“We have to now focus on the new service sector based economy” – Amunugama

Dr. Sarath Amunugama, once a United National Party (UNP) bigwig who crossed over to the Government 11 years ago, says he foresaw the doom of the UNP over a decade ago. He stresses that all the decision-making authority was given to court favourites of Ranil Wickremesinghe, who were very often mediocre and unqualified and today the UNP is paying for those wrong decisions.

Dr. Amunugama also asserts that he is happy to be a Senior Minister, merely because he has been freed from the day-to-day routine. He further notes that while encouraging traditional growth patterns, Sri Lanka has to now think about the new economy based on the service sector.

Following are excerpts from the interview:

Q: You were one of the first UNPers to cross over to the Government. What made you take such a decision?

A: Well... that was a long time ago. It was in 1999, 11 years ago. Even at that time I felt that the policies followed by Ranil Wickremesinghe were not appropriate for this country. He was a captive of the neo liberal thinking in economics. This was clearly seen in the Budget that was presented when Wickremesinghe became Prime Minister. The Budget presented by K.N. Choksy had all the standard neo-liberal prescriptions. It was clear the Budget did not have any consideration for the cultural social and economic realities of the country. As a result he (Wickremesinghe) crashed to defeat.

Q: Did you foresee that the UNP will be in a crisis like today?

A: Certainly, I foresaw the doom of the UNP. What I predicted 11 years ago has now come true as far as the UNP is concerned. Under the present leadership it did not give prominence to talent, popularity or commitment to the party. All the decision making authority was given to the court favourites of the Leader, who were very often mediocre and unqualified. Today the UNP is paying for those wrong decisions.

Basically the Leader was afraid of anybody who could be better than him. Everybody who couldn’t be fitted into his procrustean bed was mistreated. The story of Procrustes is that he cut everybody’s legs off, if they couldn’t be fitted into his bed. That was what happened to the UNP. It lost a lot of talent and capability. Today some of the vitality of the Mahinda Rajapaksa Government is given by those people who could not be adjusted to the procrustean bed of the Leader.

Q: Although you are no longer with the UNP you were once a strongman of the party. What are your suggestions for the revival of the UNP?

A: Actually right along I have not been the real UNP type. I have been very much a social democrat. In the university I was a strong supporter of the Lanka Sama Samaja Party (LSSP). I cannot tender advice to the UNP, because as far as I can see it is a sinking ship. Unless they can completely change their leadership and apparatus, they will not have a future. Under the Ranil Wickremesinghe constitution, the UNP Leader is a bigger fascist than even Hitler. He simply has a pact decision making authority. It is a group of ‘yes men’. To be honest, I am no longer interested in what happens in the UNP, because my political loyalty and commitment is elsewhere.

Q: Do you believe that the UNPers who crossed over after you had genuine reasons to do so or were they after perks and benefits?

A: Definitely, they had genuine reasons. Otherwise you cannot have such a large number — I think over 40 members of Parliament elected through the UNP. That says something about the UNP leadership. I believe if it was just one or two, you can think they crossed over for various other reasons. But when such a large number leaves, then there must be some deep-seated malice in the party. And all of them are joined by one factor; they could not have confidence in the Leader. That’s all.

Q: What are your views about the controversial ‘senior minister’ portfolios?

A: My views are that this is nothing so abnormal. If you look at Singapore, which is the best model for a senior minister, there are many people who have held all the top positions in the cabinet who are now in charge of large sectors of the economy. They are responsible to the cabinet and the President.

This is something new. We haven’t had anything like this before. The relationship between the senior ministers and the line ministers has to be reformulated. Under this Constitution we have the president who is the head of the cabinet. Then we have the prime minister, senior ministers and the other ministers. Though we have the cabinet in terms of the Parliamentary system, the prime minister has absolutely no role to play, except to garner the confidence of Parliament to help the president. Otherwise he has no special executive authority. Under that system senior ministers can play a very big role, especially as coordinators and advisers to the president, who is really the head of the cabinet.

In the Parliamentary system, you have a prime minister who is elected by members of the Parliament. Then the composition of cabinet is totally different, because there the prime minister is totally dependent on the goodwill of the ministers. Under British Parliament, the British prime minister can sack a minister, but under our Parliament our prime minister cannot do that, that is left to the president.

Senior ministers working as representatives of the president can play a big role. Of course, it depends on how each of the senior ministers interacts with the ministers of the line ministries. And we also have a tradition of ministers being very jealous of their powers, particularly making appointments and giving jobs.

In fact, today under the presidential system that is not there because the president can supervise the allocation of jobs and all those perks. He can decisively influence and countermand all those activities, which in the system where the prime minister is the top dog that will not be possible. Because then the ministers can gang up against the prime minister. Here it cannot happen.

Q: Do you feel the senior ministers are fulfilling the duties entrusted to them or is this just another white elephant?

A: If you take my portfolio as an example, I represent the Government at all internationalconferences and meetings. Locally, I work very closely with the private sector. Virtually every private sector public meeting has my input. I have been able to garner support for the Government’s economic policies either by speaking in Parliament or talking to the media, or talking to the private sector or talking to the public.

I must say that I am very happy that I am a Senior Minister, because I have been freed from the day-to-day routine. At my level I am not interested in pushing files here and there, because it takes lot of my time. Today, attending to files is a very unpleasant duty because there is pressure all the time.

I have been a civil servant for a long time; I started as a civil servant and worked for almost 35 years in Sri Lanka and for another 20 years in the UN system. In the UN system we don’t have this enormous filing system. In Sri Lanka though, ministers love to look at files, it is not the international practice.

Really the senior ministers and ministers must now rework this arrangement; this whole concentration of looking after files, giving leave for public servants and every trivial thing coming to the minister by way of files which satisfies the minister because he feels he attends to 100 files a day is useless, redundant and superfluous. This present concentration on equating power with the ability to deal with files will be changed.

Q: What do you think about the country’s economy?

A: If anybody looked at the country’s economic situation firstly during the war and secondly during the critical periods of 2007/8 and 2009, he could clearly see that the developments in the global economy were affecting us very badly. For example, oil prices were going sky high; and so were food prices. Then the financial crisis hit us very badly. A lot of people, particularly foreign trust funds that had invested in Sri Lanka, withdrew their funds. At one stage within a short while there was a flight of over US$ 600 million through investment funds. That was a difficult time.

Our foreign exchange situation was very low. Exogenous factors such as oil, food prices, and economic downturn all helped to fuel inflation. Inflation went sky high up to about 25 per cent. When inflation is that high and when we don’t have foreign resources except for about two or three weeks’ purchases (imports), then we were in a very bad way.

Now the situation has changed very much. The war is over, we are on a growth path, our large scale borrowings and investments infrastructure is now beginning to pay off. The power sector is one example. Earlier whatever we said, it was not serious because we didn’t have the ability to deliver power in required quantities. There was a time as the Minister of Investments I had to tell some of the companies that came in to bring their own generators. Now we have dealt with the power situation.

At Norochcholai Power Plant, 3000 Mw is on stream, Upper Kotmale will come on stream, Kerawalapitiya is functional and Sampur will come, though it is now delayed. Then Uma Oya work has begun. Sri Lanka in the next couple of decades will be one of the few countries which can guarantee to investors that there will be regular sustainable power supply. Just like a stable macro economic situation, a stable power supply is also a vital ingredient. The Government has made those investments and the results can be seen. Then the transportation sector and the ports and aviation sector; all those basic investments have been made by the Government.

There are three basic investments that are very significant for Sri Lanka; first is the investment on the peace dividend. Now there is no war and the economy gets the boost by the resources in the north and east. Be it agriculture, tourism, skills development... all that is coming into the economy. That will account for one or two per cent growth of GDP.

Number two is the investment in infrastructure. Somebody had to grasp the nettle. Earlier because of religious susceptibility we didn’t go into Norochcholai. Because of ethnic susceptibility we didn’t want to have Kotmale. But President Rajapaksa took a decision to go ahead with these projects anyway. Now people are not protesting anymore and power is also available. So the infrastructure investment is worthwhile. Also, though we have borrowed, once these projects come on stream it is going to add to the assets of this country.

One must remember and ask the question whether borrowing has been done to increase the assets of the country. That is the most important thing, because really it is the expansion of the asset base. Of course if we have borrowed for mere consumption, then there can be criticism. Whether it is a hotel or a port or an airport they all remain in this country. That’s a long term investment in the economic growth of the country. That has been done.

Number three is to get our macroeconomic picture right. It means we must curb inflation. Interest rates in the country ideally must be higher than those of inflation. Otherwise inflation is always eroding the savings of people. One of the targets of the Government is to contain inflation and keep it below the interest rates. We have a very strong foreign exchange surplus situation. We are targeting something like US$ 6 billion remittances in a couple years from our people in the Middle East. Select sectors such tourism and agriculture are doing well. Then we have to look at new areas like fisheries, information technology and so on.

One idea I want to bring into the debate now is that, while all these traditional growth patterns are there and have to be encouraged, we have to now think about what is called the new economy. My emphasis is always on the new economy. Parallel to these very important growth areas, we have to create in Sri Lanka a new economy which is a service-based economy. That will be based on tourism, information technology and financial services, aviation, shipping, research and development.

In other words, as mentioned by President Rajapaksa, we have to capitalise on our hub status. That is one area where we can progress a lot in the future. Perhaps we haven’t got our act together in that yet. As the Minister, I want to concentrate on that and see that we get all the best talent, discuss with them and create a programme so that the new economy as against what we call the traditional economy both can go in tandem. That is very necessary.

Our task now is to concentrate on the service sector and the new economy. All the investments we have made like winning the war, infrastructure and getting the macroeconomic position right give a boost to this new economy.

Q: There are allegations that although the Government spent billions on Hambantota Port, it will commercially unsuccessful. When will it start commercial operations?

A: There is no doubt that all our infrastructure projects will begin to pay. When we were discussing the funding of Hambantota Port and Norochcholai, the initial negotiations were done by me, Dr. P.B. Jayasundera, Amunugama, our Ambassador in China, and Dr. Wickrema who went to China.

I must point out that the Import Export Bank of China released this money only after a thorough check. These banks, particularly the Chinese banks, don’t give money on speculation. There is a feeling in Sri Lanka that one can just go to China and bring money. That is simply not true. As people who were engaged in this discussion, I can tell you that they do detailed feasibility studies. They must satisfy themselves that this is a viable proposition.

The Chinese Import Export Bank is no different than a private bank such as HSBC or the Bank of Scotland or any other global bank. Before they lend money to an individual or a country, they do a thorough check. They have to be satisfied that the money is paid back. These projects have been thoroughly investigated and found to be viable. We are under no pressure that these things will not work. Actually people are talking about Hambantota as the most strategic investments made by Sri Lanka.

Hambantota is exactly on the busiest sea lane known in the world. I feel it would be a criminal mistake not to exploit Hambantota. I think it’s very short-sighted and these ‘Colombo-based pundits’ who are talking like this shouldn’t be doing so at all. If it was not for our geographical location, which is given to us, if it was contested land, someone else would have exploited Hambantota. Luckily because of our vantage position we can come late into the picture and exploit it. We should not be worried about it at all. It is a long-term project and I think people should visit Hambantota and see the value of it.

Q: What was the need to introduce a new currency note series?

A: A Central Bank must think forward. It must be proactive. It will be only a crisis management situation where we can’t think of future; just go on with the old currency notes, just go on with the old regulations, just go on with the old manner of doing things. Why shouldn’t we change that? If we are having a situation where we are confident of the future and the economy is in a good state, we can have new currency, have new stamps or may be new buildings for all our key sectors. We enter into a whole series of activities which will modernise our practices.

The existing currency practice is very old, starting from colonial times. Another advantage is that all these are printed in Sri Lanka at Thomas de la Rue, at which the Sri Lanka Government has over 49 per cent of shares. We are having one of the best currency printing units in the world just located in Katunayake. None of these people have even seen any of this. This is just criticising.

Q: Don’t you think the cost of printing these new currency series is an extra burden on the already ailing economy?

A: Who says so? It is not at all a burden on the economy. What has happened is that a few pundits are putting everything under the microscope.

Q: Can you quantify the boom on the economy due to the ongoing Cricket World Cup?

A: Today sports tourism is one of the major aspects of tourism. If we take the Soccer World Cup, it is one of the major tourism boosts. It is not only an international tourism boost, but an internal tourism boost; too. Cricket is much better. Last time when the matches between Sri Lanka and England were held in Dambulla, over 6,000 people came and they were called the ‘Barmy Army’.

Tourism is the best way to show that Sri Lanka has come back to normal. What is the point in giving big speeches or subscribing millions of pounds to newspaper advertisements in the West, when by having these events we can have thousands of tourists coming and saying Sri Lanka is normal? If the tourists who come to Sri Lanka can go back and say ‘we went to Sri Lanka, the beaches were clean, there was no hassle and we had a great time,’ that is the biggest publicity for Sri Lanka. We have to encourage sports tourism. We have good hotels and trained staff. We have to be proud of that.

There are specialised areas of tourism; sports, culture and MICE tourism. Sri Lanka has to decide on how we can encourage and boost each of these sectors and encourage more and more tourists. With the Chinese cultural centre that will soon come in place, we can have globally renowned top artistes to perform here and we can have people in the region flying to Sri Lanka to watch them.

Q: There is a lot of loose talk about the standard of the grounds and pitches of the World Cup match venues in Sri Lanka. Don’t you think such a situation will have a negative impact on the country’s image?

A: There is lot of talk about the cricket pitch and broadcasting. These are all handled by the International Cricket Council (ICC). There is a global body that decides on all these things. They are not going to allow the match to be held unless it meets the required standards. There are many instances the ICC has refused to play matches due to such low standards and has shifted the venue as a result. The quality of the pitch is not at all determined by the local people. We have to bring it up to the mark so that the global organisation gives the approval. After all this is the World Cup. The final decision will not be made by the local authorities and there are global organisations to do that. These are all media hyped.

Q: What are your views on State-run institutions such as the CWC, CPC, and CEB?

A: I have been a strong critic of these institutions. Actually that was not such a big original thought. Anybody who knew economics could have said that. But politically very few people would utter those words. But now I must say that things have improved quite a lot. The banks have improved, CPC and CEB have improved. They are in the process of restructuring. Someone may be satisfied with the phase of restructuring. I may not be satisfied, thinking it should be better. But it is being done.

Q: Are you saying these institutions are no longer a burden on the Government?

A: At present also the Treasury has to subsidise them. But we can see the end of the line. If you look at it logically, it is an unacceptable situation. Take the Electricity Board; the Government as a country is paying for the entire infrastructure. The debts on Norochcholai are paid by the Government and not the Electricity Board. Similarly Petroleum Corporation purchasing petrol becomes a liability of the Government.

If you take the Transport Board, the purchase of buses is a liability of the Government. All these together form a burden on the national Budget. None of these are handled entirely by the corporation itself. That’s a very undesirable state of affairs. They can’t even manage after the Government picks up the tab for all these things. The day must come when these institutions can undertake at least a substantial part of their investment programmes.

I am a strong believer that they should not be given a monopoly but it is the Government policy that they will retain a certain amount of monopoly. They get their assets paid by the Government and secondly they get a monopoly situation and with all these if they can’t break even, then something is wrong somewhere. That has to be rectified.

Q: It is no secret that the country is facing a shortage of Foreign Direct Investments (FDI). Why do you think foreigners are reluctant to invest in Sri Lanka?

A: For the present moment it is only one year after the war. People are watching the situation. The reactions are much more favourable. If we look at the Colombo Stock Exchange, we can clearly see that it is a buoyant stock exchange. Our bonds are well subscribed. Our ratings from rating agencies are quite good. Infrastructure is being laid for that kind of investments. In the future we will see such investments coming, but it will be in the major sectors.

Infrastructure is still coming into fruition. It is only now that we can guarantee a steady power supply. It is only now that we are beginning to guarantee transport such as Colombo-Katunayake, Southern Expressway and A9. Then the two ports are still under construction. Basically we are a halfway house.

But I think the problem is conceptual. We have to decide whether we go back to the traditional investment or the new economy. If we think that traditional investment is going to be the key, then we may be in for disappointment. But if we think of new economy of financial services, information technology, tourism, shipping and aviation, then there will be lot of money coming from these areas.