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Part II – “IMF bailout” and future with Wickramasinghe

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It was officially announced by the IMF on 01 September (2022) the SL government agreed with the IMF Staff on a Staff level Agreement for their 48 month “Extended Fund Facility” (EFF) package of USD 02.9 billion. Their official statement issued, says, “The agreement is subject to the approval by IMF management and the Executive Board in the period ahead, contingent on the implementation by the authorities of prior actions, and on receiving financing assurances from Sri Lanka’s official creditors and making a good faith effort to reach a collaborative agreement with private creditors. Debt relief from Sri Lanka’s creditors and additional financing from multilateral partners will be required to help ensure debt sustainability and close financing gaps.”
It thus means, the promised USD 02.9 billion would be released only after “the implementation by the (Sri Lankan) authorities of prior actions, and on receiving financing assurances from Sri Lanka’s official creditors and making a good faith effort to reach a collaborative agreement with private creditors”.

Interestingly, “prior actions” are not clearly stated in the statement that mentions (i) major tax reforms (ii) cost-recovery based pricing for fuel and electricity (iii) raising social spending and improving social safety net programmes (iv) restoring price stability through data driven monetary policy and stronger Central Bank autonomy (v) rebuilding foreign reserves through restoring a market-determined and flexible exchange rate (vi) safeguarding financial stability (vii) Reducing corruption vulnerabilities through improving fiscal transparency and public financial management, introducing a stronger anti-corruption legal framework, making the total list of key elements in the programme.

These have many contradictions and serious limitations. What would “cost-recovery based pricing” mean to the poor? It would mean increase of fuel prices and electricity charges. Fuel and electricity prices decide prices of every service and consumer product leading to a chain effect of price increases. The 90 percent food inflation prices the WFP calculated for the first half of 2022 would  shoot beyond 150 plus at a minimum with this “cost-recovery based pricing”. Thus “restoring price stability” would mean nothing for the poorest 40 percent.

On tax reforms proposed, in Sri Lanka “indirect tax” is 84 per cent of annual inland revenue with VAT contributing a major share. Indirect taxes burden the poor and the vulnerable far more heavily than even the middle-income population. The richest hardly feel a pinch with indirect tax increases. In pre-Covid SL indirect tax paid through food consumption by the poorest 10 percent accounted for over 16 percent of their income while the richest accounted for a negligible 01.8 percent. Any increase of VAT would further increase the burden of the poor.

The key element “raising social spending and improving social safety net programmes” is stillborn with Wickramasinghe’s interim budget passed in parliament on 02 September, the day after the IMF Staff level agreement was announced, axing the school mid-day meal allocation from Rs.06.2 billion to 02 billion, completely halting the mid-day meal programme. This despite 35 percent of households struggling to feed their children one meal a day and malnutrition in the rise. Contrast this with increasing defence allocations that was Rs.177 billion in 2009, the year the civil war was concluded and the 2022 defence estimates of Rs.371 billion that goes untouched. Is this “raising social spending and improving social safety net programmes?”  

Of all “key elements” proposed the last on “Reducing corruption vulnerabilities through improving fiscal transparency and public financial management,….”. is the most hilarious when neither party to the EFF assistance would make details public. They yet stand for “improving fiscal transparency and public financial management”.

Governor of the Central Bank (CBSL) Mr.Nandalal Weerasinghe, onetime IMF employee as an Alternate Executive Director representing SA countries, went public saying Sri Lanka had IMF funding 16 times before but agreements have never been made public or presented to parliament. “There is no practise like that” he told the TV anchor and added even debt restructuring cannot be made public as they include sensitive information related to “trade secrets”.

That there was no practise of making IMF agreements public in the past is known. What is not said is, details of IMF agreements kept out of public scrutiny had been adversely effecting SL. That is all the reason to break out of that non-transparent practise of the past. Reason to make all agreements and commitments public before they are officially accepted.

Calling “business deals” as “trade secrets” do not make them decent and clean. All huge unpayable dollar loans heaped on Citizens during the past carried with them “trade secrets” never made public by any means. Professionals and top bureaucrats have always been party to mega corruption with undisclosed information. State owned Lanka Marine Service privatisation in 2002 August and the 2015 April Bond Scam are clear proof. What confidence and trust can People have in bureaucrats handling debt restructuring with “trade secrets” entrenched?  

It is therefore pertinent to ask the CBSL Governor, “will the best solution to restructure loans borrowed with no details made public leading to this massive tragedy be in the same way, keeping the public blind on trade secrets?”        

It is also important to ask,

1.     how does “secret” debt restructuring help pay back dollar loans?

2.     will the “publicly unspecified” key elements help generate forex earnings to meet external trade cost without any more borrowings?

3.     how will key elements help reduce the yawning income gap in society that keeps growing?

4.     what is there in this IMF assistance for the rural poor to improve their lives?

Ground preparations for IMF assistance is already proving this economic revival is aimed at creating a society without basic human rights and with unrestricted labour exploitation. Amending labour laws have begun without any dialogue with trade union representatives. Minister of Labour is violating ILO Co-Convention No.144 by totally ignoring the tripartite forum “National Labour Advisory Council” (NLAC) established in 1994 to (1) promote social dialogue (2) provide government a forum “to seek views, advice and assistance” of worker organisations and employers on social and labour policies, labour legislations and international labour standards (3) promote good relations between stakeholders for the benefit of economic development and improving working conditions.

As media reports indicated, regulations enacted with restrictions on night and overtime work for female workers to ensure workplace safety have been either relaxed or reduced for the benefit of employers. Minister has instructed the Secretary to initiate reforms on labour laws including the Termination Act. Incidentally the Secretary to Ministry of Labour handling such reforms is one who was removed from the post of Commissioner General of Labour (CGL) and sent out of the department in 2020 October by then Minister of Labour on allegations of total bias for employer interests and corruption involved.      

Arguments go on the basis Sri Lanka needs to attract more foreign direct investments for export manufacture to earn more dollars and that requires “free labour” for investors to come. There are around 1,700 factories operating with BOI-SL approvals enjoying everything from custom duty waivers to tax holidays, free infrastructure and more as incentives. BOI also has guidelines that allow investors to deny worker rights including organising trade unions in total violation of the Constitution of the country and ILO Conventions 87 and 98 signed and ratified by the SL government. Of all those factories, not more than a dozen and a half have allowed workers to organise trade unions. Of them, only about 05 factories have signed Collective Agreements (CA) with trade unions.

There is no forensic audit done to compare tax revenue forfeited and infrastructure expenses provided as incentives for foreign direct investors (FDI) for 40 years that in fact was public revenue as against what the People gained from FDIs in return. I will not be surprised if what we gained was a complete loss as against incentives provided.  

What more are they asking for? Right for bonded labour? Labour law reforms carried out outside the NLAC without trade union representation would create an environment for bonded labour, though not in direct legal terms. It’s a flawed perception that non-unionised labour with packed incentives attract massive FDIs. While BOI creates the ground for non-unionised labour, increasing incentives have not been the issue for major investors to ignore SL.

Reputed major investors need labour in millions for large scale hi-tech manufacture. While China is beyond comparison, SL is nowhere close to countries like Bangladesh and Vietnam too. With adult populations of 104 million and 68 million respectively, they have large factories with workforces far exceeding the total at Katunayake FTZ that in pre-Covid era was only 31,000 employees. This in fact was half the number employed in the single multi-storey building Rana Plaza in Dhaka Bangladesh, that collapsed in August 2013 killing over 1,132 workers.

Sri Lanka therefore attract mostly runaway investors. They come for economic incentives in imports and exports. This was evident with 721 BOI approved companies closing down in 07 years by 2016 at an average of 103 per year. “Of the companies that closed down, all had received BOI concessions such as tax exemptions while 103 had leased BOI land” the investigative exposure confirmed. (https://www.sundaytimes.lk/170903/news/721-boi-companies-closed-down-from-2010-to-2016-257726.html)    

All that said about preparing the ground for EFF assistance, the total approach of President Wickramasinghe is to revive the “free market economy” that for 40 years played the “ruthless devastator” of everything decent and progressive in society. As most have accepted, this “historical tragedy” allows Sri Lanka an opportunity to navigate itself towards a decent and an inclusive future. That demands “development” to be defined to begin with.

The shortest explanation would be, “a new path towards a decent, civilised society that treats all as equal, leaves no one behind and improves quality of life within a secured and a diverse environment creating a rich culture of human values”. Free or neo-liberal market economy within the global market during all its 40 plus years, was everything contrary to that.

Globally neo-liberalism is a disaster with Climate Change and Global Warming “wreaking havoc across the world and threatening lives, economies, health and food” according to UNEP’s “Climate Action Note”. In SL, we need no extra proof of what this free-market economy dishes out for the People. During the past decades a new breed of “filthy rich” dealers emerged within the free-market economy. With them social values, ethics and morals were completely deformed and destroyed leaving an extremely selfish “consumer” tirelessly running round to earn what is impossible for the larger majority. We are helpless with all State agencies going corrupt and inefficient leading to heavy trafficking and peddling of drugs, increase of extortions, minor and grave crimes, and also rape and child abuse turning into a daily occurrence. All political parties now depend on the “filthy rich” for funding. With all such barbarism around, the whole society is left at the mercy of unrestricted industrial pollution, illegal deforestations, sand mining, manmade floods and major landslides.

Is this the economic model we are planning once again to revive with IMF assistance? Is this the economic model that is marketed showcasing “massive growth” in China, Vietnam, South Korea, India and in few other countries where the majority are as poor and deprived as the poor in SL?

In China, average per capita GDP in coastal provinces is 113,365 Yuan with provinces like Shanghai enjoying a per capita GDP of 157,279 while in poor Central and Western China their per capita GDP is less than 44,000 Yuan. What is also not spoken of is the rich growing richer despite the pandemic. Forbes recorded world “dollar billionaire” number as 2,755 in 2021, an increase of 493. China now have 698-dollar billionaires, second to USA with 724 and above India with 237 billionaires.

Strength of all economies are spoken of forgetting the majority poor who are deprived of access to facilities and opportunities and a huge disparity in income. “Oxfam briefing paper – 2017” says “Today the world is facing an unprecedented inequality crisis. Over the last 40 years, there has been a vast increase in the gap between the rich and the rest”. That in fact is what the free market economy is about, apart from being an inherently corrupt city based economy. It is also about politically holding the poor and marginalised majority within the free market economy on a racist ideology created for electioneering.    

EFF assistance of IMF has nothing that can guarantee, SL of negating these cancerous anti-social growths. Nothing that can reduce social crime, environmental disasters and massive corruption. Publicly unspecified activities in IMF assistance will not support improving social space, social dialogue and strengthening democratic structures, a fundamental necessity for decent social development.

Sri Lanka needs a different route out of this economic tragedy. This package Wickramasinghe is obsessed with would only marginalise more as poor and deprived under an increasingly authoritative and repressive regime. That will not make it easy for Wickramasinghe, heading a government on borrowed parliamentary majority. That may provide more clout for the Opposition call for a parliamentary election in February 2023. His advantage would still be an Opposition with no alternative programme for saner resolution of this crisis,

In short, call for tabling all EFF loan related IMF documents including proposals for restructuring of debts in parliament immediately for serious social discourse is now the responsibility of social activists outside parliament. Call for elections should be thereafter. As often stressed by me, the final demand, in this instance an election, should never be made the first. An election with none offering an alternate programme is not going to make any difference, though with different names and faces.

– Kusal Perera

21 September 2022

(kusalperera.blogspot.com)

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Backlash builds against Sri Lanka’s $3 Billion clean energy push 

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Utility scale wind, solar and battery projects draw CEB’s ire as they march to take away their vested interests.

The government has ignited a green energy investment spree that’s expected to reach as high as $ 3 billion over the next 3 years. The road to bringing this money in the economy, though, is increasingly hitting speed bumps from the likes of the so called ‘mafia’ CEB officials. 

Country’s ambitious vision aims to make the nation’s electric grid greener with 70% of the electricity demand to be met through renewable energy by 2030. 

Companies have already announced plans for committing $25 billion investment up to 2030 in the renewable energy sector in the Country, according to the Board of Investment. 

With potential Private investments over the next 3-4 years through FDI could include $3 billion in utility scale wind, solar and battery storage projects – Sun Power leading with $1.5 billion, followed by Adani Green with $900 million, by Orbital energy with $200 million, by WindForce PLC with $150 million and balance by a consortium of private developers. However, the opposition to projects has mounted for myriad reasons. 

Increasingly, the few so called ‘mafia’ CEB officials, who have strangled the Country’s power sector by delaying the approval process, seems to be more concerned that the rapidly expanding utility scale size of wind, solar and battery projects will irreparably alter their powers and thus their vested interests in earning a share out of the pie. 

Despite this backlash, many projects will eventually get built, say developers and analysts, but they could take longer and cost more than expected. 

At the government level, there is ample support for speeding up the implementation of the projects, but its only CEB who is pushing back on their own self-motivated agenda, not know at large.

– Harendra Kuruppu

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Personal agenda of CEB officials delaying renewable energy projects

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The central government & their policies are responsible for most of the hardships we face today. But when it comes to implementing investments and projects in the renewable energy sector, surprisingly the central government has good policies and intent but have failed to implement them due to bureaucracy, corruption and personal agenda of few CEB officials.

The present problem is having too much capacity in the wrong types of power plants and too little in the right types. It’s an open secret that few of the CEB officials are not fond of utility scale renewable energy. They like non-renewable sources of energy but hate utility scale wind, solar and battery storage projects.

Despite renewable energy being clean and cheap, the utility scale RE projects have not been implemented in Sri Lanka on a large scale. Sri Lanka still has plenty of room for Solar and Wind. We only have around 12% of RE in the grid (excluding hydro). We are far from the critical limit that could possibly considerably impact the grid from the fluctuating nature of renewable sources.

CEB wants to convince people that the unreliable nature of RE is the reason why they oppose it. But the real reason is, they can’t maintain their infamous mafia power and pursue their personal agenda when there is an abundance of RE power in the system. The proposal of RE investors won’t get accepted even though the offered rate was lower.

While purchasing non-renewable energy power at a rate of over Rs.45 per unit, the CEB is blocking over 1,500 MW of new utility scale solar, wind and battery storage projects. Had these projects been approved by CEB and put to built in this year, they would be ready to supply electricity at the Rs.24 to 30 per kWh tariff within one and a half years’ time period, with lower than prevailing solar and wind energy tariffs and also far less than the cost of non-renewable electricity.

Few CEB Engineers suddenly come to realize that if the trend of implementing such utility scale re-projects continues in the country, this is going to be a threat to their business and their vested interests. 

So, they have resorted to delaying tactics in the approval process of utility scale RE projects not favorable to them, effectively blocking large scale investments and investors who have plans to invest in the country.

On analysis, with the delay in these 1500 MW RE projects, the country will lose annually ~3200 GWh of clean and cheap energy resulting in the country’s economy spending additional Rs. 20 billion per year on account of the higher cost of non- renewable electricity.

It’s hard to fathom the unbelievable level of bureaucracy, corruption & personal agenda of CEB.

– Harendra Kuruppu

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Why you may not get Kashmir’s famed apples easily

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A series of challenges has thrown Kashmir's once flourishing apple trade into crisis

On a chilly and foggy winter day, hundreds of apple farmers in Pulwama district of Indian-administered Kashmir stored their harvest in a temporary tin shelter installed at the fruit market, anticipating the arrival of traders who would purchase their produce.

The farmers were anxious as the quality of apples this year had not been the best and would affect the price they’d get.

Kashmir is known in India for its variety of apples. But a series of challenges – from the onslaught of fungal scab, the impact of climate change, and a range of economic hurdles – has thrown the flourishing industry into a state of crisis.

Apples are classified into A, B and C categories based on their size, colour and quality. A is the premium category while B and C are those infected with scab (venturia inaequalis) - B being less infected than C.

“Around 40% of the apple production [this year] has been C-grade,” says Ghulam Nabi Mir, an orchardist from Pulwama. 

The horticulture department of Jammu and Kashmir says apple, walnut and almond farming provide direct and indirect employment to about 2.3 million people in the region. 

Exports from the Himalayan region’s orchards amount to over two million tonnes annually, generating approximately 120bn rupees ($1.44 bn, £1.14bn) in revenue – which is almost twice as much as the region’s tourism sector, Ejaz Ayoub, an independent Srinagar-based economist, told the BBC.

But unusual weather patterns are beginning to take a toll.

“Unseasonal rainfall in April-May led to scab affecting the crop,” says Abdula Gaffar Qazi, 50. ”Even when some farmers sprayed pesticides, the rain washed it away.”  

Extreme weather patterns impact the size, quality and quantity of the crop, says Dr Tariq Rasool Rather, a senior scientist at Sher-e-Kashmir University of Agricultural Sciences. 

Depending on whether scab affects the crop during the summer or spring season, apple quality can decline to a B or C grade.

Ghulam Mohammad Bhat, 58, a farmer from the Chadoora area of Kashmir’s Budgam district, says he has never witnessed such unusual weather patterns in the region before. 

“Hailstorm in May damaged my crop,” he says, adding that a prolonged dry spell in August and September caused water scarcity, leading to diminished colour in the apples.

Mr Bhat’s apple orchard is spread over five acres but more than half of the trees are infected with scab. 

Data from Jammu and Kashmir’s meteorology department shows the frequency of severe weather occurrences in the ecologically sensitive Kashmir Valley has increased over the past seven years.

Over 550 people have been killed in extreme weather events in Jammu and Kashmir between 2010 and 2022, it says.

On 18 July 2021, Kashmir witnessed the hottest July in eight years with a record temperature of 35C (95F). Earlier that year in January, the valley had also recorded the coldest night in 30 years.

According to Faizan Arif Keng, an independent weather forecaster in Kashmir, the region witnessed dry weather with temperatures approximately 12C above normal from March to mid-April this year, resulting in early flowering of apple crops. But the weather then changed abruptly and temperatures remained below normal until June. 

“This ‘false spring’ damaged the crop,” he says. 

Extreme weather makes crop transportation also a major challenge for farmers. 

Harvest starts in autumn season. But the valley remains cut off from the rest of the world in winters because of the landslides on the treacherous Srinagar-Jammu national highway, the only road that connects the region to the other states of the country. 

It’s common to see hundreds of trucks carrying apples stranded for days if landslides block the highway. 

Vijay Taira, vice-president of the Kashmir Apple Merchants Association in the Azadpur fruit market in Delhi, says there’s been an influx of Iranian apples in India’s fruit markets.

This, growers say, affects the Kashmiri apple’s market share and its price

“Only two weeks ago, a box of Kashmiri apples would sell at 1,000-1,300 rupees in India’s fruit markets,” says Ahmad Bashir, president of the Kashmir Valley Fruit Growers Cum Dealer Union (KVFG). ”Now, it is being sold at 800 rupees a box, which does not even cover the cost of production.”

The Indian government’s decision to waive off a 20% tariff on apples imported from the United States has also left farmers in distress over drop in prices, he says.

In November, KVFG wrote to Prime Minister Narendra Modi, seeking his intervention in resolving the crisis.

The region’s horticulture department says these issues can only be resolved at the federal level.

“We have raised these concerns with the government,” says Manzoor Ahmad Mir, deputy director of the department. “Only they can take a call [on it].” 

Kashmiri apple farmers also worry the government is not cracking down on dealers selling spurious or sub-standard pesticides. 

“If the pesticides were of reliable quality, the scab in our orchards would be less,” Mr Bhat says.

Shafiqa Khalid, also a deputy director at the region’s horticulture department, says strong action has been taken against accused dealers and criminal cases have been filed against them.

Problems arise when farmers don’t heed advisories regarding pesticide spray schedule, she says.

When apple farmers don’t make good income, the “consumption which drives the domestic economy” is directly impacted, Mr Ayoub, the economist, explains. 

“The money flows in the market and reaches many people associated with different kinds of trade,” he says. “So, if the money stops, people from all walks of life will be impacted.”

(BBC)

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