Do not recommend Sri Lanka signing MCC in its current state: review committee chair

ECONOMYNEXT – Sri Lanka must not sign the Millennium Challenge Corporation (MCC) compact in its current state without major revisions and without wider public consultation, the committee appointed to review the controversial agreement said.

Briefing the media on its findings today, committee chairman Prof Lalithasiri Gunaruwan highlighted a number of concerns identified in a report recently presented to President Gotabaya Rajapaksa.

“The way the agreement stands now, our recommendation is that it is rejected unconditionally.It must not be signed. If you absolutely must consider it, we recommend that it is amended to reflect the concerns highlighted, upon obtaining a wider consensus,” said Gunaruwan.

Noting that bilateral agreements with foreign countries have historically lacked transparency in Sri Lanka, the senior economics lecturer at the University of Colombo said many of the conditions imposed by the MCC are deeply problematic.

According to Gunaruwan, there had been no significant contribution from any state body to the constraints analysis carried out for the compact in the selection of land and transport sectors for investment.

“The constraints analysis was carried out in 2016 and a report issued in 2017. Six sectors were studied. Two (transport and land) were selected for investment. The committee could not find evidence of any cross-sector analysis on the part of state institutions or whether they had studied the possible impact on other sectors, etc,” he said.

The constraints analysis report was compiled for the MCC by an American institute affiliated with Harvard University, said Gunaruwan, raising questions as to why no Sri Lankan state body was involved.

The constraints analysis report, however, states that it was prepared by “the Government of Sri Lanka and the Millennium Challenge Corporation of the United States of America, in partnership with Harvard University’s Center for International Development, for the Development of a Millennium Challenge Compact.”

Gunaruwan further said that despite some reservations citing national security concerns being raised by one deputy minister and subsequent directives issued by former President Maithripala Sirisena to not go ahead with the compact without closer scrutiny, plans were underway to sign it.

“Even if one assumes that the MCC is wholly good with nothing untoward, the procedures followed in the attempt to go through with it is not something acceptable for Sri Lanka,” he said.

Another concern highlighted in the report is a condition to have a company limited by guarantee known as MCA to manage the funds awarded, a company that, according to Gunaruwan, will be affiliated with the state only at “arm’s length.”

According to a report by the Lakshman Kadirgamar Institute, when a country is awarded an MCC Compact, the government is “required to set up a local accountable entity to manage and oversee all aspects of implementation. These entities known as Millennium Challenge Accounts (MCAs),16 are managed and largely staffed by country nationals, and often work directly with existing government ministries.”

However, Gunaruwan contends that the presence of state officials on the MCA’s board of directors does not guarantee that it will be in the best interest of the country.

“One of the condition is that no other state body has any authority over the handling of this company,” he said.

“Every decision made by the MCA must be with the approval of the MCC. However, in the event of any damage, the state must bear the full responsibility and the MCC will not be held liable for it,” he added, stressing that if the funds were channeled via the treasury to the relevant ministry – either Transport or Lands – there would be no issue.

According to the report, some stipulations would be in total violation of Sri Lanka’s constitution.

“Sri Lanka state’s procurement process does not apply [to the company, according to the conditions that would be imposed]. The National Procurement Commission (NPC), as per the 19th amendment to the constitution, has the authority to regulate all state procurements in the country, issue guidelines, etc,” said Gunaruwan, adding that signing this authority away would be a blatant violation of the constitution.

More seriously, according to Gunaruwan, there is one line that stipulates all the conditions met must be passed in parliament as legislation through an act, which would require a two thirds majority.

Among other problematic stipulations highlighted by Gunaruwan is that intellectual property rights for any output/products such as transport management systems, software, etc will be held by the MCC. The agreement also is to be implemented under international law, with no clarity offered on what that really means and no mention of how to resolve any disputes, he added.

Referring to pronouncements from various quarters that no agreement or portion of it has already been signed, Gunaruwan said two agreements were entered into in 2017 and 2018 securing grants amounting to USD 7.4 million and USD 2.6 million respectively.

“We’re not saying funds were received. We’re saying a grant was secured through an agreement, as preparatory activities,” he said.

Meanwhile, Sri Lanka’s External Resources Department had failed to account for the USD 7.4 million.

“They couldn’t produce a single document to show whether the grant came or went or how it was spent. So why would they again ask for USD 2.6 million?”

Insisting that the committee’s efforts into reviewing the MCC was not a political endeavour, Gunaruwan said the report was compiled professionally and independently. (Colombo/Jul3/2020)

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