30th  June 2002, Volume 8, Issue 50















PM's economic war and politics

By Suranimala

With the government under attack over the crippling cost of living amidst opposition plans to submit a no confidence motion, Prime Minister Ranil Wickremesinghe last week decided to declare war on inflation and go public with the ails that are afflicting the nation.

While so doing through an address to the nation where he is expected to place on record the state of the economy the UNF inherited from the PA administration of President Chandrika Kumaratunga, Wickremesinghe will also announce new measures the government plan to adopt to reduce the cost of living in addition to his new developmental plans.

Even as the blueprint for the government's economic plans were drawn, a political strategy to obtain the two third majority in parliament for the conscience vote was also set in motion with the likes of Samurdhi Minister S.B. Dissanayake assuring the prime minister the two third majority was in the bag.

Noose tightens

At the same time, the noose was also tightened around President Kumaratunga with Finance Minister K.N. Choksy, the chairman of the cabinet sub committee probing the luxury vehicle issue submitting a damning note to the cabinet, wherein Kumaratunga has been called upon to answer a number of queries, which could well be incriminating. (See page 9)

With the stage thus set, the government focused on the 18th amendment last week and initially the government had to decide whether or not it would include the amendment to revoke the president's power to dissolve parliament at the end of one year together with the conscience vote, whereby a member could vote against the party whip without running the risk of losing his or her parliamentary seat.

And it was after weighing the pros and cons of introducing the amendment to curtail the president's powers together with the conscience vote that the government decided to proceed with both amendments, confident the numbers were available to get it through parliament with a two third majority. Failing which, the government decided to look at the general election option.

Thus, the government would in July introduce a constitutional amendment covering two grounds, that is giving MPs the right to vote with their conscience as well as revoking the president's power to dissolve parliament at the end of one year.

Prior to taking this decision, as stated earlier, the government at a top level meeting where Prime Minister Ranil Wickremesinghe, Power Minister Karu Jayasuriya, Constitutional Affairs Minister G.L. Peiris, Samurdhi Minister S.B. Dissanayake and UNP Chairman Malik Samarawickrema were present discussed the pros and cons of introducing the amendment where the possibility of calling a snap general election in October was also mooted in the event the two third majority was not forthcoming.

In moving this idea, Minister S.B. Dissanayake said though there were some rumblings in Colombo over the cost of living, the popularity of the government was very high in the provinces due to the ongoing peace process and record prices the farmers were getting and the UNF could easily increase the majority at a general election where unlike in 2001, the state machinery too would not be in the hands of the PA.

"Sir, the two third majority is there with a large number of PA MPs now pledging support. But even if we fail there is no problem because we can go for an election and ensure a clear margin of victory after which getting the two third will be very easy in parliament," he said.

Giving thought to this proposal, the prime minister requested Minister Peiris and the team to work out the statistics of the local authority election results and verify by what margin the UNF can increase its representation in parliament and this they did.

Having compared the 2001 general election results with the local authority election results of 2002, it was observed that the UNP's percentage of votes had increased from 45.62 percent to 56.66 percent while the PA's had declined from 37.19 percent to 30.69 percent while the JVP too dipped from 9.12 percent to 7.25 percent.

In raw figures the UNP vote had increased from 4,056,026 to 4,134,260 despite a lower voter turn out, whereas the PA vote dropped dramatically from 3,330,815 to 2,257,678. That is a decline of over a million votes. Likewise the JVP plummeted from 815,353 votes to 461,547 votes.

Further analysing these results, in terms of parliamentary seats, the UNP would have gone up from 109 to 132 while the PA dropped from 77 seats to 59 though the JVP will manage to keep its 16 seats. In addition, the Muslim Congress running alone in given areas would according to the local authority results secure one seat and the Tamil National Alliance 17.

In such a situation, the UNF would have the required 150 MPs for the two third majority without a single PA MP voting for the government.

Having considered these figures it was decided the amendment would be introduced in July with the option of calling for a snap election in the event of failure to muster the two third majority.

The economic crisis

With that policy decision taken, the prime minister focused on the economic crisis where reports submitted by various sub committees dealing with the different sectors came to be considered.

Finally, it was on Tuesday, June 25, the economic affairs committee met with the prime minister to discuss the reports available and work out a strategy to kick start the economy and reduce the cost of living. Among those present at this meeting with the prime minister were Ministers K.N. Choksy, G.L. Peiris, Bandula Gunawardene, Milinda Moragoda, Treasury Secretary Charitha Ratwatte, R. Paskaralingam, Central Bank Governor A.S. Jayewardena, Faiz Mohideen of the External Resources Department and Malik Samarawickrema.

One specific area focused on at this meeting was the escalating fuel prices and the impact the rising prices were having on the cost of living and it was decided Ministers G.L. Peiris, K.N. Choksy, Bandula Gunawardene and Milinda Moragoda would work out a formula for a price reduction before the end of the week to enable the prime minister to make the announcement in his address to the nation.

The thinking was that if the fuel prices were reduced by around Rs. 3 to 5 per litre it would immediately ease the pressure on industry as well as consumers, helping in turn to reduce the cost of living.

It transpired at these discussions that the Ceylon Petroleum Corporation due to serious mismanagement was running a huge debt and in a bid by former Minister Anuruddha Ratwatte to overcome this crisis, the previous government had agreed with the Asian Development Bank to peg fuel prices to international market rates whilst topping it up with a further increase in the local market to recover the losses from the people.

This increase in addition to the international rates was deemed necessary since the CPC had been borrowing huge sums of money from the Peoples' Bank which as a result was facing liquidity problems and the strategy was to levy an increased rate from the public and pay the Peoples' Bank the monies due.

The cost of living

According to the agreement worked out by the previous government with the ADB, the plan was to pay off the debts through the increased burden on the people over a period of two years.

And the International Monetary Fund in considering the structural adjustment facility for Sri Lanka too had pushed for the implementation of this agreement within the two year period, placing the new government on somewhat of a bind.

It is to overcome this situation that it was decided to explore another scheme whereby fuel prices can be reduced without falling foul of the lending institutions, thereby easing the cost of living burden on the people.

However, if the standby facility was to be proceeded with, which meant taking tough measures in the short term, no adjustments could be made on fuel prices for example and the government thus looked at a long term solution for the economic crisis at this meeting.

And having considered available options over a period of time, the prime minister suggested they look at the poverty reduction and growth facility of the lending institutions whereby the government could go for a long term loan at a lower interest rate provided necessary economic reforms to put the economy back on track is agreed to.

Thus, if an agreement with the lending institutions can be worked out for the poverty reduction and growth facility, the government would not be bound by the commitments on the standby facility, thus enabling it to proceed with the reduction of fuel prices, paving the way for the easing of the cost of living burden.

That would for example mean privatising some of the assets of the CPC, such as the refineries and also in other sectors that are loss making.

Yet another option discussed was to renegotiate the standby facility where the recovery period of the monies through the CPC by placing an added burden on the people could be extended from two years to three. It is to work out a scheme on these issues that Ministers Peiris, Gunawardene, Choksy and Moragoda were given the weekend deadline.

At the same time, the depreciating rupee was also causing concern in government circles and at this meeting Central Bank Governor A.S. Jayewardena was specifically asked what pressures will be on the rupee given fears it will go over the roof compared to the dollar in the immediate future.

The Central Bank governor explained that the rupee normally depreciates by about 8 percent per annum against the dollar but would go higher this year though there was no danger of the rate going over the roof. However, he said inflation was running high at 11 percent and steps should be taken to arrest that development.

In addition to these problems, the government last week also ran into difficulty over the introduction of the Value Added Tax (VAT) system due to it being challenged by the Consumer Protection Society in the Supreme Court.

VAT system

The VAT system was to come into effect on July 1, but with the court action pending, the government was left with no option but to put it on hold.

In fact, a concerned prime minister inquired from Attorney General K.C. Kamalasabayson whether the government cannot proceed with the VAT scheme pending the Supreme Court decision, an issue the Finance Ministry too discussed with the attorney general on Tuesday, June 25.

What the Finance Ministry specifically asked the attorney general was whether they could recover VAT from July 1 pending the Supreme Court decision to which Kamalasabayson responded in the negative.

Conveying his decision to Ms. Rose Cooray of the Finance Ministry, the attorney general said no collections can be made till the court decision is known since there would be no way of reimbursement in the event the order goes against the government.

"We cannot assume the decision will be in the government's favour," the attorney general had said.

Thus, with dates fixed for next week for the case, the government would have to wait at least till the second week of July before it will know whether the Supreme Court would reject the petition paving the way for the government to introduce the VAT system, which it hopes will also help reduce prices, hence the decision to wait till August 1.

In any event, once the decisions on the economic reforms are arrived at, the prime minister plans to present it to cabinet for final approval where no doubt President Kumaratunga will have her own input, fully realising the government is placing the entire economic crisis facing the country at her feet, having been finance minister for over seven years.

This fact was evident even at last week's cabinet meeting when the appropriation made by the Treasury to the provinces came up for discussion.

With the Treasury having slashed the appropriation recommended by the finance commission by almost 20 percent, President Kumaratunga took issue stating the recommendations of the finance commission should have been carried out without cutting down on the figures.

Linking the issue to the government's stated commitment to the devolution of power, the president asked why the government was cutting down on the allocations to the provinces if it was committed to greater devolution.

"The finance commission recommendations should be implemented fully and tabled in parliament. The Finance Ministry should not tamper with it," the president said.

Politically of course it is to the PA's advantage to have more finances allocated to the provinces since it controls all the councils bar the Central Province and hence Kumaratunga's concern.

However, Prime Minister Wickremesinghe dissented, telling the president the finance commission's recommendations were those made during the previous regime and as such was the position of that government and not his.

Backing up the prime minister were Ministers G.L. Peiris and K.N. Choksy who pointed out, parliament was supreme and since the budget was tabled and approved in parliament, there was no need to table the report again.

Crisis of confidence

Be that as it may, the problems in the economy and the slowing down of the peace process has also led to a crisis of confidence in the government, giving rise to internal dissent as well as was evident at the pre-cabinet meeting last week.

The pre-cabinet meetings are held without President Kumaratunga where the UNF can focus on strategy and key issues without an enemy within and it is at this meeting last week trouble erupted over the handling of the economic crisis.

With the prime minister spelling out the ground realities, it was clear to all ministers present that the legacy they inherited from Kumaratunga was one of economic ruin and the consensus was that the given reality should be effectively communicated to the people.

It is on this issue that Consumer Affairs Minister Ravi Karunanayake raised issue targeting the Chairman of the Public Enterprises Reform Commission, P.B. Jayasundera and Central Bank Governor, A.S. Jayewardena, both of whom were also Finance Ministry secretaries under Kumaratunga.

Karunanayake asked how the government can with any justification blame the Kumaratunga regime for the economic crisis facing the country when the two key officials responsible for the mess together with the president were retained by the UNF in key positions.

The minister went on to point out that Jayasundera in particular had in a press interview on April 10, castigated the government's budget while in another article in the Lankadeepa  on May 15, whitewashed President Kumaratunga.

"We are called upon to play as a team and we must, but then we cannot have such people pulling the rug under our feet," he said.

Economic Reforms Minister Milinda Moragoda, under whose purview Jayasundera serves, however, was of a different view and said the government should not penalise public officials on political grounds but judge them on their work.

Moragoda said the public service would otherwise be totally demoralised and the negative effects of such a development would be on the government and went on to say in any event, given the difficult task entrusted to him, he needs a good team to work with.

"However, if there is any impropriety on the part of P.B. Jayasundera, I will take action but not on political grounds," he added.

A lone battle

But Moragoda had to wage a lone battle with all the ministers who spoke out on the issue coming hard on Jayasundera with Minister S.B. Dissanayake the first to speak after the economic reforms minister.

Dissanayake said Jayasundera's head was swollen to such an extent during Kumaratunga's tenure, none could get close to him, adding on one occasion after Kumaratunga slashed the Samurdhi allocations, the then finance secretary had told all concerned it was done "at my request."

"He has lied to protect her," Dissanayake said, a view buttressed by Minister G.L. Peiris.

Minister Peiris commenting on the issue said he knows for a fact Jayasundera ran the Finance Ministry as if it was his private property.

"Having served as deputy finance minister, I know what he was upto. He did everything in his power to bring back the PA to power transcending his role as a public official," Minister Peiris added.

Joining in with similar criticism was Justice Minister W.J.M. Lokubandara with Cooperatives Minister A.R.M. Cader going to the extent of saying not only should Jayasundera be ousted, but fined for mismanagement.

"We are getting scolded for the mess he has left behind," Cader went on to say while Interior Minister John Amaratunga, Lands Minister Rajitha Senaratne, Minister Tissa Attanayake and Urban Development Minister M.H. Mohomed also made their own criticisms on Jayasundera.

With those comments made, Karunanayake once again chipped in to say if special teams are requested, it should be given to everyone and that as for impropriety, Jayasundera has to, together with Kumaratunga, answer for the multi million dollar luxury vehicle purchase without tenders or cabinet approval.

"Even on the Air Lanka issue, he is responsible. How could the order for Airbuses be placed in January when the agreement was signed only on March 31, 1998. There are enough issues when it comes to impropriety," Karunanayake charged.

To his credit, Moragoda weathered the storm and stood by his official but called upon his colleagues to furnish whatever material they had against Jayasundera stating he would take action if  any impropriety is proved.

The prime minister who listened to the exchange no doubt realised, the sins of the past government were visited on him but nevertheless would have to take drastic steps to put the economy on track lest it starts telling on his government, especially with the focus shifting from the peace process due to the delay in getting the talks started.

Thus, Wickremesinghe has the work cut out for him and it remains to be seen what message he has for the nation to put things right when he goes before the people this week.




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