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Thursday December 8th, 2022

Opinion: Political pressure to revise 20th amendment remains alive

Sri Lanka’s opposition MPs protest the 20th amendment to the constitution last year – File photo

ECONOMYNEXT – It has taken more than a month for the concerns regarding the proposed 20th Amendment that have been expressed by a wide swathe of opposition political parties and non-partisan civil society groups ranging from the clergy to professional associations to find expression within the ranks of the government parliamentarians. Their silence for so long can only be an indication of the dominance of President Gotabaya Rajapaksa who will be the primary beneficiary. In terms of the amendment, the President will be empowered to remove the Prime Minister, a member of the cabinet, any other minister or a Deputy Minister and authority to dissolve Parliament after completion of sittings for a period of one year. This massive transfer of power to the Presidency has been justified to the electorate as stemming from the inability of the previous government to govern effectively under the 19th Amendment to the constitution.

The occasion for the show of dissent came with the seemingly routine release of a suspect detained by the police on suspicion of his involvement in a case but whom the police now claimed no evidence had been found. But the fact that the case involved the suicide bombing that claimed the lives of over 250 persons on Easter Sunday in 2019 and led to the collapse of the country’s tourism sector gave both the arrest and release a significance beyond the ordinary. It is a regular occurrence that people are taken into custody if they are suspected of being involved in a crime, but are released if no evidence surfaces against them. In the case of Riyaj Bathiudeen, however, there was always an element of politics in it. He was arrested a year after the bombings and after there had been a change of government that saw his brother’s political alliance lose power.

At the time of his arrest, the police claimed that Riyaj Bathiudeen was implicated in the Easter bombing and there was evidence that he had close links with the suicide bombers and had met with one suicide bomber at a prior to the attack on April 21. Five other suspects, including lawyer Hejaz Hizbullah who continues to be in detention, were arrested along with him. Even at the time of the arrest, it was surmised that it could have been done with a political motivation of putting pressure on his brother to switch his allegiance to the government. The question is how the evidence that the police claimed was sufficient for an arrest should turn out to be insufficient and why only one person should be released when the others continue to be detained. It is to be noted that the rule of law calls for equity in treatment.

Cardinal Ranjith’s assertion

The most prominent critic of the police reversal has been the Archbishop of Colombo Malcolm Cardinal Ranjith who lost more than 200 of his adherents to the bombing that occurred in two churches within the Colombo diocese. The cardinal has been persistent in his demand that there should be truth, accountability and justice to the victims and their families who hope that their tears will not be in vain. The Easter bombing in 2019 was a complicated terrorist activity with many elements to investigate as is evident in the personal testimonies being provided these days to the Presidential Commission of Inquiry. The cardinal expressed his dissatisfaction on the release of a key suspect in the case and complained that police itself was contradicting their own statements. He also indicated that the sudden release could suggest a political deal.

The political deal in question is to ensure that the government will have a 2/3 majority to pass the 20th Amendment. The cardinal’s concern about a political deal could be a reflection of the difficulty that the government is encountering in mobilizing the 2/3 majority in parliament required to pass the 20th Amendment into law. There have been a few government parliamentarians who have had the courage to state that the 20th Amendment is excessive in its attempt to transfer power from parliament to the presidency. The proposed amendment as it currently stands is an emasculation of the protections available to the people and also to other institutions of state available in the constitution. If even a few government parliamentarians do not vote for the amendment it will fail to achieve the 2/3 mark.

The release of Riyaj Bathiudeen without satisfactory explanation has provided government parliamentarians with a justification to unite openly against any possibility of a political deal. In an unprecedented action 100 of them, which amounts to over 2/3 of the government parliamentarians, have signed a statement calling on the President and the Prime Minister to conduct a full investigation on this act by the police and to re-arrest Riyaj Bathiudeen and enforce the law in a proper manner. While there is no question about Malcolm Cardinal Ranjith’s commitment to getting to the truth of the Easter bombing and ensuring justice to the victims, the interest of the government parliamentarians is likely to be different. They have made it clear that they would not wish there to be any possibility of a deal whereby his brother Rishad Bathiudeen’s party joins the government to make the 2/3 majority in parliament easier to reach.

Reduce Burden

Faced with pressure from religious and civil society, and now his own parliamentarians, President Gotabaya Rajapaksa has hastened to deny that the government has entered into any political deal. He has stated “I am not prepared to hand over the power of arresting or arbitrarily releasing people to politicians, as happened in the past. I will also take actions to rectify any omissions or mistakes made by the relevant authorities or officials.” In an attempt to dispel public perceptions that the government was prioritizing a 2/3 majority in parliament to pass the 20th Amendment he said, “I emphasize that our government has not entered into any political deal with Parliamentarian Rishad Bathiudeen. I assure my citizens that I will not forsake the trust that they have placed in me and I will most certainly continue to work towards strengthening the built trust.”

The real problem is with the 20th Amendment which is akin to the elephant in the room for the government parliamentarians. There is a strong demand from the people for a strong government that does not fail to perform like the previous government where the president and prime minister undermined each other. The current government does not suffer from the same constraint as they come from not only the same party and enjoy a 2/3 majority in Parliament, but also the President and Prime Minister are from the same family. But the proposed amendment is regressive in its focus on empowering the presidency at the cost of all other state institutions, including parliament, the prime minister and ministers, and would reduce them all to a relatively powerless condition.

President Rajapaksa is held in high esteem by his colleagues in government who would not wish to oppose him and want him to succeed in leading the country to development and national reconciliation. In handing down its determination on the 20th Amendment Bill, the Supreme Court has ruled that four clauses need a referendum of the people along with a two-thirds majority in parliament unless suitably revised, while the rest can be passed by a two-thirds majority of parliament alone. Hopefully, the process of revision at the committee stage within parliament will lead to constructive changes in the 20th Amendment so that it does not elevate the presidency and diminish the other institutions too much and not put too heavy a burden on the presidency that no single person can carry.
(Colombo, October 13, 2020)
Edited by Arjuna Ranawana

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Sri Lanka in deep talent drain in latest currency crisis

ECONOMYNEXT – Sri Lanka businesses are facing a drain of talent, top business executives said as the country suffers the worst flexible exchange rate crisis in the history of its intermediate regime central bank and people lose hope.

“We are seeing a trend towards migrating,” Krishan Balendra, Chairman of Sri Lanka’s John Keells Holdings told an economic policy forum organized by the Ceylon Chamber of Commerce.

“We have seen an impact mainly on the tourist hotels side, quite an exodus of staff (migrating) to countries we have not seen in the past. 

“We have seen people go to Scotland, Ireland. It has usually been the Middle East and Maldives. Australia seems like a red hot labor market at the moment.”

Sri Lanka’s rupee collapsed from 200 to 360 to the US dollar after macro-economists printed money to suppress rates.

Sri Lanka operates a ‘flexible exchange rate’ where errors in targeting interest rates are compensated by currency depreciation especially after the 1980s.

Classical economists and analysts have called for the power to mis-target rates and operate dual anchor conflicting monetary regimes should be taken away to prevent future crisis.

Currency crises are problems associated with flexible exchange rate central banks which are absent in hard pegs and clean floats.

“Something new we are seeing is that older people, even those in their 50s, which was a surprise, are looking at migrating,” Balendra said.

Businesses are trying to retain talent as real wages collapse.

Balendra said as businesses they see some stability returning and based on past experience growth is likely to resume, and they were communicating with the workers.

“We have a degree of conviction that the economy should get better, its the stability phase now and it will get better going forward so without the way our businesses are placed we should see good growth,” Balendra said.

“We can’t chase compensation that’s just not practical and we are not trying to do that especially if people are looking to immigrate but what we can do is show the career opportunities in the backdrop of the situation that people would rather stay here because its home.” 

Sri Lanka unit of Heineken says it is also trying to convince workers not to leave, with more success.

“We are all facing the effects of brain drain and it’s not just the lower levels… What we are doing is a balance of daring and caring,” Maud Meijboom-van Wel – Managing Director / CEO, Heineken Lanka Ltd told the forum.

“Why I say daring is, you have to be clear in what you can promise people, when you make promises you have to walk the talk. So with the key talents and everyone you need to have the career and talent conversations.

“I am a bit lucky because I am running a multinational company so my career path goes beyond Sri Lanka so I can say if you acquire certain skills here, then you can move out of here and then come back too, that is a bit easier for me but it starts with having a real open conversation with walking the talk – dare and care.” (Colombo/Dec7/2022)

 

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Despite losses, Sri Lanka to resume “park & ride” transport after complaints  

ECONOMYNEXT –  Sri Lanka’s state-run Transport Board will resume its loss-making City Bus service from January 15, 2022 Cabinet Spokesman Bandula Gunawardena said, after the service abruptly discontinued with the state-run firm’s director board citing losses.

The City Bus service was introduced in 2021, under the government of former President Gotabaya Rajapaksa, from Makubura to Pettah and Bambalapitiya.

The service was started to reduce the number of automobiles travelling to and from Colombo and suburbs by providing a comfortable, convenient and safe public bus transportation for passengers and riders who use cars and motorcycles as their means of transportation.

During the time period in which the service was initiated, there were 800 hundred vehicles that would be parked and would use the system, Gunawardena, who is also the Transport Minister, said.

The service was later collapsed due to inconsistencies in scheduling and it was completely stopped after

“Without informing the Secretary or the Minister of the relevant Ministry, the Board of Directors have come to a conclusion that this is loss making route and must be halted,” Gunawardena said.

“The users of the City Bus service brought to our notice and therefore I gave the Secretary to the Ministry of Transport the approval to start the City Bus service from January 15.”

“If we stop all loss making transport services then massive inconveniences will occur to the people in far parts of the island.”

The chairman of the state run Ceylon Transport Board has been asked to handover the resignation letter by the Minister Gunawardana citing that the head has failed to implement a policy decision approved by the government. (Colombo/ Dec 06/2022)

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Sri Lanka may see rates falling next year: President

ECONOMYNEXT – Sri Lanka’s interest rates are high and hurting small businesses in particular but interest rates are required to maintain stability, President Ranil Wickremesinghe said.

“One is, all of you want to know what’s going to happen to the interest rates?,” President Wickremesinghe told an economic policy forum organized by the Ceylon Chamber of Commerce.

“I wish I know. The governor has told me that the inflation has peaked. It’s coming down. You all understandably want some relief with the interest rates to carry business on.”

“I understand that and appreciate the viewpoint. It’s not easy to carry business on with such high interest rates. On the other hand, the Central Bank also has to handle the economy. So maybe sometimes early next year we will have a meeting of minds of both these propositions.”

Sri Lanka’s interest rates are currently at around 30 percent but not because the central bank is keeping it up. The central bank’s overnight policy rate is only 15.5 percent but the requirement to finance the budget deficit and roll over debt is keeping rates up.

Rates are also high due to a flaw in the International Monetary Fund’s debt workout framework where there is no early clarity on a whether or not domestic debt will be re-structured.

After previous currency crises, rates come down after an IMF deal is approved and foreign loans resume and confidence in the currency is re-stabilished following a float.

This time however there has been no clear float, though the external sector is largely stable and foreign funding is delayed until a debt re-structure deal is made.

Sri Lanka’s external troubles usually come because the bureaucrats do not believe market rates are correct when credit demand picks up and mis-uses monetary tools given in 1950 by the parliament to suppress rates, blowing the balance of payments apart.

The result of suppressed rates by the central bank are steep spikes in rates to stop the resulting currency crisis.

A reserve collecting central bank has little or no leeway to control interest rates (monetary policy independence) without creating external troubles, which is generally expressed as the ‘impossible trinity of monetary policy objectives’.

However, it has not prevented officials from trying repeatedly to suppress rates, perhaps expecting different results.

After suppressed rates – supposedly to help businesses – trigger currency crises, the normalization combined with a currency collapse leads to impoverishment of the population.

The impoverishment through depreciation leads to a consumption shock, which also leads to revenue losses in businesses.

The suppressed rates then lead to bad loans.

In the 2020/2022 currency crisis the sovereign default has also led to more problems at banks. Several state enterprises also cannot pay back loans.

“…[T]he bad debt that is being carried by the banks is mainly from the private sector or the government sector,” President Wickremesinghe said.

“Keep the government sector aside. We’re dealing with it. How do you handle it? Look, one of our major areas of are the small and medium industries. You can’t allow them to collapse, but they’re in a bad way.”

Classical economists and analysts have called for new laws to block the ability to central bank to suppress rates in the first place so that currency crises and depreciation does not take place in the first place.

Then politicians like Wickremesinghe do not have to take drastic and unpopular measures to fix crises and there will be stability like in East Asia.

Sri Lanka had stability until 1950 when the central bank was created by abolishing an East Asia style currency board. The currency board kept the country relatively stable through two World Wars and a Great Depression.

In 1948 after the war (WWII) was over “we stood second to Japan” Wickremesinghe said.

“But we started destroying it from the sixties and the seventies,” he said. :We started rebuilding an economy, which was affected by a (civil) war, and thereafter the way we went, is best not described here.”

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