Features
Amidst the Delta scare and Labour strife, will China become Sri Lanka’s new IMF?
by Rajan Philips
The government, rather the country, is in the grip of three mutually aggravating crises – involving public health, people’s lives and the economy. And every one of them has gotten critical. Covid-19 has morphed or mutated into a dreadful Delta scare. Even the suddenly impressive vaccine rollout is being outrun by surges in infections and deaths. If vaccination is picking up four paces, Delta is overtaking by eight paces and more. That is the reality.
Last Thursday, two major hospitals, the Ratnapura General Hospital and the Karapitiya Teaching Hospital, “declared emergency,” apparently a rare occurrence in Sri Lanka’s medical history. The emergency situation is due to increases in Covid-19 patients, technically bordering on “a situation of Mass Casualty Incidents” and warranting emergency responses, according to the Deputy Director-general of Health Services, Dr. Hemantha Herath. Hospitals in the Western Province are also getting filled up even as they are running short of oxygen supply. For some time now, the Lady Ridgeway Hospital in Colombo has been struggling to cope with the influx of children infected by Covid-19.
The second crisis is the unrest among working people. This is more than a labour or trade union problem. The widespread unrest and ubiquitous protests are not part of the usual political muscle flexing. They are desperate signs of vast sections of people finding it impossible to get on with life. No one is suggesting that the government should creatively find ways to immediately restore normal economic life in the country. But everyone, except those who are close to the perks and fringes of power, is aghast that government leaders are pretending that they are in control of everything and that normality is just round the corner. Nothing can be more distant from the truth. And the truth is about the third crisis, which is the economic crisis. What the people are helplessly experiencing is the symptom of an economy that is in severe crisis. There is no point trying to hide it or to pretend otherwise.
Just like the crises, the government’s responses to them are also mutually aggravating. On the pandemic front, the President and the government have so failed to put together a permanent team of experts who will publicly tell the government and the people the unvarnished truth about the Covid-19 situation in Sri Lanka, and offer their advice on what everyone should be doing to control and contain the Delta spread as much as possible.
Friday’s news reports announced that President Gotabaya Rajapaksa convened a special meeting to discuss the current COVID-19 situation. Head of the COVID-19 task force Army Commander General Shavendra Silva, minsters, Director General of Health Services and several other experts reportedly took part in the meeting. Nothing much came out of it. The point is this is more political ad-hocism, and not a substitute for putting in charge a permanent body of experts.
The government after initially downplaying the severity of the pandemic crisis and prematurely celebrating victory over the virus, is now trying to use Covid-19 as reason to stop public protesting. At the same time, the government is ignoring universal medical opinion that has been pleading for the continuation of Covid-19 restrictions. People can see through when the government uses medical opinion as grounds for arresting protesters, but will not listen to medical opinion that calls for generally restrictive measures to contain the spread of Covid-19. People can also see that protesters are not flouting Covid-19 precautions and they are not ignoring social distance requirements.
People know that they are experiencing the same helplessness and frustrations that are driving protesters to picket lines. They expect empathy from the government. And they want the government to honestly engage with the protesters and establish a consensual framework for work and welfare in the middle of an out-of-control pandemic with no quick ending in sight.
The government’s economic management and messaging have been as bad as, or even worse than, its responses to the pandemic and to the people’s plights. The country is facing its worst economic crisis since independence in terms of self-inflicted revenue losses and diminishing foreign reserves, a falling rupee and mounting debt (domestic and foreign), and onerous debt repayment obligations. The people are going through the worst spell of severe hardships in living memory. In the midst of them all the government is stubbornly talking about some alternative way of economic management. What is being touted as the alternative way is not the outcome of any collective thought process and any co-ordinated implementation plan. Instead, it is a catch-all phrase to give context to knee jerk and uncoordinated responses to different problems as and when they arise.
Chinese alternative to IMF?
The abrupt switch from chemical to organic fertilizers in agriculture by presidential fiat is by far the most glaring case in point. A second, politically less dramatic but economically more consequential instance is the government’s stubborn reluctance to seek IMF help to tide over the current balance of payment (BOP) crisis. In vaccine parlance, this reluctance is a severe form of IMF hesitancy. No one knows if this hesitancy is backed up by any hope of getting a full BOP bailout from Beijing. Even less is known if the government has approached Beijing for a fully-fledged BOP help beyond periodical swaps. Known lesser still is what would be China’s response.
It would be rationally worthwhile for the government to at least consider Chinese help as an alternative to seeking IMF help. Although rational, it is not necessarily a prudent choice. The gossipy question is if there is any thinking at all within the government along these lines, assuming of course that thinking is going on in government circles. Equally, there has been no serious speculation among government critics that the government might be looking to China as a potential alternative to the IMF.
Ever since China started providing development assistance to emerging economies and developing countries, global watchers have become interested in China’s role as a counter to western hegemony over development assistance through the agencies of the World Bank (providing development assistance) and the IMF (securing financial stability and lending to tide over balance of payment difficulties). Although China’s development assistance (through the China Development Bank and the China Export-Import Bank) is more comparable to the activities of the World Bank, in recent years there has been growing “journalistic interest” in viewing Beijing as an alternative source to the IMF for providing financial support to developing countries.
James Sundquist, a Yale University doctoral researcher, has summed up this interest in posing the question: “Does Chinese finance in the form of loans and currency swaps substitute for assistance from the International Monetary Fund (IMF), reducing that institution’s influence and opening more ‘policy space’ for developing countries?” His study based on data for 104 countries between 2001 and 2017 would seem to suggest that mostly countries that are “able to compensate China in means other than cash” are likely to consider turning to China to avoid the IMF. Non-cash compensation can be “repayment-in-kind with natural resource exports and geopolitical concessions.”
Sundquist selected four countries “for closer examination” to test his hypothesis. Sri Lanka is one of them. Angola, Zimbabwe and Mongolia are the other three. Angola is a resource rich country that received Chinese bailout and avoided the IMF. Zimbabwe, though nominally resource rich is practically resource poor because of its neglected and atrophied extraction infrastructure. China has not lent money to Zimbabwe because it is not credit worthy. Mongolia is resource-rich and China has been keen on offering assistance, but the Mongolian government opted to go along with IMF financial assistance and stabilization program. The apparent reason was to avoid too much bilateral reliance on China.
Sri Lanka is seen as a country that has received both development assistance and BOP assistance from China without possessing “resource guarantees,” because of its geopolitical assets. It would seem Sundquist’s research period preceded the Sri Lankan government’s current IMF hesitancy and did not quite assess the potential of Beijing becoming a total or the primary alternative to the IMF. But Sri Lanka’s current situation is more than a subject matter for research. It would be odd if looking to Beijing as an alternative to the IMF has not crossed the mind in the Rajapaksa government. The government speaks its mind on economic matters through half a dozen people. Everyone of them is dead set against the IMF. Six months ago, they were conventional IMF followers. But no one is mentioning Beijing as an alternative.
There are many factors at play. Until 20 years ago, there was no China and developing countries had only one place to go to, namely, the West and institutions dominated by the West. The entry of China has provided an alternative source and somewhat levelled the playing field. But only ‘somewhat.’ A part of that ‘levelling’ also includes the potential for ‘democratizing’ the operations of the World Bank and the IMF which are dominated by the US and its European allies. But China may not be all too keen about ‘democratizing’ anything anywhere. China’s development assistance and lending patterns are also totally driven by domestic reasons and for domestic purposes.
China’s external financial relations and operations are always “rooted in central government decisions” and are implemented only by “state-affiliated institutions.” China is not an incubator of private investors or a source of foreign direct investments. At the same time, China is not the inventor of financial diplomacy. The US and France, for example, have provided direct emergency financial assistance, bypassing the IMF, to countries in the Middle East and Africa, respectively.
Sundquist lists three key decisions taken at different times by the Chinese government, that apparently have influenced the ebb and flow of Chinese financial activities overseas. First, in 2006, came the decision to extend externally the hitherto domestic operations of the China Development Bank as a parallel to the World Bank. This decision was made “at a time of fractured political power in China,” according to Sundquist. The second was the Belt and Road Initiative (BRI) launched by President Xi Jinping even as he concentrated the powers of the state in the office of the President. The third key decision so far has been the roll back of the BRI initiative in 2018 to concentrate on the domestic economic situation in China.
Put another way, the rest of the world, especially countries that may want to look to China to avoid the west or the IMF, have no certainty whether or when China is going to keep its lending window open, and to what levels. There is also the concern over the lack transparency involving China’s assistance, that it ignores issues of domestic corruption and money laundering, and that it is more short-term oriented without long term sustainability.
Among Sundquist’s assertions based on his research are that “Chinese loans have indeed enabled some countries to avoid turning to the IMF and enabled others to negotiate deals with fewer attached conditions.” As his Zimbabwe case study has shown, “China has typically denied bailouts to countries without reliable sources of foreign exchange,” and has paid “attention to debt sustainability rather than trying to ensnare them in debt traps.” Overall, says Sundquist, “Borrowing governments will have to weigh the respective benefits of IMF and Chinese loans diligently. They will, however, be happy to have the choice.”
He further notes that “Since 2017, the pace of new loans has slowed, and China has begun to confront the problem of borrowers unable to meet their debt service obligations. It is entirely possible that as China’s position begins to resemble that of traditional Western creditors, it will begin to behave in a more similar manner to them and work more closely with the IMF.” Where does all this leave Sri Lanka? Is there a third way, that avoids both the IMF and China, to overcome the current balance of payment crisis? It is up to the government to clarify.
by Dr Gotabhya Ranasinghe
Senior Consultant Cardiologist
National Hospital Sri Lanka
When we sought a meeting with Hon Dr. Ramesh Pathirana, Minister of Health, he graciously cleared his busy schedule to accommodate us. Renowned for his attentive listening and deep understanding, Minister Pathirana is dedicated to advancing the health sector. His openness and transparency exemplify the qualities of an exemplary politician and minister.
Dr. Palitha Mahipala, the current Health Secretary, demonstrates both commendable enthusiasm and unwavering support. This combination of attributes makes him a highly compatible colleague for the esteemed Minister of Health.
Our discussion centered on a project that has been in the works for the past 30 years, one that no other minister had managed to advance.
Minister Pathirana, however, recognized the project’s significance and its potential to revolutionize care for heart patients.
The project involves the construction of a state-of-the-art facility at the premises of the National Hospital Colombo. The project’s location within the premises of the National Hospital underscores its importance and relevance to the healthcare infrastructure of the nation.
This facility will include a cardiology building and a tertiary care center, equipped with the latest technology to handle and treat all types of heart-related conditions and surgeries.
Securing funding was a major milestone for this initiative. Minister Pathirana successfully obtained approval for a $40 billion loan from the Asian Development Bank. With the funding in place, the foundation stone is scheduled to be laid in September this year, and construction will begin in January 2025.
This project guarantees a consistent and uninterrupted supply of stents and related medications for heart patients. As a result, patients will have timely access to essential medical supplies during their treatment and recovery. By securing these critical resources, the project aims to enhance patient outcomes, minimize treatment delays, and maintain the highest standards of cardiac care.
Upon its fruition, this monumental building will serve as a beacon of hope and healing, symbolizing the unwavering dedication to improving patient outcomes and fostering a healthier society.We anticipate a future marked by significant progress and positive outcomes in Sri Lanka’s cardiovascular treatment landscape within the foreseeable timeframe.
by Fr. Emmanuel Fernando, OMI
Jesuit Fr. Aloysius Pieris (affectionately called Fr. Aloy) celebrated his 90th birthday on April 9, 2024 and I, as the editor of our Oblate Journal, THE MISSIONARY OBLATE had gone to press by that time. Immediately I decided to publish an article, appreciating the untiring selfless services he continues to offer for inter-Faith dialogue, the renewal of the Catholic Church, his concern for the poor and the suffering Sri Lankan masses and to me, the present writer.
It was in 1988, when I was appointed Director of the Oblate Scholastics at Ampitiya by the then Oblate Provincial Fr. Anselm Silva, that I came to know Fr. Aloy more closely. Knowing well his expertise in matters spiritual, theological, Indological and pastoral, and with the collaborative spirit of my companion-formators, our Oblate Scholastics were sent to Tulana, the Research and Encounter Centre, Kelaniya, of which he is the Founder-Director, for ‘exposure-programmes’ on matters spiritual, biblical, theological and pastoral. Some of these dimensions according to my view and that of my companion-formators, were not available at the National Seminary, Ampitiya.
Ever since that time, our Oblate formators/ accompaniers at the Oblate Scholasticate, Ampitiya , have continued to send our Oblate Scholastics to Tulana Centre for deepening their insights and convictions regarding matters needed to serve the people in today’s context. Fr. Aloy also had tried very enthusiastically with the Oblate team headed by Frs. Oswald Firth and Clement Waidyasekara to begin a Theologate, directed by the Religious Congregations in Sri Lanka, for the contextual formation/ accompaniment of their members. It should very well be a desired goal of the Leaders / Provincials of the Religious Congregations.
Besides being a formator/accompanier at the Oblate Scholasticate, I was entrusted also with the task of editing and publishing our Oblate journal, ‘The Missionary Oblate’. To maintain the quality of the journal I continue to depend on Fr. Aloy for his thought-provoking and stimulating articles on Biblical Spirituality, Biblical Theology and Ecclesiology. I am very grateful to him for his generous assistance. Of late, his writings on renewal of the Church, initiated by Pope St. John XX111 and continued by Pope Francis through the Synodal path, published in our Oblate journal, enable our readers to focus their attention also on the needed renewal in the Catholic Church in Sri Lanka. Fr. Aloy appreciated very much the Synodal path adopted by the Jesuit Pope Francis for the renewal of the Church, rooted very much on prayerful discernment. In my Religious and presbyteral life, Fr.Aloy continues to be my spiritual animator / guide and ongoing formator / acccompanier.
Fr. Aloysius Pieris, BA Hons (Lond), LPh (SHC, India), STL (PFT, Naples), PhD (SLU/VC), ThD (Tilburg), D.Ltt (KU), has been one of the eminent Asian theologians well recognized internationally and one who has lectured and held visiting chairs in many universities both in the West and in the East. Many members of Religious Congregations from Asian countries have benefited from his lectures and guidance in the East Asian Pastoral Institute (EAPI) in Manila, Philippines. He had been a Theologian consulted by the Federation of Asian Bishops’ Conferences for many years. During his professorship at the Gregorian University in Rome, he was called to be a member of a special group of advisers on other religions consulted by Pope Paul VI.
Fr. Aloy is the author of more than 30 books and well over 500 Research Papers. Some of his books and articles have been translated and published in several countries. Among those books, one can find the following: 1) The Genesis of an Asian Theology of Liberation (An Autobiographical Excursus on the Art of Theologising in Asia, 2) An Asian Theology of Liberation, 3) Providential Timeliness of Vatican 11 (a long-overdue halt to a scandalous millennium, 4) Give Vatican 11 a chance, 5) Leadership in the Church, 6) Relishing our faith in working for justice (Themes for study and discussion), 7) A Message meant mainly, not exclusively for Jesuits (Background information necessary for helping Francis renew the Church), 8) Lent in Lanka (Reflections and Resolutions, 9) Love meets wisdom (A Christian Experience of Buddhism, 10) Fire and Water 11) God’s Reign for God’s poor, 12) Our Unhiddden Agenda (How we Jesuits work, pray and form our men). He is also the Editor of two journals, Vagdevi, Journal of Religious Reflection and Dialogue, New Series.
Fr. Aloy has a BA in Pali and Sanskrit from the University of London and a Ph.D in Buddhist Philosophy from the University of Sri Lankan, Vidyodaya Campus. On Nov. 23, 2019, he was awarded the prestigious honorary Doctorate of Literature (D.Litt) by the Chancellor of the University of Kelaniya, the Most Venerable Welamitiyawe Dharmakirthi Sri Kusala Dhamma Thera.
Fr. Aloy continues to be a promoter of Gospel values and virtues. Justice as a constitutive dimension of love and social concern for the downtrodden masses are very much noted in his life and work. He had very much appreciated the commitment of the late Fr. Joseph (Joe) Fernando, the National Director of the Social and Economic Centre (SEDEC) for the poor.
In Sri Lanka, a few religious Congregations – the Good Shepherd Sisters, the Christian Brothers, the Marist Brothers and the Oblates – have invited him to animate their members especially during their Provincial Congresses, Chapters and International Conferences. The mainline Christian Churches also have sought his advice and followed his seminars. I, for one, regret very much, that the Sri Lankan authorities of the Catholic Church –today’s Hierarchy—- have not sought Fr.
Aloy’s expertise for the renewal of the Catholic Church in Sri Lanka and thus have not benefited from the immense store of wisdom and insight that he can offer to our local Church while the Sri Lankan bishops who governed the Catholic church in the immediate aftermath of the Second Vatican Council (Edmund Fernando OMI, Anthony de Saram, Leo Nanayakkara OSB, Frank Marcus Fernando, Paul Perera,) visited him and consulted him on many matters. Among the Tamil Bishops, Bishop Rayappu Joseph was keeping close contact with him and Bishop J. Deogupillai hosted him and his team visiting him after the horrible Black July massacre of Tamils.
Sri Lanka-Singapore Free Trade Agreement
By Gomi Senadhira
senadhiragomi@gmail.com
“You might tell fairy tales, but the progress of a country cannot be achieved through such narratives. A country cannot be developed by making false promises. The country moved backward because of the electoral promises made by political parties throughout time. We have witnessed that the ultimate result of this is the country becoming bankrupt. Unfortunately, many segments of the population have not come to realize this yet.” – President Ranil Wickremesinghe, 2024 Budget speech
Any Sri Lankan would agree with the above words of President Wickremesinghe on the false promises our politicians and officials make and the fairy tales they narrate which bankrupted this country. So, to understand this, let’s look at one such fairy tale with lots of false promises; Ranil Wickremesinghe’s greatest achievement in the area of international trade and investment promotion during the Yahapalana period, Sri Lanka-Singapore Free Trade Agreement (SLSFTA).
It is appropriate and timely to do it now as Finance Minister Wickremesinghe has just presented to parliament a bill on the National Policy on Economic Transformation which includes the establishment of an Office for International Trade and the Sri Lanka Institute of Economics and International Trade.
Was SLSFTA a “Cleverly negotiated Free Trade Agreement” as stated by the (former) Minister of Development Strategies and International Trade Malik Samarawickrama during the Parliamentary Debate on the SLSFTA in July 2018, or a colossal blunder covered up with lies, false promises, and fairy tales? After SLSFTA was signed there were a number of fairy tales published on this agreement by the Ministry of Development Strategies and International, Institute of Policy Studies, and others.
However, for this article, I would like to limit my comments to the speech by Minister Samarawickrama during the Parliamentary Debate, and the two most important areas in the agreement which were covered up with lies, fairy tales, and false promises, namely: revenue loss for Sri Lanka and Investment from Singapore. On the other important area, “Waste products dumping” I do not want to comment here as I have written extensively on the issue.
1. The revenue loss
During the Parliamentary Debate in July 2018, Minister Samarawickrama stated “…. let me reiterate that this FTA with Singapore has been very cleverly negotiated by us…. The liberalisation programme under this FTA has been carefully designed to have the least impact on domestic industry and revenue collection. We have included all revenue sensitive items in the negative list of items which will not be subject to removal of tariff. Therefore, 97.8% revenue from Customs duty is protected. Our tariff liberalisation will take place over a period of 12-15 years! In fact, the revenue earned through tariffs on goods imported from Singapore last year was Rs. 35 billion.
The revenue loss for over the next 15 years due to the FTA is only Rs. 733 million– which when annualised, on average, is just Rs. 51 million. That is just 0.14% per year! So anyone who claims the Singapore FTA causes revenue loss to the Government cannot do basic arithmetic! Mr. Speaker, in conclusion, I call on my fellow members of this House – don’t mislead the public with baseless criticism that is not grounded in facts. Don’t look at petty politics and use these issues for your own political survival.”
I was surprised to read the minister’s speech because an article published in January 2018 in “The Straits Times“, based on information released by the Singaporean Negotiators stated, “…. With the FTA, tariff savings for Singapore exports are estimated to hit $10 million annually“.
As the annual tariff savings (that is the revenue loss for Sri Lanka) calculated by the Singaporean Negotiators, Singaporean $ 10 million (Sri Lankan rupees 1,200 million in 2018) was way above the rupees’ 733 million revenue loss for 15 years estimated by the Sri Lankan negotiators, it was clear to any observer that one of the parties to the agreement had not done the basic arithmetic!
Six years later, according to a report published by “The Morning” newspaper, speaking at the Committee on Public Finance (COPF) on 7th May 2024, Mr Samarawickrama’s chief trade negotiator K.J. Weerasinghehad had admitted “…. that forecasted revenue loss for the Government of Sri Lanka through the Singapore FTA is Rs. 450 million in 2023 and Rs. 1.3 billion in 2024.”
If these numbers are correct, as tariff liberalisation under the SLSFTA has just started, we will pass Rs 2 billion very soon. Then, the question is how Sri Lanka’s trade negotiators made such a colossal blunder. Didn’t they do their basic arithmetic? If they didn’t know how to do basic arithmetic they should have at least done their basic readings. For example, the headline of the article published in The Straits Times in January 2018 was “Singapore, Sri Lanka sign FTA, annual savings of $10m expected”.
Anyway, as Sri Lanka’s chief negotiator reiterated at the COPF meeting that “…. since 99% of the tariffs in Singapore have zero rates of duty, Sri Lanka has agreed on 80% tariff liberalisation over a period of 15 years while expecting Singapore investments to address the imbalance in trade,” let’s turn towards investment.
Investment from Singapore
In July 2018, speaking during the Parliamentary Debate on the FTA this is what Minister Malik Samarawickrama stated on investment from Singapore, “Already, thanks to this FTA, in just the past two-and-a-half months since the agreement came into effect we have received a proposal from Singapore for investment amounting to $ 14.8 billion in an oil refinery for export of petroleum products. In addition, we have proposals for a steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million), sugar refinery ($ 200 million). This adds up to more than $ 16.05 billion in the pipeline on these projects alone.
And all of these projects will create thousands of more jobs for our people. In principle approval has already been granted by the BOI and the investors are awaiting the release of land the environmental approvals to commence the project.
I request the Opposition and those with vested interests to change their narrow-minded thinking and join us to develop our country. We must always look at what is best for the whole community, not just the few who may oppose. We owe it to our people to courageously take decisions that will change their lives for the better.”
According to the media report I quoted earlier, speaking at the Committee on Public Finance (COPF) Chief Negotiator Weerasinghe has admitted that Sri Lanka was not happy with overall Singapore investments that have come in the past few years in return for the trade liberalisation under the Singapore-Sri Lanka Free Trade Agreement. He has added that between 2021 and 2023 the total investment from Singapore had been around $162 million!
What happened to those projects worth $16 billion negotiated, thanks to the SLSFTA, in just the two-and-a-half months after the agreement came into effect and approved by the BOI? I do not know about the steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million) and sugar refinery ($ 200 million).
However, story of the multibillion-dollar investment in the Petroleum Refinery unfolded in a manner that would qualify it as the best fairy tale with false promises presented by our politicians and the officials, prior to 2019 elections.
Though many Sri Lankans got to know, through the media which repeatedly highlighted a plethora of issues surrounding the project and the questionable credentials of the Singaporean investor, the construction work on the Mirrijiwela Oil Refinery along with the cement factory began on the24th of March 2019 with a bang and Minister Ranil Wickremesinghe and his ministers along with the foreign and local dignitaries laid the foundation stones.
That was few months before the 2019 Presidential elections. Inaugurating the construction work Prime Minister Ranil Wickremesinghe said the projects will create thousands of job opportunities in the area and surrounding districts.
The oil refinery, which was to be built over 200 acres of land, with the capacity to refine 200,000 barrels of crude oil per day, was to generate US$7 billion of exports and create 1,500 direct and 3,000 indirect jobs. The construction of the refinery was to be completed in 44 months. Four years later, in August 2023 the Cabinet of Ministers approved the proposal presented by President Ranil Wickremesinghe to cancel the agreement with the investors of the refinery as the project has not been implemented! Can they explain to the country how much money was wasted to produce that fairy tale?
It is obvious that the President, ministers, and officials had made huge blunders and had deliberately misled the public and the parliament on the revenue loss and potential investment from SLSFTA with fairy tales and false promises.
As the president himself said, a country cannot be developed by making false promises or with fairy tales and these false promises and fairy tales had bankrupted the country. “Unfortunately, many segments of the population have not come to realize this yet”.
(The writer, a specialist and an activist on trade and development issues . )
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