Ceiling price to floor bottled water industry

Originally appeared on Daily FT

By Joshua Karpinski

The recently instilled price control on bottled water seems like a positive for all consumers. How can a lower priced good hurt society? A recent report by the Advocata Institute “Price Controls in Sri Lanka” finds that price controls are of limited value in reducing costs. The report claims that price controls can cause significant welfare losses, deterioration in product quality, reduction in investment and, in the long run, higher prices. Hence, one must approach production and economic fundamentals to observe a price controls’ potentially detrimental outcomes.

As per the extraordinary gazette notification released by the government on the 5th of October 2018, the maximum retail prices of bottled water are as follows:

Gazette Table.PNG

As shown (table), the new ceiling prices shave off a fair chunk of the bottled water seller’s margin (for instance, the cheapest common 500ml brand retailed at Rs. 45.00). This falling margin trickles down from the retailer/wholesaler to the distributor and eventually the producer (bottler). As with any economic activity, the goal is to generate profit. This aim remains with the producer to the retailer, and a ceiling price disrupts economic activity. We must observe how this industry operates.

The common water bottler sources his PET (polyethylene terephthalate) bottles from local plastic producers or importers. These bottles are a product of the petrochemical industry, a sector of rising cost due to increasing petroleum prices, internationally. Additionally, the ailing Sri Lankan Rupee has done no favours to importers.

The water is sourced from dug wells to springs and deep wells, and various brands treat the water using different techniques (like pricey reverse osmosis or cheaper chemical treatment). The water and the PET bottles need to abide by a predetermined SLS criteria and Health Ministry specifications. Additionally, they undergo licensing (with periodic renewals), site inspections, water and product testing and random checks (by the Consumer Affairs Authority).

The finished water bottles then make their way to wholesalers or retailers, to be purchased in large quantities (for events or corporates) or shelved at boutiques and supermarkets. This is done with the help of distributors, who range from large corporate in-house logistics departments, to the DIMO Batta owners outstation. This price control lowers the distributor’s margin, potentially removing the smaller distributors altogether.

The larger sellers, like Keells with “K Choice” water or Cargills’ “KIST Knuckles”, vertically integrate the entire process. It will no longer be in the interest of these supermarket oligopolies, to use up shelf space for rival brands (this is already apparent in some Keells outlets) and eventually the consumer suffers with few to no brand alternative. The price ceiling acts as a barrier to entry for new producers, as now they do not have the freedom to charge prices in line with economic forces. Existing producers may be forced out of the market or absorbed by larger entities. In economic terms, consumer choice falls.

A shift to aggressively cut costs could lead to lower quality plastic, (albeit still in line with health standards) being used and recycled. Furthermore, cheaper alternatives to water purification like chemical treatment will become the standard, despite poorer taste and lower healthy mineral content. A fall in research and development investment will lower innovation into current and future water products and services and this too will be at cost to the consumer.

Lower priced bottled water leads to higher demand and consumption. This does not bode well for the environment, owing to more plastic use and waste. Sri Lanka annually imports 9,600 tonnes of raw virgin plastic (PET) to manufacture bottles, packaging and for other requirements. 70% of this is processed and consumed as an end product in Sri Lanka and the used plastic waste creates monstrous environmental issues. Although recyclers are trying to address this issue, the price control in question could severely contribute to even greater plastic waste.

Tap water is the cheapest water option available. It usually goes through a process of basic filtration techniques like flocculation, which adds chemicals to the water to get particles to coagulate and float, so that they can be removed; sand filtration, which filters out large pieces of debris; or chlorination, which adds chlorine to kill bacteria and microorganisms. Despite tap water being considered drinkable (to some, purely out of convenience), it can lead to numerous problems. Chlorine is not ideal for human consumption (while our bodies can technically handle it, chlorine can lead to a variety of health complications and is potentially carcinogenic). The presence of microbes and impurities from pipes add health issues too. These risks have not gone unnoticed as we observe tourist forums and foreign travel bloggers strongly urging future visitors to avoid Sri Lankan tap water and to always opt for sealed bottled water. This leads on to the variety of bottled water available to consumers.

  • Artesian Water: Water from a well that taps a confined aquifer (a water-bearing underground layer of rock or sand) in which the water level stands at some height above the top of the aquifer.

  • Spring Water: Water derived from an underground formation from which water flows naturally to the surface of the earth.

  • Purified Water: Water that has been produced by distillation, deionization, reverse osmosis, or other suitable processes.

  • Distilled Water: Water that has been vaporized into steam, then cooled to re-condense it back into water. The water's minerals are left behind, leaving only pure tasting steam-distilled water.

  • Mineral Water: Water that contains no less than 250 parts per million (ppm) total dissolved solids (TDS).

It is evident that a variety of water sources can be tapped and different purification methods can be employed to produce consumable water. This “clean, drinkable water” is then bottled and intensely marketed across a spectrum of brands, along with their source and unique purification methodology.

Below, tabulated, is a collection of some local branded water. (Source: bottle label/bottler website)

Collation of bottled water prices.jpg

These bottles contain drinking water that was sourced differently. It was then processed (filtered/purified) differently. The plastic it is contained in is not standardized (it just has to fulfil a minimum health and quality requirement). These aspects of a seemingly simple good exposes variety with differentiability, and this may sway demand for one brand over the other. This should influence price and create a variation of prices for different brands, at the stimulus of consumer choice.

However, in essence, this price control has homogenized a differentiable good. The consumer now pays one price across a range of bottled water.

The price ceiling, although seemingly to help us buy cheaper bottled water, could cycle back to hinder the bottled water industry from giving the end consumer the best possible product. Water is not a scarce good (yet) in Sri Lanka and there are plenty of existing alternatives to bottled water. Has the government truly taken this into consideration? How have the new prices been calculated? What research has been carried out? Has a cost benefit analysis been performed? If so, where is it? Where is the data? Despite multiple attempts to communicate with senior employees at the CAA, we failed to gather any meaningful answers, useful information nor a compliant contact. Why does the CAA pass the buck to its ministry who in turn has no one willing to answer these queries? Does society truly benefit from this seemingly positive, yet irrational gazette? Who really stands to benefit from this decision in the long run?

Price Control Outcome.jpg

Consumers rear-ended by reer depreciation?

Originally appeared on Echelon

By Ravi Ratnasabapathy

What really is driving the currency weakness? The Central Bank must consider both fundamentals and monetary factors.

Sri Lanka’s currency has fallen rapidly over the last two months, raising fears of yet another crisis. Sri Lanka’s Rupee depreciation over the past six months against the US Dollar is at a much higher rate than the historic annual average of around 10% over the last couple of decades. A stable exchange rate reduces transaction costs and uncertainty in international trade, thereby stimulating trade. It is one of the most important macroeconomic variables in the economy; it affects inflation, exports, imports and economic activity. Budget deficits are the source of much instability. The painful tax increases that addressed this issue were expected to result in stabilisation of interest rates, exchange rates and inflation. The recent depreciation of the currency is therefore puzzling and worrying.

The problem seems to be in the new inflation targeting regime based on the Real Effective Exchange Rate. What this means is that Sri Lanka will target an inflation-adjusted exchange rate index relative to competitors to keep the Rupee competitive. It appears that the depreciation of other currencies has led the Central Bank to loosen monetary policy, causing the currency to fall. What are the implications of such a policy?

Export growth is correctly identified as critical for development, and the Central Bank objective seems to be to keep the exchange rate competitive; but is this necessary? Previously, competitive exchange rates were seen to be crucial for exports, but a recent paper published by the World Bank in 2015 (Depreciation without Exports? Global Value Chains and the Exchange Rate Elasticity of Exports) suggests this is changing (although the view is not universal; other studies seem to contradict this).

The paper finds that the emergence of global value chains (GVCs) has resulted in a decline in the effect of real exchange rates on export performance. This has been linked with the emergence of GVCs through the following three mechanisms:
1. Firms need to import to be able to export; therefore, their exports contain not just domestic but also foreign inputs.
2. Stable supplier-buyer links are valuable, so the cost of switching suppliers in case of a real exchange rate change in a given partner’s country becomes non-negligible.
3. Large leading firms account for an increasingly larger portion of world trade, and these firms may find it easier to hedge against real exchange rate changes along their production network.

The study finds that when firms’ share of imported intermediates is greater than 30 percent, the effect of real exchange rates on export participation fades. Thus, as countries become more integrated in global production processes, currency depreciation only improves the competitiveness of a fraction of the value of final goods exports. The objective of Sri Lanka’s new export strategy is to integrate to GVC. If this paper is correct, the currency may not play a significant role in improving our entry into GVCs.

As yet, Sri Lanka is not well integrated into global value chains; so does the currency depreciation help existing exports? This does not appear to be the case.

It appears that the depreciation of the other currencies has led the Central Bank to loosen monetary policy, causing the currency to fall. What are the implications of such a policy?

A Central Bank staff research paper by U P Alawattage in 2005 titled Exchange Rate, Competitiveness and Balance of Payment Performance examined the effectiveness of the exchange rate policy in Sri Lanka in achieving external competitiveness since the liberalisation of the economy in 1977. It analyses quarterly data covering the period of 1978:1 to 2000:4 and finds that the Real Effective Exchange Rate (REER) does not have a significant impact on improving the trade balance, particularly in the short term.

The other major concern is the impact of the currency on domestic prices and confidence. For small economies, changes in the exchange rate can have an important influence on prices. It not only affects prices of imports but also import-competing goods, and local goods that are tradeable internationally. When the currency depreciates, local prices of these goods and services tend to rise quite quickly, and by a similar amount as the depreciation of the exchange rate.

When import prices rise, demand is driven towards domestically produced goods and services. In the absence of offsetting factors, this results in more pressure on local production capacity and a bidding up of prices. This leads to increased demand for labour and capital pushing wages and interest rates.

The direct effect of the currency depreciation will generally contribute to an overall price level increase in proportion to the share of tradeable goods and services in GDP. Published as a Central Bank study in 2017, a paper by S M Wimalasuriya titled Exchange Rate Pass-Through: To what extent do prices change in Sri Lanka? suggests that the exchange rate pass-through into import prices is around 50%; that is, import prices increase by about 0.5% (and those of other consumer prices by 0.3%) as a result of a 1% depreciation of the Nominal Effective Exchange Rate.

Therefore, the overall cost of living will rise further. Tax increases – VAT from 11% to 15%, PAL from 5% to 7.5% – and the currency depreciation over the last couple of years has already added significant costs to household budgets. Add to this increases in fuel, gas – all necessary due to increases in global prices – and the combined burden is huge. To add even further inflation through currency depreciation will impoverish many and increase popular discontent. Pursuing unpopular policies is sometimes necessary but the combination of depreciation amid fiscal tightening looks dangerous and perhaps even unnecessary.

Exchange rates can move for a range of reasons, which can be simplified into two categories: “real” factors, or in other words, changes in relative fundamentals; and “monetary” factors. “Fundamentals” would, for example, include changes in the terms of trade and productivity, while “Monetary” factors are changes in the money supply.

In practice, policymakers may find it difficult to distinguish how much of a movement in the exchange rate is due to changes in the fundamentals and how much may be inflationary (or deflationary), although in the current situation, monetary factors seem to be the cause.

Thus, in Sri Lanka, where inflation expectations are not well anchored, the prudent monetary policy response would be to tighten rates, at least until there are grounds for being more confident that it was the fundamentals that had changed. The immediate political considerations suggest the same action.

A currency’s exchange rate contains important information about the country’s monetary position and the credibility of domestic monetary policy. The popular perception of the current stance is that it is either weak or out of control. For businesses, it is creating a new level of uncertainty, which is not being helped by ad hoc administrative measures (increasing LC margins on cars for example) to arrest some of the effects. For consumers, it fuels inflation, adding to the woes of fiscal tightening.

The Central Bank should revisit its inflation-targeting regime and tighten rates to stabilize the currency.

අර්බුදයේ ගැඹුර

චන්ද්‍රා ජයරත්න

පරිවර්තනය- Advocata Institute

හැම රජයක්ම  පසුගිය කාලයේ උත්සහ  කළේ උපයන ප්‍රමාණයට වඩා පරිභෝජනයට රටත් මිනිස්සුන්වත් පුරුදු කරපු එක. ආර්ථිකය දියුණු කිරීමට කල් පවතින ප්‍රතිපත්ති ගෙන ඒම වෙනුවට පැවතුනු හැම ආණ්ඩුවක්ම කළේ තමන්ගේ සමීපතම ගජ මිතුරන්ට වාසි සැලසෙන (Crony capitalism) ආරක්ෂණවදී ප්‍රතිපත්ති ඉදිරිපත් කිරීම සහ එම ගජ මිතුරු නිළධාරීවාදය එක්ක දේශපාලන සමීපතමයන්ට වැඩිපුර සල්ලි හම්බකරන්න පුලුවන්  විදියට නීති වෙනස් කරපු (Rent seeking) එක විතරයි.

මේ ව්‍යයසනකාරී ප්‍රතිපත්තියේ ප්‍රතිඵලය අද අපිට ලැබිල තියනවා. අපි රටක් විදියට අද ජීවත් වෙන්නෙ අපිට ජීවත් වෙන්න පුලුවන් ධාරිතාවයෙන් ගව ගණනාවක්  ඔබ්බට ගිහිල්ල. [“living beyond our means”]

අපේ ආනයන අපනයන වගේ දෙගුණයක්. එම පරතරය පියවන්නේ සංචාරක කර්මාන්තයෙන්, විදේශ ශ්‍රමිකයන් එවන පිටරන මුදල් වලින් සහ දිනපතා වැඩිවෙන මහා ණය කන්දරාවකින්.

ණය මුදල් වාරික සහ පොළී මුදල් ගෙවීම දිගටම ඉහළ යමින් පවතිනවා. රුපියල අවප්‍රමාණ වෙමින් වියදම එන්න එන්නම වැඩි වෙද්දි සාමාන්‍ය ජනතාව කබලෙන් ලිපට වැටෙමින්  දුක් කන්දරාවක් විඳවනවා. ණය ගෙවන්න යන මුදල් ප්‍රමාණය වැඩි වෙන නිසාත් ආර්ථික ප්‍රතිලාභ ලැබෙන ආයෝජන අඩු කරන්න වෙලා තියන නිසා දැන් ආර්ථික වර්ධනය එන්න එන්නම අඩු වෙනවා. අපි විදේශ විනිමය/ මුදල් උපයන වේගයට සහ ප්‍රමාණයට වඩා වැඩි වේගයකින් විදේශ මුදල් ණයට ගැනීම නිසා අර්බුදයේ සංකීර්ණම අවස්ථාවට දැන් අපි පැමිණ තිබෙනවා. එම සංකීර්ණ අර්බුදයේ සංකේත ආර්ථිකයේ දැනටම දැකිය හැකියි. [සටහන 1]

රටේ ආර්ථිකයේ [ සාර්ව ආර්ථිකයේ] පෙනෙන අර්බුදයට වඩා ගැඹුරු අර්බුදයක් සාමාන්‍ය මිනිසුන්ගේ නිවාස වල ආර්ථිකයේ ජනිත වෙමින් පවතිනවා. ආර්ථික වර්ධනය අඩුවීම, රුපියල අවප්‍රමාණ වීම, රැකියා අඩු වීම, අදායම අඩු වීම නිසා සෑම නිවාස කුටුම්බයක්ම ණය අර්බුදයක හිර වී තිබෙනවා [සටහන 2]

මේ මොහොත වනවිට රටේ ආර්ථිකයේ අර්බුදයත් ගෙදර ආර්ථිකයේ අර්බුදයත් එකිනෙකට එක් වෙමින් දේශපාලන අර්බුදය සමඟ එක්ව ඉතා තීව්‍ර ආර්ථික කැළඹීමක් ඇතිකර අවසානයි  

මේ අර්බුදයට විසඳුම කුමක්ද?

මුලින්ම අපි දැවෙන ආර්ථික අර්බුදයක සිටින බවත් එම අර්බුදයෙන් ගොඩ ඒමට පහසු මාර්ගයක් නොමැති බවත් පිළිගන්න අවශ්‍යයයි. මෙම අර්බුදයෙන් ගොඩ එන්න පුලුවන් එකම ක්‍රමය මහන්සි වී වැඩ කිරීමත් අපගේ පරිභෝජනය පිලිබඳ සිතා බැලීමත් පමණයි.

දෙවනුව සියලුම පක්ෂ ජාතික මට්ටමේ එකඟතාවයක් ඇති කරගත යුතුයි. සියලුම මට්ටම් වල සමාජ නායකයන් සහ ආගමික නායකයන් මහන්සි වී වැඩ කිරීම පිලිබඳව, තම තරඟකාරීත්ය්වයෙන් තොරව ව්‍යාපාර වලට වාසි ලැබෙන නීති රීතිවලට එරෙහිව (Rent seeking) , සේවයකින් ලබා දීමෙන් තොරව/ වටිනා කමක් එකතු කිරීමෙන් තොරව මුදල් උපයන රැකියා වලට එරෙහිව සමාජය දැනුවත් කලයුතු සේම සමාජ මතයක් ගොඩ නැගිය යුතුයි.

තෙවනුව , දූෂණය, නාස්තිය සහ සුපෝගභෝගී පාරිභෝජන රටාව නැවැත්විය යුතුයි.

සිව්වෙනුව යටිතල පහසුකම් දියුණු කිරීමේ ප්‍රමුඛතාව කෙටිකාලීන අවශ්‍යතා වලින් තොරව දිගු සහ මධ්‍යකාලීන ඉලක්ක කරා යොමුවිය යුතුයි. උදා: අධිවේගී මාර්ග වෙනුවට රේල් පාරවල්, විශාළ වාරි කර්මාන්ත ව්‍යාපෘති වෙනුවට කුඩා වැව් සහ වාරි කර්මාන්ත


සටහන 1

2011 වසරේ විදේශ ණය වාරික සඳහා ගෙවීම ඇමරිකන් ඩොලර් බිලියන 1. එය වසර 7ක් තුල දෙගුණයක් කරමින් 2017 වසරේදී විදෙශ ණය වාරික ගෙවීම් සඳහා ඇමරිකන් ඩොලර් බිලියන 2ක් ගෙවිය යුතුයි. වසර දෙකකදි ණය වාරික දෙගුණ වෙමින් 2019 වසරේදී ඇමරිකන් ඩොලර් බිලියන 4 ක් ගෙවිය යුතුයි. අවුරුදු 5 ඩොලර් බැඳුම්කර සඳහා පොළී අනුපාතිකය 2016 දී පැවති 4% පොළී අනුපාතිකය දැන් 9% දක්වා ඉහළගොස් තිබෙනවා. විදෙස් ශ්‍රමිකයන් ශ්‍රී ලංකාවට එවන මුදල් ප්‍රමානය අවම වන අතර අපනයන, ආනයන වලට සාපෙක්ෂව වර්ධනය වන්නේ ඉතාම සෙමින්. සැබවින්ම භයංකාර අර්බුදයක්.  

සටහන 2

2016 දී ජන සහ සංඛ්‍යා ලේඛණ දෙපාර්තමේන්තුවේ ගෘහස්ත ආදායම් වියදම් සමීක්ෂණයට [House hold income and expenditure survey - HIES] අනුව නිවසක සාමාන්‍ය ආදායම රු. 62,227ක් වන අතර ගෘහස්ත මාසික වියදම රු. 54,999. සියලුම නිවාස වලින් 60% ක් පමණ රු. මිලියන 1.4ක ණය ප්‍රමාණයකට [ එක් නිවාස ඒකකයක් ] යටත් වී තිබෙනවා. ඒ අනුව රු. 7,238 ක ඉතුරු මුදලින් ණය මුදල පමණක් පියවීම සඳහා අවම වශයෙන් මාස 193ක [අවුරුදු 16ක් ] කාලයක් ගතවනවා. ආර්ථික වර්ධනය අවම වුවහොත් මෙම කාලය තවත් දීර්ඝ වනු ඇති.

සටහන 3

වාණිජ බැංකු ණය මුදල් ආපසු අය කරගැනීමේදී  ලක්ව ඇති අභියෝගය තහවුරු වන්නේ නිසි පරිදි නොගෙවන ණය ප්‍රමාණ වලින් [Non performing loans - NPL]. ස්වාධීන Moody’s ආයතනයට අනුව 2018 මාර්තු මාසයේදී නිසි පරිදි නොගෙවන ණය වල වාටිනාකම වත්කම් වල ප්‍රතිශතයක් [Non performing loan as a percentage of assets] ලෙස 2.7% සිට 3.0% දක්වා ඉහල ගියා.

Constitutionality of Sri Lanka's politics turmoil

By Suri Ratnapala

This opinion addresses the following questions presented by Upul Jayasuriya, Attorney-at-Law. 


1. Is the purported dismissal Ranil Wickremesinghe from the office of Prime Minister by the President constitutionally valid? 
2. Is the purported appointment of Mahinda Rajapaksa as Prime Minister constitutionally valid? 
3. Is the Presidential proclamation of 9 November 2018 purporting to dissolve the Parliament constitutionally valid? 

For the reasons herein stated, the answer to each question is negative.   

Purported dismissal of the PM and the appointment of another person as PM 

The President has no power to dismiss Wickremesinghe as Prime Minister. The argument that the power to appoint the PM carries an inherent power to remove the PM is incorrect. There is no such power under Westminster convention or the provisions of the Sri Lanka Constitution. 

This argument is founded on a misapprehension that the PM serves at the pleasure of the President. Even an employer at common law cannot lawfully dismiss an employee except in accordance with the terms of the contract and applicable legislation.   

The Prime Minister’s tenure in office is defined by Art 46(2) which provides: 

(2) The Prime Minister shall continue to hold office throughout the period during which the Cabinet of Ministers continues to function under the provisions of the Constitution unless he– 
(a) resigns his office by a writing under his hand addressed to the President; or 
(b) ceases to be a Member of Parliament. 

Wickremesinghe has not resigned his office. He has not ceased to be a Member of Parliament. (As stated in this Opinion, the purported dissolution of Parliament is null and void.) He has not vacated his office by death. The question then is whether the Cabinet of Ministers continues or has ceased to function. This matter is governed by Art 48 (1) and (2) which provides: 

48. (1) On the Prime Minister ceasing to hold office by death, resignation or otherwise, except during the period intervening between the dissolution of Parliament and the conclusion of the General Election, the Cabinet of Ministers shall, unless the President has in the exercise of his powers under Article 70, dissolved Parliament, stand dissolved … 

(2) If Parliament rejects the Statement of Government Policy or the Appropriation Bill or passes a vote of no-confidence in the Government, the Cabinet of Ministers shall stand dissolved … 

Wickremesinghe, to reiterate, has not ceased to hold office as PM by death or resignation or by ceasing to be a Member of Parliament. Therefore, the Cabinet of Ministers will stand dissolved during the life of the Parliament only if Parliament: 
(a) rejects the Statement of Government Policy,  
(b) rejects the Appropriation Bill, or  
(c)  passes a vote of no-confidence in the Government. 

None of these events has occurred. Since no event that could constitutionally terminate the office of Wickremesinghe has occurred, he remains the Prime Minister and there is no vacancy of the office of Prime Minister.  

It should be noted that even if there was a valid dissolution of the current Parliament, Wickremesinghe and the Cabinet would have remained as the Caretaker Government until the General Election by virtue of Art 47(1). Therefore, the President has no constitutional authority to appoint Rajapaksa as the Prime Minister.   

The Sinhala text of the Constitution leads to the same result 

The President has claimed the authority to dismiss Wickremesinghe from the office of PM based on the Sinhala text of Art 48(1) of the Constitution. This claim is unwarranted. The relevant Sinhala words are ‘dhoorayen ivath karanu labeemen ho illaa as veemen ho anyaakaarayakin’. These words in English translation means ‘removal from office, resignation or otherwise’. 

The words ‘removal from office’ refers to the circumstance of being removed from office according to the Constitution. Under the Constitution the power of removing the PM is vested solely in Parliament which could do so only by rejecting the Statement of Government Policy or the Appropriation Bill or by passing a vote of no-confidence in the Government.   

Therefore, the claimed power based on the Sinhala text of the Constitution has no merit.  

The purported dissolution of the current Parliament  

The President, by proclamation of 9 November 2018, has purported to dissolve the current Parliament. On 13 November 2018, the Supreme Court in response to several petitions, made interim orders suspending the effect of the Proclamation until 7 December 2018. The Court is scheduled to hear arguments on 4, 5 and 6 December.  

The Proclamation has been made in clear and direct violation of Article 70(1) which provides as follows. 

(1)The President may by Proclamation, summon, prorogue and dissolve Parliament: 

Provided that the President shall not dissolve Parliament until the expiration of a period of not less than four years and six months from the date appointed for its first meeting, unless Parliament requests the President to do so by a resolution passed by not less than two-thirds of the whole number of Members (including those not present), voting in its favour. 

Parliament has not made a request for its dissolution.  

The President is the sole authority under the Constitution with power to ‘summon, prorogue and dissolve Parliament’. (Art 33(2)) However this power is not absolute but must be exercised according to the Constitution. Therefore, it must be exercised in accordance with Art 70(1) as amended by the Nineteenth Amendment of the Constitution. Two important presumptions of statutory interpretation are relevant to this question.

First is the presumption that the general provision does not detract from the specific provision. (Generalia specialibus non derogant.) In other words, the general provision is qualified by the special provision on the same subject. The proviso of Art 70(1) qualifies and limits the power granted by Art 33(2) and Art 70.  

Second is the presumption that the later enactment prevails over the earlier contrary enactment. (Leges posteriores priores contrarias abrogant.) Art 70(1) as introduced by the Nineteenth Amendment is the later enactment that was clearly intended and has effect of qualifying and limiting the power of the President to dissolve Parliament.  

The Attorney-General’s argument has no merit 

The Attorney-General is reported to have made the following argument before the Supreme Court at the hearing on 13 November 2018.  

‘No provision of the 19th Amendment was called for a referendum and pruning of President’s powers must have been done via referendum. The 19th Amendment did not require a referendum because executive power was intact as it stood before the referendum. Executive powers cannot be eroded. It can be approved by people exercising the franchise. 

‘The Article 70(1) cannot be read in isolation when all provisions of the 19th Amendment taken together did not require a referendum because it did not erode the powers of the President’. (The Daily Mirror 13 November 2018) 

This argument is without merit.  

The Supreme Court considered and delivered its judgment on the Nineteenth Amendment Bill in S.D. Nos. 4-19/2015 heard on 1, 2 and 6 April 2015. Since the Bill was described in its Long Title as being for the amendment of provisions of the Constitution, the only question which the Supreme Court could determine was whether the Bill required approval by the People at a Referendum by virtue of the provisions of Article 83. (Art 120 proviso (a)) It determined that the Bill did not require referendum approval.  

The petitioners in that proceeding made precisely the same argument that the Attorney-General now makes, namely that the President’s executive power could not be restricted without the approval of the People at a Referendum. The argument was considered and rejected by the Supreme Court. 

The limitation of the President’s discretion by the establishment of the Constitutional Council was previously considered by the Supreme Court in its Judgement on the Seventeenth Amendment Bill. The Court held that the fetter on the Presidential discretion to make appointments to high offices was consistent with the sovereignty of the people established by Articles 3 and 4.  In the Judgment on the Nineteenth Amendment Their Lordships emphasised the President’s responsibility to Parliament established by Art 42 and concluded: 

Because the Constitution must be read as a whole, Article 4(b) must also be read in the light of Article 42. Clearly, the Constitution did not intend the President to function as an unfettered repository of executive power unconstrained by other organs of governance. (Emphasis added)  

The power to dissolve Parliament derives from the old Royal prerogative which was restrained in the past only by convention. It is not in the nature of strict executive power. In the UK, Australia, New Zealand and Canada it is considered part of the reserve power of the monarch. The limitation of the Presidential power to dissolve Parliament and its location in Parliament itself enhances the sovereignty of the people.  

Conclusion 

For the reasons stated above: 

(a) The purported dismissal of Wickremesinghe from the office of Prime Minister is unconstitutional. 
(b) The purported appointment of Rajapaksa as Prime Minister is unconstitutional. 
(c) The purported dissolution of the current Parliament by the Proclamation of 9 November 2018 is unconstitutional.  


Prof. Suri Ratnapala is an Attorney-at-Law and Emeritus Professor of Law, the University of Queensland. He is also an advisor to the Advocata Institute and his views are his own.

Constitutionalism or Feudalism?

By Rohan Samarajiva

The events of the past few months (and indeed the past few years) in Sri Lanka have puzzled me. The President and his coterie are flagrantly violating the Constitution and laws. That is shocking, but what is more shocking is the casual acceptance of this behavior by all concerned. What is surprising is not that the President violates the law and disregards explicit directions from lawful authority, but that the citizenry seem to accept it. Not that the President tries to impress university teachers by inviting them to dinner at Temple Trees, but that most of them go, and some even kiss the hands of their host.

After much reflection, I have had to conclude that we are witnessing a head-on collision between Constitutionalism and Feudalism. Constitutionalism is respect for words on paper that say what power holders can and cannot do; it is basically about the widespread respect for law:

Constitutionalism as a theory and in practice stands for the principle that there are—in a properly governed state—limitations upon those who exercise the powers of government, and that these limitations are spelled out in a body of higher law which is enforceable in a variety of ways, political and judicial. This is by no means a modern idea, for the concept of a higher law which spells out the basic norms of a political society is as old as Western civilization. That there are standards of rightness which transcend and control public officials, even current popular majorities, represents a critically significant element of man's endless quest for the good life. (Fellman,1973-74: 491-92).

This basic idea of constraints on power may not really be Western, as evidenced by the story of the cow seeking and receiving justice from King Elara 2000 years ago. But perhaps, that story was told because it was so exceptional. In any case, the story is from the Anuradhapura era, the highest manifestation of Sinhala-Tamil civilization in this country (King Elara was Tamil). Our proximate connection is to the Mahanuwara era, the lowest form of Sinhala-Tamil civilization in this island, where the kings exercised absolute power, constrained not by abstract notions of justice, but only by the concurrence of the Sangha and the fealty of the Kandyan feudal lords (the British conquered Kandy when Sri Vikrama Rajasinha/Kannasamy and his feudal lords fell out).

One may differ from Fellman’s claim that Constitutionalism is a “Western” or Judeo-Christian construct. The Hammurabi Code, the oldest known body of law, is often used as an illustration of fundamental laws that even the king cannot change, and the acceptance of which constitutes Constitutionalism. This is not the place for an extensive historical digression, but one may hypothesize that complex urban civilizations with extensive divisions of labor require Constitutionalism, while the more primitive forms based on subsistence agriculture or hunting and gathering do not. This hypothesis suggests that the Anuradhapura and Polonnaruwa civilizations included forms of adherence to Constitutionalism, while the lower forms of the Kandyan period did not.

We were introduced to Constitutionalism by the colonial powers, especially the British. Through experiences such as the Bracegirdle incident of 1937, where the colonial Supreme Court overruled the colonial Governor, the local elites came to appreciate the practice of Constitutionalism and lived by its tenets for several decades after Independence. Election promises could be, and were, broken, but laws were respected and obeyed.

When the 1945 Soulbury Constitution, especially the entrenched Article 29(2) ("the Parliament of Ceylon shall not make any law rendering persons of any community or religion liable to disabilities or restrictions to which persons of other communities are not made liable, ...") and the provisions ensuring an independent civil service, proved too constraining, the politicians of the day did not simply disregard it as they do now; they carried out a Constitutional Revolution and got themselves a new, less-constraining fundamental law. Despite the revolution carried out by an unlikely coalition of Kandyan feudals (Mrs Bandaranaike was a direct descendant of a signatory of the Kandyan Convention) and assorted Marxists (some with first-hand memories of the Bracegirdle victory), the basic idea of Constitutionalism was still alive. Otherwise why did they go to all that trouble?

The 1972 Constitution was an abomination: it stripped the safeguards for minorities and broke the back of the administrative service; its adoption without the participation of the Tamil parties created the conditions for civil war. It was replaced by the 1978 Constitution fully within the amendatory provisions of its predecessor. Even the removal of Supreme Court judges was done within the letter, if not the spirit, of the law. JR Jayewardene kept fiddling with the 1978 Constitution, amending it over and over again and ruining its integrity. He was autocratic, but within the bounds of Constitutionalism; just like his friend Lee Kuan Yew of Singapore, who used the law to subjugate his opponents.

It took the next generation of Kandyan feudals to start eating away at Constitutionalism. The attack began with the appointment of a controversial Chief Justice under instructions to mangle the 1978 Constitution by interpreting it to permit cross-overs of MPs. Still the façade of Constitutionalism was preserved; just that an unprincipled Chief Justice was interpreting it in ways that served short-term interests of the then President. But by corrupting the highest court, that descendent of the Ratwatte Disave, commenced the insidious final assault on the last bulwark of Constitutionalism and prepared the ground for the restoration of feudalism as the political framework of Sri Lanka.

The cruder violations of the principle of Constitutionalism came with the 17th Amendment, ironically intended to be the ultimate constraint on the abuse of Presidential power. Now the façade of Constitutionalism was torn off. The President (not the current one) simply ignored the parts she did not like, a practice continued by her successor but in cruder form. The Supreme Court, then in the thrall of a lawless Chief Justice, proved no constraint. There is not enough evidence to assess the nature of the current Supreme Court, but given the grievous assaults the institution has suffered and the servility of the legal profession and the Bar Association, there is little cause for optimism. But, of course, there is always hope. Remember Pakistan.

So it appears that the political elite’s dalliance with Constitutionalism has about run its course, sixty years after Independence. We are reverting to our native Feudalism: not just the ruling family but large swaths of the populace, including opinion leaders and intellectuals. For example, Ven Maduluwave Sobitha Thero, an erudite and eloquent senior monk, was quoted some time back in the Lankadeepa, saying that the legislature was superfluous; all we needed was a President who would be elected periodically and a judicial system. In the past, our kings used to appoint whoever they wished as Ministers, so should our Presidents. There is no need to go through the complications of electing Ministers or having them be accountable to Parliament. Not pure feudalism, where the king can do anything, but close enough. And no suggestion that the Presidency can pass from father to son, though of course there is no prohibition against the son running for office (the only one available in this truly home-grown form of government).

It appears that Constitutionalism of the classic kind has been found wanting. At the end of five decades of Independence, we were still poor, still beholden to external powers, and still incapable of regaining sovereign control of the national territory. We had to shut down the city even to celebrate the fiftieth anniversary of Independence. This was not seen as a result of bad economic policy (which it was), but of Constitutionalism. When leaders with feudal mindsets gained power, there were no institutional brakes to stall their multifarious assaults on Constitutionalism, as there were in India, when Indira Gandhi tried it. The Left coalitions broke the back of the administrative machinery in the 1960s and completed the job with the 1972 Constitution, and the judiciary was corrupted in the 1990s. The assault on the media that began in the 1960s reached its apogee in 2009. The private sector could not get out of its “deal” mentality and professionals, with a few honorable exceptions, lacked spine.

Now, Sri Lanka is reverting to its Kandyan state: an all powerful king and royal family; assorted feudal lords who serve at the pleasure of the king, but have limited power of their own. In the old days, the regional feudals gave the king revenue and troops, in exchange for the right to extract rents from the peasants. Today, the regional feudals deliver votes to the king at the periodic elections, in return for the right to extract rents from the private sector. As in the old days, the Sangha are consulted and placated by the king with Benz cars and assorted gifts (a practice not started by the present President) and serve as a weak check on his power.

This is the larger context that explains the kissing of the President’s hands by university academics; the conversion of artistes to vandibhattayas; and the blurring of the lines between the king, the government and the state. When the President uses state resources to win elections or prints his visage on currency notes, he does not see that he is doing anything wrong, because he is no longer functioning within the “western” frame of Constitutionalism. When the President appoints his kith and kin and court favorites to positions of power and nominates them to run for political office, such actions are accepted by the more deserving party workers on the ground because they too interpret events from within the feudal frame. When I question the handing over of scarce broadcasting frequencies to political favorites without any form of transparent process, journalists question my motives, because I am the one outside the dominant feudal frame that allows the king to reward courtiers. Sri Lanka is no longer a country governed by law, but is a kingdom, with a thin veneer of Constitutionalism for external consumption. Dissonance exists only for a few like me, still unable to shed the western baggage of the Magna Carta and Montesquieu.

The real question is, therefore, not about which individual wins the Presidential Election, but about whether we can (or should) get back to Constitutionalism. All successful presidential candidates since 1994 have promised to abolish the executive presidency; all have broken their promises. Constitutionalism is not words on paper, but broad acceptance across society that certain kinds of words on paper have binding authority and must be respected. It is what will give meaning to the word of a candidate. Even if the executive presidency is abolished or the Constitution is amended, nothing has any meaning unless Constitutionalism is restored. What use are words on paper, when none respect them?

The larger question is the governing framework. Do university teachers rush to kiss the ring and vice chancellors prostrate themselves before Presidents in modern societies? Can we have a modern economy when the largest companies in the country obey patently illegal directions from regulators? Is it normal to name a government-owned, money-losing airline for the head of state and paint the tail of the leased aircraft with his campaign livery? These are symptoms of a transition from a Constitutional State to a feudal one.

It may be argued that today’s complex, globally-connected national economy cannot be effectively managed by a bunch of Presidential cronies and that the procedures of representative democracy and checks and balances are essential, and that therefore, there is no alternative to Constitutionalism. It may also be argued that every country has a Constitution and that over time, as the economy develops and matures, as was the case in South Korea and Taiwan, Constitutionalism also takes root. But if these were true, why is it that Sri Lanka is sliding back into feudalism, just as it is becoming a middle-income country? Myanmar is governed feudally, but can a feudal system handle a complex economy like Sri Lanka’s?

As a colleague who read the first draft stated:

“A society embracing feudalism in whatever guise can no longer expect, at the same time, certain other cherished ideals including, but not limited to:

  • meritocracy: the best performing persons assured to get best public/academic appointments

  • fairness: everyone treated as equals, irrespective of wealth or family connections

  • due process: transparent, consultative policy making and policy implementation in the public interest

  • equality before the law, affording protection to everyone irrespective of social status or political affiliation

Feudalism, on the other hand, is inherently and fundamentally incompatible with all the above and other values. In fact, there can be no public interest whatsoever in a feudal society; only vested interests. Mervin Silvas, Sakvithis, Potta Naufers and their ill will be the norm, not exception. There won't be a chance in hell for any bright, hard working, honest young man or woman with no family or political connections to rise in society professionally, intellectually, artistically or entrepreneurially -- unless they sell their soul to the ruling oligarchy/family.”

Are there autochthonous (why do I use this word? Because the sonorous radio broadcasts of the Minister of Constitutional Affairs in the 1970 government, Dr Colvin R. de Silva, imprinted it in my brain; it means “home grown”) checks and balances?

Devo vassathu kalena

Sassasampattihetu ca

Phito bhavatu loko ca

Raja bhavatu dhammiko (from the 1978 Constitution)

Is the mismanagement of the economy resulting in factory closures and job losses or the destruction of the value of the Employee Provident Fund the modern-day equivalents of the rains not falling in time, thus resulting in famine and pestilence throughout the land? As the kings then were seen as responsible for delayed rains because they failed to rule according to Dharma, will our modern kings also lose legitimacy, when and if the economy heads South? Is this it?

Zimbabwe and North Korea show that economic mismanagement by itself does not dethrone kings. A national conversation on Constitutionalism versus Feudalism seems a safer course. I am currently convinced that Constitutionalism, the rule of laws, not men, is what is most conducive to the happiness of our people. But I am open to persuasion that what is appropriate for the Sri Lankan climate is something else.


References

Constitution of the Democratic Socialist Republic of Sri Lanka. 1978, as amended.

Fellman, David (1973-74). Constitutionalism, in Philip P. Wiener, ed., Dictionary of the History of Ideas: Studies of Selected Pivotal Ideas, vol. 1, pp. 485-92.

Questions of freedom: problems in Sri Lanka’s constitution, laws and institutions

Originally appeared on Groundviews

By Ravi Ratnasabapathy

““commander in chief of the army, navy and militia, with the power of making treaties and of granting pardons, and to be vested with an authority to put a negative upon all laws,... is in reality to be a KING” (An Old Whig,1787)

Citizens of Sri Lanka should heed this warning to the framers of the US constitution.

The Sri Lankan Presidency was, until recently, a fixed executive, not dependent or answerable to parliament and not removable except for limited reasons. Head of the State, the Head of the Executive and of the Government, and the Commander-in-Chief of the Armed Forces. With the power to appoint higher officials, Supreme Court judges, the Police Commissioner, Elections Commissioner it was, essentially an elected monarch.

Did Sri Lanka throw off the British crown only to replace it with local one barely half a century later? In theory at least, the colonial administrators of Ceylon were answerable to a British Parliament. For all practical purposes, Sri Lanka’s presidency answered to no one.

The 19th amendment restored some independence to institutions but mere independence is insufficient. Their proper functioning is dependent on the attitudes and competencies of their members, a question that must be addressed. The 19A is also incomplete, to erase the legacy of decades of authoritarian rule and secure rights further reforms beyond the constitution are needed.

The problem is best understood if viewed from the perspective of what matters to citizens: individual freedom.

If we call ourselves “free”, how must individual freedoms to be protected and advanced?

The basic political question

The fundamental problem in political theory is two-fold: on one hand there is a need for an “enforcing agent” which will protect the individual from violations of his/her liberty; on the other hand is the problem of how to ensure that any “enforcing agent” does not in its turn become a violator of the very same liberty it was originally set up to protect.

The Roman poet Juvenal expressed it as “Quis Custodiet Ipsos Custodes?” [who will guard us from these guardians?].

The solution that eventually emerged is government which was :

  1. accountable to the people,

  2. strictly limited in its powers, and

  3. a rule of law based upon notions of individual liberty and private property; both terms carrying specific meaning

Individual liberty

Individual liberty, simply defined is freedom from coercion.

“Coercion occurs when one man's actions are made to serve another man's will, not for his own but for the other's purpose.” (Hayek) [1].

Coercion of a citizen: aggression, threats etc may arise from individuals, organisations (such as religious bodies) or the state.

"Free society has met this problem by conferring the monopoly of coercion on the state and by attempting to limit this power of the state to instances where it is required to prevent coercion by private persons”(Hayek) [2].

This means the state is given the sole right to exercise coercion, but it must do so only to protect citizens from the coercion of others.

“Freedom is achieved by limiting some kinds of actions – coercive ones – in order to encourage other kinds of actions – non-coercive ones. The result is the increase of voluntary exchanges within the parameters of the law”(Lehto) [3].

Property

Property is the difference between what is mine and what is yours.

In the classical liberal sense, it is the creation of a protected private sphere surrounded by limits that cannot be crossed without ethical transgression (Lehto) [4]. It is a person’s entire private domain, Locke considered property rights to consist of “life, liberty, and estate”.

Thus, you may not enter my house without my permission. Thus, you may not borrow my car without my permission. Thus, you may not violate my body (Lehto) [5].

Property marks the limits of permitted action in a liberal society, the personal domain which should not be intruded into under any circumstances.

“We may well detest other people’s religion, reject their political views, abhor their lifestyle, despise their manner and  loath their habits. We may be shocked by their ideas and opinions. We may even worry that they are damaging their own health with drugs or their own prospects with their anti-social behaviour. But none of these are valid reasons for using force to try to make them act differently.”(Butler) [6]

A regime of legally protected property rights, in the wide sense used here is a prerequisite for liberty: “the end of the law is, not to abolish or restrain, but to preserve and enlarge freedom (Lehto).

Limiting coercion by state

States exercise power through the machinery of state: bureaucracies, the bodies of state and local government, legislatures, judiciaries police and armed forces.

To prevent abuse, this machinery must be controlled. Power must be limited in how it may be used. This requires:

  • Setting rules that circumscribe its use. It cannot be exercised arbitrarily by those in authority but only in defined circumstances and must follow set procedures. These are laid down by laws. Laws must be universal, applying equally to all including the government itself, no one is above the law(the rule of law).

  • Distributing authority so no single organ of government has the practical ability to exercise power unchecked (separation of powers).

As the law is the principal check on power it is essential that the process of law-making itself be subject to checks.    

These are the principles that must be ingrained in the constitution and the organisation of government.  

How true is our system to these principles?

How true is our system to these principles?

1. Elections and accountability to the public

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The president and parliamentarians are elected which creates accountability to the public. The weakness is that once elected, voters have absolutely no control over their representatives, except to remove them at the next election. Requiring candidates to submit to regular and periodic elections is important but other checks that restrain power on a day-to-day basis are critical.  

2. Separation of powers: Parliament as a check on Government.

At the apex, parliament must be a check on government. The two are not synonymous.

The political party that wins the most seats takes charge of government, until the next election. The Government is responsible for running the country.

Parliament is made up of MP’s elected by voters and is there to represent citizens interests and make sure they are taken into account by the Government. They are not a part of government. Government ministers may have seats in Parliament but most of their work is done in Government departments.

Parliament must scrutinise the activities of government- examining expenditure, administration and policy in detail, requiring the government of the day to explain itself to parliamentarians as representatives of the citizen. This happens through:

  1. debate;

  2. questions;

  3. investigation.

Parliamentary Debates may be about legislation, government activity (policy or implementation), or issues of public concern.

“For government the purpose of debate is often to showcase the political argument or philosophy behind a particular policy or approach to an issue, or to test opinion on it. For the Opposition and backbenchers it provides an opportunity to demand an explanation of why a particular policy has been pursued, to identify weaknesses in the evidence base or formulation of a policy, or to provide new evidence or analysis.”(White, 2009)[7]

Parliamentary questions (in the UK tradition) allow MP’s to seek information or to press for action. They oblige Ministers to explain and defend the work, policy decisions and actions of their Departments.  

Investigation-drilling deep into issues, is carried out by Committees.

The ultimate form of parliamentary control is that it can force individual ministers, or even the entire Government, to resign in votes of no-confidence.

For these processes to work, MP’s must be independent. It requires opposition MP’s and backbenchers in government who will question their own policies but in Sri Lanka this is absent.

  • MP’s not independent

According to the prevailing version of proportional representative system, the constituency votes for the party first and the individual later. The party hierarchy is empowered to expel any of its members who vote against the party and replace him/her with another member of the party. An expelled MP automatically loses his/her seat.

As MP’s who dare defy their leaders may be ejected independence is lost. Instead of representing the citizens interests, they represent the party leaders interests.

  • Power of government strengthened in the legislature

MP’s cannot defy party diktat but a supreme court ruling allows them to cross-over without losing their seat. This enables the government to lure MP’s by offering them positions, securing a permanent voting majority. 

As MP’s fear to question, parliament becomes a rubber stamp, not a check. Laws are what limit power, but if parliament cannot check government bad laws may be passed.

Under bad laws, power is legitimately exercised but oppresses citizens, a situation of rule by law as opposed to the rule of law. The Emergency laws or the Prevention of Terrorism Act are examples.  

  • Committees are weak

Debates and questions allow issues to be discussed but committees are concerned with fact-based investigation. They go into issues in-depth in a way that Parliament, as a whole, has no time for,  collecting and examine evidence to develop an understanding of what the government is (or is not) doing under its democratic mandate.

They can examine what the outcomes of activity (or inactivity) have been, including by requiring explanation from government. They can summon experts, stakeholders, demand answers from ministries, send for papers, and documents. In the UK, there is a strong emphasis on committee reports being based on evidence, primarily that collected by the committee. The Government is required to respond to reports.

Committees provide the greatest scrutiny but until the 19th amendment, Sri Lanka had only ceremonial “consultative” committees. Instead of opposition members chairing committees (as in the UK) Sri Lanka’s were chaired by a minister of government. The government was not required to respond to any reports, effectively rendering them useless.

The 19th amendment has charged committees with oversight and they are now chaired by an opposition MP which is big improvement but the reforms still fall short.

Recommendations:

  • Upper House of Parliament

A single chamber legislature, if unchecked, could become dictatorial. Creating an upper house of parliament that checks and challenges government is one safeguard to bad laws. The Soulbury constitution had an upper house- the Senate consisting of 30 members; 15 elected by the lower chamber and the rest appointed by the Governor-General.

  • Strengthening committees

Although the 19th has provided the framework of independence, creating a culture of scrutiny is harder. A generation of MP’s who hitherto toed the official line must learn to ask questions. This requires:

  1. Specialised training - MP’s (and their staff), particularly those in committees would benefit from specialised training. Even established democracies (UK, Australia, Canada etc) have induction programmes for new MP’s.  At a minimum Sri Lankan MP’s must be made more familiar with their constitutional responsibilities, rules of procedure, human rights, gender equality and public finance.

  2. Open committee hearings to the public - One way to improve scrutiny is to open the hearings to the public. The presence of media and interested citizens will have a salutary effect on the participants and allow greater public discussion on relevant issues.

  3. Government must be required to respond to committee recommendations.

  • Creating a committee on the Constitution

Sweden has a Constitution Committee that is tasked with ensuring that the Swedish government ministers follows the rules for the government—namely, the Swedish Constitution and Swedish law.

The committee consists of forty-four members representing all parties of and has the power to hold hearings, conduct investigations, and request classified materials from Mps. The Committee can act on its own initiative or in response to complaints from MPs (not citizens) and can initiate the prosecution of crimes committed by MPs in their capacity as MPs (decided by the Supreme Court).

  • A Constitution committee of the upper house

The House of Lords Constitution Committee’s role is to examine all bills for constitutional implications (a check against legislation that infringes basic rights) and, even more importantly, keep under review the operation of the constitution. This prevents the constitution itself from being undermined by ensuring that changes are not made “without a full and open debate and full awareness of the consequences”.

It fulfils the second limb of its remit by carrying out investigative inquiries into constitutional issues, engaging a specialist advisers (external experts) and taking written and oral submissions.

Examples of constitutional implications include:

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  1. any substantial alteration to civil liberties, including the right to habeas corpus and trial by jury;

  2. alteration to the powers of the courts or measures that would place the exercise of power beyond the purview of the courts, or which would affect the independence of the judiciary;

  3. alteration to the balance of power between Parliament and government, including the conferment of unduly broad or ill-defined powers to legislate by order.

3. Separation of Powers – Judiciary not a check on power

Given the importance of laws in curbing power even two chambers is not a sufficient safeguard. Therefore citizens should have the right to challenge laws in the courts. The following must be dispensed with:

  • Article 80(3) prevents the people from challenging provisions in laws that have been enacted by the legislature.

  • Article 35(1) – (3) of the Constitution of Sri Lanka conferring immunity upon the President from civil or criminal proceedings.

  • Power of the president to pardon any offender (Article 34) undermining the judiciary. In effect, associates of the president able call on his/her goodwill may be above the law. Article 89 disqualifies criminals from standing for office, but the President may overrule this under article 34.

Until the 19A all supreme court judges were appointed by the president, making the courts beholden to that office. The 19A restored this power to an independent commission. Steps to strengthen independent commissions are discussed in more detail below and the general remarks also apply to the judiciary.

Recommendations to strengthen the Judicial Services Commission

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  1. Clear criteria for selection of judges and a rigorous recruitment process based on competitive exams.

  2. Standard criteria for promotion of judges based on merit and seniority.

  3. Disciplinary procedures and standard criteria for removal of judges.

  4. Initial and on-going training on new methods, laws, and related areas of knowledge including mandatory training in international human rights law.

4. Limiting coercion and delivering justice: controlling the police and attorney general

Rights are granted by laws but their enforcement depends on the system of justice. It must protect the rights of citizens against infringement by others, including the government and the powerful.

The police maintain the law, protecting people and their property, preventing crime. Courts provide redress for wrongs. The Attorney General prosecutes crime.

Sri Lanka system falls woefully short, according to the ICJ “efforts to seek justice are frustrated by investigative, prosecutorial and judicial lack of independence, impartiality and capacity, all of which continue to contribute to a pervasive culture of impunity within the system”[8].

I. Police

To provide security and maintain the rule of law the police are given special powers: to arrest and detain and the power to use force. This monopoly on the use of force place the police in a unique and sensitive position within the democratic State. Adequate control mechanisms are required to ensure that these powers are consistently used in the public interest. Risk of misuse include: police brutality, deaths in custody, torture and ill-treatment, extrajudicial killings, enforced disappearances and excessive use of force, including in cases of demonstrations.

Controls include:

  • Laws specifying functions and powers of the police (in line with international human rights laws).

  • Operational procedures/instructions that reflect the spirit and letter of the law.

  • Complaints mechanisms, both to police leadership and external bodies.

  • Procedures on dealing with misconduct, disciplinary and criminal, overseen by an independent body.

  • Proper training, basic and on-going

  • For example the UK police are subject to the Police and Criminal Evidence Act 1984, which set the powers of police on matters of stop and search; entry, search and seizure; arrest, detention and the questioning of suspects. Failure to follow these rules can result in failures to secure convictions because the courts render inadmissible any evidence which has not been fairly obtained. Codes of Practice created under the Act govern cautioning procedures, identification parades and a range of other responsibilities. Breach of the codes is admissible in evidence in criminal or civil proceedings against the police.

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Separately the UK has a Human Rights Act, requiring all public bodies to respect human rights. They may be taken to court for failure.

Recommendations

  1. Sri Lanka’s police ordnance of 1865 needs to replaced  by something on the UK lines along with standard codes of practice. 

  2.  Sri Lanka needs proper legal protection for human rights. Currently human rights have weak protection under the (circumscribed) fundamental rights chapter, the ICCPR Act, No. 56 of 2007 and the Human Rights Commission .

  • Article 15 of the constitution restricts fundamental rights in for a variety of reasons including parliamentary privilege, contempt of court, defamation.  Article 16 allows any pre-existing laws to prevail notwithstanding inconsistency with fundamental rights, effectively limiting its application.

  • The Sri Lankan ICCPR Act makes a mockery of the International Convention on Civil and Political Rights. It contains only four main substantive rights-conferring provisions (compared to the 20+ in the international act) and these too in abridged form.

  • “The Sri Lankan bill of rights is incomplete and structurally incoherent.”(Welikala &Edrisinha)[9].

  • Therefore, repeal articles 15 and 16 of the constitution, amend the ICCPR act in line with international practice and consider a new human rights act.

ii. Attorney General’s office (AGO)

The Attorney General’s Office’s (AGO’s) must be willing to pursue prosecutions independently, even against other state actors and courts must ensure fair and timely trial.

In Sri Lanka, the Attorney General is the Chief Legal Advisor to the Government and appears on behalf of the Government or its agents in any Court or Tribunal. It is also the chief prosecutor, which creates a conflict of interest where the state or its agents are involved. The ICJ notes “a lack of will to prosecute State actors in human rights cases, particularly those relating to the conflict”. 

The practice of drawing judges from the AGO creates a further conflict: “the judiciary has an entrenched institutional loyalty in favor of the executive”[10].

Recommendations:

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  1. Create an independent Director of Public Prosecution (DPP) to handle all prosecution. The police should no longer prosecute but confine themselves to investigation. The AGO should be limited to acting as advisor to the government.

  2. The UK Royal Commission on Criminal Procedure, looking at the role of the police as prosecutors, the Commission found that a police officer who carries out an investigation, inevitably, and properly, forms a view as to the guilt of the suspect. They felt, however, that without any improper motive the officer may then be inclined to shut his mind to other evidence which undermines that view or overestimate the strength of the evidence gathered. In the absence of effective oversight, there was also greater opportunity for police corruption.

  3.  The DPP must be governed by a code of practice that sets out principles on which to prosecute. One of the most important tasks is to review the evidence in the file in order to decide whether it justifies the charge laid by the police, applying criteria set out in the Code of practice. They must determine if evidence is sufficient, reliable, credible and if prosecution is in the public interest.

  4. The practice of drawing the judiciary from the ranks of the AGO or the DPP should cease.

5. Limiting coercion by the bureaucracy

The administrative machinery is, for many citizens, the only ‘face’ of the state that they experience. As it is responsible for the delivery of basic services it wields real power over the lives of ordinary people.

Lack of information-on regulations, compliance procedures; insistence on meaningless procedures, unjustified fines or burdensome inspections that violate an agency’s own protocols are examples of bureaucratic oppression-actions that impose unnecessary and harmful burdens on citizens. These stem from poor organisational practices and the attitudes of officials. Although all citizens suffer, minorities and the poor are more frequent victims.

More sinisterly, political opponents may be persecuted using particular provisions.

For example, the Inland Revenue Department is known to have ‘raided’ opposition politicians during the election in 2010[11]. Instead of impartial tax administration, the powers of the department were being abused, turning it into a tool for harassment. Similarly, the immigration department has revoked visas of journalists and aid workers without warning.[12]

The administrative machinery needs to be neutral, delivering services without discrimination. Politicians are inevitably subject to short term and selfish pressures so the administration must be insulated from political pressure. The careers of the staff should not be dependent on politicians but vested with independent commissions, which must control recruitment (on merit, based on competitive exams) promotions and transfers. Politicians should not be able to appoint cronies, punish or reward officials. Independent mechanisms should handle complaints. 

The 1978 Constitution originally vested in the President the power of appointing several “independent” commissions including the Public Service Commission, the Judicial Service Commission, the Bribery Commission, the National Police Commission and the Human Rights Commission.

The 19A removed that executive power. The President still appoints people to these and other independent commissions but only those recommended by the Constitutional Council. In establishing the Constitutional Council, the President is entitled to appoint five members, but is required to accept the nominations of the Prime Minister and the Leader of the Opposition. 

The problem is independence will not change the staff or practices of the bureaucracy overnight. Some staff will be political appointees only familiar with executing political directives and may continue to do so out of habit or loyalty.  A set of general recommendations follow.

Recommendations (for all institutions)

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  1. Independent complaints mechanisms to check malpractice.

  2. Develop Standard codes of practice and staff training to ensure work is carried out fairly and impartially.

  3.  Regular reviews of procedures, simplifying and standardising rules, increasing the use of electronic and web-based platforms.

  4. An overarching civil service code which sets out the standards of behaviour expected of bureaucrats.

  5. Parliamentary  Ombudsmen tasked with ensuring that the administration acts impartially and respects citizens’ constitutional freedoms. Acts on the basis of complaints from the public on central government agencies , municipal agencies, and other public institutions

  6. Adequate resources including access to external specialists

  7. Committees must have proper resources- their reports claim they are hampered by lack specialist skills (legal, accounting etc), equipment and research capacity. Addressing these shortcomings is a must.


Conclusion

The substance of democracy lies in systems of checks and balances; the division of power and processes to hold those in power accountable. Although not comprehensive, the foregoing highlights some serious shortcomings in Sri Lanka. Citizens should press political leaders to address these issues, the ongoing political crisis underlines urgency for further reform.


[1]. The Constitution of Liberty, F. A. Hayek

[2]. Ibid

[3]. Otto Ilmari Lehto. 2015. THE THREE PRINCIPLES OF CLASSICAL LIBERALISM ( FROM JOHN LOCKE TO JOHN TOMASI ) : A Consequentialist Defence of the Limited Welfare State. [ONLINE] Available at: https://helda.helsinki.fi/bitstream/handle/10138/155211/Lehto_KaytannollinenFilosofia.pdf?sequence. [Accessed 11 September 2018].

[4]. Ibid

[5]. Ibid

[6]. Classical Liberalism, A Primer E. Butler, 2015

[7]. Dr Hannah White, Institute for Government. 2009. Parliamentary Scrutiny of Government. [ONLINE] Available at: https://www.instituteforgovernment.org.uk/sites/default/files/publications/Parliamentary%20scrutiny%20briefing%20note%20final.pdf. [Accessed 29 October 2018].

 [8]. International Commission of Jurists. 2012. Authority without accountability: The crisis of impunity in Sri Lanka. [ONLINE] Available at: http://www.refworld.org/pdfid/50ae365b2.pdf. [Accessed 15 October 2018]

 [9]. ROHAN EDRISINHA & ASANGA WELIKALA. 2015. GSP PLUS AND THE ICCPR: A CRITICAL APPRAISAL OF THE OFFICIAL POSITION OF SRI LANKA IN RESPECT OF COMPLIANCE REQUIREMENTS. [ONLINE] Available at: https://www.cpalanka.org/wp-content/uploads/2015/01/ICCPR-Chapter-Final.pdf. [Accessed 15 October 2018].

[10] International Commission of Jurists. 2012. Authority without accountability: The crisis of impunity in Sri Lanka. [ONLINE] Available at: http://www.refworld.org/pdfid/50ae365b2.pdf. [Accessed 15 October 2018]

[11] The Sunday Times, Sri Lanka. 21 March 2010. Tax sleuths go after opposition candidates. [ONLINE] Available at: http://www.sundaytimes.lk/100321/News/nws_06.html. [Accessed 15 October 2018].

[12]. The Guardian, UK. 2010. Why the media silence on Sri Lanka's descent into dictatorship?. [ONLINE] Available at: https://www.theguardian.com/commentisfree/libertycentral/2010/jul/12/sri-lanka-journalists-threatened. [Accessed 15 October 2018].

සංවර්ධනයට දොර හරින ආගමනය

  •  ශ්‍රී ලංකාව මුහුණ පා ඇති අපනයන සීමා වීම හා ඍජු විදේශ ආයෝජන මඳ බව යන ගැටලුවලින් මිදීමට ආගමන සීමාකරණ ඉවත් කිරීමේ දැඩි අවශ්‍යතාවක් පවතින බව හාවඞ් මහාචාර්ය හඋස්මාන් පෙන්වා දෙයි.

  • පවතින ප්‍රචලිත විශ්වාසයට පටහැනිව යමින් ආගමන සීමාකරණ ඉවත් කිරීමෙන් රැකියා අවස්ථා, ආයෝජන සහ වැටුප් වැඩිවීම සිදුවන බව කියයි.

  • ප්‍රගතිශීලි ආගමන ප්‍රතිපත්තිවලින් හෙබි රටවල්  ආර්ථික වර්ධනය ලබාගත් අයුරු වර්තමාන උදාහරණ කන්දරාවකින් පෙන්වයි.

  • ශ්‍රී ලංකාවේ යල් පැනගිය නීති ප්‍රතිසංස්කරණය කොට සරල හා පුළුල් වීසා කාණ්ඩ ඇති කිරීමේ අවශ්‍යතාව මතු කරයි.

  • නිපුණතා රට තුළට ගලා ඒමෙන් ලැබෙන ආර්ථික ප්‍රතිලාභ පිළිබඳව නොදැනුවත් මිථ්‍යා මත නිසා වෘත්තිකයෝ නොමඟ යති.

ආගමනය පිළිබඳ නීති සංශෝධනයට ලක්කොට වඩා ප්‍රගතිශීලී වූ නීති හරහා ජනයාට නිදහසේ සංචරණය වන්නට ඉඩ හැරීම මඟින්, අපනයන අඩු බව, ඍජු විදේශීය ආයෝජනවල මඳ බව, නවීකරණ සීමාවීම යන ශ්‍රී ලංකාවේ කාලයක් පුරා පවතින ආර්ථික අභියෝගවලට විසඳුම් සොයා ගත හැකි බව ඉහළම ගණයේ ආර්ථික විශේෂඥයෙක් පසුගියදා දින ප්‍රකාශ කළේය. ශ්‍රම වෙළෙඳ පොළ විවෘත කොට කඩිනම් ප්‍රවර්ධන අත්කර ගත්තා වූ රටවල් පිළිබඳ උදාහරණ දක්වමින් හෙතෙම මෙම පැහැදිලි කිරීම කළේය.

එම දේශනය ඉදිරිපත් කළ මහාචාර්ය රිකාඩෝ හඋස්මාන් හාර්වඞ්හි අන්තර් ජාතික සවර්ධනය පිළිබඳ අධ්‍යක්ෂවරයාත්, කෙනඩි රාජ්‍ය විද්‍යාතනයේ ව්‍යාපාරික ආර්ථික සංවර්ධනය පිළිබඳ මහාචාර්යවරයාත් වෙයි. කොළඹ ඇඞ්වොකේටා බුද්ධි මණ්ඩලය විසින් සංවිධානය කරනු ලැබූ සංවර්ධනය උදෙසා විශේෂඥ දැනුම වෙත සමීපවීම යන තේමාව ඔස්සේ සිය දේශනය ඉදිරිපත් කළ මහාචාර්ය හඋස්මාන්ද වෙනිසියුලාවේ සිට ඇමෙරිකා එක්සත් ජනපදයේ පදිංචියට පැමිණි අයෙකි. වඩා හොඳින් කළමනාකරණය කරනු ලැබූ ආගමන විගමන ක්‍රියාවලියක් රටක ආර්ථිකය වර්ධනය කරමින් යහපත සැලසීමට මහෝපකාරී වන ආකාරය ඔහු පැහැදිලි කළේය.

සංවර්ධනය වෙමින් පවතින ලෝකයට නෙළා ගන්නට පහතින්ම තිබෙන ඵලය එයයි. ඵලදායීතා වැඩි කිරීමට ඇති වේගවත්ම මඟ එයයි. එමඟින් ශ්‍රී ලංකාව කෙරේ ආයෝජන ඇද ගනු ලැබ එය වඩා ශක්තිමත් රටක් බවට පත් වනු ඇති

“සංවර්ධනය වෙමින් පවතින ලෝකයට නෙළා ගන්නට පහතින්ම තිබෙන ඵලය එයයි. ඵලදායීතා වැඩි කිරීමට ඇති වේගවත්ම මඟ එයයි. එමඟින් ශ්‍රී ලංකාව කෙරේ ආයෝජන ඇද ගනු ලැබ එය වඩා ශක්තිමත් රටක් බවට පත් වනු ඇති” ලක්‍ෂ්මන් කදිරගාමර් ආයතනයේ පිරී ඉතිරී ගිය ප්‍රේක්ෂක සමූහය ඉදිරියේ ඔහු කීවේය.

ඔබට ඇති නිපුණතා සමඟ, ඔබට ඇති රට ඔබට හිමිවෙයි. එහෙත් ඔබේ නිපුණතා ලද පමණින් ඔබට අවශ්‍ය රට ඔබට නොලැබෙනු ඇත. එමනිසා ඔබ නව නිපුණතා සොයාගත යුතුය. අනෙක් ජනයා ශ්‍රී ලංකාව තුළ පදිංචියට එන්නේ නම් එසේ එන්නේ, අනෙක් අයගේ රැකියා සොරා ගන්නට නොවේ. නිත්‍ය වශයෙන්ම ඔවුන් මෙහි එනුයේ රැකියා අවස්ථා වඩාත් නිර්මාණය කරන්නට සහ ස්වදේශිකයන්ට වැඩිපුර මුදල් උපයා දෙන්නටත්ය. ඔවුන් ශ්‍රී ලංකාවට එන්නට තීරණය කිරීම නිසා එමඟින් ඔබේ රට පිළිබඳ යහපත් හැඟීමක් ඇති වන්නේය. එහි අරුත ඔබ නිවුණු ජන කොට්ඨාසයක් බව සිතන ජනයා ලොව  තවත් ඉන්නා බවය. එතැන ජීවත් වීම සඳහා අනර්ඝ තැනක් වග ඔවුන් සිතනා බවයි’ ඔහු කීවේය.

සීමාකරණ ඉවත් කළ ශ්‍රම වෙළෙඳ පොළ තමන්ට තර්ජනයක් යයි වෘත්තිකයන් සිතා සිටීම ස්වාභාවික දෙයකැයි මහාචාර්ය හඋස්මාන් පිළිගත්තේය. එහෙත් රටවල් එකින් එක ගත් විට ආගමන නිසා රැකියා අවස්ථා නිර්මාණය වීම සහ වැටුප් ඉහළ යාම සිදුවනු විනා එහි විරුද්ධාර්ථය සිදු නොවීම පිළිබඳ උදාහරණ ලැබෙන බව ඔහු අවධාරණය කළේය. ශ්‍රමය නිදහසේ සංචරණය වීමට ඉඩ හැරීම මඟින් ආර්ථිකය වඩා තරගකාරී වන බවත්, කර්මාන්ත වඩා ලාභදායී බවට පත් වන බවත් ස්ථිර ලෙස කියා සිටි ඔහු ආගමනය නිසා රැකියා අවස්ථා උදුරා ගනිතැයි යන අදහස ආර්ථිකය පිළිබඳ සංවේදී බවකින් පළ නොකරන්නකැයි සඳහන් කළේය. 

ශ්‍රී ලාංකීය තොරතුරු තාක්ෂණය උදාහරණයට ගත් ඔහු වඩා සමෘද්ධිමත් ඉන්දියානු වෙළෙඳ පොළ හා ඒකාබද්ධ කළහොත් ලැබෙන වාසි පිළිබඳව කරුණු දැක්වූයේය. එසේම ඉන්දියානු, තොරතුරු තාක්ෂණික වෘත්තිකයන්ගේ පැමිණීමෙන් ඊට බලපෑමක් ඇති නොවන්නේ ස්වදේශීකයන්ට වඩා වැඩි වැටුප් ඔවුන් ලබන බැවිනි. එම හේතුව නිසාම සිංගප්පූරු නිදහස් වෙළෙඳ ගිවිසුමට එරෙහිව වෛද්‍යවරුන් ඉදිරිපත් කරන තර්ක ද, නිශේධ වන බවට ඔහු කරුණු ඉදිරිපත් කළේය.

අවසානයේ ප්‍රශ්න ඇසීමේ හා පිළිතුරු දීමේ වාරයකින් සමන්විත වූ පැයක් පුරා පැවති මෙම දේශනයේදී අඩු ඵලදායිතාවකින් සහ වැඩි නිෂ්පාදනයකින් හෙබි කෘෂි කර්මාන්තය වැනි කර්මාන්ත පිළිබඳව මහාචාර්ය හඋස්මාන් විස්තර කළේය. “ලෝකයේ විවිධ රටවල එකම අවස්ථාවකදී වෙනස්කම් පවතින්නේ තාක්ෂණික දැනුම පිළිබඳ සම්බන්ධතා අධිකව පැවතීම හෝ නොතිබීම හේතුකොට ගෙනයි. කාර්මික රටවල ගොවීන්ට වඩා දියුණු වෙමින් පවතින සාම්ප්‍රදායික ගොවීන් දැනුමෙන් පොහොසත්ය.” 

එසේ වුවද දියුණු රටවල ගොවීහු නවීන ගොවීහු ආම්පන්න (යන්ත්‍රෝපකරණ), ඉහළ අස්වනු ලැබෙන බීජ, වඩා හොඳ පොහොර හා හොඳ වෙළෙඳ පොළ සම්බන්ධතා නිසා සාම්ප්‍රදායික ගොවීන්ට වඩා ඉහළ ආදායමක් ලබා ගනිති. සිංගප්පූරුව, මැලේසියාව, බංග්ලාදේශය, තායිලන්තය හා වියට්නාමය යන රටවල් සමඟ සැසඳූ විට ශ්‍රී ලංකාව තම අපනයන ගොන්නට නව නිෂ්පාදන එක් කර ගන්නට අපොහොසත්ව ඇති බව මහාචාර්ය හඋස්මාන් සඳහන් කළේය. එසේ අපනයනවල පවතින සීමිත බව ඊට අනුරූපව සෑම අංශයක් කෙරෙහිම පහසුවෙන් පැතිර යයි. මෙම තත්ත්වය හා බැඳුණු ඍජු විදේශ ආයෝජන හිඟය ඇතුළු ශ්‍රී ලංකා ආර්ථිකයේ අනෙකුත් ගැටලුවලට ආගමනය මඟින් විසඳුම් ලැබීමේ හැකියාව පවතින බව ඔහු පෙන්වා දුන්නේය.

“ආර්ථිකයක් වර්ධනය වනුයේ එහි නිෂ්පාදන ගොන්නට නව භාණ්ඩ හා සේවා එක්වීමෙන් විනා එකම වර්ගයේ භාණ්ඩ තව තවත් නිෂ්පාදනය වීමෙන් නොවේ. එවැනි විවිධාංගීකරණයකට දොරගුලු හැර දෙනුයේ නව තාක්ෂණික දැනුම කෙරේ ප්‍රවේශ වීමේ ක්‍රියාවලියයි. නිරන්තරයෙන්ම එම නව විශේෂඥ දැනුම විදේශයන්ගෙන් පැමිණිය යුතුයි. මෙසේ වනුයේ නිරන්තරයෙන්ම දැනුම රැගත් මොළය අලුත් රටකට ගෙනයාම, නව දැනුම මොළයකට ගෙනයාමට වඩා පහසු වන නිසාය. සිංගප්පූරුව, ඉන්දියාව, වියට්නාමය සහ අනෙකුත් ගතික (ප්‍රගමණයට ලක් වන) ආර්ථිකයන්ගේ අත්දැකීම් අනුව නව දැනුම/ විශේෂඥ ඥාණය හුවමාරු වන ප්‍රධාන ධාරා තුනකි. ඒවා නම් ඍජු විදේශ ආයෝජන, ආගමන සහ ඩයස් පෝරා දැල් රටාය. (ඩයස් පෝරා දැල් රටා යනු මවුබිමෙන් ඈත වෙසෙන පුද්ගල කණ්ඩායම්වල ව්‍යාපාරික දැල් රටා) යයි ඔහු ප්‍රේක්ෂක සභාවට පැවසීය.

වෙනත් රටවල විදේශයන්ගෙන් පැමිණ ඒවායේ ජීවත් වන විදේශිකයන් එම රටවල ජනගහනයේ වැදගත් ජන කොටසක් බවට පත්ව ඇත්තේ කෙසේද යන්න මහාචාර්ය හඋස්මාන් දත්ත ඉවහල් කරගෙන පැහැදිලි කළේය. ඇමරිකා එක්සත් ජනපදයේ පුද්ගලයන් හත් දෙනෙකුට එක් අයෙකු විදේශිකයකු යයි ගණන් බලා තිබේ. ඒ අතර සිංගප්පූරුවේ දෙදෙනකුට එක් අයෙක් විදේශිකයෙකි. ශ්‍රී ලංකාව තුළ තත්ත්වය මීට හාත්පසින් වෙනස්ය. මෙහි පුද්ගලයන් 535 කට එක් අයෙක් විදේශිකයෙකි. ඇමරිකා එක්සත් ජනපදයේ ඩෙට්රියොට් හා සිලිකන්වැලී වැනි වාහන නිෂ්පාදනාගාර ඇති මහා පරිමාණ කර්මාන්ත ආරම්භ කොට ඇත්තේ රට තුළට විදේශවලින් පදිංචියට පැමිණි අයයි. ෆෝචූන් (ත්‍දරඑමබැ) සඟරාවේ ශ්‍රේණිගත කිරීම්වල මුල් 500ට අයත් සමාගම් ආරම්භ කොට ඇත්තේ විදේශවලින් පැමිණ පදිංචිවූවන් හෝ ඔවුන්ගේ දරුවන් විසිනි. බංග්ලාදේශයේ වඩා සාර්ථකත්වයට පත් ඇඟලුම් කර්මාන්තය ආරම්භ කොට ඇත්තේ කොරියානු සමාගමක් විසිනි. එහි සේවය කළ සේවකයෝ පසු කලෙක තමන්ගේම ව්‍යාපාර ආරම්භ කළහ. බැංගලෝරය සහ හයිද්‍රාබාදය නිදහස් ආගමන සම්බන්ධතා නිසා සමෘද්ධිමත් බවට පත් නගර දෙකකි. ඉන්දියානුවන් තොරතුරු තාක්ෂණය පිළිබඳ ව්‍යවසායකයන් බවට පත්වූයේ ඒවා නිසාය.

විදේශ සහයෝගය සහ විශේෂඥ දැනුම ලබා ආරම්භ වුණු ලෝඞ්ස්ටාර් (ඛද්ාිඒර) වැනි ශ්‍රී ලංකා සමාගම් කිහිපයක් ඇති බව ද මහාචාර්ය හඋස්මාන් සඳහන් කළේය. ඵ්ී වැනි ලාංකීය ඇඟලුම් කර්මාන්ත ශාලා ලෝකයේ හොඳම කර්මාන්ත ශාලා බවට පත්ව ඇතැයි ඔහු කරුණු පැහැදිලි කරමින් කීවේය.

මේ සියලුම ධනාත්මක වූ සාධනීය ගති ලක්ෂණ පැහැදිලි ආගමන විගමන ක්‍රියාදාමයකට ඉඩ සැලසීම හරහා ප්‍රචාරණය කළ හැකි යයි ඔහු තවදුරටත් කීවේය. අප ශ්‍රී ලංකාවේ ආගමන ප්‍රතිපත්තිය, සිංගප්පූරුව, මැලේසියාව, හොංකොං, පැනමා, සවුදි අරාබිය, තායිලන්තය, වියට්නාමය යන රටවල් හා සසඳන විට වඩා සාර්ථක රටවල, වඩා සාර්ථක ආගමන ප්‍රතිපත්තියක් ඇති බව පැහැදිලි වනවා. ඒ සමඟම ඒවායේ ඇති නීතිවල ස්වභාවය ද ඉන් පෙනී යනවා. උදාහරණයක් දක්වන්නේ නම්, නුපුහුණු ශ්‍රමිකයන් උදෙසා විවිධ වීසා නීති ඔවුන් සතුයි. එසේම අර්ධ පුහුණු ශ්‍රමිකයන්ට, පුහුණු වන්නන්ට, කළමනාකාරවරුන්ට හා ඉහළ වෘත්තිකයන්ට වෙනම වීසා එම රටවල හඳුන්වා දී තිබෙනවා. ඉහළ නිපුණතාවෙන් යුතු අයට ශ්‍රී ලංකාවට පැමිණීමට සාමාන්‍ය පරිදි අවසර දෙනවා. එහෙත් ඔවුන්ගෙන් යැපෙන්නන්ට වැඩ කිරීමේ අවසර දෙන්නේ නැහැ. සාමාන්‍යයෙන් වෘත්තිකයන් විවාහ වී සිටින්නේ බොහෝ විට තවත් වෘත්තිකයකු සමඟයි. ඔබ විවාහ වී සිටිනා විට ඔබේ භාර්යාව එක්කර ගෙන එන්නට ඉඩ නොදෙන්නේ නම් ඇයට වැඩ කරන්නට ඉඩ නැත්නම් එය ගැටලුවක් වෙනවා.

මගේ අදහසේ හැටියට ශ්‍රී ලංකාව ආගමන ක්‍රියාදාමය සරල බවට පත් කළ යුතුයි. වීසා ලබාදීමේ කාණ්ඩ නැතහොත් ප්‍රවර්ග වැඩි කළ යුතුයි...

‘මගේ අදහසේ හැටියට ශ්‍රී ලංකාව ආගමන ක්‍රියාදාමය සරල බවට පත් කළ යුතුයි. වීසා ලබාදීමේ කාණ්ඩ නැතහොත් ප්‍රවර්ග වැඩි කළ යුතුයි. එවිට ඔබේ රට අන් අය වඩාත් ඇදගන්නා ආකර්ෂණීය ස්ථානයක් බවට පත්වෙනවා. පදිංචිය සඳහා මාවතක් සකස් කළ යුතුයි. බොහෝ රටවල කරන ආකාරයෙන් එවැනි අයට පුරවැසිභාවය ලබාදීමට කටයුතු කළ යුතුයි. ඇත්ත වශයෙන්ම දැන් ශ්‍රී ලංකාවෙන් පිටතට සංක්‍රමණය වී පුරවැසිභාවය අත්හල ශ්‍රී ලාංකිකයන්ට නැවත ශ්‍රී ලංකාවේ පදිංචි වන්නට අවසර නැහැ. මෙය ඇදහිය නොහැකි තත්ත්වයක්. මේවා පවතින ක්‍රියා පද්ධතිය තුළ ඇති අකාර්යක්ෂමතා බැවින් ඒවා නැවත හොඳින් සකස් කළ යුතුයි.’

කෙසේ වුවද ශ්‍රී ලංකාව තුළ පවතින සියලුම ආර්ථික ගැටලු ආගමන ප්‍රතිපත්තිය මඟින් විසඳාලිය නොහැකි බව ද ආචාර්ය හඋස්මාන් පිළිගත්තේය. රජය විසින් වෙළෙඳ පොළ ප්‍රතිසංස්කරණය, මූල්‍ය සංස්ථාපනය සහ යටිතල පහසුකම් සංවර්ධනය ආදී අනෙකුත් ප්‍රතිපත්ති නිසි පරිදි පවත්වාගෙන යා යුතුය.

“කරන්නට වටිනා ඕනෑම දෙයක් වඩා හොඳින් කිරීම වඩාත් වටිනවා. එනිසා වර්ධනය කළ යුතු අනෙක් බොහෝ දේ තිබෙනවා. මා සිතන අයුරු ශ්‍රී ලංකාව, ආයෝජකයන් දැඩි ග්‍රහණයට ගෙන, ඒ අය පාලනය කිරීමෙන් ඔබ්බට යා යුතුයි. පිටරටවලට ගොස් ආයෝජකයන් සෙවීමෙන් සහ ආයෝජකයන් මෙහි ආ යුත්තේ මන්දැයි කරුණු පහදමින් සිටීමෙන් ඔබ්බට යා යුතුයි. අප එම දිසාවට හැරවීමට උත්සාහ ගනිමින් ඊධෂ (ආයෝජන මණ්ඩලය) සහ ෑෘඊ (අපනයන සංවර්ධන මණ්ඩලය සමඟ කටයුතු කර තිබෙනවා. මම පැය පහක් තිස්සේ මහනුවරටත් පැය පහක් තිස්සේ මහනුවර සිටත් රථය ධාවනය කළා. මම නැවත නම් මහනුවරට එසේ රථය ධාවනය කරාවි යයි සිතන්නට බැහැ. අනිවාර්යයෙන්ම යටිතල පහසුකම් ක්‍රියාත්මක විය යුතුයි. එය වියදම්කාරී වුවත් ඒ සඳහා ඔබ මූල්‍ය අවකාශ පාදා ගත යුතුයි’.

සියලු රටවල ආගමන විරෝධී හැඟීම් මූලික කරගත් මතවාද පැවතුණ ද එම මතවාද ශක්තිමත් විනිවිද පෙනෙන සුළු ආගමන නීිති මඟින් සමනය කළ හැකි බව ඔහු සඳහන් කළේය. එක්සත් රාජධානිය පවා බ්‍රෙක්සිටිවලින් පසු (අන්‍ය යුරෝපීය ජාතීන්ගෙන් වෙන්වීමේ ප්‍රතිපත්තියෙන් පසුව), ආර්ථිකයේ ශක්තිමත් බවට පහර වදින වෙනස්කම් ඉක්මනින් නවතා දමන අතරතුර වීසා නීති සිත් ගන්නා ආකාරයෙන් සකසන්නට ක්‍රියා කළ බව ඔහු සඳහන් කළේය.

නව වීසා නීති සකස් කිරීම උදෙසා කැබිනට් අනුමැතිය ලැබී ඇතැයි ආගමන හා විගමන පාලක එම්.එන්. රණසිංහ මහතා පැවසීය. එමඟින් නව වීසා කාණ්ඩ, වීසා ලබා දීමේ ක්‍රියාවලියට ඇතුළත් කිරීමට නියමිත බවත් පැවසීය.

මහාචාර්ය හඋස්මාන්ගේ දේශනයේදී පැනනැගුණු ප්‍රශ්නයකට පිළිතුරු දෙමින්, මෑතකදී කැබිනට් පත්‍රිකාවක් අනුමත වී ඇති බව සඳහන් කළ රණසිංහ මහතා, වර්තමාන අභියෝගවලට මුහුණ දිය හැකි පරිදි ශ්‍රී ලංකා ආගමන නීති යථාවත් කිරීම ඉතාමත් වැදගත් වන බව සඳහන් කළේය.

“මේ වනවිට අප කටයුතු කරන්නේ 1948 හඳුන්වා දුන් නීතිය අනුවයි. එමනිසා ආගමන අභියෝගවලට මුහුණ දෙන්නට එම නීති යාවත්කාලීන කොට වැඩ සැලැස්මක් හඳුන්වාදිය යුතු වෙනවා’ ඔහු කීවේය.

‘එසේම අලුත් කැබිනට් අනුමැතිවලින් ආගමන හා විගමන දෙපාර්තමේන්තුවේ පාලකවරයාටත් අනෙකුත් ඉහළ නිලධාරීන්ටත් තීරණ ගැනීම උදෙසා වැඩි බලයක් ලබා දී තිබෙනවා’ ඔහු තවදුරටත් කීවේය. වර්තමානයේ නොපවතින කාලීන අවශ්‍යතාවක් සේ දිස්වන වැඩ කිරීමේ අවසරය ලබාදෙන වීසා ඇතුළු නව වීසා කාණ්ඩවලින් හෙබි කාර්ය පද්ධතියක් උදෙසා වූ, පරිපූර්ණ ප්‍රතිපත්ති ස්ථාපනය කිරීම කෙරෙහි දෙපාර්තමේන්තුවේ අවධානය යොමුකර ඇති බව ද හෙතෙම සඳහන් කළේය.

එසේම අන්තර් ජාතික වාණිජ හා උපාය මාර්ග සංවර්ධන අමාත්‍යාංශය ද ඊළඟ සති දෙක තුළදී කැබිනට් පත්‍රිකාවක් ඉදිරිපත් කිරීමට නියමිතය.

ස්වදේශික වෘත්තිකයින්ගේ සංවිධානවලට, වීසා ඉල්ලුම් පත්‍ර ඉදිරිපත් කොට ඇති තමන්ගේ නව වෘත්තීය සුදුසුකම් ඇත්තන් පිළිබඳ පරීක්ෂණ කරමින් සහ සම්බන්ධතා පැවැත්වීමට ඉහත කී කැබිනට් පත්‍රිකාවෙන් ඉඩ සැලසේ.

මෙම පියවර ගෙන ඇත්තේ වෘත්තිකයන්ගේ විවිධ සමිති සමාගම්වලින් උපදෙස් ලබා ගැනීමෙන් අනතුරුව බව නිලධාරියා පැවසීය.

උදිත ජයසිංහ විසිනි ඬේලි එෆ්.ටී. පුවත්පතේ පළවූ ලිපිය සිංහලට පරිවර්තනය කළේ සමන් පුෂ්ප ලියනගේ.

Game of charades: The lackadaisical implementation of price controls on basic foods

Originally appeared on Daily News

By Ravi Ratnasabapathy

The Government has imposed price controls on a number of basic foods in order to control the cost of living. For the purpose of study, we wanted to ascertain the products subject to controls, as well as the prices at which they were supposed to be sold.

A list of price controlled items is a straightforward piece of information that should be readily available to any consumer.

Unfortunately, this does not appear to be available anywhere. The website of the Consumer Affairs Authority (CAA) lists a few items; gas, cement, milk powder, chicken, rice, and pharmaceuticals. The other items were not listed.

The information on the CAA website is outdated (eg. A controlled price from 2014 is listed for chicken although chicken was removed from the list of controlled items in April 2017). On inquiring from the CAA over telephone, we were asked to refer to the website. A list was eventually compiled after a field visit to the CAA by extracting the relevant information from copies of the gazettes.

How are price controls to be enforced if a list of items subject to control is not readily available?

The proper approach would be to ensure that list of controlled prices is displayed at every outlet, so customers know if they are being overcharged and can then make their purchasing decisions accordingly.

Having compiled a list, we compared the controlled prices with the weekly market prices published by the Department of Census and Statistics in its survey of the main markets in the Colombo district in the period September 1, 2017 to June 30, 2018.

It is evident from the table we have collated that the controlled prices are not being followed in most instances.

The surveys of traders by Breakthrough indicate that 67% of retailers and 46% of wholesalers react to raids by the CAA by temporarily adjusting prices. They later revert to business as usual. Trying to enforce retail level price control across the informal trade and public markets is a practical impossibility. The CAA annual report (2014) states that 22,402 raids were carried out that year and 25,287 in 2013. This is small fraction of 205,573 retail outlets (general as well as those specialised in food, beverages and tobacco) in the country.

In any case if the controlled prices were strictly enforced, then the usual distortions such as shortages and queues would become obvious with unpalatable political consequences.

The CAA is successful in enforcing prices on items supplied by large businesses or corporates such as in cement or milk powder. Whether this actually keeps prices low is questionable.

Large businesses are relatively easy to monitor and they are open to pressure to supply even at a loss; on the implicit understanding that they will be allowed to recoup this at some point, as noted in the articles included in the appendices to this report. It is very clear that the only item consistently being sold at the controlled price is milk powder produced by a multinational. Wheat flour, which is also produced by large corporates tends to track the controlled price closely. The majority of the other items were being traded at prices above the controlled price.

During the period under survey, price controls were imposed on Nadu rice (December 26, 2017) coconuts (December 6) and revised on dhal and kata (December 6) with minimal impact on prices.

The impact of taxes on prices is particularly interesting. When some taxes were reduced in November 2017 (dhal, potatoes, Big onions), prices declined on these items over period of weeks, sometimes falling below the controlled price. When taxes were later raised (potatoes to Rs.30/kg on February 24, B onions to Rs.40 on May 2) prices rose again eventually breaching the controlled price. In the case of dhal prices eventually fell below the original controlled price (159/kg) following the reduction in tax – but prices did not respond significantly when the controlled prices was reduced to Rs.130 (December 6, 2017).

This underlines the case for reducing specific food taxes if there is any serious intention to control prices.

It is also worth noting the difference in prices between imported and local items, potatoes, and big onions. Locally produced items are not subject to tax or price control, but when available, these retail at prices higher than the controlled price and are sometimes higher than the (taxed) imported items.

Instead of attempting to protect agriculture through taxes (which raises prices for consumers) the government should facilitate the modernisation of the sector, supporting investments that improve productivity (eg. mechanisation, drip irrigation, greenhouses, quality seeds etc).

Using controls to reduce prices does not appear to work.

Addressing the inefficiencies within local agricultural is the sustainable way to lower prices: increased productivity raises farmer incomes and lower consumer prices in the long term.

The scheme itself is ill-conceived and there seems little intent or capacity to enforce. Reducing taxes, increasing competition and productivity in local agriculture is a surer path to lower consumer prices.

Updated Price List

“Price Controls in Sri Lanka: Political Theatre”, a new report by the Advocata Institute finds that consumer price controls lead to unintended outcomes including lower quality.

To read more on Price Controls and download full report: www.research.advocata.org/pricecontrol

A video documentary: https://youtu.be/zG5hV94G7Qc


Sri Lanka tariffs, land stumbling blocks for factories

Originally appeared on Economy Next

By Chandeepa Wettasinghe

State regulations, protectionist para-tariffs and lack of industrial land in Sri Lanka has stopped competitive new industries from taking root in the island, a research from US-based Harvard University said.

There was a broad environment of policy uncertainty. Tax policy and land policy tended to promote existing industries in Sri Lanka as opposed to new industries.

"Because of taxes and para-tariffs and the limited land in industrial zones, the government had to regulate who came in and went out," Harvard University Center for International Development Research Fellow, Tim O'Brien said.

"It favoured Sri Lankan companies with proven track records rather than newer companies,"

O'Brien was speaking during a Facebook Live online event held by the Advocata Institute, a Colombo-based free market think tank.

He said that newer industries may have made more competitive export products.

A new Inland Revenue Act which came into effect in April 2018 put an end to a complicated tax structure with loopholes, which companies with political clout had exploited.

Though established domestic or foreign companies with BOI status were able to get some raw materials without incurring para-tariffs, many international investors had found the complex legal systems off-putting, according to some reports.

Sri Lanka's exports to gross domestic product had fallen from 33.3 percent in early 2000s to 12.7 percent in 2016 as the economy became more protectionist, and non-tradable sectors such as government driven infrastructure projects gained more importance, according to one analysis.

However services including software, where there is no protection and is competitive, and tourism has also grown, especially outside the capital Colombo, where there are no state mandated price floors on hotel rooms.

The Harvard team had found that the lack of industrial land, in the form of zones, was the biggest stumbling block for Sri Lanka in attracting foreign direct investments for competitive export products.

Sri Lanka has 14 Board of Investment industrial zones, which have not rapidly multiplied.

O'Brien said that with more industrial zones planned, and the BOI expected to move away from regulation of investments to attracting investments, new competitive industries such as solar panel and medical equipment manufacturing are expected to start in Sri Lanka.

It is not clear what role Sri Lanka's relatively robust environmental regulations play in setting up factories, compared to poster child Vietnam or China

Hoteliers in Sri Lanka for example had managed to find land, though it sometimes takes up to a year to get approval from multiple domestic and national authorities.

They also face higher construction costs, food and drink prices, which tend to undermine their competitiveness compared to East Asia which has free trade.

Sri Lanka's labour markets are also tight especially for so-called 3-D (Dull-Dirty-Dangerous) jobs and there are vacancies in BoI zones for jobs at existing salaries amid currency depreciation.

Currency depreciation may be causing an net outflow of better qualified IT workers, according to some analysts.

But workers are leaving for factories in countries with stronger currencies such as Korea, Japan, the Middle East, where strong currencies have forced firms to boost labour productivity and pay higher salaries.

Is a Currency Board solution to depreciating rupee?

Originally appeared on Daily News

By Ravi Ratnasabapathy

Sri Lanka’s rupee depreciated rapidly over the last month. The Government has claimed the problem is mainly due to global pressures and has reacted with a series of import restrictions on vehicles, consumer durables and perfumes. Bankers report that similar controls were imposed in 2009 during another episode of devaluation.

Currency instability has been a recurring phenomenon in Sri Lanka.Money is the medium of exchange, and a sound, widely accepted currency promotes trade. Trade was vital to ancient Rome which introduced a uniform currency throughout their empire. Historically, the use of money arose due to the inconveniences of barter. Money serves three fundamental purposes:

  1. It is the medium of exchange: Money is used for trading goods and services. In the absence of money trade could only take place through the cumbersome process of barter.

  2. Unit of account: Money is the common standard for measuring relative worth of goods and services.

  3. Store of value: It is the means by which wealth is stored. Without money people would need to store their wealth as goods, which is cumbersome and expensive.

Money oils the wheels of trade; it is obvious that it performs its functions best when its value is stable. If the value of money fluctuates widely it undermines it’s fundamental purpose. A simplistic example drives this point home.

Imagine being contacted by a broker about a 2,500-square-foot house, only to visit and find a house half the size. The prospective buyer would have very little trust in the broker. This is purely hypothetical given that a foot is a foot. Since its definition is unchanging, 2,500 square feet means the same today as it did 20 years ago.

Whatever the level of trust buyers have in their brokers, square footage will never be a factor; that is, unless the length of the foot is allowed to “float,” and its length declines. Suddenly, 2,500 square feet could very well mean 1,500 square feet in real terms, and trust in brokers will plummet.

This illustrates the effect of an unstable currency. Sound money has underpinned the growth of Singapore and Hong Kong. What lessons do these hold for Sri Lanka?

Hong Kong has a Currency Board, which means all currency issued in the territory must be at least 100 per cent backed by foreign reserves. Singapore’s monetary policy, although no longer a fixed board (which it once was) retains the key characteristics of a currency board. A currency board is similar to a fully backed gold standard.

As the currency is fully backed by hard reserves it is freely convertible and immune from depreciation. The exchange rate can remain fixed but in practice many countries that run currency board arrangements allow a small fluctuation in the exchange rate to reflect trading conditions. The exchange rate may also be revised periodically, to ensure it remains consistent with the underlying fundamentals of the economy; which is what Singapore does.

The currency board guarantees the convertibility between the local currency and foreign currency at the foreign exchange rate in the currency board system. The local currency is linked with the foreign currency by the guarantee of convertibility and the fixed exchange rate. Therefore, the confidence in the local currency is linked with that in the foreign currency by the currency board arrangement, and the local currency acquires the properties of the foreign currency with respect to the basic functions of the money.

The Currency Board cannot create money, except when actual reserves are available nor can it lend money to the Government, usually described as printing money (or, euphemistically, quantitative easing).

Since the Government cannot borrow from the Central Bank (a source of ‘easy’ money) it must rely on taxes or debt to finance spending, which imposes a degree of fiscal discipline. This in turn results in low inflation. As the money supply also changes only with movements in reserves, interest rates remain fairly stable and are generally low.

Currency board systems assure convertibility, instill macroeconomic discipline limiting budget deficits and inflation, provide a mechanism that guarantees adjustment of balance-of-payments deficits, and thus create confidence in the country’s monetary system,

In other words; the perfect way to impose discipline when grappling with difficult financial problems.

For this reason Currency Boards were adopted in several East European countries when transitioning from Communism. The transition from communism caused severe monetary shocks in Eastern Europe. To manage the transition several countries including Estonia, Lithuania and Bulgaria implemented currency boards with great success; inflation declined and economic growth picked up.

IMF studies show that historically, countries with currency board arrangements have experienced lower inflation and higher growth than those with other regimes. The lower level of inflation is explained partly by the greater monetary discipline imposed but also by the greater level of confidence engendered by adopting the Board.

Note that a Board is not a simple exchange rate peg (which is what Sri Lanka had pre-1977) the requirement for the currency to be fully “backed” by reserves, the restriction on lending to the state and a long-term commitment to the system usually enshrined in law are crucial differences that underwrite the stability of the currency.

To date no currency board has had to be abandoned as a result of a crisis. The Asian currency crises of 1997 provided a severe test: all currencies of SE Asia depreciated rapidly except those of Hong Kong and Singapore. The worst affected was the Indonesian rupiah which dropped from $1=Rp2,400 to $1=Rp14,500, the Thai Bhat fell more than 50% and the currencies of South Korea, the Philippines and Malaysia were all battered.

Alone amongst its neighbours, the Hong Kong Dollar was unaffected, despite repeated speculative attacks. Although Singapore allowed its currency to depreciate by around 20%, to adjust to the relative weakness of its trading partners during the crisis, it was a matter of choice by policy makers rather than an event forced on them by circumstances.

Currency boards were once the norm. Invented by the British they provided the stability that allowed foreign trade to flourish throughout the Empire. With the decline of the Empire the boards were gradually dismantled by the newly independent states, except in a few places such as Singapore and Hong Kong.

Adopting a Currency Board would address Sri Lanka chronic currency problems and provide the platform for long term growth.

The cost of being a Sri Lankan (woman)

Originally appeared on Sunday Observer

By Anuki Premachandra

Being a Sri Lankan woman is not easy. From having to constantly battle gender stereotypes and rebel gender roles, women also have to burden the financial cost of something that is beyond them; the exorbitant costs of sanitary pads and tampons. With a population that is 52% women, you’d think that we’d know better than to tax a woman’s necessity, but we don't.

Earlier this year, the Advocata Institute revealed some data and statistics on the import taxes on sanitary napkins, which were being taxed at a total of 101.2%. It was our Fellow, Deane Jayamanne who shed light on the absurdity of taxes on diapers and sanitary napkins, both practical necessities. This tax structure is not only a reflection of poor public policy, but also a testament to how little we’ve progressed as a society. Taxing a women’s necessity so heavily (it is treated as a luxury) does not reflect well on our policy choices, especially when our progressive neighbor, India recently scrapped a 12% GST (Goods and Services Tax) on sanitary towels.

A breakdown of the tax system is as follows:

Pink tax infographic.png

At least one could say that we know better now. On that revolutionary note, in a statement last week, the Finance Minister has stated that the CESS on sanitary pads will finally be removed. However, the issue of protective taxes is much larger than just this, and needs immediate attention.

HOW TAXES WORK

In Sri Lanka, a lot of our daily necessities, from food to household products are imported. This is true in the case of sanitary napkins and tampons as well. In an ideal sense, this should allow us to take advantage of global efficiencies to source the cheapest or best products, depending on what people want. Unfortunately high taxes and poor trade policies only end in driving up the price of these products in the market.

Some of the taxes generate revenue for the government but many are imposed to protect local industry. Tariff protection for local industry comes at a cost: high prices for consumers.

In textbook terms, higher prices of imports means that consumers switch to locally produced products, boosting local business. However, a ripple effect of import taxes is that local producers can now sell their products at high profit margins because the selling price of the competing imported product is raised by the taxes - this is unfortunately the case of sanitary towels and many other household products in Sri Lanka.

Our Resident fellow, Ravi Ratnasabapathy highlighted the absurdity of taxes on commonly used household products in his latest column on the Echelon Business Magazine. Import taxes for cereal adds up to 101%, fruit juices to 107%, noodles to 101%, aftershave to 120% , toothpaste to 107%, etc etc. The list continues.

Lifting the taxes on sanitary pads is a signal that as consumers and citizens, we still have hope. Hope, that government authorities realise the absurdity of taxing daily consumption. Sri Lankan’s are literally taxed to go about their daily lives, from the toothpaste you use to brush your teeth in the morning to the ingredients that go into your daily buth packet, our taxes are absurd.

Price protection for local industry is a blunt tool that hurts consumers and incubates inefficiency.

Government support for industry should be directed away from tariff protection towards efficiency improvements: to  upgrade technology, worker skills, improve access to capital, R&D and infrastructure.

These, together with more efficient government processes, improved infrastructure, more advanced research institutions-in short a healthier business environment; can yield long term productivity gains for the economy and the firm.

 

Growth, productivity and competition: Time to shift gears

Originally appeared on Echelon

By Ravi Ratnasabapathy

The Sri Lankan economy has been running, metaphorically speaking, in second gear. It’s time to shift up if we want standards of living to improve.

What determines the ‘standard of living’? Economists measure it in terms of the value of goods and services; when this grows, living standards improve.

Resources – land, labour and capital – and the extent to which they can be harnessed for productive purposes through entrepreneurship are the building blocks of the economy: what people use to produce goods and services. Having a large resource endowment, like oil, is an advantage. Sri Lanka has restarted efforts in oil exploration. In any case, it is better not to pin all our hopes of development on a chance oil strike.

So far, our development has been conventional. Like other poor countries, Sri Lanka has brought previously idle factors of production – land, labour and capital – into productive use.

Post-war, the integration of the North and the East expanded its limited pool of resources. This stage of growth is termed input-led, and is determined by the amount of input that a country can muster.

Once a country reaches middle-income status, especially upper-middle income levels, marginal returns to resources diminish and growth slows. The country also runs out of resources to bring into production: available land gets used, labour is fully employed, the population ages and incremental returns of capital slow down. The growth model is exhausted, so the economy stagnates. The production possibility frontier is reached. Sri Lanka is approaching this stage, as there is not a lot more stuff that can be thrown into our economic ‘pie’.

Sri Lankans today are, on average, much better off than their grandparents were. Some have become very wealthy, but there are still too many people who are relatively poor. The rich will be content, but less so the poor. If the population grows, living standards will fall, unless growth of the economy exceeds that of the population. Now, we face a conundrum. The total value of goods and services must increase, but such idle ‘factors’ are no longer available. The limits of its input have been reached.

From this point, the way to grow is through ‘productivity’. In economic terms, productivity depends on both the value of a nation’s products and services, measured by the prices they can command in open markets, and the efficiency with which they can be produced. It is the overall increase in value that makes high wages possible.

Once a country reaches middle-income status, especially upper-middle income levels, marginal returns to resources diminish and growth slows

Productivity matters at all stages of growth, but its importance increases as the production possibility frontier is reached. The New York Times columnist Paul Krugman said, “Productivity isn’t everything, but in the long run, it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”

The challenge for a middle-income country such as Sri Lanka is how to create the conditions for rapid and sustained productivity growth. Rich economies produce, consume and invest in entirely different goods and services than poor economies. Economies typically move from primary products such as agriculture into manufacturing and services. This structural transformation—the movement of labour from low-productivity to high-productivity sectors—depends on the demand for labour in high-productivity sectors, and the supply of labour from low-productivity sectors. A multitude of factors affect this, but it is broadly driven by investment in more productive sectors and a regulatory regime that facilitates the movement of labour and other resources.

While new investment is important, export-oriented investment is especially important in smaller countries. According to an IMF working paper titled ‘Economic Benefits of Export Diversification in Small States’ (McIntyre et al, April 2018), “Openness to trade provides small states the chance to overcome the limitations of size through access to larger markets and opportunities to achieve economies of scale in production. Moreover, openness to foreign investment generally promotes long run growth through knowledge and technology transfers from foreign to domestic firms.”

However, the productivity of the domestic market cannot be neglected and the spur to this is competition. In ‘Building the Microeconomic Foundations of Prosperity: Findings from the Business Competitiveness Index’, Porter says, “Purely local industries also matter for competitiveness because their productivity has a major influence on the cost of living and the cost of doing business, not to mention their level of wages. The productivity of the entire economy matters for the standard of living, not just the traded goods sector.”

Open and vigorous competition in the local market will see the least efficient firms exiting the market, while market shares are reallocated from less efficient to more efficient firms, which causes overall productivity to rise. Porter also states, “Productivity is the goal, not whether firms operating in the country are domestic or foreign owned. What matters most is not ownership, but the nature and productivity of the companies’ activities in a particular country.”

The government has a two-fold role to play in this structural transformation; it must facilitate the increase in productivity and help manage the costs. Many elements are involved. Investment is needed, especially in new areas, so prudent fiscal and monetary policy is a precondition.

Investors seek low transaction costs and high certainty, and these characteristics are best secured by institutions (judiciary, public administration, the financial system, regulatory agencies). High-quality laws, courts and bureaucracy increase efficiency. Stable, accessible and clear laws; limited discretion (bureaucratic/ministerial); low corruption; and consistent/ impartial court rulings increase predictability. All these influence investments in physical and human capital, technology, and the organisation of production.

The importance of exports has already been stressed, but we cannot rely on garments and tourism; diversification is needed for much faster growth. In 2000, export revenue of both Vietnam and Sri Lanka was around $2 billion. In 2017, Sri Lanka’s exports reached $11.4 billion, but Vietnam achieved $162 billion. Over the period 2000-14, Vietnam added 48 new products to its export basket with a per capita value of $545, while Sri Lanka added seven, with a per capita value of $5. Moving to higher-value sectors will support higher wages in exports.

In the domestic market, the weakest sector is agriculture, which absorbs about 28% of the workforce but contributes only 8% to GDP. Policy to speed up the modernisation of agriculture – helping producers acquire scale, invest in food processing, encourage crop diversification and improve productivity (mechanisation, drip irrigation, greenhouses, quality seeds etc) – is needed. Land policy needs review, and support for R&D must replace subsidies and price guarantees. Reforms to provide tenants and smallholders proper ownership or tenure could inject dynamism to agriculture. It requires careful study and needs to be geared to local circumstances, but the experience of Korea and Taiwan are worthy of study: “Land reforms in the Republic of Korea and Taipei, China, also led to rapid structural transformation in three ways. First, the land reforms led to increased incomes among poor farmers in the two countries, who could then invest some of the income in the schooling of their children. [The increase in agricultural productivity in Taipei, China, was particularly striking, with yields of traditional crops such as rice and sugar increasing by half, and that of fruits and vegetables doubling (Studwell 2013).] This led to the availability of a skilled workforce in the Republic of Korea and Taipei, China, necessary for rapid export-oriented industrialization. Second, increased incomes in rural areas led to an expansion of the domestic market in the manufacturing sector, fostering rapid industrialization. Third, the more egalitarian land distribution provided a stable political environment, which allowed the political leaders of the two countries to concentrate their attention on rapid industrialization.” (Ban, Mun, and Perkins 1980; Putzel 2000; Studwell 2013).

Trade liberalisation is needed to promote competition and improve efficiency in the domestic market. Tariffs or subsidies may be replaced by supporting the adoption of new technology and R&D, and enhancing worker skills.

Improving the quality of the factors will improve productivity: infrastructure to improve physical capital, and education to improve human capital.

The richer sections of society may not see a need for reforms, but if broad-based growth is not maintained, the destructive ethnic tensions of the past could resurface

The process of reallocation is disruptive, it involves changes in the size and make-up of an economy, and the distribution of activity and resources among firms and industries. Some sectors will
shrink, or even disappear, and new ones will appear. Firms will close or downsize, while others set up or expand. Some workers may find it difficult to transition, so there is a need for income support for displaced workers and to foster reintegration through training and job search assistance. The focus should be on protecting the worker, not the job.

Sri Lanka’s economy has undergone some structural changes since 1960. According to ‘The Sri Lankan Economy.


Charting A New Course (ADB 2017), “The share of agriculturehas shrunk quite rapidly, from about 30% of GDP to a little over 10%. Industry has expanded from about 20% of GDP in 1960 to over 30% by 2015.” Post-war reconstruction helped boost growth, but this has petered out.

The richer sections of society may not see a need for reforms, but if broad-based growth is not maintained, the destructive ethnic tensions of the past could resurface. Improving living standards is the surest way to avoid a return to our troubled past.

#StrikeSL; A call for rail privatization?

Originally appeared on The Daily Mirror and Daily FT

By Anuki Premachandra and Dilshani Ranawaka

THE BACK STORY

The Railway strikes are over. At least for now. On August 8, several railway unions called a sudden strike in the afternoon hours, right before tired office commuters would flock the Fort railway station to head home after a long day’s work. For the rest of the week, the railway trade unions crippled a key part of the transportation system in the country. The headline “Railway strike continues” overwhelmed papers, news and social media alike.

This was the 14th time since 2017 the railway unions decided to strike, putting their demands ahead of the needs of more than 350,000 daily commuters. But this time, commuters have had enough! Angry commuters turned against the unions and the government, some even calling for the privatisation of the train service. This most recent 5 day strike is said to have caused a departmental loss of 64 million rupees leading to an increase in future railway ticket fares by 15%.

Is the call for rail privatisation practical? Financials of Sri Lanka Railways (SLR) for the past few years show that the losses made are as persistent and routinely as the losses made by Sri Lankan Airlines.

If SriLankan airlines is in “restructuring” basket, why isn’t Sri Lanka Railways?

DECIPHERING THE FINANCIALS

Sri Lanka Railways Performance Reports and Central Bank Annual reports show that SLR has been incurring operating losses of 7.7 billion rupees in 2015, 6.8 billion rupees in 2016 and 7.5 billion rupees in 2017.

A big component of Recurrent Expenditure, that makes up a portion of ‘Operating Expenditure’ is salaries and wages. This recent train strike by railway trade unions erupted due to a demand for higher salaries for railway staff. Recent pay sheets published by the Ministry of Transport’s Media Division, shared vehemently via Social Media, show that the monthly earnings for certain categories of staff at Sri Lanka Railways are many times the wages of the average worker in the private sector.

Sri Lankans are naturally outraged that the money pumped into the system both as commuters and taxpayers are having such a poor return of an inefficient service and sudden strikes.

Another side of the coin are the low fares charged by the commuters. Fares per kilometre range from 50 cents to a maximum of Rs.2 for 2nd and 3rd class travel. 1st class fares range from Rs.1.60-3.60 per kilometre.   

The result is that railway revenues are not even sufficient to cover the salaries of workers.  In 2016, salaries exceeded revenue by 32%. This is not a recent problem. Expenditure of the railways exceeded revenue by 52% in 1968, roughly the same as 2016.

Successive governments have preferred the status quo over bold reform, which will face resistance from both unions and commuters.  

But reforms are needed. What are the options?

IS THERE A SOLUTION IN PRIVATISATION? 

Given political realities, wholesale privatisation is not a realistic option. Even if politics can be maneuvered - an unlikely scenario - the government would be hard pressed to find a private investor willing to take on such a large and risky investment.

The World Bank in a discussion paper on railway restructuring and privatization, identified certain significant models driven out of case studies of the developing world, that could be applicable to Sri Lanka. A few successful reforms are to offer stocks to separate companies (based on various scenarios such as geographical factors, purpose etc.), design multi-phase enterprise development programs and, restructure and concession loss making SOEs.

In the case of SLR, the restructuring process could be through Private-Public Partnerships (PPPs). Realistically, short-term reform objectives should be to introduce competition where possible, and structural reforms that increase accountability.  Private sector involvement could help in areas such as freight, real-estate management, catering, and tourist or “luxury” coaches as experimented earlier. A system that welcomes private involvement and breaking the state monopoly is the long-term solution to service delivery issues on railways.

A likely success strategy is to get the private sector involved in a more advanced train service altogether. Work on the Colombo Light Rail project is currently underway and this is an example of where the asset’s ownership will lie with the state, but the private sector will run the operation of it.

Currently,  the SLR operates as a monolith department.  It’s official classification makes it a notable absentee from the list of 55 ‘strategically important’ state enterprises compiled by the Finance Ministry.  

A first step towards accountability is to split the rail track and station operations from the actual running of train services. This allows for an environment where private operators could enter into train operations and other services on their own terms, resulting in a more competitive system. Competition will no doubt increase service delivery and choice.  

The alternatives are not entirely new and like in the past, even this limited proposal will be opposed by the unions. But, reforms tend to happen in crisis; when people reject old ideas and look for new ones. With organic calls for privatisation, that time may be approaching for Sri Lanka’s railways.

Sri Lankan Railways : Cash vs Accrual Accounting

Editors Note:

In a conversation about our earlier piece on the Sri Lanka Railways on twitter, a question has been raised about the period of the accounts.  A twitter follower Nihal Ananda says that terming the final figures for losses for a particular year in the Sri Lanka Railways  reports as a loss for that period is misleading or wrong.  The data is directly from the SLR reports, which presents the data exactly as we have presented.  

Here is the response from the author of the piece,  Ravi Ratnasabapathy 

rail.png

1. The SL Railways prepares accounts on a “cash” as opposed the more common “accrual” basis.

2. In essence, the difference between cash-basis and accrual-basis systems is a matter of timing.

In the accrual method revenue is recorded when billed and expenses are recorded when consumed. Under the cash basis revenue is recorded when cash is received from customers, and expenses are recorded when cash is paid to suppliers and employees.
 
For example under accrual accounting sales on credit would recognised immediately on being billed, but in the cash method, only when the actual cash is received. Similarly for expenses, material purchased on credit will be accounted under the accrual method as soon as they are purchased but under the cash method, they would only be accounted for only when paid.

The timing difference between the two methods occurs because revenue recognition is delayed under the cash basis until customer payments arrive at the entity. Similarly, the recognition of expenses under the cash basis can be delayed until such time as a supplier invoice is paid. 

3. It has been pointed out that the railway prepares accounts on a cash basis and that fuel expense in 2014 (Rs.9,751m) is high because of an amount of Rs.5,000m being paid for bills due the previous year, the implication being that the figures quoted in the previous article are incorrect.

As explained above, the substantial difference between cash and accrual accounting is only timing. As far as the fuel is concerned, it only means that fuel expenses in previous years would have been lower (because fuel though used, had not been paid for-resulting in lower deficits) and that in the current year higher (when the bills were actually paid, resulting in a higher deficit).

4. With the exception of fuel the major item of income (ticket sales) and expense (personnel expenses) do actually take place on a cash basis. The fuel is purchased on credit and the amounts charged in 2014 reflect the impact of past purchases which had not been paid for. 
5. Thus it is possible to adjust for some of these timing differences and prepare a pro-forma account that perhaps reflects the annual deficit more correctly, which we have done.
6. The performance reports of the railway do disclose the actual fuel consumed during the year (as opposed what was paid for). These figures are found under the line “Fuel Usage” in the table above. We have carried out an illustrative exercise substituting the figures of fuel consumed for the fuel paid and arrived at an adjusted deficit for the period which is shown above.

This adjustment strips out the distortions in the fuel payments caused by settling the backlog of payments in 2014 and ceteris paribus, presents a better picture of the annual deficit.

As is evident, the railway still shows a significant deficit. The timing differences simply move the deficit between the various financial period but do not cause it to disappear. These deficits eventually need to be paid for by taxpayers.
 

Sri Lanka Railways: A snapshot of issues and ideas for improvement

Originally appeared on Daily News

By Ravi Ratnasabapthy

Several railway trade unions launched a lightning strike last Wednesday over salary anomalies. The strike was called off after four days but hundreds of thousands of commuters were stranded. Angry commuters took to the streets, some called for privatisation of the railways.

Sri Lanka faces a huge problem with public transport which is driving commuters to use private transport. A study by W.J. Weerawardana [1] estimates that 65% of the road space is used by 38% of the passengers; the increase in the use of private vehicles is the major cause of traffic congestion.

At rush hours and school times the traffic is almost at the point of gridlock. Parking is a also a problem. If even a half-decent public transport option were available many more commuters would use it

Standards of service at the railway are shoddy and reforms to railways must form a part of a larger plan to fix public transport. A summary of some key issues follows, with some ideas for improved services.

SLR Financials Table
  • The railways lost 6.7bn in 2016 (7.7bn in 2015). The railways appear to have been losing money since 1947 [2]. The expenditure of the railways exceeded costs by 10% in 1950 but by 1968 this had grown to 52.4%. The wages policy of the government and the policy limitations imposed by the government in the pricing of passenger and goods transport were factors that contributed to this situation [3]. This has not changed much: in 2016 costs exceeded revenues by 49.4% (2015: 45.09%) for broadly similar reasons.
  • Fares per kilometre range from 50 cents to a maximum of Rs.2.00 for 2nd and 3rd class travel. 1st class fares range from Rs.1.60-3.60 per kilometre.
  • Revenue does not cover even salaries. Salaries exceeded revenues by 31.89% in 2016 (28.9% in 2015).  
  • Only 42% of the trains run on time (39% in 2015). Delays exceeded 10 minutes for 43% of the trains (46% in 2015).
  • The assets of the railway or poorly utilised. Income from leases of railway land was Rs.119.58m in 2016. Lease arrears not collected amounted to Rs.1.8bn at end 2016 [4]. The Auditor General notes [5]: “Lands  about 12,000 acres in extent belong  to  the Department  of  Sri  Lanka Railways had remained idle for about 150 years without giving on lease or utilizing for another purpose”

COMMENT:

Fares are priced well below operating costs, the trains grimy and overcrowded. Maintaining rail fares at uneconomically low levels is politically attractive but has lead to the deterioration of the rolling stock and infrastructure due to a lack of funds for new investment.

There has been a steady increase in passenger numbers from just under 100m in 2011 to 136m in 2016, but the service does not appear to have been able to respond adequately to new demands for expanded services or improved quality.

Based on the current operating and cost structure fares would need to double to just to meet recurring expenses and rise still further if the capital expenditure is to financed.  The Government spent Rs.30bn on capital expenditure in 2015. (2014: Rs.34.6bn, 2013: Rs.20.2bn). While a significant fare increase is needed and may be accepted if accompanied by improved service, passengers cannot expect to pay for inefficiency. For example, the COPA [6] has questioned excess staff recruitment (of 1588) and payment of overtime in contravention of the Establishment Code.

Thus there is a need to restructure of operations to improve service quality and efficiency. In a lecture delivered last year at the Chartered Institute of Logistics & Transport, Dr Priyanka Seneviratne claimed SLR’s weaknesses stem mainly from lack of timely investment in fleet replacement, technology, and workforce development in the past. The Ministry of Internal Transport [7] confirms that 65% of the rolling stock is over 30-35 years old which increases the likelihood of breakdowns, increases maintenance costs and impairs service quality.

Dr Senevirate identified the following measures to enhance revenue:

  1. adjusting fares and tariffs to better reflect costs and improved services;
  2. leasing more real estate and advertising space at market prices, and
  3. partnering with the private sector to provide freight and ancillary services such as catering, courier, and real estate management.

The railway currently partners with the private sector to provide a luxury carriage on selected routes. This could be expanded to cover other routes or possibly even to a whole train, covering for example additional services at peak times to cater to office commuters. Service contracts where, for example, railway catering is contracted out could provide increased revenues and improve service. Operations of toilets, canteens could be handled in a similar manner. Idle land could also be redeveloped in partnership with private developers. 

The dilemma is ensuring that a public-private partnership is beneficial when corruption is endemic and state capacity is limited. The following principles are an outline of process that should be followed:

  1. Open bidding- public-private partnerships must be procured by competitive tendering.
  2. Public consultation: submission of the draft invitation to tender and the draft contract to public consultation, which should be advertised in the newspapers and in electronic media, informing the arguments for contracting a partnership, the scope and term of contract, its estimated value, setting a minimum period of thirty days for comments and suggestions.
  3. Capacity and institutional integrity in contract design. Some PPP contracts can be extremely complex and public officials may be overwhelmed. Capacity building within the public sector is essential. Setting up an independent PPP advisory unit within government staffed by competent people is advisable. Judicious use of external advisors may be necessary, depending on the nature of the contract.
  4.  Where possible standardising parts of the contract reduces conflict, enhances, predictability, minimises misspecification and reduces transaction costs. 
  5. Public disclosure of principal contract terms.
  6. Post implementation monitoring of contracts to ensure value is delivered.

Sri Lanka’s railways are a drain on the treasury. With tight budgetary constraints the Government will face increasing difficulties in allocating adequate resources to maintain, let alone develop, the railways.  The railway is an important component of transport infrastructure and improving its efficiency will contribute to the overall productivity of the economy.

Creating competition and private participation in the in the supply of services, utilisation of idle assets and supply of railway infrastructure could enhance efficiency and improve service. The Government should explore these options.


[1] Weerawardana W.J., Reduction of traffic congestion in Colombo city by improving public bus transport.

[2] Enhancing the Efficiency of the Sri Lanka Railways and its Contribution to Transportation, Sisira Kumara, Economic Review Aug/Sept 2011

[3] Ibid

[4] Auditor General’s Department, Annual Report 2016

[5] Report of the Auditor General on Head 306-Department of Sri Lanka Railways-Year 2015

[6] First Report of the Committee on Public Accounts (from 01.01.2016 to 07.04.2016).

[7] Ministry of Internal Transport, Performance Report 2014

Do we need more people in public service?

Originally appeared on The Daily FT

By Shyranthi Dhurairaj

Additional secretary National Policies and Economic Affairs, Mr Asanga Dayaratne announced recently that the government will be appointing 20 000 graduates as Development Officers (DO) this month. This decision was taken after interviewing 57 000 graduates who had graduated on or before 31st December 2016. Additionally, the Cabinet will recruit 7500 more graduates after the elections in August 2018 who will also be absorbed in as DO’s later. 

Why are these graduates being hired? It appears that this is a make-work programme. As per recent press reports, it appears there are no real vacancies to hire people but since these graduates are demanding jobs, jobs are being created by the state. The number of DO’s in Sri Lanka is 50 904 (2016 data). This new recruitment drive will increase the number by almost 40%. Such a sharp increase may mean other costs – they will need office space, furniture, computers and other facilities.

We may view this charitably, why not give the unemployed jobs? The question is who pays for this?

Sri Lanka’s budget is already overstretched, the country has run a persistent budget deficit, averaging over 7.7% of GDP since 1990. The deficit has been met partly by borrowing, which is why the debt-to-GDP ratio has averaged 89.1% during the same period, almost double that of our peer group. The recent increases in taxes, VAT, income tax and others were needed to bridge the deficit. If more people are to be recruited, the salary bill will rise and there will be a need for increases in taxation. It will not be immediate, the tax increases will come a little later, but eventually it will need to happen, just as the recent tax increases followed increments given to the public sector in 2015.

What is happening here?

The government is giving jobs to graduates, but then taxing people to pay for it. All that is happening is money is being transferred from the general public to newly-hired graduates. The graduates will be happy but the public who sympathise with their plight may not realise that the salaries of these people will eventually be paid by them.

People forget that they pay tax every time they go to the market. VAT, import duties add a lot to the cost of a shopping basket, or to a meal in a restaurant. 

Are people getting richer? No. Will the graduates who get jobs be better off by having the public pay for this?  What if the private sector creates jobs? Salaries would then be paid by businesses that hire people from the profits that they earn. The public will not be paying the salary bill. Instead the businesses will, from whatever they earn from their customers.

In fact there are many unfilled vacancies in the private sector. While the public-sector is overstaffing, there are 497 302 open vacancies in the private-sector. A local agricultural entrepreneur based in Polonnaruwa stated, “It is very difficult to find semi-skilled workers to operate our machinery, because their attitude is such that they would rather stay home until they get a government job”.

The problem is that the jobs available don’t meet the expectations of the graduates or that graduates lack the needed skills for these jobs currently open in the job market.

What the government could do is assess the skills demanded by the job market, and invest in retraining these graduates. The retraining will be a one-off cost but, the graduates will have a productive job – in places where they are actually needed and there are no long term costs burdened on the public.

Some graduates don’t like jobs in the private sector. An unemployed graduate from Ruhuna University stated, “I am a graduate from Ruhuna University. I’ve been unemployed for three years and is waiting for a government job. I am not interested in a job from the private sector, so I have never applied for one. Government jobs are secure and unlike private jobs, they provide a pension.”

What they, and the public must understand is that taxpayers cannot finance this anymore. There are many other problems that also burden taxpayers including losses in State-Owned Enterprises (SOEs).

To create better jobs, the Government can facilitate new investment; especially in new sectors by cutting red tape and improving the business environment. The sustainable way to better jobs is through new investment, not make-work programs.

Overstaffing infographic.png

Killing aspirations by regulating tuk-tuks

Originally appeared on The Daily FT

By Dhananath Fernando

What do regulations enforced after the 1st of August mean for tuk-tuks?

I live in Moratuwa, down Diggala road, a 2 km by-road from Keselwaata Junction on the Old Galle road. In my little hamlet, there are only two mini Lanka Ashok Leyland busses that operate in synchronization with the train time table from the Moratuwa Railway station to Diggala Road. Regardless of this inefficient bus operation, my saviors are an efficient and unique operation of tuk-tuks that cover a 2km radius from the railway station, enabling the commuting needs of the neighborhood. 

MAPPING OUT THE TUK-TUK OPERATION

In terms of the cost, the three wheelers engaged in this operation on this route only charge a ‘per passenger’ rate instead of a ‘per Km’ rate or a standard hire fare like almost all other tuk-tuks in the country. This means that each person has to only pay a fare of Rs.20 (despite the distance) and they take 3 passengers at a time in a single tuk. In simple words, it is a three-passenger bus system operating at every 10-minutes intervals. Their services are available until about 11.00 pm and I am very grateful to all the drivers operating their three-wheelers in the route and for providing us daily commuters with such an honorable and sustainable service.

You could even call me an over-satisfied customer as the journey is comfortable than the bus in many aspects. Seating facility, availability, frequency, reliability and ability to get off the vehicle right near the gate of my house are just a few advantages of this service. All this, is just Rs.5 higher than the bus fare (which is unreliable and mostly unavailable).

This is one, of the many services rendered by tuk-tuks that fail to reach mainstream newspaper headlines. Hence why it worries me of the adverse impacts that would overcome the industry when strict regulations are imposed by the “National Council for Road Safety” where they plan to regulate three-wheelers to have a meter with printed bills starting from the 1st of August, 2018. On the surface it looks like a step right direction as it seems to protect a consumer using this service, but in a practical world there would be many unintended consequences. Let’s analyse how these regulations would affect the tuk-tuk service in my area.

THE ADVERSE IMPACT OF REGULATIONS ON TUK-TUKS

If the tuks in my area were to adhere to new regulations and introduce a meter and a printed bill, they will no longer be able to charge a per passenger rate. Instead they have to charge a fare as per the standard meter rate. This results in someone like me, who initially only paid a Rs.20 for a one-way fare from the railway station to my house, now paying up to Rs.60 a ride, a price hike of 300%. Personally, I don’t think that I should bare this extra cost for the sake of receiving a standard fare rate and a printed bill. Eventually, this will result in me limiting my usage of tuk-tuks as a consumer. I know that the demand for tuks in my neighborhood would reduce and this isn’t a phenomena only limited to my area.

There is also a second possible outcome scenario of these regulations. The issue with regulations is the limited capabilities and downfalls of the government in terms of endorsing them. Most tuk-tuks will continue to operate as they do now, automatically creating a black market supply in tuk-tuk services. I am not arguing against regulations because of the inefficiencies in endorsing them, I am arguing against the case of regulations because regulations are not the best way to achieve the stated objectives; a standardized tuk-tuk fare across the country

UNLOCKING INNOVATION THROUGH COMPETITION, NOT REGULATION

Most Sri Lankan state institutions and politicians, across all parties, believe that state intervention and regulation is the only solution for public concerns as this. The practicality of regulations and its eventual reality does not agree. We often forget that the innovations made in the taxi services industry, like telephone call based taxi services such as “Budget Taxi”, “Fair Taxi” or taxi services utilizing the use of mobile phone and app technology, such as “Pick me” were not a result of regulation or strict control over the industry. These innovations were a result of minimum regulation and the presence of competition in the free market provision of tuk-tuk and taxi services. It was simply the freedom and space to innovate and serve customers and taxi drivers better to meet higher profit targets that drove these businesses to create such innovative solutions in the industry.

The world and markets evolve based on the needs of consumers and there needs to be market freedom to ensure innovative solutions to meet these needs. This is a fundamental in economics theory and not a concept of rocket science, or as some may call it, a “foreign conspiracy”.  

Additionally, according to the guidelines of the new regulations, every tuk-tuk must have a meter and should issue a printed receipt to the customer at the end of every ride. Does this mean that the many mobile app taxi services that generally provide an SMS receipt now require to provide a printed bill? When the entire world is going green, why an extra hassle for the driver to print a bill out at an extra cost?

As a passenger and a consumer there are services I expect a receipt for and there are services a receipt is not an expectation. If it is a household electronic item, I will definitely demand a receipt for warranty and returns purposes but from a taxi driver, the least I expect is a receipt. Rather I expect a safe and quick ride to my destination. This is not the first time the current government made attempts at regulating tuk-tuks. They imposed a minimum age ceiling for tuk-tuk drivers to be over 35 years of age. The justification behind this was apparently that three-wheelers contributed to the most number of road accidents of the recent past. However, as the data below shows, this was not the case.

     

 

 

LEAVE TUK-TUKS ALONE

Three-wheelers are not just merely a mode of transport. It means different things to those from different walks of life. For a rural commoner, it is an ambulance in a time of emergency. It is equivalent to a VIP Defender for an office worker, in a rush for his afternoon meeting. It is wedding car for a poor household. For entrepreneurs in urban and rural parts of the country, it is their mini lorry and companion. More than everything, it is an aspiration and product of pride for more than 1 million households in Sri Lanka. A poor man has to shoulder a tax of Rs. LKR 420,000 on a tuk-tuk. This tax, is then used to fund loss making state-owned enterprises; provide for the excess of government sector employee’s salaries and pensions; and a continuing list of unnecessary provisions. It is not rare to find tuk-tuks with logos of European cars pasted on its body. You’d see “Audi” to “BMW” stickers galore in some tuk-tuks. This sends a strong message to the rest of society. To a poor man, it is his BMW and his Audi. In other words, it is his aspiration and it is his world. Killing these aspirations with unnecessary regulations is never the solution, restructuring the service provided through competition and innovation, is.

Floors and Ceilings: State Intervention in the Dairy Industry

Originally appeared on Echelon

By Ravi Ratnasabapathy

Milking the consumer

The dairy industry has been promoted by the government with the objective of achieving self-sufficiency in milk products. The objective appears to be a moving target, with the most recent year for achievement being set to 2020. Currently, local production meets less than 40% of the total domestic milk requirement.

In 2015, local milk production was 374 million litres, a 12.1% increase from the previous year. In comparison, imports of milk and milk products grew 21.5%. Growth in imports of milk powder outstripped growth in local production over seven of the last ten years. Unfortunately, policy towards the dairy industry is a confused tangle of taxes and controls designed to achieve contradictory objectives. A bulk of the consumption takes the form of milk powder, most of which is imported. Local milk is mainly used for value-added products, and only surpluses are converted to milk powder. The policy is complicated because there are two administered prices in the value chain – a maximum retail price on powdered milk and a guaranteed farm gate price for liquid milk. Influencing the value chain and adding complexity are taxes on imports of milk powder. Milk powder prices are politically sensitive.

Policy is primarily geared towards the goal of protecting consumers, and interventions are made from time to time to set maximum retail prices. Farm gate prices of milk are mandated to encourage local production, with the objective of achieving self-sufficiency. Farm gate prices of local milk tend to be high; the cost of production of MILCO being the key determinant of price.

Farm Gate Price.png

According to the FAO:
“The farm gate milk price is largely determined by state-owned MILCO’s processing and marketing costs, both of which are reputed to be relatively high. The government uses the farm gate price as a political tool because it needs MILCO to cover its costs. The large private firms engaged in milk product manufacturing follow the purchasing prices offered by MILCO.”

Naturally, this increases the cost of the final domestic product. Between 2010 and 2016, farm gate prices doubled from Rs34 a litre to Rs70. International prices of powdered milk halved between 2014 and 2016, but Sri Lankan consumers did not benefit, as the controlled prices of imported powdered milk were only reduced by 16% from Rs386 to Rs325 for a 400g pack.

There is an inherent conflict between the maximum retail price, designed to protect the interests of consumers, and minimum farm gate prices, aimed at encouraging domestic production. The contradiction between a floor price on liquid milk and a price ceiling on powdered milk means that producers have an incentive to produce items not subject to price control such as liquid milk, flavoured milk, butter, cheese and yoghurt. However, as the input cost is high, they can only retail at high prices and are not competitive compared to imported products.

The government resolves this particular dilemma by imposing punitive taxes on imported dairy products: Rs880/kg on butter, Rs625/kg on yoghurt and around 140% on cheese. This raises the price of imports, enabling local producers to compete, but as this has the effect of raising overall prices it is detrimental to consumers.

In a further contradiction, the government also taxes the import of powdered milk, even while it imposes a maximum selling price. The tax is designed to earn revenue for the state. Importers of milk powder are squeezed between the tax (which raises costs) and the controlled price, which sets a ceiling at which the product retails. The taxes change, depending on world market prices. In the past, when world market prices dropped, tax rates were increased (while retail prices were unchanged) to earn revenue for the government. When world market prices increase, the importers lobby for revisions to the controlled price, and the government responds either by raising the controlled price, or if a price increase is deemed to be politically unfeasible, reducing the tax temporarily. After a recent reduction, the current tax (approximately 28% of the import price) is relatively low, but historically it was much higher: as much as Rs350/kg in 2014.

The ceiling on milk powder prices also creates problems for local liquid milk producers, as they are unable to convert any surplus liquid milk to powder at a profit. The local dairy industry focuses on value-added products due to better margins, but the market is too small to absorb the entirety of liquid milk produced. As excess milk cannot be stored for long in liquid form, it must either be converted to powder or disposed of. It appears that although high taxes on value-added products mean that local production is encouraged, the resulting high consumer prices restrict consumption growth. Whenever a surplus of liquid milk is collected, producers face the dilemma of either destroying it or converting it to powder, both options resulting in a loss.

The government is committed to raising domestic production and competitiveness, but structural impediments mean the cost of local production is high. Prof. Sivali Ranawana of the Faculty of Livestock, Fisheries and Nutrition of the Wayamba University has identified some of the reasons for the low productivity, including lack of quality pasture/forage, small farm holdings and the climate (which restricts the breeds that can be used).

MRP of 400g Milk Powder Pack.png

The best livestock, pure European breeds, can only be maintained in the hill country, and even in that region, there is a lack of forage of adequate quality. The FAO note that: “Animals are mostly fed on natural grasses available in common lands, such as roadsides, railway banks, fallow paddy fields, tank beds and other vacant lots, all maintained under rain-fed conditions.”

Although the good breeds in the upcountry have the potential to yield 20 litres of milk per day, a level achieved on some intensive farms; the average yield, even in the best climatic conditions, is only half this level.

According to the last comprehensive survey (conducted in 2008/9) by the Department of Animal Production and Health, average daily milk yields per cow were 10 litres in Nuwara Eliya, 5 litres in Kandy and 3 litres in Matale. Overall Sri Lanka’s cows produce a woeful average of 2 litres of milk per day. Given the problems facing the domestic dairy industry, it is not surprising that the costs of production are high. Government intervention in the dairy market is a game of political theatre. Price ceilings on milk powder placate the public, even while the government contributes to raise costs by taxing the input. Minimum farm gate prices please the dairyman, but squeeze value-added producers who then need protection from imports. Consumers are the ultimate losers, facing limited choice and high prices.

Kick-Starting FDI - Industrial Zones with a Twist

Originally appeared on Echelon

By Ravi Ratnasabapathy

Liberalising Sri Lanka’s economy is a controversial topic. Different groups have different views on what this means or how far it should go, but most people will agree that attracting FDI and boosting exports is a good thing. One way to reconcile differing interests is to revisit the old concept of industrial zones – but with a twist; privately-run zones that are managed by international zone developers. The success of Japanese and Thai industrial zone developers in Vietnam and Thailand offer a model that may be replicated in Sri Lanka. Japanese zone developers offer investors a complete solution – not just the physical infrastructure but all the soft services: from company incorporation, tax registration and advice on visas for expats to introducing accounting and law firms.

COMPREHENSIVE ‘HARD’ INFRASTRUCTURE
The ‘hard’ infrastructure goes beyond just the land, power, water and waste disposal that Sri Lanka’s zones currently offer. Japanese developers offer housing (flats for expats), clinics, schools, banks, shops and even a Japanese restaurant (or canteen offering Japanese food) – sometimes even a golf course. With regard to power, the developers either have special arrangements with the utility to guarantee continuous power (with engineers dedicated 24×7 to deal with issues) or have a private power producer as a tenant in the zone. For example, in the Amata Nakorn Industrial Estate in Thailand, the developer has group companies that provide power, water, natural gas, logistics and transportation services to clients within the zone.

What developers provide is a complete infrastructure and services model in which client companies can start operations almost on a plug-and-play basis

SUPPORT SERVICES
The developer also offers services: continuous support during factory construction, as well as ongoing operational support—logistics, customs, recruiting, banking, courier service, security guards and fire brigade. To deal with problems, they provide a 24-hour, 365-day helpdesk. They also disseminate information on changes in laws, wage levels, etc., and hold a monthly meeting with tenant firms to discuss any common issues. Critically, soft services are provided by Japanese staff (or fluent Japanese speakers who understand their business mindset). Japanese investors tend to be more risk-averse than others, and Japanese SMEs even more so. The advantage is that, if a zone is developed with the Japanese, the standards of service would be to such exacting levels that any other investor would find it a breeze.

Thus, what developers provide is a complete infrastructure and services model in which client companies can start operations almost on a plug-and-play basis.

GETTING LAND AND DEALING WITH RED TAPE
A recent paper on industrial zones and their link to economic growth notes that access to suitable land is one of the biggest problems faced by investors. Some 80% of the land is owned by the government, and difficulties in obtaining land combined with uncertainty over land policy (constantly changing tax rates, ownership restrictions) act as a deterrent.

Interviews with investors revealed that it was relatively common for FDI projects to be stalled or cancelled due to land disputes with the government; as a result, many investors report using middlemen to obtain approvals.

Likewise, smaller firms reported operating without a licence due to issues securing formal land approvals. Industrial zones offer easy access to land, which solves this problem. It is worth noting that Sri Lanka has not built any new zones since 2000 (although some are now underway), and all the existing 12 zones are full. The lack of land may as well account for low FDI flows. The other problem is red tape when obtaining approvals, unclear or contradictory rules, multiple agencies and delays. The current zones offer some blanket approvals: environmental and land clearance, electricity, water and telecoms. However, site, building plan, environmental protection license and certificate of conformity all need separate approval, though the EPZs do offer an expedited process.

Nevertheless, a further gamut of paperwork must go through the normal approval processes: preliminary investment clearance, work permit/visa, tax registration, import and export registration, import and export licence, rules of origin certificate, chemical materials approvals, and company registration.

There is room for further simplification or speeding of approvals, which the developer will need to work with the BOI to achieve. Even if the red tape is minimised, it will still be a problem. From an investor perspective, having the developer to guide them through an unfamiliar bureaucracy in a foreign language in a strange country is a huge plus.

The Japanese philosophy is to create the environment where the investor can focus on his business, leaving all the hassle to be sorted by the developer.

COMPETITIVE FISCAL INCENTIVES AND A STABLE POLICY ENVIRONMENT
Policies in Sri Lanka are driven by short-term political considerations. Ad-hoc changes in rules and tariffs cause uncertainty, deterring investors. An export zone can be better insulated from domestic policy upheavals as it has minimal local market impact.

Industrial zones in Thailand and Vietnam offer a complete waiver of all import tariffs and VAT, as well as time-bound income tax holidays. Currently, exporters in Sri Lanka are offered similar terms for raw materials but not for capital goods, placing Sri Lanka at a disadvantage.

While Vietnam and Thailand allow the import of all construction material in zones free of tax, Sri Lanka charges PAL, NBT and duty on capital goods. Worse, key construction materials are subject to high protective tariffs and are on a ‘negative’ list, meaning that they must be sourced from the local market, at a higher cost. This raises construction costs significantly, resulting in lower returns to investors.

Sri Lanka is only one among many destinations for FDI. To succeed, we have to make a competitive offering. A comparative analysis of the tax/tariff regime is needed with competing destinations to offer an attractive overall package to investors.

The zone developer not only develops but also markets the zone. The developer’s return is earned through rents and fees for ancillary services, so they have the incentive to ensure the zone is filled.

ATTRACTING INVESTORS
The zone developer not only develops but also markets the zone. The developer’s return is earned through rents and fees for ancillary services, so they have the incentive to ensure the zone is filled.

One of the problems faced by Sri Lanka is the lack of diversification in exports. Exports grow not only because of volumes, but also because of new products being added to the basket. Between 2000 and 2015, Sri Lanka added just 7 new products (worth $0.1 billion) to its export basket. In contrast, Thailand added 70 new products (worth $21.8 billion) and Vietnam 48 (worth $50.4 billion). The possibility of exporting related products within Sri Lanka’s existing export basket seems exhausted, so completely new sectors must be attracted. Attracting investment into a sector in which the country has little experience is difficult. Firms tend to cluster in close geographic proximity to each other to benefit from reduced transport costs, shared inputs and productivity spillovers due to learning and technology transfers. Getting a good anchor tenant who attracts a critical mass of related firms to move is important.

A well-connected zone manager already has relationships with potential investors and can encourage their clients from other countries to extend their production networks to Sri Lanka.

For example, the Thang Long Industrial Park (Vietnam) attracted Canon, which was followed by several dozen satellite Japanese businesses. Today, the park hosts 98 businesses, 78 of which are Japanese.

OWNERSHIP MODEL
There are many ownership options for industrial zones, public, private or JV, but the model best suited at the initial stage is a public/foreign joint venture. The government, represented by the BOI, provides the land and the private developer invests in the infrastructure. As the BOI has a stake in the venture, it has an incentive to make it work. The BOI works with the developer to secure all approvals and streamline the processes. The developer manages the zone, renting the properties and providing services, and the government takes a share of this.

The good news is that Sri Lanka is taking steps in the right direction. Currently, a logistics and industrial zone is being developed in Hambantota with Chinese investment, while Rojana Corporation of Thailand, a joint venture with Nippon Steel and Sumikin Bussan Corporation of Japan, is setting up an industrial zone in Kalutara. More must be done. As at September 2016, Vietnam had 220 zones in operation with a further 105 under construction. In Thailand, the central agency operates 9 estates, plus 39 more in conjunction with the private sector, while 50 more zones are entirely private owned and operated.

To work best, they should follow the full service model described above and offer a competitive fiscal package.

 

The kind of ‘liberals’ we are

Originally appeared on Daily FT

In an Op-ed published in the Daily FT recently, a group called ‘Avocado Collective’ provided a critique of a lecture by Prof. Razeen Sally organised by The Advocata Institute. Whilst much of it is a critique on the lecture, it casts aspersions on the motives of Advocata. We thought this was a good time to explain what the organisation is about and why we exist.

The Advocata Institute was set up in 2016 as an independent public policy think tank focusing on economic freedom. Sri Lanka’s public debate on economic policy has been dominated by those who believe that state intervention is the answer to all our problems. Advocata has sought to present an alternative view. 

Poor policy and governance are at the root of our problems. 

Take for example State-Owned Enterprises (SOEs), a major area of research for Advocata. The 55 largest State enterprises collectively lost Rs. 87 b in 2017, almost double the Rs. 43 b allocated to Samurdhi, the largest social welfare programme in the country. The losses of SriLankan Airlines alone were Rs. 28 b. 

The Auditor General has exposed billions of rupees in procurement corruption and mismanagement in the State and State enterprises. These losses are paid by taxpayers and, taxes are paid by everyone not just the rich. 

Last year alone, the Government raised Rs. 71 b by taxing food. This is partly responsible for the high cost of living in Sri Lanka. Is funding losses the best use of our tax money?

The country has some 200+ State enterprises but no comprehensive list is readily available. Procedurally, State enterprises must be incorporated by an Act of Parliament and be held accountable to Parliament. In Sri Lanka, all manner of entities are incorporated under the Companies Act with no debate in Parliament and minimal accountability.

Audited accounts of the 55 enterprises where more data is available are chronically late. When they are published, they frequently carry audit qualifications. Some – such as LakSathosa – have not submitted accounts from 2010. Poor accountability results in fraud. For example, the Auditor General reported a fraud of Rs. 15 b in rice procurement at LakSathosa. There are many others. 

We need to ask the question whether the running of a supermarket is the proper role of the Government. Or whether there are better ways of achieving the stated policy objectives of running LakSathosa. Similar questions can be asked about many other institutions, including the State Timber Corporation, which had its last two chairmen arrested under corruption charges. 

The State is engaged in economic activities that range from the strategic to the absurd. From hotels catering to tourists to firms claiming to convert polythene into diesel. What public interest do these enterprises serve?

Posing these questions is hardly a neoliberal conspiracy. It is only reasonable to assume a state that tries to do a limited, well defined set of things has a greater chance of success than a one that tries to do everything and failing at great cost to the people

This is particularly relevant since over several decades Sri Lanka’s once-effective public service has been broken. Some have even questioned the capacity of the State to deliver the most fundamental of public goods: the rule of law and a system of justice.

Is there a conspiracy in asking for sound money and low inflation? Is not keeping the cost of living low the most important safety net for the poor?

Protectionism is another problem. Sri Lankan consumers have to bear extraordinarily high prices due to high taxes. Protective tariffs are rampant in common consumer goods such as footwear, electronics and in vital industries like construction. These tariffs serve narrow political and business interests at the expense of all others. 

Tariff reform is naturally opposed by businesses who have a captive market. Their opposition to competition is at least understandable. What is more surprising is the opposition from groups such as the ‘Avocado Collective’ who perhaps inadvertently, find themselves siding with these groups, and indeed Donald Trump, on his views on trade. 

Sri Lanka faces multiple challenges including an unsustainable fiscal position characterised by persistent fiscal deficits and high levels of debt, particularly foreign commercial debt. Tightening global conditions could increase the cost of debt and make rolling over the Eurobonds maturing from 2019, more difficult. 

Uncertain property rights and trade restrictions deter investment, impairing job creation. The State has stepped in to fill the vacuum of jobs, it employs one in every 15 people, but the narrow tax base does not support the superstructure of the expenditure. Resorting to debt to fund recurrent expenditure is no longer sustainable.

The lack of opportunities and the cost of living cause many Sri Lankans to look overseas for advancement.

New challenges loom in health as the population ages while risks from climate change have increased. Is the education system geared to meet the needs of a knowledge economy? There are important questions to be raised on the priorities of public spending as well as the quality and effectiveness of spending. 

We believe that we need to rethink these issues and our objective is to bring alternative ideas for discussion since they are absent in the current discourse. We hold lectures and publish research and commentary, all of which, including videos of lectures are available online at advocata.org and our social media pages. Our public lectures have been open to all. 

We have always been open about our priorities. Our ideal Sri Lanka is one that is prosperous, open and free. A system that allows for maximum individual freedoms, particularly economic freedom. A country where anyone can succeed through hard work, personal responsibility and determination. 

Are these good things? How do we get there? There can be legitimate disagreement. Our role is to provide ideas, stimulate debate and offer practical solutions based on evidence, not to be the ultimate arbiter. 

Shooting down messengers is a spectator sport among Sri Lanka’s political elite. Constructing conspiracy theories is a fanciful, if entertaining, exercise practiced by those trying to de-legitimize real issues and will do little to move us forward.


By Fellows of the Advocata Institute in response to the article ‘What kind of liberals are these?’ published in the Daily FT, Friday 29 June. More information on Advocata is on www.advocata.org.