• Need to have a broader perspective on debt restructuring
• Government blindly calling for restructuring of 52 SOEs
• Every five years, people get to decide the fiscal policy
• Government trying to get the fiscal policy as a law
• Economic Transformation Bill should be relooked at
• Term of the current President ends in November
• New president must be ready a month in advance
• We are not supposed to let a referendum happen

Although there is a lot of “big talk” about the economy, only “little things” are happening, charged Opposition MP Prof. Charitha Herath, in an interview with The Sunday Morning.

“We are not paying our debt, so the foreign account is at a manageable level. There is a lacuna in the debt restructuring process and we do not know what the next step is. The Government is also not telling the country what it is trying to do. Foreign investments are not coming in. There is a lot of big talk, but only little things are happening,” he said.

As for the ongoing debt restructuring process, Prof. Herath cautioned against being entirely aligned with the International Monetary Fund (IMF)-driven structure and recommended being open-minded about it instead, while adhering in some areas. 

Commenting on the current state of debt restructuring negotiations, he said: “I think our Government has now run back to the IMF and is asking, ‘these guys are saying this; what should we do?’ We have to have a broader perspective on this and restructure the debt.”

He also called for a careful approach to the restructuring of State-Owned Enterprises (SOEs), accusing the Government of blindly calling for the restructuring of 52 SOEs. “The Bank of Ceylon, People’s Bank, etc., all are included in that 52. They are blindly saying that there are 52 that we need to restructure. If you look at the SOEs, all the main banks and some of the profit-making entities are on that list,” he added.

Asserting that the Government could also engage in some businesses, Prof. Herath said: “Once the President directly confronted my position when I was speaking in Parliament and said that the Government was not in a position to do business. This is not correct, in my view. The Government should have some authority in some sections and in some businesses. We need to categorise the 415 SOEs. The first category should be those which are important and profit-making at the moment; the second category should be those that are not profit making but important to be run by the Government; and the third should be those we should relook at in terms of either reforming, privatising, or closing down.”

Prof. Herath also decried what he described as the Government’s attempt to turn fiscal policy into law via the Economic Transformation Bill: “The fiscal policy of the country is related to its politics and the people. In this representative democracy, every five years there is a space for the people, the owners of the sovereignty of the country, to decide what fiscal policy they are going to get in. But what this Government is now trying to do is to move away from that position and get the fiscal policy as a law. So if you are going to go ahead with this Economic Transformation Bill, in this country, in the future, whatever the government that comes, unless and until they change this act, it will be the law.”

Commenting on the anticipated Presidential Election 2024, Prof. Herath said that Sri Lanka had to have a new president ready one month before the end of the term of the President in November this year: “You can’t have a day without a president in this country, according to the Constitution. You have to have that constitutional requirement fulfilled by the Election Commission, which is getting ready, and we are going to have a Presidential Election.”

As for the ongoing speculation and statements in relation to a referendum, he said: “They may try many different things, but constitutionally, legally, and politically, it might not happen. It cannot happen. We are not supposed to let it happen.”

Following are excerpts:

What is your assessment of the current state of the economy?

Well, this President started normalising things and they are now normalised. Our inflows are on the same route like in 2022 and not growing any further. There aren’t any new proposals for Foreign Direct Investments (FDIs) or any new projects, but the status quo is being maintained and we are getting the inflows which we were getting.

We are not paying our debt, so the foreign account is at a manageable level. There is a lacuna in the debt restructuring process and we do not know what the next step is. The Government is also not telling the country what it is trying to do. Foreign investments are not coming in. There is a lot of big talk, but only little things are happening.

How do you view the ongoing debt restructuring process?

You have to restructure the debt, but how to do that is the issue. We need to have a broader perspective on this. We need to start with inflows and then look at how we can start our trade negotiations and how we can deal with other neighbour-related economic activities – all these things are integrated, to give the answer to your question.

However, we are not supposed to completely go with the IMF-driven structure in this debt restructuring. There are some areas where you have to adhere to, but still you have to be very open minded on how you do that.

Now, suppose the IMF has given the structure and the kind of framework. We have started the negotiation of the International Sovereign Bond (ISB) debt restructuring, which was not successfully finished and no haircuts were agreed. There are many different things coming in. Then I think our Government has now run back to the IMF and is asking, ‘these guys are saying this; what should we do?’ We have to have a broader perspective on this thing and restructure the debt.

Given the current economic situation, the Government seems to have no choice but to restructure SOEs. What do you propose as the way forward?

That is also another area we have to be very careful about. Now this Government is saying that the SOEs should be restructured. We all agree. I was the Chairman of the Committee on Public Enterprises (COPE) during a critical time in 2022 and we had to go through the list of SOEs in Sri Lanka. We have nearly 415 SOES – some big, some small, some which are malfunctioning, and some which are not functioning properly. This should be relooked at.

In 2021 we categorised the existing SOEs into three sectors: first, those which are profitable, manageable, and can be continued; second, SOEs which are not profitable but which are very important in terms of the country’s economic growth – the SOES over which the Government should have some authority; and third, those that you can sell, reform, restructure, or even close down.

But what happened after this Government came in? It just took the 52 SOEs listed by the Fiscal Policy Department of the Treasury for doing the balance sheet of the yearly report. It has taken those 52 and identified that those 52 SOEs need to be restructured. The Bank of Ceylon, People’s Bank, etc., all are included in that 52. They are blindly saying that there are 52 that we need to restructure. If you look at the SOEs, all the main banks and some of the profit-making entities are on that list.

So what do you propose should be done?

I have proposed three categories to work through. Anybody who is going to come into government should sit together and look at how we can categorise the SOEs. All the SOEs can’t be privatised in one night and we are not supposed to privatise some of the SOEs. Some should be run by the Government. That is my position given the nature of their importance.

The other thing is, the open market can be run in a country by the private sector, but the Government can also do some businesses. This is the deviation that I had with the President. Once the President directly confronted my position when I was speaking in Parliament and he said that the Government was not in a position to do business. This is not correct, in my view. The Government should have some authority in some sections and in some businesses.

We need to categorise the 415 SOEs. The first category should be those which are important and profit-making at the moment; the second category should be those that are not profit making but important to be run by the Government; and the third should be those we should relook at in terms of either reforming, privatising, or closing down.

Three key financial bills were tabled in Parliament recently. How do you view these bills?

The first one is the Economic Transformation Bill, with which I have a lot of issues, and then the Public Debt Management Bill and the Public Finance Management Bill. These are the three bills.

Number one, is this the time to legalise these kinds of sectors in a country? This is one issue that we need to raise. I am not saying that we don’t need to engage the finance sector in legal terms in regulating, but these bills may become acts in future.

Now, for example, the Economic Transformation Bill is giving an economic direction which is held by one group of people of the country.

The current President’s political and economic position is related to a neoliberal, open market kind of economy. He calls it ‘social market economy’ or something like that, which he just brought from German terminology. That was not mandated by anybody in this country.

He has tried it in 2001, 2004, 2005, 2010, 2015, and 2019 – all these times that position was defeated. That defeated political economic position is being brought via others’ vote, which is not fair nor correct.

Secondly, there are two main arms of the economy in the country. One is monetary policy. Now, we had the issue that monetary policy was not being formed by an independent expert arm so we have now legalised the new Central Bank Act and there is a Monetary Board which is not controlled by the minister. Good enough. Monetary policy is now framed in a way that it is going to go ahead.

But the fiscal policy of the country is related to its politics and the people. Each time during elections, what we do as politicians is go before the people and explain the fiscal policy by which we are going to run the country’s economy. That can vary and, if it is defeated, you have to get another policy.

Likewise, in this representative democracy, every five years there is a space for the people, the owners of the sovereignty of the country, to decide what fiscal policy they are going to get in.

But what this Government is now trying to do is to move away from that position and get the fiscal policy as a law. So if you are going to go ahead with this Economic Transformation Bill, in this country, in the future, whatever the government that comes, unless and until they change this act, it will be the law.

For example, a government proposes a budget each year. If you make the budget a law, then every year you have to go with that, right? That is the same thing that is going to happen. That’s what I am saying. You have to look at some parts of this bill.

I can read out some of the paragraphs. For example, 3(b)i reads, ‘the transformation of Sri Lanka to a highly competitive, export-oriented digital economy, including diversification and deep structural changes of the national economy to boost competitiveness’.

These kinds of umbrella terms have been put in, which anybody can define in any way. Then they can do whatever they want to do. We have had that type of experience in this country. We have gone through many bad interpretations of these kinds of laws. That is why I think that this bill should be relooked at. It is not supposed to be passed right away.

Philosophically, we have to agree on whether we are going to have a fiscal policy as a law. That happens only in Communist countries. In Communist countries, the Communist party decides on the fiscal policy and presents it to the general assembly, saying ‘this is what we are going to go ahead with in the next 30 years’.

Is that the way that we are going to run this country? No. This is a succeeding Government and succeeding President in an intermediate space. No mandate was given. Nobody knows who has taken these decisions.

The Economic Transformation Bill lists years – achieve this in 2027, achieve this 2032, this in 2048, this in 2055. Who brought these years? Is this the President’s dream or something? I don’t know who gave these. Those things are coming as a law, which is not correct.

Even as political parties are gearing up for elections, the waters are being muddied with talk of a referendum. How do you assess the current political situation and do you believe that the Presidential Elections will be held as planned?

You can’t cancel having elections, according to the Constitution. Now, in our Constitution, we have limited the term of the president as five years. The five years will be ending by November this year. There is a provision in the Constitution that before one month of the term ending, we have to have a president ready.

According to our democracy, this country cannot function without a president on any day. The country can function without Parliament for a little time – it has happened when Parliament has been dissolved and when elections have been postponed.

I think the last elections were postponed for eight months. The country still moved forward without a proper Parliament, but with the Cabinet and the President in place. The cabinet and president should be intact in office.

You can’t have a day without a president in this country, according to the Constitution. You have to have that constitutional requirement fulfilled by the Election Commission, which is getting ready, and we are going to have a Presidential Election.

I saw that guy saying there should be a referendum and this and that, but you know, when things get complicated, sometimes you get frustrated, especially when the Government’s popularity is reducing and things are turning completely bad for the Government side. They may try many different things, but constitutionally, legally, and politically, it might not happen. It cannot happen. We are not supposed to let it happen.