• Govt. is fully aware of need for a change in direction
• SL has lost all respect in global financial community
• Must break down walls and unshackle economy
• Reforms imperative; no magical way out of bankruptcy
• All-party govt. essential as road ahead extremely tough

By Marianne David   Samagi Jana Balawegaya (SJB) MP Dr. Harsha de Silva presented a blueprint in Parliament recently featuring a 10-point common minimum programme for Sri Lanka’s economic recovery, titled ‘Out of the Debt Trap and Towards Sustainable Inclusive Development’. The move comes amid the absence of a roadmap for recovery being presented by the Government to date. Asserting that the points needed to be addressed urgently, Dr. de Silva expanded on them in an interview with The Sunday Morning and emphasised that delivering on the plan had to be a national effort: “There are no supermen, no individual is able to deliver this. What I have proposed is bitter medicine. We need the acceptance of this by the Government and we need the backing of the Legislature. The political leadership of this nation needs to pause political differences and try to unite for a defined period of time.” Following are excerpts of the interview:   How do you view the steps taken by the Government to address the economic crisis? Do you believe that it is working in line with an economic revival programme?   I think that the Government is trying to work within the contours proposed by economists to get the economy back into some sort of shape. The logic is that for a long time we had short-sighted policies and half-hearted reforms. We were anyway in difficulty, because we were running twin deficits in the budget and in the current account of the balance of payments. I think the realisation has dawned that we cannot continue down the same path. Radical reforms must take place in order to turn the ship around. These recommendations on the necessity for reforms have been there for some time, but nobody had the courage to implement them. We continued to rely on various ‘home-grown’ solutions, which took us over the edge and into bankruptcy. I believe the Government is fully aware of the need for a change in direction and I think the narrative is fairly clear on the road that we have to take.   Your blueprint contains a 10-point common minimum programme for Sri Lanka’s economic recovery. Could you outline the key points?   The first thing is to manage the debt crisis. We are completely bankrupt and in default, so we have lost the confidence in our economic management; the country has lost all its respect in the global financial community; and we are in debt to the tune of about $ 50 billion to various people. Now we have to get out of this situation. How do you get out of the debt crisis? In the short term we have to make sure that the sum of all the dollars that come in has to at least match the dollars that go out.  In that context, we have now suspended debt payments, which comes to about $ 5-6 billion a year. But we cannot suspend all debt payments; we still have to pay the debt we owe to multilaterals – the International Monetary Fund, the World Bank, Asian Development Bank, and so on. Then we have to settle trade credits. The debts we owe to countries and to private creditors also have to be restructured.  Now we are in a transition period; we have said we are suspending payment of these debts, but to meet daily requirements for foreign exchange, unless we are able to match inflows with outflows, we have to find bridging finance. That is where we are trying to speak to friendly nations and get that additional bit we need to keep our economy going. It’s a very complex equation. To win back confidence and for our creditors to give us a payment plan, they have to believe that Sri Lanka will be able to live up to the promises on repayment. In order to do that, we have to implement major structural reforms in the economy. That is how we are going to be able to manage the debt crisis While doing that, we have to make sure that the domestic financial system remains stable. This is why there has been a backlash about what President Ranil Wickremesinghe said about the need to perhaps restructure domestic debt. If that happens and there is a run on the banks and the banking system collapses, the whole thing will come crashing down. We are in a very precarious situation and we have to do a lot of things to gain back confidence so that they agree to a payment plan.  The second one is monetary policy and exchange rate policy. How are we going to stabilise the exchange rate? It went from 200 to 370; can it fall further? How do we build the value of the rupee – perhaps from 370 to 350 to 300 and so on? Can you bring controls to get people to convert their dollar income into rupees and so on, as opposed to taking away those controls and giving exporters confidence that if they bring money back to Sri Lanka, they can withdraw that money at any time? The Central Bank yesterday (17) took away the mandatory conversion of dollars to rupees. Those are things that I had recommended to win back confidence. Everything is about confidence; markets work on confidence. You incentivise the money to come back.  On interest rate adjustments, banks yesterday said that credit card interest is now 36%. What they’re trying to do is crush demand in the system so that expenditure falls and in turn imports also fall. That’s important because our basket has a whole lot of import items. To strengthen the currency, you have to raise interest rates. There are positives and negatives, but it is about getting the right balance. The other part of that is to not interfere in the workings of the Central Bank; to depoliticise the Central Bank; and not force it to print money to waste on various pseudo political projects.  The third is revenue consolidation, which means the Government must rake in about 25% of the country’s GDP as revenue because it has to spend on education, health, salaries, pensions, everything, and also capital expenditure on roads and infrastructure. We only bring in about 8% of GDP as revenue, but countries at our level of development bring in a minimum of 20%.  How do you increase revenue? How much taxes do you need to increase? Will there be new taxes? Do we get rid of all tax exemptions? These will have to be immediately addressed, in line with the first point I made about winning back confidence among our creditors by showing that we have a plan. The fourth is expenditure control. How do you manage State spending? If State-Owned Enterprises (SOEs) are making massive losses that have to be absorbed by the little revenue we have, how do you deal with it? If SriLankan Airlines’ loss for the first four months is Rs. 250 billion, how do you manage that? How do you rationalise expenditure? Do we continue to sustain hundreds of loss-making SOEs or do we restructure them? Do we shut some of them down? Do we invite the private sector to partner the public sector in some? The fifth is energy and utilities reform, which is about right-pricing energy. The biggest losses are coming from the Ceylon Petroleum Corporation (CPC) and the Ceylon Electricity Board (CEB). CPC has been selling fuel at far less than market prices, so how do you adjust those prices? Part of that has already happened with the fuel formula. When we talked about it during the previous ‘Yahapalanaya’ Government, these jokers laughed, but it would have kept the country from falling into this rut. Electricity tariff reform is happening now, but I have to add a caveat – there is a lot of corruption and wastage happening in the CEB and it is unfair to dump all the mismanaged costs on the consumer saying ‘this is how much it costs us to produce a unit of electricity’. The CEB must be reformed and broken up and private competition included, so that the cost that is reflected is actually the lowest possible cost, not the cost that includes the additional cost of corruption.  The sixth point is public sector management and digitalisation. Can we continue to hire people in the public sector? No. We have to freeze recruitment and look again at the numbers we employ in every Government agency, including the military. Public sector reform must happen. Some will have to be given a golden handshake or perhaps no pay leave to work overseas.  Obviously we have to introduce a lot more digitalisation in service delivery and create efficiencies in the public sector while at the same time cutting down the need for so many people. Isn’t it better to pay a decent wage to a small number of people, bring in digitalisation, and improve the service? Seventh is trade and industry promotion. This is about export promotion, breaking down the walls around this country, building projects to the world, bringing in the right kind of investment, integrating Sri Lanka with global production networks, and so on. It’s about unshackling the economy. We have too many regulations and restrictions; doing business must be made easier. Point eight is the need for labour market reform. We need unemployment insurance as opposed to what is called the Termination of Employment of Workmen Act, which means that the onus of getting an employee to go falls on the company. Companies go bankrupt because in bad times they can’t afford to keep all the employees, but our laws don’t allow letting them go. This is about socialising the cost of giving freedom to employers and employees to move from one place to another.  If someone is unemployed for a period of time, there must be unemployment insurance, until they find another form of employment. It’s an insurance scheme that every employer and employee will contribute towards, so that it is not the onus of just one employer or the fight of one employee in the Labour Tribunal. It doesn’t happen in the public sector, because they print money and continue to make billions of losses, but in the private sector people don’t want to hire because they can’t fire. We have to be modern in our thinking and create a platform where employees and employers both have the freedom to move around.  Nine is a very important point about strong social safety nets. When all these reforms happen, the less fortunate will have to bear the brunt. The cost of living will become unaffordable and they may lose employment; if they’re self-employed, they may be in real trouble. While the reforms happen, the Government has a responsibility to ‘look after’ the lower income segments of society. For instance, when the fuel subsidy is taken out and fuel goes from Rs. 200 to Rs. 500 per litre, you can collect that money from the more affluent guy who continues to pump 60 litres into his Mercedes but that money has to be used to smoothen the impact on the poorer sections of society. It’s almost a cross subsidy and it has to happen through cash transfers.  The last one, which actually should perhaps be the first one, is transparency and accountability. Politicians and officials have continually acted in their own self-interest by way of corrupt practices, bribes, and wrong projects. How do you strengthen transparency and accountability? How do you empower the Commission to Investigate Allegations of Bribery or Corruption? One thing I want to add that I don’t have in the document is something MP Eran Wickramaratne has been pushing vociferously – an independent prosecutors’ office, so that the law will be applied irrespective of who you are. Those are the 10 points that I think need to be addressed urgently. Beyond that, as a foundation for prosperity, I believe in what is called a social market economy. Once we come out of this rut, looking at the medium- to long-term horizon, we need to create a Sri Lanka that is knowledge- and technology-based, one that is highly-competitive with the rest of the world; a social market economy – not just economically, but also political liberalism in terms of equity and justice – that is the only way we can even dream of becoming a prosperous country.   Has there been any response from the Government or the President to your plan?   The response has been very positive from many corners, however there have been some very negative comments as well by people who do not believe in the need for reform, who think there is an alternative. There is acceptance from the people who have been arguing such structural reform, but some who are not in favour of reform seem to think there is some magical way out of bankruptcy – I don’t know what that is.   If the President asks you to join the Government to implement the blueprint, would you be willing to do so? Are you prepared to join the Government while being a member of the SJB?   We have tried desperately to form an all-party government, where parties join the mechanism, not individuals. That must happen because the road ahead is extremely tough and unless we all come together, we will not be able to get out of this crisis. If people try to put a spanner in the works in terms of reforms, we will continue to fall. Others will pass us and prosper as we languish. We must make every effort to pause politics and try to get this country out of this mess. Having said that, I suggested yesterday (17) during my press briefing that you need two hands to clap. Just as much as the Opposition has to meet in the middle, Ranil Wickremesinghe and his Government must do the same. The condition has to be that this is an interim set-up. It has to have an end and a sunset clause. The sunrise should be a government that has the blessings of the people, a democratically-elected government.  What we now have is a contradiction. For us or for anyone to participate, the duration of the interim government and the common minimum programme must be agreed upon. There cannot be an open-ended ‘deal’ where certain people join. That is the middle ground we need to have for an all-party mechanism to succeed.    If the SJB is not agreeable on joining the Government, but the Government wishes to implement your blueprint, what then? You have the practical knowledge on it since you took a lead role in its compilation and if you are not willing to play a lead role in its implementation as well, how successful could it be?   It’s a very tough predicament. This needs to be done but I cannot do it by myself, Ranil Wickremesinghe cannot do it by himself, and Sajith Premadasa cannot do it by himself.  There are no supermen, no individual is able to deliver this; it has to be a national effort. What I have proposed is bitter medicine and there is really no point in me trying to champion this on my own, it won’t work. We need the acceptance of this by the Government and we also need the backing of the Legislature. I presented this plan because no one else did it. It is not about Harsha de Silva, it’s about the political leadership of this nation that needs to pause political differences and try to unite for a defined period of time.   If these reforms are not implemented, how long do you think Sri Lanka will continue to face this economic crisis and how long will it take to recover?   It will take a long time. We will muddle through and we will falter. There will be social upheaval and the entire social fabric will get damaged. People will leave. We will just languish at the bottom. It is absolutely imperative that we do this now. We are bankrupt, for crying out loud. What more evidence do we need that what we have been doing is wrong?