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 Politics  

Cabinet defies Supreme Court as LTTE spoils Killinochchi party


Mahinda Rajapakse,  Sarath Silva, A.H.M. Fowzie, Dinesh Gunawardena

 

While decisive battles are expected to be waged in the Wanni as the February 14 provincial council polls for the North Western and Central Provinces draw near, the government moved last week to meet the immediate challenge posed by the opposition over the fuel price reduction with an economic stimulus package which only helped aggravate the confrontation between the Executive and the Judiciary.

Survival

That the government is totally dependant on the war for political survival there is no gainsaying and the senior-most minister in the administration D.M. Jayaratne no less admitted in an interview with this newspaper the previous week, the war is being marketed for political gain.

Underscoring this point was Transport Minister Dulles Alahapperuma, who announced the ruling party slogan for the upcoming provincial polls, "Let's protect the war that protects the country," and with that the UPFA made it clear it will continue to market the war as the government's principal achievement.

 The intensity of the propaganda hype was such in the lead up to the North Central and Sabaragamuwa provincial polls, the people verily believed the government when it claimed Kilinochchi will be librated by election day, August 23.

Then, four months later with Kilinochchi yet to be librated despite the deaths of hundreds of soldiers the Defence Ministry announced on Tuesday, December 30 a new target, stating "the strategic focus of the Wanni counter terrorist operation shifted from the Kilinochchi front to the Mullaitivu front.."

Having for months stated Kilinochchi was within hooting distance and later kissing distance, the ease with which the Defence Ministry broke the news on the change of strategy went largely unnoticed even as Defence Spokesperson, Minister Keheliya Rambukwella announced a new target, namely the capture of LTTE Leader Velupillai Pirapaharan by February 7.

Missed

In doing so Rambukwella himself missed the target by a week, believing the provincial council polls were going to be on February 7 as earlier speculated, only to later learn the election date is February 14.

The government of course had its share of successes on the military front as well which will help in the election campaign particularly with the recapture of strategically important Paranthan and riding on that success Army Commander Sarath Fonseka gave a 48 hour deadline to liberate Killinochchi, notwithstanding the Defence Ministry report earlier in the week of shifting focus from Killinochchi to Mullaitivu.

Now, the people no doubt will be eagerly waiting for the government to deliver at least on that promise and capture Pirapaharan by February 7.

At the time of writing the security forces were, it was said on the verge of liberating Kilinochchi and hurried moves were made at Temple Trees for President Rajapakse to address the nation. Late Friday afternoon, the government officially announced the liberation of Kilinochchi with the President making one last offer to the LTTE to surrender their weapons and enter the democratic mainstream.

This propaganda hype came at a time the government had received intelligence reports the previous week of the LTTE unloading a fresh supply of weapons to launch a major offensive, a hint of which came from the Tigers themselves who through a number of statements issued by Political Wing Leader B. Nadesan claimed the organisation will soon show its prowess.

Concern

Whether the Tigers are themselves making idle boasts remains to be seen, but what it is causing concern in government circles was given vent to in private by none other than President Mahinda Rajapakse and Environment Minister Champika Ranawaka, who said the UPFA can ill-afford any military setback at this juncture when the economy too is going through a crisis.

One factor which has given cause to worry is the failure of the security forces to capture any of the LTTE's heavy artillery despite regaining of territory.

These concerns have arisen particularly at a time the economy is  crashing around the government and the LTTE sensing the crisis situation added to President Rajapakse's woes by threatening to target the country's economy in the new year. For, the President too knows the war effort will be irredeemably affected if the economy takes a beating especially at a time things are going well on the military front.

And signaling the war is far from over, even as celebrations got underway in the south over the liberation of Kilinochchi, a bomb blast in the heart of Colombo reminded the people it was far too early to say 'checkmate' to the Tigers.

To make matters even worse, the opposition too got activated over the Supreme Court order on the petrol price reduction with massive protest campaigns planned for the week ahead and typically, the government responded stating there was a local and international conspiracy to undermine the security forces' attempts to crush the LTTE.

Such was the knee jerk reaction in government, senior ministers led by the Chief Executive  himself went on public record stating moves to deprive the state of revenue through the tax reductions was aimed at helping the terrorists and undermined the war effort.

Having said so, within days the President cut the grass under his own propaganda by announcing price reductions in petrol, diesel, kerosene and furnace oil, together with an incentive package for the tea, rubber, cinnamon, garment and hotel industries, which in real terms will deprive the state of much more revenue than implementing the Supreme Court order.

Opposed

But the President was making a political statement to the Supreme Court by reducing the petrol price by a mere Rs. 2 per litre as opposed to the Rs. 20 the Chief Justice directed, thus signaling he is ready to confront the judiciary and disregard the rule of law by winning over the people to his side with an overall incentive package.

And to win public support, the President went on to state, the budgetary allocation for the Chief Executive would be reduced by 15% without mentioning the fact since assuming office it had been increased by 500 per cent and cutting back a mere 15 per cent was peanuts.

Nevertheless, the President needed to take the wind off the opposition sails on the protest campaign and that of the Supreme Court and made a bold show of it on Tuesday, December 30 buttressed by the military progress on the Paranthan and Kilinochchi fronts.

Interestingly, just 24 hours before the President summoned Tuesday's emergency cabinet meeting to announce his relief package, a meeting was held with representatives of the tea industry where they got a glimpse of Rajapakse's frustration with the judiciary in general and the Chief Justice in particular over the petrol price reduction which led to public agitation against the government.

Among those present at this meeting were Prime Minister Ratnasiri Wickremanayake, Ministers Pavithra Wanniarachchi, Arumugam Thondaman and Muthu Sivalingam.

Attention

Digressing from the subject at hand, every few minutes in the course of his speech the President was to draw the attention of those present to the Supreme Court order and state, all the price reductions he made were forgotten over this one order.

In an obvious state of agitation, the President time and again said while the Rs. 35 reduction he made was forgotten by the people, they were saying "budu wewa" because someone wanted petrol reduced by Rs. 20 per litre.

And then looking around the audience and with a fleeting glance at Treasury Secretary Sumith Abeysinghe, who was also present; the President said sarcastically "very soon one or two of us will have to go to jail over this."

Added the President - "I need money to run the country but they are trying to reduce taxes."

Notwithstanding such comments, it is after this meeting and realising the gravity of the crisis facing the tea industry that the President decided to announce an overall incentive package to meet both the political and economic challenges ahead and directed the Treasury Secretary to pull a rabbit out of his hat.

With that done, the ministers were told by telephone Tuesday to attend an emergency cabinet meeting at 6 p.m. the very day and as they trooped in, a Cabinet Memorandum detailing the economic incentive package was handed to them for study. (See Box for Memorandum)

Explaining

It was President Rajapakse who got proceedings underway with Abeysinghe also in attendance to explain the nitty-gritties and Rajapakse started the ball rolling by referring to the meeting with the tea owners and the issues they were confronting.

"After discussing the issues they had, I thought it best to provide an overall package for all sectors facing problems. As Finance Minister I have put together a package of tax benefits and relief and want cabinet approval so that the benefits can be passed on to the people," the President said.

That said, the President explained the specific proposals with the Treasury Secretary chipping in with clarifications from time to time and at the end of the presentation the President told the ministers to go out and market it to the people without delay.

And added he - "Now all this will go in the Leader."

Kitchen cabinet

No sooner the President made that comment, Minister Fowzie interjected; "Even your kitchen cabinet meeting was reported in detail the previous week." (See Pot Shots for details)

Taken aback the President countered stating he does not have a kitchen cabinet and went on to make a long statement, the content of which only went to prove, he had in fact met separately with a select few the previous week to discuss the Supreme Court order as exclusively reported in this column.

And in an attempt to show Petroleum Minister Fowzie, there was no discussion on the fuel prices with the kitchen cabinet without inviting the subject minister, the President chose like Doubting Thomas to deny the facts.

Said the President - "I also read what was written. We did not discuss what was there. I am sure it was not given by the four ministers who were present. They would have otherwise given a correct version. The details published must have been given by the security persons or a peon. I don't believe in kitchen cabinets."

What the President did not realise in his state of agitation was that while disputing a kitchen cabinet pow wow, he had conceded there was in fact a meeting of the inner circle, choosing only to deny the facts, and Fowzie's response was to just smile at the faux pas.

Chicken

But an agitated President continued - "All sit at my table. I don't have kitchen. I give them chicken. I am not like others. I don't go to a corner and talk. That may be good or bad but I say things openly. Therefore don't talk of kitchen cabinets."

Not stopping at that, the President said there were some ministers who were used to the UNP style of Ranil Wickremesinghe and asked for appointments to see him, which Rajapakse said was not his way of doing things.

"Any minister can come and see me anytime. Don't wait to ask for appointments because that is not the way I function," he added.

Thereafter Rajapakse told the ministers, he was reducing the allocations for the President and Prime Minister by 15% and ministers by 10% which saw the ministers calling for the Opposition Leader's budget also to be slashed by 10 per cent. Said the President "That's a good idea. Lets do it."

Continuing, the President said ministers drawing Rs. 100,000 as rent allowance will in future be given only Rs. 50,000 but what he did not say again was that millions more spent on the jumbo cabinet including vehicles, maintenance, staffers etc. will remain intact.

Benefits

Urban Development Minister Dinesh Gunawardena however was not happy with only ministers having to take a 10 per cent cut and wanted the MPs benefits also slashed.

But that the President did not want to do since it would have affected the JHU and the Wimal Weerawansa Group MPs and said their facilities can stand.

"Let it be as it is. We will concentrate on those who hold positions," Rajapakse said.

With that out of the way, the President focused on the Supreme Court and said the Apex Court only looks at issues brought before it parochially.

Added Rajapakse - "We have to explain the overall position to them. For example, when petrol and diesel prices are to be reduced, it has repercussions on other sectors and the ability of the government to go ahead with its programmes. It must be told that these things cannot be taken in isolation."

Chipped in Minister Ranawaka - "This should have been done by the Treasury Secretary. We have put forward only one part."

Replied the Treasury Secretary - "Lot of information was given on other issues."

Added the President - "No it was done but they looked at only one side. That is the problem. So we have to step in and look at all sides."

On that note the President once again called on the ministers to market his package to the people specially so that by early January, they will have a better understanding of the situation.

However, what the government in effect did was implicitly reject the Supreme Court order by  reducing the petrol price by only two rupees as opposed to Rs. 20 the Supreme Court called for thus setting the stage for a confrontation with the judiciary.

President's stimulus package to revive economy

Strengthening The Sri Lankan Economy In The Face Of A Global Recession 

1. The global economy is facing a serious recession. Countries like the United States of America, Japan and Europe and countries like Korea, India and China that have developed in recent times have all recorded economic recession. With the decline in oil prices, the Middle Eastern countries and countries like Iran and Russia with whom we have trade ties are also affected by the global recession. According to a preview done by the Asian Development Bank, the economic growth in Asia would decline to 6.7% in 2009 from the 8.5% recorded in 2008.

2. In this backdrop, prices of all items imported by our country have declined. It has been estimated that due to the decline in food, fuel, raw material and machinery prices, the country could save about US$ 2,500 million in 2009 in foreign reserves than that saved in 2008. However, attention should also be paid to the possible ill-effects that could affect the local agriculture and various other industries that have seen a development in the past three years given the decline in global prices.

If not, there will once again be a down fall in the locally developed food, milk and livestock production and other production processes. It is important to maintain the cess' that were imposed to cover the respective sectors and other measures taken to uplift the sectors in the past three years.

3. Although it is positive to see a saving in the foreign reserves spent on imports, the global recession has badly affected our exports. Especially the tea, rubber, cinnamon, garments, rubber-based products, porcelain, home and office equipment, leather products that have seen a massive development in the export market have been badly affected.

Since most of the exports provide a large number of direct and indirect employment opportunities - especially export commodities like tea, rubber and cinnamon employ a large number of small-scale planters - special attention needs to be diverted to the danger of loss of employment and earnings apart from the decline in export earnings. Export revenue expected for 2008 is said to be US$ 8,031 million and action should be taken to ensure this amount does not also see a decline.

4. Although the country earns about US$ 3,000 million per year through foreign employment the economic problems faced by various countries would pose a challenge to the foreign remittances that come into the country through these means. However, giving prominence to the continuous foreign exchange flow in to the country through foreign employment would result in strengthening the country's foreign assets.

Issues faced by the manufacturing sector

5. The manufacturing sector of the economy has faced many issues. The high interest rates in banks have reduced the growth in loans taken by the private sector. On the other hand, since salaries, electricity, and travel costs are at a high level and since there is a decline in export prices, the decline in profits earned by some industries has also posed a problem.

Due to these problems, businessmen are finding it difficult to pay their loans, cover their production costs and continuously pay salaries, EPF and taxes. Therefore, it is important to pay special attention to bring  interest down and reducing other expenditure apart from bringing to normal the fluctuations in the exchange rate in order to protect the manufacturing sector.

The position with regard to state revenue and expenditure

6. It is clear that it would be difficult to receive the expected revenue and maintain expenditure at levels estimated in the 2009 budget due to the present local conditions as well as the global economic trends. Due to the difficulties faced by various sectors of the country's economy, receiving the estimated Rs. 850 billion revenue might be difficult. Therefore, alternate revenue-generating measures would have to be looked at to receive the expected revenue.

7. State expenditure measures would give prominence to national security, infrastructure development, education, health and social welfare. The total state expenditure is estimated at Rs. 1,192 billion. Apart from that, additional funds have to be allocated to tea, rubber and cinnamon productions due to the decline in prices as well as other agricultural and industrial sectors that are faced with challenges due to issues faced in the export market. Therefore, it is necessary for the state to reduce normal expenditure and increase alternate revenue generating measures.

The positive aspects of the economy

8. Even amidst many challenges, there are quite a lot of positive aspects in the economy.

* The inflation rate has reduced to almost 12%. Therefore, a decline in the interest rate can be expected.

* The decline in oil as well as other import items could bring about some benefits. Already several steps have been taken to cut production costs. The prices of diesel and furnace oil have already been reduced by Rs. 35 and transport costs by 35%.

* Due to the progress in the agricultural sector there would not be a tendency for food prices to increase. The attractive prices offered to the farmers have increased production in the sector. Like in 2008, a high growth is expected in the agriculture sector in 2009.

* Import expenditure could decline to US$ 11,200 million from US$ 13,700 million. Since there is a US$ 2,500 million decline in import expenditure it would provide some relief.

* Prices of key imports like gas, oil, raw material, iron, cement, wheat flour, and milk powder are on the decline. Therefore, there is no likelihood for the prices of these items to increase.

* Due to the progress made in the national security front, it would be conducive for areas in the north to be used for development and manufacturing work. Therefore it would be beneficial to the construction industry, tourism industry, paddy, vegetable and fruit production, milk and livestock production and the fisheries sector.

Strengthening the economy

9. Special attention needs to be paid to the export sector in 2009 to strengthen the economy. Even amidst the slowdown in the global market, if we can maintain exports at the same level as in 2008, we could reduce the uncertainty that prevails over the country's foreign exchange and sustain the jobs and livelihood of a large number of people in the export sector.

On the other hand imposing a cess on import items like various food products, milk powder, wheat flour, oil, gas and other products that have recorded a decline in prices would help secure the local industries as well as strengthen the state revenue sector. The cess has to be imposed in a manner that would not result in an increase in prices locally.

10. By encouraging exports and substituting imports it could be targeted to maintain the GDP at a high level of about 6%. Since it would take about one to two years for the global economy to return to normal, special attention should be paid to safeguard the import and export sectors and by providing the necessary aid, it could be used as an opportunity to help the manufacturing sector move towards long term development without letting it fall.

Proposals

11. Taking into consideration the above mentioned facts, the following measures would be taken to uplift the economy.

12. Increasing the money supply

* The Central Bank would work to maintain money supply at 15%. After targeting the GDP growth to be at about 6% and inflation rate at 9-10%, maintaining money supply at the said level would be suitable. In order to make it easier and to reduce the liquidity crunch in the market, the Central Bank would take appropriate steps. The Central Bank will issue guidelines to banks to reduce the exchange reserves and provide the additional money as loans at low interest rates to export industries.

* This increased money supply can be used in the export and local manufacturing sectors and the import and use of items brought from loans secured by banks would be supervised by the Central Bank.

13. Relief provided on loan repayment and loans

* In order to make the repayment of loans taken by the construction industry, tea and rubber factories, garment and porcelain industries as well as hotels and small and medium scale industries easier in 2009, steps would be taken to reduce the interest rates. This concession will be given to industries that have maintained the required employment and production/export levels in 2008.

* The Central Bank would take steps to temporarily stop legal action taken on those who delayed the repayment of loans by July 2008 and cancel the fines charged for late payment of loans for a period of one year.

14. Reducing fuel costs

* In order to safeguard state revenue by maintaining the tax component without any change and to distribute the benefits of the global market to all sectors of the economy, it would be suitable to reduce the prices of diesel, kerosene and furnace oil. Accordingly, the price of a litre of petrol will be reduced by Rs. 2 and diesel and furnace oil by Rs. 10. During the past two months, a litre of diesel and kerosene have been reduced by Rs. 40, and a litre of furnace oil and petrol have been reduced by Rs. 35-40 and Rs. 37 respectively.

* Those who provide transport services like train, bus and vans that provide 85% of commuter transport methods, and expenditure incurred by lorries and trucks that are involved in transporting goods would also reduce as a result.

* The reduction in furnace oil would enable a reduction in costs in the industries and electricity sectors.

* The reduction in diesel and kerosene prices would help reduce costs in the agriculture and fisheries sectors.

15. Reducing electricity prices

* Since a litre of diesel and furnace oil has been reduced by Rs. 35-45 the 15% electricity surcharge imposed on industries and tourist hotels will be removed.

16. Bus fares

* As a result of the reduction in diesel prices, bus fares will be reduced by about 4%.

17. Relief to three wheeler drivers

* Since three wheelers are used by low-income earners as a mode of transport, three wheeler owners will be given 75 litres, with 4 liters of petrol on a daily basis at a price less than Rs. 20 from the current market price. A three-wheeler driver would be able to make an additional saving of Rs. 1,500 per month. Every three-wheeler owner would be given a fuel card.

18. Economic Service Charge

* The Economic Service Charge imposed on factories that are engaged in manufacturing goods for export with value additions will not be charged for a period of one year from January 2009.

19. Tea industry

* On a proposal made by the Sri Lanka Tea Board, the government would provide the necessary relief to commercial banks to pay all tea factories one month's working capital as a concessionary loan.

* The repayment of loans given to tea factory owners under the plantation development programme to modernise their factories will be stopped in 2009.

* The Tea Board would form a state trading institution that would intervene and purchase tea leaves from the auction to ensure tea growers a price of Rs. 45 per kilo of tea leaves and Rs. 300 per kilo of export quality tea leaves.

* Tea purchased in such a manner would be sent to suppliers in Iran and Russia under loan concessions.

* The cess on imported tea would continue and the importation of low quality tea would be limited.

* Till the price of raw tea leaves increase to Rs. 45 per kilo, tea small holders would be provided with a 50 kilo bag of mixed fertiliser at a price of Rs. 1,000 as a relief measure.

* Once tea exports receive a price exceeding Rs. 300 a kilo, a special cess of 2% would be imposed apart from the already existing cess and the funds would be used to cover the money spent on fertiliser and other relief measures.

20. Rubber industry

* In order to ensure a price of Rs. 150 for a kilo of rubber for the producers, rubber product manufacturers who purchase rubber would be provided with relief measures.

* The cess imposed on imported rubber and other rubber products would be increased by Rs. 5 per kilo. Therefore, there would be an increase in the demand for local rubber.

* The export cess imposed on local rubber product manufacturers would be halted for one year.

* The removal of the 15% electricity surcharge and reduction of diesel and furnace oil prices would reduce production costs in rubber factories.

* In order to minimise the financial crisis faced by the rubber factories, the interest on loans would be reduced and the repayment period would be extended.

* Financial aid would be provided to encourage the manufacturing of tyres for buses, trucks and other vehicles.

21. Cinnamon

* In order to ensure a fixed price for cinnamon growers, the Export Development Board would provide various relief measures for exporters who purchase cinnamon at the fixed price.

22. Special trade agreements

* Prominence would be given to build new trade opportunities with countries like Russia and Iran for tea and China and India for rubber.

23. Encouraging the apparel and leather exporters

* As mentioned in the 2009 budget, in order to maintain the working cadre, to maintain the 2008 export revenue, to make value additions, 5% of the export value would be given as manufacturing relief to the apparel and leather product exporters.

* The reduction in diesel and furnace oil prices, removal of 15% electricity surcharge, reducing the interest rate and canceling the Economic Service Charge for a period of one year would help reduce production costs in these factories.

24. Tourism industry

* Under the condition of maintaining the number of staff members in tourist hotels, they would be provided with a mechanism to provide loans on concessionary terms.

* Current loan repayment duration would be extended and the loan money would be restructured to reduce the interest rate.

* Interest fines on late payments on loans taken by tourist hotels would not be charged.

* The 15% electricity surcharge on all tourist hotels will be removed. The reduction in fuel prices would also help reduce costs incurred by the hotels.

25. Construction industry

* The reduction in fuel prices and the bank interest would help the construction industry.

* The Finance Ministry will take the initiative in providing the local allocations to expedite projects launched with the funds received from the World Bank, Asian Development Bank and Japan for road development at national and provincial level.

* Various construction projects that have been approved by the Board of Investment, but have been unable to take off due to various institutional problems will be reinvestigated and will be forwarded to the ministerial sub committee on construction to immediately commence any projects that could be started.

* Apart from the development work in the east, construction work in the north would also be given prominence.

26. Covering the expected expenditure.

* Approximately Rs. 16 billion would be needed to activate the said proposals.

* In order to recover the money, while expecting a saving in state expenditure due to the reduction in fuel prices, expenses in all state institutions will be slashed by 5%, expenditure of ministers by 10% and the President and the Prime Minister by 15%. It is expected to save up to Rs. 2 billion in expenditure.

* By analysing the prices of imports that are recording a decline in prices globally like gas, tyres and tubes, porcelain wear, leather products, wheat flour and milk powder and imposing cess or other relevant taxes, a revenue of about Rs. 6 billion could be collected. Since the prices are declining globally, there would not be an increase in local prices.

* The Finance Ministry would work out a mechanism that would work to cover losses incurred by certain sales in the Railway and Postal Departments as well as the Ceylon Electricity Board and the Ceylon Petroleum Corporation and enable these institutions to play an active role in state revenue generation. This would help receive about Rs. 3 billion.

* It is expected to find Rs. 3 billion from the decline in expenditure from funds allocated for capital expenditure.

* The rest would be taken from the allocation made for export development in the 2009 budget.

27. Presidential coordinating task force

* A special presidential task force would be appointed with special powers to look in to the VAT refunds to be made by the Inland Revenue Department to various manufacturing sectors; to coordinate details related to it with the Customs Department, Export Development Board, Tea Small Holders Development Authority, Tea Board, Rubber Development Board and to address the needs of the private sector manufacturers.

28. Overall target

* Relief measures are provided according to the above mentioned manner to strengthen the economy only if industries have maintained the present high level of production/export level as well as value additions. If that is maintained, foreign earnings of US$ 300 million would benefit the country. Since it would also help secure jobs of many and help maintain the competitiveness of local exports in the global market, it is expected to have wide spread benefits on the country's economy.

 * The main aim of the economic stimulus package is to maintain a 6% GDP growth rate for 2009 and work to reduce the already declining inflation rate. Therefore, it is necessary to maintain a budget deficit of 6.5% in 2009 by having high levels of state revenue and managing expenditure. These proposals are made with the intention of reducing the balance of payment in the current account by protecting the expected savings from import expenditure and increasing exports.

 * The inflation rate that was at 30% has been reduced to 13% due to the reduction in food prices, fuel prices and other imports and the growth in the local agriculture sector. It is also the aim of these proposals to further reduce the rate. The fuel policy has been made in a manner that would benefit a large number of people following the conducive conditions that have come up in the international market with the decline in production and operational costs in the economy.

Besides, this system would also help find alternatives for imports and to manufacture them locally and increase the country's exports. Therefore, the approval of the cabinet of ministers is sought to activate these proposals.

Mahinda Rajapakse

President/Finance and Planning Minister

 

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