By Colombo Telegraph –

“In reality, economic decisions are often made by President Rajapaksa and his brothers, with input from a handful of trusted economic advisors. A number of well connected business leaders and academics agreed that economic decision making is opaque, but key decision making is made by a very tight circle, usually President Rajapaksa and his two brothers.” the US Embassy Colombo informed Washington.

Although decision-making is far from transparent, it pays to be a member of the cozy club who knows right people

A leaked US diplomatic cable details the situation of the economic decision-making process in Sri Lanka. The Colombo Telegraph found the cable from WikiLeaks database. The cable written on 17^th November 2009, classified as “CONFIDENTIAL” by the Deputy Chief of Mission Valerie Fowler.

Under the subheading “Comment” the US Ambassador Patricia A. Butenis wrote “Econoff has found that many local business leaders are well connected, and thus benefited from Sri Lanka’s personalized economic decision making. …. Although decision-making is far from transparent, it pays to be a member of the cozy club who knows right people.”

Under the subject of “Formal GSL Process” Butenis wrote “ Sri Lanka’s formal process for economic decision making is focused of the Finance Ministry, but included input from line Ministries and private sector. The GSL has over 100 Ministries, and many Ministers hold their office for purely political reasons. If a Ministry plans to change economic policy, it must first seek approval from the National Planning Commission in the Finance Ministry. If approved then it makes a formal request to the Finance Ministry.”

Under the subheading the US Ambassador Butenis wrote “President Rajapaksa serves as his own Finance Minister. Finance Secretary Jayasundara has by far the most influence over the Rajapaksas, he runs the Finance Ministry, and he has taken change of economic policy since his return to power. Several others, such as Central Bank Governor Cabral and Minister for export Development and International Trade G.L Peiris have input, particularly on their direct issues. Our contacts repeatedly emphasized that economic policy is usually trumped by short-term political considerations and made ad hoc basis. The official government channels are much less important. The NCED had been sleepy and fallen into disuse.” “Although Jayasundera and Cabraal were close collaborators in 2005, we have since heard there has been a falling out. Our contacts believe that Jayasundara has established himself as the primary economic advisor to President Rajapaksa.” Butenis further wrote.

Read the full cable for further details;

VZCZCXRO9924
PP RUEHBI RUEHCI
DE RUEHLM #1040/01 3210606
ZNY CCCCC ZZH
P 170606Z NOV 09
FM AMEMBASSY COLOMBO
TO RUEHC/SECSTATE WASHDC PRIORITY 0769
INFO RUEHKA/AMEMBASSY DHAKA PRIORITY 2044
RUEHIL/AMEMBASSY ISLAMABAD PRIORITY 9072
RUEHKT/AMEMBASSY KATHMANDU PRIORITY 7314
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 3469
RUEHCG/AMCONSUL CHENNAI PRIORITY 9635
RUEHKP/AMCONSUL KARACHI PRIORITY 2568
RUEHCI/AMCONSUL KOLKATA PRIORITY 0454
RUEHBI/AMCONSUL MUMBAI PRIORITY 6929
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 03 COLOMBO 001040

SIPDIS

E.O. 12958: DECL: 11/17/2019
TAGS: CE ECON EFIN PGOV
SUBJECT: SRI LANKA,S PERSONALIZED SYSTEM OF ECONOMIC
DECISION MAKING

REF: COLOMBO 981

Classified By: Deputy Chief of Mission Valerie Fowler for Reasons 1.4 (
b,d)

¶1.     (C)  Summary.  The real power to make economic policy
appears to transcend the formal government policy channels
and focus on the influence of President Rajapaksa and his
circle.  According to our contacts, the new Secretary to the
Treasury, P.B. Jayasundera, is the policymaker with the most
influence on economic policy.  Jayasundera, along with
several other key economic advisors, are well educated, and
they have crossed party lines to remain economic advisors
through the last three administrations.  Econoff has noticed
that contacts were quite reluctant to discuss the Sri Lankan
process of economic decision-making.  Sri Lanka's well
connected business leaders seem reasonably comfortable with
these arrangements.  End Summary.

Formal GSL Process

¶2.    (SBU)  Sri Lanka's formal process for economic decision
making is focused on the Finance Ministry, but includes input
from line Ministries and the private sector.  The GSL has
over 100 Ministers (over half of their Parliament), and many
Ministers hold their office for purely political reasons.  If
a Ministry plans to change economic policy, it must first
seek approval from the National Planning Commission in the
Finance Ministry.  If approved, then it makes a formal
request to the Finance Ministry.  There is also a mechanism
for Ministries to consult with the private sector through the
National Councils for Economic Development (NCED).  The NCED
has 27  clusters, organized by industrial sector that meet
regularly to provide feedback to the GSL.  In addition, if
the proposed policy requires funding, the Finance Ministry
must also approve and incorporate the policy into the
national budget.  The Finance Ministry consults with the
cabinet and the President for major decisions.

¶3.    (SBU)  Economic Policy can also be formulated by
different means from the Presidential level.    President
Rajapaksa heads the National Economic Council, which also
includes: the President's Secretary; the Finance Secretary;
the Governor of the Central Bank; the head of the Board of
Investment (which promotes investment into Sri Lanka); Saman
Kelegama, head of the government-aligned think tank Institute
for Policy Studies; and Dr. Lloyd Fernando, with the
Postgraduate Management Institute.  The GSL can also appoint
a special blue ribbon commission.  For example, the GSL is
planning a major overhaul of its tax system, and President
Rajapaksa has appointed a Presidential Commission on Taxation
to come up with recommendations.

How it Actually Works

¶4.    (C)  In reality, economic decisions are often made by
President Rajapaksa and his brothers, with input from a
handful of trusted economic advisors.  A number of well
connected business leaders and academics agreed that economic
decision making is opaque, but key decision making is made by
a very tight circle, usually President Rajapaksa and his two
brothers.  President Rajapaksa serves as his own Finance
Minister.  Finance Secretary Jayasundera has by far the most
influence over the Rajapaksas, he runs the Finance Ministry,
and he has taken change of economic policy since his return
to power.  Several other officials, such as Central Bank
Governor Cabraal and Minister for Export Development and
International Trade G.L. Peiris have input, particularly on
their direct issues.  Our contacts repeatedly emphasized that
economic policy is usually trumped by short-term political
considerations and made on an ad hoc basis.  The official
government channels are much less important, since many
Ministers have little real influence.  The NCED had been
sleepy and fallen into disuse, but Secretary Jayasundera has
started to reinvigorate the NCED to strategize and direct
economic policy.   Secretary Jayasundera is pushing for
further implementation of President Rajapaksa's election
manifesto  Mahinda's Thoughts,, which outlines his economic
strategy.

Characteristics of Economic Decision Makers

COLOMBO 00001040  002 OF 003

¶5.    (C)  The key Sri Lanka economic decision makers --
Treasury Secretary Jayasundera, Central Bank President
Cabraal, and Minister of Export Development and International
Trade Peiris -- share several characteristics:  they are
intelligent and well educated and they have crossed party
lines to work for the last several administrations.  Finance
Secretary Jayasundera, for example, holds Master's and
Doctorate degrees in Economics from Boston University, and a
Master's Degree in Developmental Economics from Williams
College.  Jayasundera has served as a consultant to the IMF
and World Bank.  He was the Secretary of Finance under
President Kumaratunga (leftist SLFP party)  from 1999-2001
and 2004-2005, as well as the Chairman of the Public
Enterprises Reform, Sri Lanka's Privatization Agency, under
the rightist UNF government from 2002-2003, before returning
as the Secretary to the Finance in the current leftist
administration.  As an example of his ideological
flexibility, Jayasundera was in charge of privatizations in
the previous rightist United National Front government, but
he is now the leading economic policymaker in an
administration that opposes all privatizations.   Similarly,
Minister Peiris is a former Rhodes Scholar and academic who
also served in prominent positions in President Kumaratunga's
and the UNF government.  Peiris departed the rightist UNP
party to join the government in 2007.   Central Bank Governor
Cabraal was an Eisenhower Fellow, a member of the rightist
UNP who crossed over to the leftist SLFP in 2005, and former
President of the Institute of Chartered Accountants of Sri
Lanka.

¶6.    (C)  Secretary Jayasundera and Governor Cabraal were
the architects of Candidate Rajapaksa,s 2005 economic policy
manifesto Mahinda Chintana ( Mahinda's Thoughts,) that
promotes a nationalist economic policy.  Although Jayasundera
and Cabraal were close collaborators in 2005, we have since
heard that there has been a falling out.  Our contacts
believe that Jayasundera has established himself as the
primary economic advisor to President Rajapaksa. Cabraal has
less general influence and works on issues critical to the
Central Bank, such as monetary policy, and promotes Sri Lanka
as a destination for foreign investment.

The Return of the King

¶7.    (C)   As described in reftel, Secretary Jayasundera was
recently reappointed as Treasury Secretary after one yea r
away due to his involvement in a scandal.  Jayasundera was
accused of reducing the market value of the state owned
enterprise Lanka Marine Service when it was privatized and
sold to local conglomerate John Keells Holdings.  In October
2008 Jayasundera agreed to pay a fine of 500,000 rupees
(approximately $4,400 USD) and filed an agreement with the
Sri Lankan Supreme Court in which he agreed never to hold
public office again.  Although some contacts claim that the
case 3aa`xwQrvU|GRMRc=za9 uNt5I|Q45j$office as scheduled, President Rajapaksa requested that
Jayasundera return as Treasury Secretary for the good of the
country.  The Supreme Court allowed Jayasundera to withdraw
his promise never to serve in public office in October, and
two days later President Rajapaksa reappointed Jayasundera as
Finance Secretary.

¶8.    (C)  Although Jayasundera is described as an economic
nationalist, local business leaders were very pleased that he
has returned to a position of influence in government.
President Rajapaksa had appointed a quiet civil servant as
Finance Secretary.  A well connected contact described the
Finance Ministry as "paralyzed" when Jayasundera was out of
government.  Jayasundera also continued to coordinate
economic issues behind the scenes even during his year out of
power.  One business contact related that when he had
problems with the GSL, he went to Jayasundera in a private
capacity, and he fixed the problem right away.  Several
business contacts have praised Jayasundera as a guy who can
 get things done.,  However, several contacts have stated
that the Finance Ministry staff is weak, so Jayasundera takes
care of many issues personally.

COLOMBO 00001040  003 OF 003

Example of Economic Decision Making: Interest Rate Reduction

¶9.    (SBU)  The GSL recently ordered a reduction in lending
interest rates by state banks, which illustrates Finance
Secretary Jayasundera's influence and GSL,s willingness to
intervene in the market.  The GSL was frustrated that,
despite much lower inflation rates, lending interest rates
remained high and domestic lending was stagnant.  On October
27, in order to jump start the economy, President Rajapaksa
ordered that state banks cut their interest rates by 7% from
15-22% to 8-12%, in loans to certain sectors like agriculture
and infrastructure.   State banks cover at least 37% of the
banking industry, and private banks feel pressure to follow
suit to keep their best customers.  President Rajapaksa made
the decision after meeting with the state banks and Finance
Secretary Jayasundera.  Although the decision concerned
interest rates, clearly in the Central Bank's realm of
responsibility, Governor Cabraal was not consulted.  Although
local businesses were generally pleased, the state banks
already have high non-performing loan ratios, and it is
unclear if the private banks can afford these new lending
interest rates.

Reluctance To Discuss Economic Policy Making

¶10.   (C)  Business leaders, academics and government
officials were clearly quite concerned about making comments
to econoff how economic decision making actually works in Sri
Lanka.  Several contacts nervously confirmed that econoff's
notes would be treated confidentially and emphasized that
they did not want to be quoted by name.  Econoff also noticed
that these contacts were much more candid when they were
alone, and tended to clam up if their staff were about.  As
another example, a prominent opposition-affiliated economist
felt that he was on relatively safe ground criticizing the
government's economic policy in English, but he was very
worried when he was interviewed on television on the same
subjects in the common Sinhala language.

¶11.   (C)   Comment.  Econoff has found that many local
business leaders are well connected, and thus benefit from
Sri Lanka's personalized economic decision making.  Although
Secretary Jayasundera can be difficult, there was widespread
relief among business types when he returned to government.
Although decision-making is far from transparent, it pays to
be a member of the cozy club who knows the right people.  End
Comment.

BUTENIS