13 July, 2020

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Covid-19: Body Blow To Ailing Economy & Opportunistic Corporates

By Amrit Muttukumaru

Amrit Muttukumaru

Sri Lanka is one of the handful of countries which has responded with extended curfews for the Covid-19 (Coronavirus) pandemic. Most countries have responded with calibrated lockdowns buttressed with measures such as social distancing, personal protective equipment (PPE) and strict personal hygiene. Where things have probably gone wrong in such countries apart from any delay in responding is in respect of inadequate facilities for testing and treatment and shortfall of PPE. There is merit in the view expressed by some commentators that extended curfews are disproportionate for countries such as Sri Lanka which for the most part have a hot and humid climate with high temperatures. There is empirical evidence that the preponderance of reported cases of Covid-19 worldwide and deaths are from countries in cooler climes. The future may well determine that Sri Lanka had got it right! 

There is only limited opportunity for countries such as Sri Lanka to manoeuvre to get away from the body blow delivered by Covid-19 to an already tottering economy. Clearly Sri Lanka’s economy was already in peril prior to Covid-19 mainly due to huge mismanagement by successive administrations. Mismanagement include (i) disruption of social peace and stability (ii) endemic corruption (iii) crippling high debt-to-GDP ratio – some to finance questionable investments (iv) exports not keeping pace with imports – some highly unnecessary (v) recurrent  high fiscal deficit (vi) failure to diversify export product (vii) absence of level playing field for entrepreneurs – particularly SMEs (viii) largely inept bureaucracy. 

These features particularly endemic corruption and disruption of social peace have contributed to the weakening of the country’s credibility resulting in the failure to attract ethical FDIs. Despite the country since independence being in an almost perpetual foreign exchange crisis, believe it or not – our regulators in some glaring instances have prevented the legitimate inflow of USD Billions into the country! An example is given under the section National Outrage’. Here we are now in the midst of the Covid-19 pandemic bending over backwards to even welcome inflows from questionable sources which could once again place us in the ‘Grey List’ of the ‘Financial Action Task Force’ (FATF) for money laundering.

It is mindboggling that it has taken Covid-19 for our policy makers to put a brake on ‘non –essential’ imports! Such imports should never have been allowed in the first place.

Our business leaders for the most part being opportunistic and selfish have exacerbated the economic agony of this country. It cannot be denied they rely on state patronage and protection for many facets of their operations.  Our business leaders have abysmally failed to stand up to the mismanagement by successive administrations.

The health of Sri Lanka’s economy is largely dependent on the demand for housemaids, apparels, tourism product, tea and a host of items from countries whose economies have been dealt a telling blow by Covid-19. Apart from the foreign exchange there is also the direct and indirect employment of our people.

The increasing interlinking of economies have a greater impact on countries such as Sri Lanka with small internal markets with dependence on external supply chains. The repercussions of Covid-19 have exposed this Achilles heel in Sri Lanka’s economy.  

Money Laundering

The government in its bid to encourage “Sri Lankan expatriates and those living in Sri Lanka with foreign currency holdings” to make deposits in Sri Lankan banks has tread on dangerous ground which could reduce the financial credibility of the country to pariah status. The Central Bank has given a “guarantee” that “forex remittances will be exempted from Exchange Control Regulations and taxes and protected under banking secrecy provisions.” Although this is applicable for only “three months commencing from April 2, 2020” will it not open the floodgates for money laundering to effectively convert black money into white money and destroy the integrity of the country? This is on top of the previous Yahapalana government enacting the contentious ‘Foreign Exchange Act, No. 12 of 2017’ which while purporting to liberalize foreign exchange transactions also effectively facilitated money laundering and fiscal evasion.

The link between money laundering, illicit drugs and funding of terrorism does not require elaboration. It was just the other day on 1 April 2020 that the ‘Daily Mirror’ had a report captioned “Country’s largest ever drug haul” informing us that “The Sri Lanka Navy seized a total of 1184.9kilos of drugs, the country’s largest ever drug haul worth of Rs. 12,500 million”

It is salutary to recall that Sri Lanka was only recently removed from the ‘Grey List’ of the ‘Financial Action Task Force’ (FATF) for money laundering after being on it for almost two years. FATF recommendations are “recognised as the global anti-money laundering (AML) and counter-terrorist financing (CFT) standard.”

Opportunistic Corporates

Those in leadership positions in our frontline corporates with rare exceptions (if any) have for the most part only considered enhancing their personal wealth with only a marginal or lip service commitment to the national interest. 

Have any of our business leaders with rare exceptions ever castigated any government for the glaring mismanagement of our ethnic and religious relations in the context of our multi-ethnic, multi-religious and multi-lingual country? Have not the much extolled leaders of our impressive garment industry used their formidable influence to halt the formation of trade unions? Can they be proud of the appalling living conditions of the thousands of girls working in the garment industry?  Can the leaders of our conglomerates honestly place their hands over their hearts and aver that they cannot afford to pay Rs. 1000/= per day to workers in tea plantations?  

Have not some major corporates been the beneficiaries of the privatization of some lucrative government assets under questionable circumstances at giveaway prices? Are not some of them the major source of profitability of these corporates? These include virtual ‘cash cows’ – South Asia Gateway Terminal (SAGT) and Distilleries Corporation of Sri Lanka (DCSL).   

Have not the bigwigs of some of our corporates in their expectation of ‘belt tightening’ by employees in the midst of Covid-19 for the most part kept their ‘perks’ undisturbed?  

Stimulus Package

The major beneficiaries of the government’s tax payer funded (mostly by have-nots) stimulus package will be the major corporates and banks. The stimulus package for the most part consists of a moratorium on loans and tax collection. There is little for the SMEs, self employed and the poor. 

Our corporates while distributing a major share of profits to the owners who are the elite of society have only kept small amounts to tide over bad times which we now have. Is it equitable for the state to bail them out without demanding reforms?  The same largely applies to the so-called private banking sector where in reality the government calls the shots. Even the fully state controlled banks such as – Bank of Ceylon and People’s Bank have a large corporate sector bias if the huge non-performing loans (NPLs) are anything to go by. Could the egregious Bond Scam have materialized without the helping hand of the Bank of Ceylon and other state agencies?  Will tax payers also have to bail out vehicle dealers with a huge stock of bank financed unsalable reconditioned vehicles worth billions of rupees?

National Outrage 

A glaring example of some business leaders in concert with political bigwigs and key bureaucrats not caring a damn about the country and its people is the case of a very long time publicly listed foreign asset rich conglomerate. This overwhelmingly one family owned PLC conglomerate was until recently by far the most asset rich company in the country – very few knew of this reality. The family although maintaining a low profile have enlisted to the board of directors of ‘Group’ companies prominent personalities which include those currently or previously holding key positions in regulatory agencies in Sri Lanka and abroad. Other than those in elite business, regulatory and political circles, people in general are not even aware of the existence of this family! 

Its huge land bank in foreign climes included a large swath of land close to urban centers in the economically progressive states of Selangor and Perak in Malaysia comprising 1,386 ha which included valuable real estate close to the country’s capital Kuala Lumpur. They could realistically be valued at a few USD Billions. In comparison, the ‘Colombo Port City’ pales into insignificance with only 269 ha! Apart from this, KL is a far more developed city than Colombo with presumably much higher real estate value. This conglomerate was ALLOWED by Sri Lankan regulatory agencies in 2008 without justification to incorporate in Singapore its newly formed holding company to which this land bank was transferred. This resulted in Sri Lankan regulatory agencies forfeiting their right to regulate these valuable assets. It is now believed that the assets in Malaysia were ALLOWED to be sold in the financial year 2017/18 bereft of Sri Lanka regulation and the bulk of the proceeds distributed among family members who probably owned more than 95% of the companies owning these lands. 

Although the rationale given for selling on publicly available information is that the Malaysian land bank close to urban centers did not facilitate agricultural expansion, CURIOUSLY the valuation for purpose of such sale on publicly available information is stated to be based on agricultural land value! Will those concerned clarify this MISMATCH?

Will those at the helm of key regulatory agencies in Sri Lanka – mainly CBSL and SEC in 2008 and 2017/18 which include Messrs. Nivard Cabraal (2008) and Dr. Indrajit Coomaraswamy (2017/18) clarify why they ALLOWED this outrage to be perpetrated on our country which prevented USD Billions flowing into Sri Lanka? Will we ever hear from Messrs. Cabraal and Coomaraswamy? 

Should not the President in the national interest set the wheels in motion to get to the bottom of this outrage? The relevance of this in the present Covid-19 context where the economy is in peril and starved of foreign exchange cannot be overemphasized. 

Conclusion

It is clear that if the country continues in its old ways with business as usual, it will be curtains for all of us – particularly future generations.

It is suggested that ‘Transparency International Sri Lanka’ engage with the parties concerned which include former CBSL Governors Nivard Cabraal (2008) and Dr. Indrajit Coomaraswamy (2017/18) and the ‘Right to Information’ to determine whether Sri Lanka was deprived of the legitimate inflow of a huge sum of foreign exchange in the region of USD Billions.

There is a danger that Covid-19 could be exploited by interested parties to detract from burning contemporary issues such as accountability for the egregious bond scam, money laundering and other acts of criminal wrongdoing. 

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Latest comments

  • 5
    1

    Amrit

    Some interesting points.

    The country has no future unless you do two simple things:

    1. Ensue the independence of the Judiciary, Regulatory bodies and the law enforcement agencies
    2. Separate religion from governance

    Yet to see this happening and hopefully it will happen before we are resting six feet underground !!

  • 5
    0

    Whoa! looks like Mr Muttukumaru has thrown the book at ‘our great and good’.

    Just to recap what we have come through the first nineteen years of this millenium:
    – the great tsunami
    – the unbelievable May 2009 victory over the rampant Tiger
    – the great wave of impunity that followed, with every supporter of the victorious ‘king’ stripping the national coffers.
    – night racing round the maligawa
    – the misplaced hope that came with Yahapalana Sirisena and his band of of shit heads
    – Bond scam
    – attempted rape of the constitution . . .
    – the rise (and rise) of the Kudu kings

    Through all this, our long suffering common man, has bent over, time and gain, happy to be shafted by the same devious bastards who keep control of the our politics. What to do?

    And, after all that, we end up with bloody coronavirus! God, Is there no limit?

    Mr Muttukumaru is right; a small bunch of opportunistic bastards are gathering as we write, ready to shaft us again, and again, in the chaos of the coming months.

    Dear long suffering Sri Lankans; prepare to bend over once again. (Ouch!!!!!)

  • 1
    3

    Indrajit C had to be brought in somehow!

  • 3
    1

    The author is telling it like it is. But who cares? There is no one to take responsibility for this country. Sri Lanka is like an illegitimate baby that has been abandoned by its unmarried mother. We the poor citizens are now like orphaned homeless children with no one to care for us. For 70 years after getting independence we have managed to fend off starvation. But soon there may be a terrible famine in the country, which is now in the incipient stage, being limited to certain regions.

    Throughout the 70 years of independence, we have never had a credible leader for this country. The calibre of leaders shows no sign of improving either. So we are all doomed and there is no hope at all for the future generations.

  • 0
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    Sri Lanka has the best Quality TEA. As we could not do anything British brought it, established it including the world wide market, even then for the last 72 years we only ruind the TEA market. now Sri Lankans prefer coffee. World’s best black tea has only 5% of the world market. Drink Assam tea just like drinking Polkola with hot water. Drink Chinese tea. it is green tea. They popularised it saying green is the tea that need to drink.
    Sri lankan Cinnamon, Black Pepper are the best quality. But, what we have done. Nothing. So, every thing conceptually need to be different.
    Sri lanka was run by some hidden forces, LTTE rump, NGOs, and political parties or most of the parliament seem to be only paid by the unknown force or supporting the destruction of what is Sri lanka.

  • 0
    2

    Muthukumaru: there is a side that none of you Economists talk. Srilanka had economic problems even during the last govt. Rqanil simply did not have an economic plan until 2025. He bypassed 2015-2020 period for economic development.
    Even under those conditions world Bank or some says that Sri lanjka is a middle income country and increased the LENDING RATE for Sri lanka. Srilanka could borrow only from Banks I suppose. Now during these COVID days, sri lanka doe snot export, does not import and limited the foreign exchange going overseas. Even then rupee fell down,. How do you correct that kind of problems. All you guys solutions are nothing when those basic problems are not addressed. all the economists come here and show so many closing of small holes here and there. but no some solid answer to solve the problem.
    See how desperate some one is looking for Political instability, judiciary involvement, constitutional crisis in Sri lanka. You guys do not address the major symptoms, instead talk solutions. some one is cheating or fooling the public.

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