Of President’s comments on CC and HRCSL

by Neville Ladduwahetty-February 26, 2019, 11:02 pm 

President Sirisena’s comments on the Constitutional Council (CC) and the Human Rights Commission of Sri Lanka have elicited both supportive and negative responses from several quarters. This note is not on whether the President had grounds to say what he did or not. Instead, it is to set the record straight as far as the two institutioans are concerned. In addition, since the CC and its offshoots, the Independent commissions, have been hailed as major achievements in support of the rule of law under the 19th Amendment, it is absolutely necessary that the CC and the institutions it creates adhere to the rule of law and practices of good governance.

THE CONSTITUTIONAL COUNCIL

The Speaker as the Chairman of the CC addressed Parliament, on 25th January 2019 and made the following statement: "I informed on that occasion that I had tabled on 08. 12. 2016 in Parliament a report containing the guidelines followed by the Constitutional council submitting nominations for appointing members of the Independent Commissions laid down in Article 41(b) of the Constitution and in approving the nominees sent to us by the President for appointing persons to positions stipulated in Article 41 (c) of the Constitution … In addition to that, the report containing the aforesaid guidelines will be tabled in Parliament tomorrow for the information of Hon. Members…It shall be mentioned that seniority, integrity, independence and impartiality of persons are considered in addition to the said guidelines in appointing persons to respective positions".

The plea by the Speaker cited above would have been superfluous had the CC followed the provisions in the Constitution under the 19th Amendment as stated in Articles 41E (4); (6) and 41G (1); (3) since they collectively require the CC to adhere to them.

Article 41 E (4) states: "The Council shall endeavor to make every recommendation, approval or decision it is required to make by unanimous decision, and in the absence of an unanimous decision, no recommendation, approval or decision made by the Council shall be valid, unless supported by not less than five members of the Council present at such meeting".

Article 41 E (6) states: "The procedure in regard to meetings of the Council and the transaction of business at such meetings shall be determined by the Council, including procedures to be followed in regard to the recommendation or approval of persons suitable for any appointment under Article 41 B or Article 41 C".

Article 41 G (3) states: "The Council shall have the power to make rules relating to the performance and discharge of its duties and functions. All such rules shall be published in the Gazette and be placed before Parliament within three months of such publication". In addition, Article 41 G (1) requires the CC to forward reports of their activities to the President every three months.

In regard to guidelines, seniority has become an issue. If the CC had assigned weightage to the qualities they were looking for, when they developed guildines, this would have been a non-issue. The lack of such procedures has made the guidelines for selection open to question.

Had the CC gazetted the guidelines "relating to their performance and discharge of their duties and functions" and placed them before Parliament, the Speaker could have used them instead of attempting to explain to Parliament that the charges made by the President against the CC are baseless. The fact that he did not do so means that there are serious shortcomings in the manner the CC conducts its business.

The CC was created to curb the arbitrariness of executive action. Therefore, if such an institution is to fulfil the purposes for which it was created, it has to gazette and place before Parliament the parameters that guide its operations. Else, it amounts to replacing the arbitrariness of an individual with that of an institution whose decisions are final and cannot be challenged. In such an event, who should be held accountable for such omissions? Is it the Secretary General of the Council or the three civil society members? If they cannot ensure that due process is followed, they should resign in protest.

THE HUMAN RIGHTS COMMISSION

OF SRI LANKA

Addressing the critical statements by the President, the HRCSL stated:

" …it is due to the independence of the Council and the trust placed in the Council that in 2016 the United Nations designated the HRCSL to vet the SriLankan military and police officers for deployment to Peace Keepingmissions. We consider the fact that HRCSL is the only national institution selected to undertake the vetting process amongst all countriesthat supply troops for Peacekeeping missions as a triumph for Sri Lanka".

The highly exaggerated claim that the United Nations sought out the HRCSL and "designated the HRCSL" is far from how the HRCSL came to be associated with the vetting process, judging from what the Chair of the HRCSL stated during the course of an interview with The Sunday Times of July 22, 2018. TheChair is reported therein to have stated:

‘Vetting (screening) does not come under the HRC mandate, outlined in theparent statute. In 2016, however, the Ministry of Foreign Affairs (MFA) wrote to the Commission and requested it to take on the task. Vetting was earlier carried out by the UN. But the MFA said that Sri Lanka was the first to be invited to do it locally’. "The Foreign Ministry’s position was the Human Rights Commission was the obvious choice as it was an independent institution now under the 19th Amendment and had the credibility to take it on ", Dr. Udagama said.’ (Ibid)

The admission cited above claiming that the UN singled out the HRC of Sri Lanka is stretching the truth. What really happened was that the MFA passed a hot potato to a reluctant HRCSL to undertake the task despite its scope being beyond its mandate.

The task undertaken by the Commission is that: ‘All Member States that nominate or provide personnel to serve with the UN must screen and certify that such personnel have not committed, or are alleged to have committed, criminal offences and/or violations of international human rights law and international humanitarian law. Those who seek to serve with the UN must attest the same and, where necessary provide relevant information. The processes by which this can be done are outlined in Decision 2012/18 of the UN Secretary General’s Policy Committee’ (IPS, April 22, 2018).

"Having admitted that the task assigned by the Ministry of Foreign Affairs is beyond the mandate of the HRCSL, which according to Act No. 21 of 1996 that set up the Human Rights Commission, is limited to "rights declared and recognized by the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights", the question is whether the HRCSL has the competence to certify that the personnel they clear have not committed, or are alleged to have committed criminal offences and/or violations of international humanitarian law, and if they do not, how credible would be their clearance"? (Ladduwahetty, Screening of peacekeeping personnel from Sri Lanka, The Island, July 24, 2018).

"The context in which the HRCSL should conduct its screening/vetting should be that of an armed conflict since the conflict in Sri Lanka was an armed conflict that was conducted under conditions of a declared emergency. Therefore, the applicable law is international humanitarian law; a fact acknowledged by the UN Secretary General’s Panel of Experts and the Office of the High Commissioner for Human Rights in Geneva. Consequently, human rights are derogated except for laws that are recognized by the International Covenant on Civil and Political Rights which are Articles 6 -right to life, Article 7 - prohibition of torture and Article 8 - slavery. Therefore, the issue is whether HRCSL has the competence to evaluate whether humanitarian law violations were committed during the armed conflict and thereafter until normalcy was restored" (ibid).

The HRCSL in its response claims that it has met with all the "stakeholders" and developed a Standard Operating Procedure (SOP) in June 2018, and furthermore that the UN has informed them that the vetting process could resume from December 2018. Since the request from the Foreign Ministry was in 2016, the question that follows is why it took the HRCSL until June2018 to develop an Operating Procedure. An even more pertinent question is whether the SOP was published (gazetted) and approved by Parliament or any other competent authority in keeping with practices of good governance.

CONCLUSION

It is evident from the foregoing that the primary cause for criticism against the Constitutional Council is that it has not met constitutional provisions of gazetting its guidelines and placing them before Parliament. As for the HRCSL, if it has not published the Standard Operating Procedure, the guidelines for selecting peacekeeping personnel will remain opaque. The arbitrariness common to both reflects arrogance; they seem to think that they and only they know what is best for Sri Lanka and no one else should know how they conduct their operations. The plea of the public is that both institutions have an obligation to the people who have a right to know how they operate because they are not above the law.

Sri Lanka: implementation plan needed for UN accountability resolution

FEBRUARY 26, 2019

The ICJ has joined with other NGOs in a letter urging States to ensure that the UN Human Rights Council adopts a resolution that provides for a time-bound plan for the Government of Sri Lanka to implement its obligations and commitments for reconciliation, accountability and human rights in the country.

The letter reads as follows:

“February 25, 2019

Your Excellency,

Sri Lanka: Need for time-bound plan for implementation of commitments to the Human Rights Council

We write to seek your support in ensuring that the United Nations Human Rights Council (HRC or Council) adopts a resolution at this 40th session to maintain scrutiny of Sri Lanka’s progress towards implementation of its commitments, including, at minimum, regular reporting to the Council and a time-bound plan, developed in collaboration with the Office of the High Commissioner for Human Rights, to implement its pledges.

In October 2015, the Council adopted resolution 30/1 by consensus in which Sri Lanka, through its co-sponsorship, committed to 25 key undertakings across a range of human rights issues. A core commitment was to set up four transitional justice mechanisms to promote “reconciliation, accountability and human rights” in the country. These included an accountability mechanism involving international judges, prosecutors, investigators, and defense lawyers; a truth and reconciliation mechanism; an office of missing persons; and an office for reparations.

While some positive steps have been taken by the government to date, both the current and former High Commissioners in their reports have expressed concern at the slow rate of progress.

The UN High Commissioner for human rights, Michelle Bachelet, noted in her September 2018 update that Sri Lanka has “moved too slowly towards meaningful implementation of the transitional justice agenda.” She reiterated concern at the “lack of sufficient progress, particularly towards truth seeking and accountability” during the recent intersessional dialogue with HRC members and observers on February 4, 2019, noting that this created “significant obstacles to reconciliation.”

Her predecessor, Zeid al Ra’ad Hussein, in his opening remarks to the Council on September 11, 2017, had called on the government to realize that its obligations are not a mere “box-ticking exercise to placate the Council but as an essential undertaking to address the rights of all its people.”

Yet, it appears that the Sri Lankan government continues with exactly that endeavor.

Thus far only the Office of Missing Persons has been set up, but progress was delayed. The commissioners were appointed only in February 2018 and making the office operational was marred with logistical difficulties. The commissioners have held both public and private consultations with the families of victims and are observing the ongoing excavation and exhumation of a mass grave in Mannar. However, in its interim report in September 2018, the Office of Missing Persons called for “active cooperation” of various relevant state institutions, which has not been entirely forthcoming. Families of the forcibly disappeared are still awaiting answers.

While President Maithripala Sirisena said that all military-occupied civilian land in the predominantly ethnic Tamil north would be released by December 2018, progress has stalled, hindered in part by broad military claims of national security and the lack of a transparent process. Nor has the government fulfilled its pledge to repeal the abusive Prevention of Terrorism Act (PTA). While the cabinet has apparently adopted draft legislation to set up a National Truth Commission, it has yet to be made public for civil society consultations. Sri Lankan civil society groups have expressed reservations about the proposed Office for Reparations Bill, calling for a fully independent mechanism.

There has been no discernible progress on establishing an accountability mechanism involving international judges, prosecutors, and investigators. Instead, Sri Lankan political leaders have repeatedly said that there will be no foreign judges, and that “war heroes” will be protected from prosecution. Importantly, a report issued by the government-appointed Consultation Task Force, which conducted extensive nationwide consultations on the transitional justice mechanisms, has not been given the attention it deserves. The Task Force report contains detailed recommendations, drawn from all affected communities including the security services, and provides an important blueprint for the way forward in addressing abuses by both the Liberation Tigers of Tamil Eelam and government forces.

Numerous UN experts and special mandates have since 2015 highlighted the marginalization and misrepresentation faced by minority communities, as well as a trust-deficit between these communities and the government, due in significant part to a culture of impunity. This was exposed during the recent political and constitutional crisis in Sri Lanka that laid bare the volatility of the political environment and the imperative need for continued international engagement to support the government in protecting human rights and promoting reform, reconciliation and accountability.

The Human Rights Council has played a vital role in identifying the many steps needed to reconcile with the past, ensure justice and accountability, and implement necessary reforms. Its scrutiny has proved an important catalyst for the progress made to date.

At the upcoming HRC session, the High Commissioner will present a substantive report on the progress towards implementation of the resolution – and the many challenges remaining. It is crucial that the Council remain fully engaged with the process until the commitments Sri Lanka made to the HRC and its own people through its co-sponsorship of resolution 30/1 are met in full.

To maintain confidence in the process, states should engage meaningfully with the High Commissioner’s report, and ensure the Council adopts a resolution that, at minimum:

• welcomes the High Commissioner’s report (once available) and calls on the government of Sri Lanka to implement its recommendations;
• reaffirms resolution 30/1 and underlines the importance of the commitments therein being met in full;
• maintains reporting by the High Commissioner on the status of Sri Lanka’s progress towards implementation of its commitments, with opportunities for regular interim reporting through oral updates and interactive dialogues;
• expresses concern at the slow rate of progress and requests the government of Sri Lanka to collaborate with the OHCHR to develop a time-bound implementation plan for consideration by the Council in an interactive dialogue.

Given the insufficient progress to date, and rising frustrations that any accountability process seems stalled, a mere technical “rollover” resolution will be insufficient unless it includes provision for a clear timetable and framework for Sri Lanka to fulfill its commitments.

States should also make clear that stronger measures are needed to assist in monitoring, implementing and fulfilling these commitments, such as an OHCHR field presence, Special Procedure and evidence-gathering, justice and accountability mechanisms.

Anything less would fall substantially short of the expectations of victims and their families, and risk undermining faith in the process long before the promises of reconciliation, justice and reform have been translated into reality. Sri Lanka’s long-term peace and stability hinges upon the international community’s willingness to support the government in addressing the past so that it may look to the future.

Sincerely,

Amnesty International

Asian Forum for Human Rights and Development (FORUM-ASIA)

Commonwealth Human Rights Initiative

Franciscans International

Human Rights Watch

International Commission of Jurists

International Movement Against All Forms of Discrimination and Racism (IMADR)

International Service for Human Rights

Sri Lanka Advocacy”

Families of disappeared call for US intervention

190224 protest Nallur ND 1.jpeg

 24 February 2019

Families of the disappeared travelled to the Nallur temple in Jaffna today to hold a signature campaign as part of their ongoing protest. 

Families urged the United States to intervene in order to provide answers over their disappeared loved ones. 

Puttalam Garbage Project: 15.03.19 – Countdown Starts!

By Mohamed SR. Nisthar –FEBRUARY 26, 2019

Mohamed SR. Nisthar

Why is Puttalam treated differently? This is the fairly reasonable question every inhabitant of the Puttalam constituency, one of the six in the North-Western Electoral district, has on their mind. Answers to this simple question, however, that are coming from the President, the Prime minister, the Minister for Western Development and Mega Polis and the leaders of the so-called Muslim (Halal) parties (SLMC and ACMC) despite their apparent Haraam activities, appalling.

Puttalam area has been engulfed by man made ecologically dangerous, environmentally disasters, ethically wrong and legally challengeable projects, a cement factory in the south of the extended town, a coal power plant in the west, which was once considered as the fertile – cash crop area of the region. In the north there is the intended garbage dump or the sugar coated expression of sanitary solid waste management project. The chosen site, is very close to residential areas, lagoon fishing, fresh water prawn rearing, saltern, coconut estates and wildlife sanctuary, leaving only the West side for any more nasty projects, in the future which would be agitated  by any prudent citizen of the country.

There is no point in revisiting the false promises given to the people of the area for their concerns, when the cement factory was  built at pallavi in the midst of cocoanut plantation and the coal power plant was built at, Nurochchoolai, which was a promising cash crop belt, however, however, the Garbage dumping project of Arruwakkadu/Serakkuli attracts severe criticism as several EIA ( Environmental Impact Assessment ) reports confirm that the chosen site is not suitable at all.

This project was initiated by the Rajapaksa government and it was then given up at the request of former deputy minister of livestock and incumbent  Chairman of Puttalam UC, Mr. Baiz. So what? The project is being resumed and it will start its activity on 15th March 2019, the Mega Polis Minister Cambika Ranawaka has confirmed. The same Minister was  behind the scene   in building the notorious coal power plant at Nurochcholai, exposing the population, namely, young children and pregnant women to multiple medical conditions and mysterious  symptoms of yet to be pathologically confirmed new diseases. Still, it seems that the Minister is not satisfied. For him it is about winning next parliamentary seat or about his fantasy for contesting in the next Presidential Election for which he wants a carbonless, e-waste free and odourless  clean Colombo. At the expense  of our very right to simply have a clean Puttalam.

The garbage issue was brought to the attention of the President in recent days and he had the following to say: “We cannot dump our garbage at sea, enabling the international community to make a big hoo-hah out of it”. Granted, but the Garbage I create at home cannot not be thrown at my neighbour’s house. And  it seems that the environmentally friendly President does not care the local communities, who elected him as president, and their hoo-hah against this unwise and unwelcome project.

Minister Ranawaka quoted “people who oppose the Puttalam garbage project are selfish and disrespect the lives lost at the collapse of the  “Meetotamulla garbage” mountain in the capital. You are totally wrong Minister. We are not bemused by the disaster caused by mismanagement by the municipality and or Ministry of Mega Polis nor any management at all, but we try our best to stop  you from  causing 240, 000 slow deaths and more in perpetuity and turning the already dry zone into a death zone. Are you not remorseful in anticipation for the lives yet to be lost, before it is too late for you to share grief with us  as you expect from us towards the victims of the “Meetottamulla”

The Minister further said “it is the local politicians and clergies (Buddhists, Muslims, Saivas and Christians), who try to stop this national project.” The local politicians, who like you to serve your constituency, are mandated by the local people to seek right solutions for their grievances and the clergies are the ones, who live with these issues and thoroughly understand the peoples’ concerns. Don’t you  like them carrying out  their duty, which is expected by  their people?

There are laws in place to deal with these things. A piece of legislation, our Municipal Council and Urban Council Ordinance stop you passing the bug to another local government jurisdiction. But you do regardless, this is an outright  violation of law. Also the very constitution, that you fought for and were prepared to die for, including  any blatant breaches by the former President and his acolytes during the 52 days political  drama in 2018, which  made entire world laugh at us. And you were steadfast for upholding an unequivocally enshrined constitutional arrangement. As such it is our constitutionally confirmed   fundamental right to have an unpolluted  environment for the current and future generations,  pure water, clean air and most importantly the inalienable right not to be treated differently or less favourably than others. Now tell us Minister why the people of Puttalam should be treated less favourably than any other part of the country.

Read More

MP Gunawardena’s accusation of a fellow MP is at odds with the factual record

 21 February 2019 

Relevant Hansard extracts (see Exhibits 1 and 2) show that MP Gunawardena was wrong on two counts – on the report and on the language of translation.

Report: MP Sumanthiran did not raise any issue with the Bond Commission Report; he only raised an issue with the PRECIFAC report being provided exclusively in Sinhala. 

Language of translation: MP Sumanthiran did not insist on Sinhala and Tamil translation of the PRECIFAC report (which is in Sinhala), but on either an English or a Tamil translation.

Since MP Gunawardena makes an accusation that is at odds with the record, we classified his statement as BLATANTLY FALSE.

This is an extract from a fact check published on @factchecklka Facebook page on November 14, 2019 (factcheck.lk). For the extended write-upplease see: www.factcheck.lk. 

'Indebtedness among Northern marginalized women, a principal development challenge'

By Hiran H.Senewiratne-February 25, 2019, 8:53 pm 

One of the main economic challenges for the Northern Province is the heavy indebtedness among marginalized women of the area, which needs to be addressed, Minister of Finance and Mass Media Mangala Samaraweera said.  

"The measures have been taken for reconciliation, the empowerment of marginalised women and enabling access to funding will propel development in the North. Because women indebtedness is very high in the entire region, Minister of Finance and Mass Media Mangala Samaraweera said at the launch of the study titled the Northern Development Framework, at the Finance Ministry last week.

He said that with  the priority given to development and reconciliation by the government, the initiative taken to develop the North in a systematic way will ensure that the benefit of the peace dividend is received by the region.

The Finance Minister added - 'The key issue in the region is indebtedness and the recent debt write-off for Northern women costing Rs. 1.4 billion, has brought relief to them.

'Last year, the government allocated Rs. 500 million to provide micro finance facilities and Rs. 5.2 billion for skills development. An additional Rs. 4 billion has been allocated for this year. Funding has also been provided for small scale fisher families.

'Plans are under way to set up an Economic Centre in Jaffna soon. There will be Rs. 250 million allocated for storage facilities and these are expected to revive the economy in the North.

'Under the Gamperaliya program projects worth Rs. 5,000 million will be set up in the North. In the upcoming budget too there will be further re-building proposals for the North with the tax payers’ money. The framework will be reconciliation-oriented development programs to propel growth and social development.'

'Several visits to the region were made to better understand the debt problems in the area and we met all the stakeholders. The visits enabled us to have a fairly good understanding of the problem of indebtedness. The challenge in overcoming the debt issue was a development challenge. This also was acute due to the unemployment problem and solving these needed a clear strategy, Governor of the Central Bank of Sri Lanka Dr. Indrajit Coomaraswamy said.

"The road-map should be converted into policies, projects and programs as this is a very important and encouraging start to develop the North with focussed attention, he said.

'The detailed study of indebtedness and its implications helped to formulate the framework which provides the direction to develop the North. The impact of indebtedness is severe. The region is grappling with poverty and nutrition level is low. The reconciliation strategy has not been able to achieve a holistic success level, Chair of the Framework Committee B. Sivatheepan said.

"Insufficient investment to transfer technological advancements and lack of workforce participation are key issues in the North while the need is there to highlight specific issues. The framework is a forward looking tool that provides direction to medium and long term planning, he said.

'The framework draws the attention to a more resilient foundation to achieve growth and calls for a comprehensive policy to meet goals. It will be a realistic and dynamic tool for Northern development, he said.

'The framework integrates the economic challenges into the national policy and provides guidelines to address the issues of the region. The building of human capital and working capital is important together with increased women participation in the labour force, member of the Framework Committee Dr. Ahilan Kadirgamar said.

'According to the priorities in the report and proposed ways forward, the social foundation which includes shelter, food, nutrition and health, needs an enabling environment.

'Technology transfer will put Northern Sri Lanka into a sustainable path. There is a need for a policy and research based institution and it was suggested that a branch of the Institute of Policy Studies be set up in Jaffna. It was also suggested that a development financing entity be set up to help funding and support in business plan development, he said. 

How can Sri Lanka avoid imminent economic collapse and extreme poverty?

The country has reached a critical stage in its history. The presidential and the general elections due very soon could turn the country over to a set of so-called leaders who could drive the country to the status of a ‘failed state’ like Somalia. None of the political parties and leaders thereof have developed a set of strategies suited to carry the country to prosperity unlike the East Asian countries which have consistently adopted a set of Social Market Economic Policies from the 1970s and realised prosperity – Pic by Shehan Gunasekara

 Tuesday, 26 February 2019

General and presidential elections are due to be held in a few months’ time. However, in addition to failing badly to serve the country so far, not a single main political party has announced a set of practical strategies and policies that could meet the needs of the people and develop the economy although it is on the verge of collapse, especially because of a huge external debt (of over $ 50 billion) that cannot be repaid without borrowing further! Therefore the following set of strategies is proposed for rescuing the economy mainly on the lines proposed in my book, ‘Export Competitiveness and Poverty Alleviation’ published by the Godage Bookshop in2017.


The goals of the strategies

The achievement of the 17 Sustainable Development Goals of the UN including the alleviation of poverty and zero hunger. According to the World Bank, the number of those earning less than $ 2.5 per day was about 32% (in inflation adjusted terms) of the people as of 2012/13 (Sri Lanka: A Systematic Country Diagnostic, World Bank, 2016) with extreme poverty mainly in the estates and in the northern and eastern parts of the country. This level of poverty may have now increased due to the recent rise in prices of essentials.


Strategies to achieve the goals

Increase export-oriented investments rapidly.

Raise the level of productivity of all sectors.

Enhance the global competitiveness of all products and services.

Introduce land reform to raise the level of rural agricultural productivity.

The civil leaders, the professionals and the clergy to explain these strategies to the people in a language they understand.

Each citizen to decide to do whatever possible to implement these strategies.

What follows are implementable sub strategies under each main strategy as not much has been achieved by all governments in removing various constraints to progress.


1. Increase export-oriented investments rapidly

Sub strategies:

i. Remove all barriers mainly to Foreign Direct Investment (FDI).The country needs to invest about 35-40% of Gross Domestic Product (GDP, or the total money value of all goods and services produced in the country that was about $ 87 billion in 2017) ,to increase the rate of economic growth to around 8% a year. But the country saves an average of about 26% of GDP. This is one of the reasons for attracting FDI; the other reasons being that they bring in scarce technologies, skills as well as world market access. According to UNCTAD the stock of FDI received by Sri Lanka up to 2016 was about $ 9.7 billion – most of it for construction and not for production of goods and services, whereas the stocks of FDI inflows in billions of dollars $ to some of the East Asian economies particularly the ‘little tigers’, South Korea 185.0, Hong Kong 1,690.8, Thailand 188.7, Malaysia 121.6, Singapore 1,096.3, as of 2016. The main reason for the fear on the part of the FDIs to invest in Sri Lanka could certainly be political and policy instability that has prevailed in the country from 1983. The political instability could be attributed mainly to the 30-year internal conflict, the frequent clashes among the communities that have occurred up to the present time due to the failure on the part of the leaders to solve the ethnic conflict, after the end of the war in 2009, as well as the inability of the political parties to maintain good standards of management, conduct and governance within the parties and outside to serve the nation.

The policy instability is apparently due chiefly to the inconsistent adoption of different kinds of policies including import substitution policies (which do not help to expand exports), open market policies only for a short period during 1978 to about 1993, in a ‘ding dong’ fashion over the years; in addition costs were pushed up by continued budget deficits; the East Asian ‘little tigers’ on the other hand adopted mostly open market policies consistently and succeeded spectacularly.

The main solution to the political instability appears to be the enactment of a new constitution similar to that of South Africa with equal rights for all and regional devolution of power so that a set of uncorrupt politicians with a desire to practice good governance to serve the people could emerge. (The policy reforms required are discussed later in the article).

ii. Adoption of suitable ‘social market’ economic policies (mix of socialist and capitalist policies, treating the private sector as the ‘engine of growth’) and not import substitution policies, while the State concentrates on development of areas such as infrastructure including education, health and social welfare that the private sector may ignore, due to low profitability.

iii. Achieving macroeconomic stability by continuously reducing budget deficits by resort to increasing Government revenue especially by taxing the wealthy more heavily, while reducing expenditure mainly on defence and by privatising/part privatising the State-Owned Enterprises which are incurring annual losses estimated at Rs. 200 billion.

iv. Maintaining law and order by avoiding the politicisation of the Judiciary and the police force as well as by introducing a system to remove the backlog of pending cases in the courts of law,

v. Improving the efficiency and effectiveness of the State administrative apparatus especially by making appointments on merit alone, for which it is necessary to remove article 55 in the Constitution that empowers the cabinet of ministers to make appointments and promotions of public officials, most often on political affiliations.

vi. Drastic reduction of corruption (Corruption Perception Index, rank Sri Lanka 89,Mauritius 56, Malaysia 61 and Singapore 1 out of 180 countries, Transparency International, 2012-18) by making a constitutional provision that parliamentarians be honest and by enacting a special law to set up an anti- corruption agency answerable direct to parliament; also by creating special courts for the purpose.

vii. Provision of economic incentives for investment and elimination of disincentives like the complex and cumbersome regulations for production (Ease of Doing Business Index Sri Lanka 100, Singapore 2 and Malaysia 15 out of 190 countries, World Bank, 2018).


2. Raise the level of productivity of all sectors

(Productivity/output per employed person $, Sri Lanka 31,692, Malaysia 63,324, Singapore 133,915, Conference Board Data Base, 2017)

Sub strategies:

i. Rationalisation of the highly complex labour laws and regulations,

ii. Development of physical and social infrastructure, particularly education and training, to create world-class soft and technical skills ; the former especially by teaching life skills, creativity, leadership, communication, including the English language , the latter by introducing science, technology, engineering and math, (STEM) subjects; (strangely all governments have failed to undertake such a system to provide the skills demanded by investors).

iii. Absorption of the excess employment in rural agriculture(26% of the labour force) into the manufacturing sector as cultivable land is limited, to increase the size of farms/their productivity and also save the natural environment; (manufacturing has not emerged as a major sector due to the failure to attract, especially FDI).

iv. Encouraging firms to reduce unit costs by increasing the scale of production mainly for export and for offering incentives to workers to improve their productivity/more outputs from the same quantum of inputs.


3. Enhance the global competitiveness of all products and services

(Global Competitiveness Index, Sri Lanka 85, Singapore 2, Malaysia 25 out of 140 countries, World Economic Forum, 2018).

Sub strategies:

i. Resorting to open trade by lowering the import tariffs and para tariffs such as cesses which create an anti- export bias (‘The present import regime is one of the most complex and protectionist in the world’, SL: A Systematic Country Diagnostic, World Bank, 2016) giving time to domestic market oriented firms to adjust, to create competition among firms to induce higher investment and improve value addition to satisfy global customer needs.

ii. Supporting research and development/innovation to encourage firms to add value to export goods and services in such a way as to avoid competition (referred to as ‘differentiation’).


4. Introduce land reform to raise the level of rural agricultural productivity (completely ignored by all governments as an alternative strategy of poverty alleviation, though successfully adopted by countries such as Japan, South Korea and Taiwan before industrialisation)

(Agricultural productivity or value added per worker, Sri Lanka $ 2,533, Maldives $ 11,300, Malaysia $18,124, Singapore $ 22,703, World Bank, 2017)

Sub strategies:

i. Giving ownership of the land leased by the State to farmers (heavy fragmentation and subsistence/no profit orientation have taken place: 62% of plots under one acre in size and 45% under ¼ acre in size- Census of Agriculture, DCS, 2002) to induce small subsistence farmers to sell their land to owners of larger farms leading to consolidation and improvement of productivity or lowering of unit costs.

ii. Re-plotting to move farms closer to each other and construction of paved roads to reduce costs of using machinery.

iii. Promotion of the cultivation of selected (export) crops on a large scale to reduce unit costs, also with comparative advantage against crops grown by competitor countries.

iv. Creating urban centres in rural areas with infrastructure and various industries and services to further process and market agricultural produce and for offering off-farm employment to those who do not want to engage in farming.

v. Implementing a scheme to de-silt reservoirs, repair tank bunds and canals, set up facilities to provide clean drinking water and construct rural roads and bridges, similar to the successful Gammadda programme of the Sirasa TV/the Maharaja Organisation.


5. Civil leaders, professionals and clergy to explain these strategies to the people in a language they understand

Sub strategies:

i. First consult the people regarding their basic needs.

ii. Improve on the above strategies.

iii. Resort to digital/electronic ways of explaining since most people do not read.


6. Each citizen to decide to do whatever possible to implement these strategies

Sub strategies:

i. Give priority to the country/people and not to a political party.

ii. Understand the strategies and improve on them.

iii. Contribute by carrying out at least one activity as frequently as possible.


Conclusion

The country has reached a critical stage in its history. The presidential and the general elections due very soon could turn the country over to a set of so-called leaders who could drive the country to the status of a ‘failed state’ like Somalia. None of the political parties and leaders thereof have developed a set of strategies suited to carry the country to prosperity unlike the East Asian countries which have consistently adopted a set of Social Market Economic Policies from the 1970s and realised prosperity.

However, the political parties concerned in Sri Lanka could be pressurised to put forward a set of suitable strategies similar to those described above if strongly demanded by the people. For this purpose, the professionals, school and university teachers as well as the clergy, especially the Buddhist priests, who have considerable influence over the majority in the country, could educate the people about the basics of economic development required such as the need of attracting export-oriented investment by restoring political and policy stability, improving the productivity of land, labour, capital etc., and global competitiveness, in a language they understand.
(The writer is a Development Economist.)

Why Govt. Debt Markets Fluctuate?

Development of Government Debt Markets:

Wednesday, February 27, 2019

In last three articles, I covered pricing and issuance of govt. securities in open market, major policy initiatives taken to develop govt. securities market in the past 80 years and macroeconomic benefits of debt market development. This 4th article is intended to outline major factors behind fluctuations in govt. securities markets.

Market Fluctuations

In any market, fluctuations are caused by changes in demand and supply although certain govt. interventions may have some control on markets. Such fluctuations are often seen in market prices. In the case of financial products/securities, movements of interest rates are reflective of price changes (securities prices and interest rates/yield rates are negatively related, i.e., higher the prices, lower the interest rates).

Issuance and trading infrastructure, regulation on market participants and systems and transparency are the cornerstones of financial market development that will bring price discovery and liquidity to the market. The liquidity means the availability of funds or wider demand in the market. The price discovery means that the market price/interest rate is determined by interaction of a wider set of market participants based on their information and perceptions. Prices determined administratively by few persons covertly are considered as inefficient and biased in modern market economies as their set of information is narrow.

* Commodity Markets

The market price of a commodity is the cost of production plus a profit margin to producers and traders. Suppliers/traders will compete through improvement in productivity to reduce cost and profit margin which will end up in discovering a lower price. The competition among both buyers and sellers will help better price discovery. Markets have developed to determine even future prices of products today based on relevant information. For example, countries place orders to import crude oil in three months at prices determined today for three months-oil. All major commodities in international markets are traded on such future prices. Similarly, investors can buy and sell financial products such as foreign exchange and contracts today for future delivery. Such future prices help investors to plan future businesses without being affected by risks of unanticipated price changes in the future.

* Financial/Bond Markets

In financial markets, there is no accounting cost of production involved in financial products. Instead, the cost is the opportunity cost and risks underlying the funds which are valued differently by individuals. Therefore, a wider market mechanism is the most economic way of price discovery in financial/debt markets, provided that regulations are effectively in place to prevent undesirable market imperfections such as rouge trades and insider price-fixings.

Factors causing Debt Market Fluctuation
* Monetary Policy

The monetary policy along with bank credit supply determine the monetary liquidity and interest rates in the economy. In general, all financial markets and commodity markets are expected to respond to changes in the monetary policy with different time lags, depending on their dependence on credit and interest rates.

As the present monetary policy framework of the Central Bank (CB) is the policy rates corridor-based money dealings to regulate interest rates and credit/liquidity in the overnight inter-bank market, any monetary policy changes immediately affect the inter-bank market and money market. In certain instances, market speculations on the forthcoming monetary policy changes also affect the money market in advance of the monetary policy decisions.

As trade in govt. securities (Treasury bills and bonds) is dominant in the money market, monetary policy changes and speculations immediately affect the prices and yield rates in govt. securities market. All other factors add pressures to govt. securities market above the prevailing monetary policy (see the chart below).

* Supply of Govt. Securities/Govt. Funding Requirements

As in other markets, increase in supply of securities/high funding requirements faster than the demand/supply of funds in the market will raise yield/interest rates (reduce securities prices). In normal funding periods, interest rates will not fluctuate much.

The govt. funding requirements change daily. The overdraft facility of the two state banks is used on daily basis to fill cash flow mismatches. In addition, govt. securities and commercial borrowings are raised to finance planned spending/cash deficits. Treasury bills are issued weekly (generally on each Wednesday). Treasury bonds and other securities are issued to raise medium and longer-term funds periodically.

Debt servicing (i.e., interest payment and debt repayment) is a major source of funding requirements. On certain days, debt servicing is excessive as compared to liquidity/funds available in the market. The incidence known as debt-bunching, i.e., large volumes of debt falling due in certain months or on certain dates, due to poorly managed debt profiles adversely affect the money and financial markets due to their high volumes.

It is natural that market interest rates rise when finding requirements are high. Dealers/active investors maintain information on debt servicing and other funding requirements and price govt. securities accordingly. In the case of roll-overs of debts, i.e., re-issuance of securities/debt to repay maturing stock of securities, dealers/investors reinvest funds that have been invested in maturing securities. Therefore, the market does not need new funds. However, if the maturing amounts are large, dealers will push up interest rates. In the first half of each year, govt. funding requirements are generally high causing noticeable increases in interest rates above the monetary policy levels.

* Market Liquidity or Supply of Funds

The market liquidity or availability of funds for investments depends primarily on the liquidity control/money printing by the CB and inflow of foreign funds to the market. The changes in statutory reserve requirement (SRR) (the portion of customer deposit liabilities of commercial banks held at the CB) and inter-bank liquidity levels managed by the CB (Open Market Operations-OMO) to drive overnight inter-bank interest rates within levels the CB project are the major causes of changes in market liquidity. For example, the increase in SRR by 1.5% in January 2016 moped up nearly Rs. 52 bn of liquidity resulting a liquidity deficit in the markets that pushed interest rates immediately where OMO auctions were stopped.

In opposite, the reduction in SRR by 1.5% in November 2018 and 1% in last week amounts to release of nearly Rs. 150 bn of liquidity to commercial banks which will help control the pressures on market interest rates. Further, the daily average liquidity injected by the CB’s OMO stood at nearly Rs. 124 bn from Jan. 1 to Feb. 22, 2019as compared to Rs. 117 bn for the last 4 months of 2018. The total turnover of daily liquidity injected has increased to Rs. 3.6 trillion from Jan. 1 to Feb. 22, 2019 as compared to Rs. 3.9 trillion for the last four months of 2018. The CB’s Treasury bills holdings have increased to Rs. 179 bn as on Feb 22, 2019 from the level of Rs. 32 bn at the beginning of Sep 2018.

 In addition, the CB provides liquidity/credit to banks and primary dealers repayable with same day free of interest charge under payment system rules. Therefore, huge monetary liquidity injected by the CB since September 2018 has helped dealers to manage their money market dealings inclusive of govt. securities and to control pressures on money market interest rates to some extent.

The inflow of foreign investments to govt. securities market raises the liquidity/demand for government securities and pushes down pressure on interest rates. The large-scale outflow of foreign investments was a major factor in pushing up market interest rates from the middle of the last year and several occasions since 2008.In addition, liquidity levels of state captive funds such as EPF, ETF, Insurance Corporation and National Savings Bank also affect the liquidity in govt. securities market as those are the major investors.

* Movements of International Interest Rates/Monetary Policies

Due to international mobility of capital and funds, changes in interest rates and monetary policies of peer countries and reserve currency countries, especially the US, also affect domestic interest rates. International investors move funds across the global markets to look for better returns/interest rates, given the risk-return appetites. As most foreign investments are globally attracted to govt. securities markets as part of wealth management, spillovers of global interest rates are immediately seen on govt. securities markets. Up to the middle of January 2019, 10% of outstanding Treasury bills and bonds was open to foreigners and it has now been reduced to 5%. Such curtailment of foreign investments will tighten/reduce the liquidity in govt. securities market.

Even if foreign capital is controlled, funds under trade flows are responsive to international interest rates. Higher foreign interest rates over the expected rate of domestic currency depreciation will reduce inflow of foreign exchange/export proceeds and cause shortage of liquidity in the market as import financing/expenditure will continue.

In general, as the US dollar is the major global reserve currency, monetary policies and interest rates of many countries will adjust to the US monetary/interest rate policies with or without time-lags. This was amply seen in 2018 where many countries including Sri Lanka ended up in excessive shortage of liquidity, increase in market interest rates and excessive currency depreciation as a direct result of the increase in the US policy interest rate by 1% in 2018. This caused significant capital outflow to the US and increases in interest rates in many countries to fight capital outflow. In general, interest rates in many countries including Sri Lanka adjust before and after monetary policy decisions of the US Fed/Central Bank.

 Inflation Expectations

Inflation is a major factor that determines market interest rates. Dealers/investors generally look for stable real interest rates (interest rate less expected inflation rate, i.e., to offset the loss of value of money during the investment period) on their investments. As govt. securities are generally credit risk free investments, investors frequently adjust interest rates to cover the inflation as they speculate. Such inflation expectations are not what the CB projects based on the consumer price index. As a result, rising inflation expectations will push interest rates up and vice versa.

* Collusive Behaviour of Dealers/Investors

Dealers generally attempt to move interest rates always up when govt. funding requirements are high. In times of market pressures, they bid in several pockets to push yield rates at both auctions and secondary market. In certain times, some dealers are engaged in unlawfully driving interest rates through own trading exercises (i.e., pumping and dumping). Insider dealings, i.e., dealings based on unpublic information gathered from relevant institutions, also restrict the fair competition and price discovery.

Effective implementation of financial market regulations is intended to control such collusions and to promote fair markets. It is well known that Sri Lankan govt. securities market lacks standard market regulations. The poor regulation has caused not only market collusions but also securities fraud by primary dealers with the blessings of some officials of the CB being the monetary authority, the securities issuer and the regulator. The regulatory environment has not been fixed yet and, therefore, market fluctuations due to collusive market behaviours and securities fraud will continue.

Sri Lankan experience
* Allegation on Public Auctions to raise interest rates

Above stated factors are not rocket sciences, but general facts observed in any country. However, some financial experts and CB’s international economists allege that introduction of regular auctions for Treasury bond issuances since February 2015 has caused significant rise in interest rates in the whole economy as compared to interest rates that were controlled at low levels through a decade-long system of privately placed/issued bonds by the CB on regular basis. Those who administered private issuances and pricing also claim that the CB lost a powerful policy instrument (i.e., bond-private placements) to control interest rates due to the stoppage of the system at the end of February 2015. This shows the use of debt management to support the unlawful and deceitful monetary policy.

* Official calculation of Cost to Govt.

Some including the present Monetary Board estimated the cost to government of auctioned bonds whereas some attribute such costs to the country’s all present economic ills. The Monetary Board which lives at the mercy of those few international economists of the CB decided to accept the cost to the government due to auction system as estimated by the Auditor General in his report to the COPE. The loss here (others have different loss estimates of own fantasy) is the discount involved in acceptance of bids for bonds at auctions above the amounts announced for the auctions.

In making such estimates, the CB’s long habit of announcing a lower amount to auctions than the actual funding requirement and the specific public duty assigned to the Tender Board were not recognized. Instead, the CB’s long habit of unlawful and questionable issuances of privately placed bonds of several trillions on regular basis against global market standards was recognized as low cost-low risk without any empirical research. In this manner, even debt that could have been privately raised through money launders could be justified on low cost-low risk as the CB/govt. is interested in only money, and not a disciplined debt market. Similar costs involved in huge amounts of Treasury bills presently accepted at auctions in excess of announced amounts by the Monetary Board even with CB’s direct subscriptions outside auctions is not recognized as costs.

* Recommencement of Administrative Bond Issuances

Further, in the CB Annual Report 2016 issued on April 19, 2017, the Monetary Board reported that auction alone system of issuing Treasury bills and bonds contributed to increase in interest rates on government securities and some distortions in the monetary policy transmission without any economic research. It also proposed to revamp the purely auction-based system and develop instruments to influence the long end of the yield curve. The Monetary Board did not have any knowledge of economics on the market impact of sudden and fast increase in CB’s policy interest rates by 1.25% between February 2016 to March 2017 and increase in SRR by 1.5% in December 2015 by the Monetary Board itself. Nobody knew any yield curve (even today) to be controlled, other than irresponsible and ad-hoc quotes given by some primary dealers to the CB.

Two months later, the Monetary Board re-commenced administrative bond issuances (so-called direct issuances/placements to control interest rates) to primary dealers and EPF outside competitive auctions with the leadership of dealer-representative members of the Monetary Board. However, the Monetary Board has failed to control or reduce interest rates as advocated. Now, Monetary Board has communicated of its plan to implement similar issuances of Treasury bills in addition to unlawful underwriting of Treasury bill issuances by the CB. It is hard to understand economics of how money that does not come to transparent and competitive public auctions comes to private issuances at lower interest rates unless such money is black money arranged to be laundered through privately arranged govt. securities.
 Some may wonder why the Monetary Board does not propose similar system for injection of liquidity to banks and same dealers to lower the country’s interest rate structure in place of present OMO auction system as the Monetary Board has failed to control market interest rates even with trillions of money printing and reduction of SRR by 2.5% (a permanent injection of Rs. 150 bn.) during the past few months.

Problem Resolution

Therefore, it is now necessary to do empirical research on;

* factors that have caused significant movements of Sri Lankan govt. securities market in the past decade,
* what went wrong in the market, despite the long list of historic policy initiatives and rising market debt numbers,
* who are responsible for suppression of market development, and
* whether the govt. is taking policies to fix the fundamental problems in the debt market as it is finally accountable to the public.

Unless the govt. takes the control over debt market development based on such research carried out independently (unlike so-called forensic audits) and its finance, an anticipation of a debt crisis causing public bankruptcy in the next decade is not unrealistic, given the levels of current difficulties in raising and servicing debt. International economists of the CB and their network of dealers who managed the debt market for the monetary policy will soon return to their foreign residencies.

The new set of politicians will have no option but blaming the past politicians as usual for not solving the debt problem. The world has some bail-out programmes in the event of bankruptcy. The economy can find unlawful/unpublic businesses for survival. If a smart finance minister appears in the future, there is a possibility that he may direct the CB to pay the debt unlawfully raised by the CB without due approval.

(The writer is a former Deputy Governor of the CB and chairman and member of 6 Public Boards with nearly 35 years of public service. He authored 5 economics and financial/banking books and more than 50 published articles.)