is what Bretton Woods is.

But about 15 years ago or more in the mid 1990s after the fall of communism, the IMF, the World Bank and the US Treasury imposed market fundamentalism on the world. And what is that? That is basically the primacy of the markets will resolve both our economic and social problems. It they did it had certainly achieved.

It made hundreds of million people, lifted them out of poverty in Asia and Africa. It had transformed the communist economies; it has shifted manufacturing to the Asian and African regions. But while doing so it has created social inequality. So as some of them say, one per cent is worse than 99 per cent, and that’s a reflection. Secondly, by allowing the market and the market alone to determine issues, you run into the biggest economic crisis since the Depression of 1931.

Market fundamentalism

I remember about a year-and-a-half or two years back reading an article interview by Joseph Stiglitz and he said the fall of the Wall Street is to market fundamentalism what the fall of the Berlin Wall is to communism; and now market fundamentalism has been buried by its own founders.

The G20 which drove a nail into its coffin at the London Summit in 2009 but unfortunately they are still driving nails into that coffin instead of wondering what the replacement is, and the fight we have today is not between Marxism or a control economy and a market economy but the directions it should take because the world has failed to come up either the Americans or the others have failed to come up with what the alternative method is, or what the path has to be. The two views that are prevailing have now come into conflict last week. It was an important week for everyone in the private sector and the public sector. Where did you see that conflict take place? In Brussels when the EU met.

While the Americans and the Anglo-Saxons have been pressing market fundamentalism, the continentals did not accept it. And when the Lisbon Treaty was drafted, they did put in article two which said ‘the highly competitive social market economy aiming at full employment and social progress’ but there was very little that they could do then. But with the crisis that took place the fall of the Wall Street, they have now come out with their own theory.

Americans at least have found now a scapegoat for the fall of the Wall Street, which is none other than Raj Rajaratnam; if you think the whole world has fallen because of him. They are now pushing this issue and now has come the time where the Europeans feel that the financial markets which were responsible for this fall has to be regulated.

While the Americans and the British – the Anglo-Saxons – want to protect the financial market, which is a big part of their economy and which allows them to dominate. I think many of us who are in the International Democrat Union have seen this; this clash taking place within it between the Conservative Party plus the ruling parties of Germany and France which are also members of the International Democrat Union to the extent that the Conservatives walked out of the European People’s Party, formed their own party and the European People’s Party the Germans, the French, the Swedes and others blocked it from getting recognition in the IDU for some time, and to step in.

I am not surprised, this in a way is a clash that has come because the Germans feel partly ‘look we are not going to spend our money to rescue others’; they feel that the financial markets push the concept of Eurobonds to get the Germans to rescue the banks and they said ‘we are not going to save the financial markets, you must take a haircut’.

Trade war

But what has come now is something for the future. By controlling the budget deficits and the structural deficits, they feel they can get a grip on the financial markets. British have opted out. But I must tell you one thing what will it lead to, it will most probability lead not to a solution but to a trade war with the continentals trying to control the European Union and Eurozone and others trying to control the financial markets, and the Anglo-Saxons trying to fight back.

And you will see very soon efforts that have been made by the continentals to regulate the financial markets; already the Germans are saying the German banks in London must pay the Tobin Tax. They have to pay the financial transaction tax. That is the fight and that is there, and that is the key issue.

Politics

Will this resolve the main issues the global economy faces? I don’t think so. The main issue is not anything else but we are all politicians. At the end of the day whether you like it or not politics decides the issues and as long as you can’t find you have no solution to growth, jobs and household budgets, Europe and America, North America is going to be in serious trouble.

And the rest of the world because the market may be a billion people per capita GDP of US$ 25,000 or more will not grow and they can’t pay their debts. Even the agreement itself has not sparked off any major response in the markets.

In addition, Finland says the Parliament must look at it, Ireland says there has to be a referendum, Netherland wants the Parliament to look at it and today I found that a member of the Board of the Bundes Bank has said ‘look we are not going to allow our money to be given to the IMF to circumvent the rules of the EU and start funding countries’.

Then the President of the Bundes also said he wants the Constitutional Court to examine it. So this is the major issue that we are faced with. And that is going to have an impact on all of us, it’s going to impact on China, it’s going to impact on India and it’s going to impact on Sri Lanka and this tussle.

Finally, remember all these agreements are useless because each country is a national democracy and their electorates will decide what happens, and what can be done; if they can take the pain, they’ll take the pain, if they can’t take the pain the agreements will be broken; so that is the position that we are all in. Remember that this is going to impact on all of us as monies are pulled back in to Europe and America and leave the markets in this part of the world.

Secondly, there is another important decision taken a few days later in Durban, the Kyoto Agreement will be extended, the efforts made successfully in Copenhagen by the Americans, the Chinese and the Indians to derail the Kyoto Agreement failed this time because the Europeans got together with the rest of the developing world; so there is a commitment to a legal treaty, with legal impact, a document legal impact to replace the Kyoto and by 2020 to come into place.

That means in our terms low carbon technologies, and the whole issue of global warming and to go from it and this is going to have an impact on there is going to be a managed by a market mechanism. So this is one way in which all the markets industry and services are going to move.

The third one is of course the issue of technology which is developing so fast. You are talking of policing the markets but the internet moves everything finally so even the issue of policing the Internet will come, but technology will drive it on one hand whatever we politicians try to do. So those are three issues that are going to impact on us.

Where do we go from here?

Then of course we come also to Sri Lanka and as I have told you the slack that was created by the war is over. Where do we go from here? You know in 1977 when we started and again in 1992 we devised our own strategies picking the areas Mahaweli, Free Trade Zone, 200 garment factories, hotels and pushed it.

But in the mid 1990s I don’t know why but for some reason or the other the IMF was able to impose its fundamentalism on Sri Lanka and where we didn’t have any policy goals or documents except to have the regular poverty reduction and growth strategy, which in other words has not reduced poverty. So what we have had is without guidance we have been moving around.

I have found this in 2003 when I brought in ‘Regaining Sri Lanka,’ the fight we had with the IMF; they just wouldn’t accept it but fortunately because we had the peace process and the Tokyo Talks I was able to impose my will. But we are no longer in that.

What has the IMF done instead? They have told us ‘go in, have your sovereign bonds,’ and what will happen if the whole exchange, if Europe collapses, if the exchange rate changes, if we depreciate more so we have followed the IMF model?

So market fundamentalism doesn’t matter anymore, in my view. Especially because the IMF is being tested not only because of advocated market fundamentalism but its failure to handle the East Asian economic crisis of 1997 and more so now when the whole world global economy was up in flames they outdid Nero, at least he only fiddled whilst Strauss Khan had call girls being flown from Paris to Washington while the rest of us are wondering ‘what’s going to happen to the global economy?’

It’s very much under attack, but what have we? So on one hand we have the corporate sector that has grown, but I look at it as a politician, as many of you here. Have we created employment? If we have good jobs and good incomes, then why are people going to the Middle East and other countries paying 100,000, 200,000, 300,000?

How many villages are there, now part of Wennappuwa, which is called little Italia and part of Italy is called little Wennappuwa; in Japan, why is this? We have not provided the jobs, let’s be frank about it. That is not only a problem for us; the same thing is there in America. We talk of growth but the jobs are going to China. Now they are talking about it.

Contd.on page 18

Low/middle wage economy

Secondly, how long can we be this type of low wage or middle wage economy? Remember the world has decided that Myanmar is a good place to invest. Myanmar and Bangladesh will become the low wage manufacturing base for this whole region and Myanmar has also the road to China, the old Burma road; that’s China and India. Then where are we? What are we going to do?

On the other hand, remember this is the only growth area in the world, which by mid century will have an additional 500 million people. Have we thought of that? Have you thought of how tourism is going to change? How the hospitality industry is going to change? How the demography is going to change? Unfortunately done so. My job in the opposition and what I must say is that in that instance I would have to find fault not only with the Government but also with the corporate sector.

What are you having now? You are having a whole lot of deals that are been made between companies or sectors and the Government. Immediate one, ‘what is the tax concession I get?’ and ‘what’s the contract I get?’ Have you all thought out about the future? Where have we gone after apparel? That’s the question I want to ask.

We are making individual deals. But when the whole lot is in trouble, the Daya Gamages or Harry Jayawardenas, we all keep our mouths shut. That’s just something which I saw this time. You have to speak out. I know individually you can’t, with the problems you have. But if the chambers don’t speak out, who on earth is going to speak out for the private sector? That’s one of the major issues. When the Government wanted to take some money from the Provident Fund, the workers came out. One boy died. At least they saved the Provident Fund.

Who makes decisions?

The other is, who makes decisions? Okay the private sector is the engine of growth. But in Sri Lanka what I find very alarming is that a business cartel is trying to take over the Government. Let’s be frank about it. What is happening in the stock market? What is happening in the stock exchange? I mean the purge of the Security and Exchange Commission beats any purge by Stalin in Russia. Overnight the Director General and the Chairperson disappear and they are non persons. For whose benefit? And we are all silent.

We all know our stock exchange is rigged. I mean you have blue chips here. Their share stock values don’t go up. All of a sudden someone comes out of nowhere and the share values go up. And people buy, people sell. We are concerned, but we don’t want the EPF and the ETF money used for that.

We are also concerned because the Parliament has the final say on the financial system of Sri Lanka. How did that money come in from and where did some of them make the money? If some of you here put the money out, I know. You have the money you can buy. As to some of who are buying, I certainly, being in Parliament, have no explanation. And that is what is happening. Gradually, the stock exchange is no longer transparent. It’s not even a casino, it’s getting fixed and if you can move out the policeman, then what can you do?

When the chairperson was appointed I wondered ‘what experience did she have?’ But at least in her departure she upheld her office. That much I must say. No one speaks here. And what you are getting is not only that.

Have you heard the story of Icarus, the Greek, who had wings made out of wax and flew near the sun? He got too close to the sun and the wings melted. You know the rest of the story.

The Secretary to the Treasury is like that. He got very close to the private sector and now the private sector wants his job. That’s where it’s going. But we are concerned, because there can’t be a conflict of interest as far as the Treasury is concerned. That cannot be questioned. His policies can be. Just as much as we were in Government whether you are a Lal Jayewardena, you are a Thilakeratne, whether you are a Paskaralingam, a Charitha Ratwatte, the Opposition has to attack. Just as much as we have attacked and what Dr. Jayasundera has done we have attacked.

But we must know that there is no conflict of interest, where as the decisions been taken. In addition to a civil war, though we have ended one civil war in the country with the north and east, another one is raging now between the Central Bank and Treasury. In this we have to turn the search light inwards.

Firstly, forget everything else. Are you going to have a transparent private sector? When a cartel fixes it, it’s you all who’ll lose. Because there is no level playing field and we are still looking at Sri Lanka instead of going out and seeing the world, where there are an additional 500 million people where we stay.

Market economy

I believe in the market economy. I have always believed in the market economy. But the market economy that also combines social equality, market economy that gives growth, that gives employment and also believe in the free movement of goods, services, money, people etc, which some in the private sector do not; and don’t want that and they proclaim it loudly from the platform ‘I don’t’.

But what is happening now is very much, I mean if George Soros can be concerned of what is happening to the global economy, I think some of us also can have that same concern. If Warren Buffet can be concerned about what is happening, the need to control banks, the need for social equity, I think we in the Opposition can. So these are issues that we have to face. We can’t be silent.

Firstly, whatever happens, whatever be the policy right or wrong, whether they are going to have a ceiling on income of 2,500 or we are going to remove tax on many issues, we must ensure that the Treasury is answerable to Parliament and there is no conflict of interest there. If you want to raise money then you must have a stock exchange rate. The opportunity we had for people coming is closed. That window is gone.

So these are issues which everyone talks of privately; no one wants to talk about publicly. But I thought if we are not going to tackle these issues, forget about the private sector, forget about the corporate sector. We have to find the guts to talk out and challenge it.

I know there are things that you can’t do, which we say in Parliament. But that alone is not enough. While you are striking your deals also think of what the market economy should be and as a one who was responsible, as one of those who’s involved in opening it up, taking it forward I thought I’d make my comments at this stage. How many of you will speak to Mathi now after this for inviting me I don’t know, but thank you for inviting me and thank you for listening to me.

Secondly, how long can we be this type of low wage or middle wage economy? Remember the world has decided that Myanmar is a good place to invest. Myanmar and Bangladesh will become the low wage manufacturing base for this whole region and Myanmar has also the road to China, the old Burma road; that’s China and India. Then where are we? What are we going to do?

On the other hand, remember this is the only growth area in the world, which by mid century will have an additional 500 million people. Have we thought of that? Have you thought of how tourism is going to change? How the hospitality industry is going to change? How the demography is going to change? Unfortunately done so. My job in the opposition and what I must say is that in that instance I would have to find fault not only with the Government but also with the corporate sector.

What are you having now? You are having a whole lot of deals that are been made between companies or sectors and the Government. Immediate one, ‘what is the tax concession I get?’ and ‘what’s the contract I get?’ Have you all thought out about the future? Where have we gone after apparel? That’s the question I want to ask.

We are making individual deals. But when the whole lot is in trouble, the Daya Gamages or Harry Jayawardenas, we all keep our mouths shut. That’s just something which I saw this time. You have to speak out. I know individually you can’t, with the problems you have. But if the chambers don’t speak out, who on earth is going to speak out for the private sector? That’s one of the major issues. When the Government wanted to take some money from the Provident Fund, the workers came out. One boy died. At least they saved the Provident Fund.

Who makes decisions?

The other is, who makes decisions? Okay the private sector is the engine of growth. But in Sri Lanka what I find very alarming is that a business cartel is trying to take over the Government. Let’s be frank about it. What is happening in the stock market? What is happening in the stock exchange? I mean the purge of the Security and Exchange Commission beats any purge by Stalin in Russia. Overnight the Director General and the Chairperson disappear and they are non persons. For whose benefit? And we are all silent.

We all know our stock exchange is rigged. I mean you have blue chips here. Their share stock values don’t go up. All of a sudden someone comes out of nowhere and the share values go up. And people buy, people sell. We are concerned, but we don’t want the EPF and the ETF money used for that. We are also concerned because the Parliament has the final say on the financial system of Sri Lanka. How did that money come in from and where did some of them make the money? If some of you here put the money out, I know. You have the money you can buy. As to some of who are buying, I certainly, being in Parliament, have no explanation. And that is what is happening. Gradually, the stock exchange is no longer transparent. It’s not even a casino, it’s getting fixed and if you can move out the policeman, then what can you do?

When the chairperson was appointed I wondered ‘what experience did she have?’ But at least in her departure she upheld her office. That much I must say. No one speaks here. And what you are getting is not only that. Have you heard the story of Icarus, the Greek, who had wings made out of wax and flew near the sun? He got too close to the sun and the wings melted. You know the rest of the story.

The Secretary to the Treasury is like that. He got very close to the private sector and now the private sector wants his job. That’s where it’s going. But we are concerned, because there can’t be a conflict of interest as far as the Treasury is concerned. That cannot be questioned. His policies can be. Just as much as we were in Government whether you are a Lal Jayewardena, you are a Thilakeratne, whether you are a Paskaralingam, a Charitha Ratwatte, the Opposition has to attack. Just as much as we have attacked and what Dr. Jayasundera has done we have attacked.

But we must know that there is no conflict of interest, where as the decisions been taken. In addition to a civil war, though we have ended one civil war in the country with the north and east, another one is raging now between the Central Bank and Treasury. In this we have to turn the search light inwards. Firstly, forget everything else. Are you going to have a transparent private sector? When a cartel fixes it, it’s you all who’ll lose. Because there is no level playing field and we are still looking at Sri Lanka instead of going out and seeing the world, where there are an additional 500 million people where we stay.

Market economy

I believe in the market economy. I have always believed in the market economy. But the market economy that also combines social equality, market economy that gives growth, that gives employment and also believe in the free movement of goods, services, money, people etc, which some in the private sector do not; and don’t want that and they proclaim it loudly from the platform ‘I don’t’. But what is happening now is very much, I mean if George Soros can be concerned of what is happening to the global economy, I think some of us also can have that same concern. If Warren Buffet can be concerned about what is happening, the need to control banks, the need for social equity, I think we in the Opposition can. So these are issues that we have to face. We can’t be silent. Firstly, whatever happens, whatever be the policy right or wrong, whether they are going to have a ceiling on income of 2,500 or we are going to remove tax on many issues, we must ensure that the Treasury is answerable to Parliament and there is no conflict of interest there. If you want to raise money then you must have a stock exchange rate. The opportunity we had for people coming is closed. That window is gone. So these are issues which everyone talks of privately; no one wants to talk about publicly. But I thought if we are not going to tackle these issues, forget about the private sector, forget about the corporate sector. We have to find the guts to talk out and challenge it.

I know there are things that you can’t do, which we say in Parliament. But that alone is not enough. While you are striking your deals also think of what the market economy should be and as a one who was responsible, as one of those who’s involved in opening it up, taking it forward I thought I’d make my comments at this stage. How many of you will speak to Mathi now after this for inviting me I don’t know, but thank you for inviting me and thank you for listening to me.