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We have to get together as in a war situation: Prof. Rohan Samarajiva

05 Jun 2022

  • Common minimum programme needed
  • 21A and reducing President’s powers essential
  • Privatise SriLankan Airlines 100%
  • Freeze all public sector hiring
  • Restructure bloated armed forces
  • Cancel Ruwanpura Highway immediately
  • Relief budget needed now, not roads
By Marianne David The inability of Sri Lanka’s political class to take decisions will result in the people undergoing significant suffering, asserts LIRNEasia Chairman Prof. Rohan Samarajiva, who has been sounding alarm bells over the country’s collapse since last November. “When I look back seven months later, when I stand in a petrol queue and the petrol runs out three cars ahead of me, I see all those things I said coming true. I was called a Cassandra in the State media. My response is, yes, I am an unfortunate Cassandra who foretells the future accurately, but no one listens,” said Prof. Rohan Samarajiva, in an interview with The Sunday Morning.  Outlining a way out of the ongoing crisis, he emphasised that getting the 21st Amendment through was essential, followed by a stable all-party or multi-party government, with which Sri Lanka could negotiate bridging finance, get the economy running, and prevent people from going hungry. He also spoke on public sector reforms and urged the immediate privatisation of SriLankan Airlines to halt the haemorrhage: “SriLankan is a bankrupt company and it has got to go. It will signal to all our debtholders that we are serious about getting our house in order.” Following are excerpts of the interview: What is your take on the state of the nation right now, politically and economically? I think our political class is confused and unable to take decisions, therefore, the people will undergo significant suffering in terms of food and essential items. For anybody who wishes to know what our future is going to be, I have for many months been pointing to the example of Lebanon, which went for two years with a political class which was unable to take decisions and it’s that indecision which caused the suffering of the people. I am rather pessimistic about the next three months.  What do you propose as the way out? We have to agree on a common minimum programme. This is a position I have had since before last November, it was publicly stated by me at a meeting in November, when I made a presentation in front of people from multiple political parties. I said we have to all get together as in a war-time situation and I explicitly referred to Britain in wartime, how Churchill worked with the Labour party, and said we have to respond to this. That was the first public statement I made, along with articles I wrote, referring to Lebanon, giving specific examples of the situation there.  Now when I look back, seven months later, when I stand in a petrol queue and the petrol runs out three cars ahead of me, I see all those things I said coming true. I was attacked and called a Cassandra in the State media. My response is, yes, I am an unfortunate Cassandra who foretells the future accurately, but no one listens.  We have to get the 21st Amendment through, even with a few imperfections; we have to reduce the powers of the President. We need to get 151 votes for that; that is the most important first step. The 20th Amendment is responsible for quite a lot of the problems we are having today. After that we need a stable all-party or multi-party government; then we can negotiate bridging finance, get the economy running again, and prevent our people from going hungry. How do you view the proposed 21st Amendment in its current form? The current amendment being discussed within Government authored by Minister Wijeyadasa Rajapakshe has three areas of concern. The first is about the ability of the President to dissolve Parliament after two-and-a-half years – it should be changed and put back to four-and-a-half years. I don’t think that is a big sticking point. The second is about the President’s ability to hold portfolios. That is a critical one and I believe pressure should be brought to get rid of that. It looks like the compromise is that the President will only be allowed to hold the Defence portfolio. I don’t think there is grounds even for that but in the spirit of compromise we may be able to live with that. The third is the removal of the dual citizen provision, which is not in itself a problem, but there is a new section that has been added that any dual citizen is in Parliament at this moment will lose their position as an MP as a result of the amendment going through. I believe this will be a problem, as there is a certain nature of vindictiveness around it, which may create problems in getting 151 votes to pass the amendment. Given the crisis situation, what would you list as urgently-needed reforms to the public sector in Sri Lanka? We can look at the public sector in terms of four separate components. One is the core business of government – courts and things like that – and we actually need to spend more money there and have faster settlement of cases. Then we have what could be termed as the ‘old government’ – departments which have pensions and so on. It is overly large and we need to make sure it can function, so attention needs to be paid to the upper levels of that component, the secretaries and so on. They should not be seen as opportunities to get a title for everybody.  When I was working in government for 20 months, I had to work with six secretaries in one ministry. People who were just about to retire would be appointed; there would be welcome ceremonies, followed by farewell ceremonies a few months after, and they would go away with a car or whatever goodies they get. That has to stop. We need real concentration on having competent, well-trained people at the top of the government system. At the bottom of the system, we should freeze all hiring 100% and any vacancies that come up should be given to people who are already in government service in another place and are most likely superfluous. Then we have the corporations, where the government is engaged in commercial activities. I was one of the first to suggest that we sell SriLankan Airlines since the day it was forcibly taken over from Emirates. There is no alternative but to sell it lock, stock, and barrel, 100%, after carving out the catering affiliate and the ground services. The airline should be sold and there is precedent in the sale of Air India. This should be a demonstration project to show that the Government is serious about reforming State-Owned Enterprises (SOEs) which are mismanaged. Within the SOEs that are in commercial sectors, consideration should be given to consolidation, sale, etc. With regard to utilities, where losses are excessive – Ceylon Electricity Board (CEB), Ceylon Petroleum Corporation (CPC), etc. – we have to go for a cost-reflective, formula-based tariff and restructuring but not necessarily privatisation. Then we are left with the last element of the government structure – the armed forces and Police. Serious attention needs to be given to this because there has been an extraordinary expansion in the numbers in the armed forces and as the regular attrition happens there should be no new recruitment.  In addition I think we are spending too much money on salaries and unproductive activities. To serve the 50 or 60 major generals, there are a whole lot of junior staff whose only job is to do their laundry, drive their cars, and so on. We will need to look at restructuring the armed forces, reducing the bloat at the top, and focusing more on a smart and lean armed forces rather than this bloated mess that we now have. When you do all that, you will have extraordinarily comprehensive reform of the government sector. Successive governments have discussed public sector reform for decades, but there has been little or no progress. Is it a lack of political will or are there other factors at play? There has been an unholy compact between the people of this country and those seeking political office; those seeking political office and re-election have given unrealistic promises to the people, who have then voted those kinds of people to office. For example, one of the best finance ministers that we had in our history was Mangala Samaraweera. Why do I say that? Leaving aside prior loans and interest on the loans, the government must run a primary surplus; it must bring in more than it spends. In Sri Lanka’s entire 74-year history we had maybe one or two years in the 1950s when this target was achieved and then there were two years under Samaraweera. But what happened? The Government that he was Finance Minister of was punished very harshly by the voters.  Or take the example of Champika Ranawaka; when he was appointed as the Minister of Energy [2010], he put in place a comprehensive programme for demand side management, which is better than building more power-generating plants, but look at the reward he got. The people who waste Rs. 3 billion per kilometre for the Matara-Beliatta stretch are in. Rs. 3 billion per kilometre – that kind of expenditure is rewarded by our people. It is an unholy compact between these unreasonable politicians who do the wrong thing and the populace who rewards them, while people who try to do the right thing are not so rewarded, which has been the cause. However, I am optimistic that, despite the devastation that I expect to happen in the next few months and maybe years, when we rise from the ashes, that compact will be consigned to history because we will rise as more active and aware citizens rather than as participants in this unholy compact.  Prime Minister Ranil Wickremesinghe recently said we have to print money to pay public sector salaries; how long can we sustain such an approach? It cannot be sustained. He is juggling too many things, because he doesn’t really have the support of the Opposition. People are not joining the Cabinet; as a result he is not able to get bridge financing, etc. The last thing he wants is some massive protest from State sector employees, of whom we have at least 1.6 million; COPE Chairman Charitha Herath thinks it is even larger than that.  There is no other way than to print money to pay salaries, but it erodes everybody’s purchasing power. The argument might be ‘now all this damage is done, so why not one more burst of money printing and we will get the constitutional amendment through, we will get some bridge financing, then we will stop money printing,’ but that is not likely because certain actions – like restoring the entire tax regime that was in place before 2019 – will have to be done for Government revenues to go up because the Government just does not have money at this point. How can that be done before the next salary bill comes, before the 25th of this month? We are facing a very bleak situation.  Private sector employees took 50% pay cuts in the early days of the pandemic. Government employees do not seem to be ready for any pay cuts. So it’s a dilemma and a very difficult choice.  Which SOEs should Sri Lanka look at privatising immediately and how should we go about it? SriLankan Airlines should be privatised immediately. I think it can be done in less than a year. We will need to do it transparently. It will have to be given to a strategic investor, you need technical consultants, all the assets need to be properly documented, and the affiliates need to be broken up. I think ground handling and catering are already separate operations, but they have to be properly broken up. We also have to resist the idea some people seem to be floating around of bundling the airport and the airline. That is a counterproductive idea and should be resisted. As we come out of this mess, tourism will continue to be important. It’s a beautiful country, it’s worth visiting, it has incredible variety, and it will be even cheaper. After all this devastation, everyone’s living standards and salaries will go down. It will be an even cheaper destination so we need to get low-cost carriers in. The only way to do that is to have an airport that is completely competitively neutral towards airlines.  We don’t need one airline hogging all the attractive gates and discriminating against other airlines. We should never bundle the two. Even if the airport is contracted out to someone to operate in an efficient manner compared to the mess that we have now, it should be different parties than the people who have the airline. Is it only SriLankan Airlines that you think should be privatised right now? We have to be realistic at this point; how many tasks can we take on? So I would say that SriLankan has to go because of the haemorrhaging losses it is causing our Government. It is a bankrupt company and it has got to go. It has got the demonstration effect – it will get a lot of publicity and signal to all our debtholders that we are serious about getting our house in order. The other natural candidate which doesn’t need a huge amount of preparation – I am looking at the low-hanging fruit – would be another 10% of the Government holding in Sri Lanka Telecom (SLT). It is likely that the foreign partner, which already holds 44%, will snap up the 10% so that they get majority ownership. If that happens, some of the ill-advised and commercially-stupid decisions being taken can be stopped.  During 2015 and 2019 I had the opportunity to observe some of the meetings and I could not believe what was going on. Even though it was a private company, there were lots of illogical decisions being made. If the foreign partner has more than 50%, we can stop that and there will be some revenue for the Government. I am not saying the Government should immediately get out of it, but it’s something we should target.  SLT is one of the comparatively successful privatisation stories, while SriLankan Airlines failed. What does the Government need to get right when engaging in privatisation? SriLankan didn’t actually fail. It was a successful privatisation, where about 40% of its shares were sold along with a management contract to Emirates, during Chandrika Bandaranaike Kumaratunga’s Government in 1998. They managed the company for about eight years, during which time they suffered incredible damage with the airport attack and half the fleet being destroyed, yet they kept paying dividends for the Government share. The important thing was that the partner, even though they held only 40% of the shares, had the management contract to run it.  Similarly, in the case of SLT, it’s the Japanese who managed the company in that period, even though they held only 35 or 38%. It was Thilanga Sumathipala who came up with all kinds of nationalistic stances and cancelled the management contract. That’s when SLT started going downhill. The important thing is that the internal culture of these organisations must change for them to be successful. For that, there seems to be no alternative but to get companies with experience as partners and for them to change the internal culture. SLT is still doing well because of the changes that were made since 1998 until the management contract was cancelled in 2002. What do you think the new Government should focus on in its upcoming budget? It should be a relief budget. We are the most unequal economy in all of South Asia. We have to have a massive social safety net in order to prevent people going hungry. That means we have to reallocate resources away from building roads that nobody goes on.  For example, the Ruwanpura Highway should be immediately cancelled and that money should be reallocated for a social safety net, where the World Bank has already redirected its resources. We need to do that in an efficient manner by putting money directly into people’s bank accounts and keeping them alive. A relief budget is what we need; forget about development for now.  In terms of the political stability that we need to ensure economic stability, do you think that those in Parliament right now will reach some middle ground? We have to work with the people that we have. In a situation like this, international experience shows that even if you have an election, you are likely to get a fractured mandate. The entire political landscape will change in the next election, the existing parties will probably get wiped out, so you are not going to get a stable government with a new cast – particularly if we don’t get rid of the 20th Amendment. Then you will have a president with all the powers and a disempowered Parliament that is completely fractured, so we have to work with the lot we now have.  The key elements are clipping the wings of the President by removing the 20th Amendment and agreeing on a common minimum programme. There is a lot of work going on to try to get consensus around a set of economic actions – which include a social safety net, reducing Government expenditure and increasing revenue, promoting or removing barriers to exports and so on – which will be made public very shortly.  We need to have people sign on to a common minimum programme; not just join the Cabinet on the basis of ‘we are the only people willing to join this Cabinet’. Then that Cabinet should work on implementing the agreed-upon programme, which will be public and can be monitored by the public.  Will empowering Parliament by adding committees to look into public finance and hold the Cabinet and President accountable to Parliament help address the issues? Absolutely. I think nothing by itself will address all the issues as we have a full-blown unprecedented crisis, but empowering Parliament and getting the committees working is important. I think it’s not just those two but the oversight committees that were tried out during 2015 and 2019 – which I personally had considerable interactions with and were mothballed under the present Government – that also need to be reactivated immediately. I think it’s a very good way where we bring in all MPs belonging to all parties, young and old, experienced and inexperienced, to participate in the business of governance that they were appointed to do, rather than run around building roads in their electorates. Given Sri Lanka’s track record, do you think international investors will take us seriously this time? How can we regain credibility? There is no single answer to this question of where we are likely to see investments. There is that unfortunate but somewhat true statement – when there is blood on the streets, there are certain kinds of investors who may be attracted to places like this. I don’t think we should build our hopes on things like that.  But let’s take things like renewable energy. We obviously have difficulty investing in renewable energy, but foreign investors, if they see the prospect of stable government and commitment to addressing fiscal deficit and current account deficits, may see value in investing in solar and wind power in Sri Lanka for export to India.  There are a lot of things that need to be done – investment in the transmission network, connecting the two grids across the Palk Strait, etc. – which will take time. But we must remember that these are scarce resources and it is customary to auction them through transparent processes; unfortunately this Government has been giving them away like their personal property. It should be done in a transparent manner.  


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