By

Gagani Weerakoon

President Maithripala Sirisenain at his home town Polonnaruwa addressing his people to greet them for the Sinhala and Tamil New Year said that he will not allow so-called economic experts to burden the public with increased taxes.

He added that some experts are not aware of the suffering of the people and he will ask such experts to go home. President was commenting on the media reports that the government plans to increase VAT, which is an indirect tax which affects you more if you belong to low income groups.

“I saw in the newspapers that there will be new taxes, especially the VAT which affects the average citizens. I will not allow any economic expert in the government to introduce taxes which adversely affect the poor. I know that some of these experts do not know the suffering of the people, but I will not allow them a free rein. I want to help the poor people and I want to improve their economy. The State’s policy should be geared to assist the people,” he said.

He further stated that he will fully commit himself with a firm determination this New Year to fulfil the aspirations of the people and will not keep any room for those forces that damaged the country, to regain power.

Just two days after Avurudu on 15 April, government announced that they will go ahead with the decision to increase Value Added Tax (VAT) by 15% as planned and with effect from 2 May, ironically the day after the May Day of the working community.

It seems, the President was kept in the dark about the recent tax increase even though it was indicated that VAT will be increased by 15% several weeks ago.

With President Sirisena’s New Year lash on economic experts, everyone’s attention was more on finding which economic expert had antagonized the President than on the burden the increased taxation put on the public.

It was reliably understood that the President was targeting two persons in his entire speech, one being R. Paskaralingam, Advisor to the Ministry of National Policy Planning and Economic Affairs and one time very influential Finance Ministry Secretary of President R. Premadasa, and the other being Central Bank Governor Arjuna Mahendran.

However, a careful analysis of events that took place behind the screen clearly shows that Polonnaruwa speech was just a climax of the frustration of President Sirisena that has been bottling up for over a period of time. Time and again, he was either kept in the dark or had been ignored when taking crucial decisions pertaining to the economy.

Ceylon Today reliably learns that the beginning of this much soured relationship began with the arrival of the review team of the International Monetary Fund (IMF) in Sri Lanka on 31 March.

A staff team from the International Monetary Fund (IMF) led by Todd Schneider visited Colombo during 31March – 11April period to hold the 2016 Article IV consultation discussions and to discuss the authorities’ request for a Fund supported arrangement.

The mission at the end of their visit announced that they made significant progress toward a staff level agreement with the government on an economic programme that could be supported by a 36-month Extended Fund Facility (EFF).

They also said that Programme discussions would continue in Washington DC on the margins of the Spring Meetings of the IMF and World Bank which started on 15 April, with the objective of concluding a staff-level agreement with the authorities, subject to approval by IMF Management and the Executive Board.

“The authorities-proposed economic programme aims to achieve high and sustained levels of inclusive economic growth, restore discipline to macro-economic and financial policies, and rebuild fiscal and reserve buffers. Key objectives underlying the reform agenda include: (i) improving revenue administration and tax policy; (ii) strengthening public financial management; (iii) state enterprise reforms; and, iv) structural reforms to enable a more outward-looking economy, deepen foreign exchange markets, and strengthen financial sector supervision.

“A durable reduction of the fiscal deficit and public debt through a growth-friendly emphasis on revenue generation is the main priority for fiscal policy. In this context, the mission welcomed the Cabinet’s decision to reduce the 2016 fiscal deficit to 5.4 per cent of GDP, and advised to move quickly on tax and expenditure policy decisions endorsed by the Cabinet. Other near-term steps include a clear strategy to define and address outstanding obligations of State enterprises, start broadening the tax base by reducing tax exemptions, and introduction of a new Inland Revenue Act. The medium-term revenue effort will be based on further reform of tax and expenditure policies, supported by modernizing revenue administration and public financial management (including implementation of key IT systems (RAMIS, ITMIS, and ASYCUDA ++).

“The mission welcomed the recent tightening of monetary policy given the steady increase in core inflation and high private credit growth. Given the long lags in monetary transmission and continued increase in core inflation and private credit growth, however, the Central Bank of Sri Lanka (CBSL) should be prepared to tighten policies further if these trends continue. The mission also recommends the CBSL take active steps to rebuild non-borrowed reserve buffers.

“The financial system appears well capitalized and liquid, but the authorities should nevertheless remain vigilant to the risk of a potential rise in non-performing loans. The mission welcomes steps toward supervision on a consolidated basis and shifting to Basel III and concurs with continued efforts needed to strengthen the legal framework for crisis preparedness and resolution,” the concluding statement by the team stated.

The mission met Prime Minister Wickremesinghe, Finance Minister Karunanayake, Minister of Development Strategies and International Trade Malik Samarawickrama, Governor of the Central Bank of Sri Lanka Mahendran, other government officials, and representatives of the business community, civil society and international partners.

However, Ceylon Today reliably learns that even though the IMF delegation was very keen on meeting the President, the attempt was systematically thwarted by certain individuals. It was not long ago that this column revealed how in a similar incident that occurred last January where a planned one-on-one meeting between President Sirisena and with billionaire businessman, George Soros was thwarted in January.
President Sirisena nevertheless was not unaware about this recent ill-treatment and attempts made to keep IMF delegation away from meeting him.

It was in midst of this that a delegation led by Finance Minister Ravi Karunanayake left the country to attend the 2016 Spring Meetings of the International Monetary Fund and the World Bank Group, that will be held from 12 -17 April in Washington, DC.

It was during this time the government announced the increase of taxes under the influence of the IMF.
The delegation who had talks with the IMF officials were initially lobbying for a USD 3 billion standby facility to ward off a perilous balance of payments crisis. With IMF being reluctant the requested amount came down then to USD 2 billion but was finally settled for only USD 1.5 billion.

The increase of taxation was made in order to convince the IMF officials of the commitment of the government towards reducing the budget deficit upon their insistence. According to reliable sources, Finance Minister Karunanayake was reluctant to accept all conditions put forward by the IMF even before he left for Washington stating if those were implemented, they will not be able to do politics in the country.

When President heard the news he made sure a complete report on what had happened in Washington, DC was in hand.

President Sirisena was clearly not ready to let it go lightly this time when he announced in Cabinet that all economy related crucial decisions should be made by a committee comprising him, the Prime Minister and the Finance Minister in future.

He also did not forget to express his strong opposition to the proposed mega increase of taxes which will affect the general public severely with VAT being extended to telecommunications, health, private medical services, and wholesale and retail trade.

Prime Minister Wickremesinghe however, attempted to calm the situation by noting that it will not affect the general public as projected by some as essential items including electricity was not included in the list where VAT would be extended.

According to economists, imposing tax on electricity would have been more effective as the usage depend on one’s income rather than imposing such huge taxes on education and health sectors.

With this, Sri Lanka will be included among the few States that charge VAT from health and education spending by citizens, services which are almost universally exempted in free countries.

Will President re-appoint Arjuna Mahendran?

With these developments, now everyone is concerned whether President Sirisena would continue the service of Central Bank Governor Arjuna Mahendran by re-appointing him, for another term.
A CB Governor is appointed by the President on the recommendations of the Finance Minister for a period of six years. It is said Mahendran was appointed as the successor to former Central Bank Governor Ajith Nivard Cabraal to complete his tenure which would come to an end by 30 June.

Cabraal took office on 1 July 2006 and continued till January 2015 under President Mahinda Rajapaksa but resigned prematurely paving the way for the new President to appoint a person of his choice.
With Mahendran landing in controversy over the past year and recently coming under President Sirisena’s criticism, various factions are now suspect whether the President would continue his services in order to maintain a cordial relationship with the UNP or would look for another suitable candidate.

Also, with his declaration that final decisions on crucial economic matters will be taken in future by a committee led by him, what lies ahead for the Cabinet Sub Committee on Economic Management headed by Prime Minister Ranil Wickremasinghe is also in question.

Two civil society members boycott CC

Last week saw Sri Lanka getting its first Inspector General of Police approved by the Constitutional Council (CC)on Monday (18) which made Pujith Jayasundara, 56, to office following a secret ballot.
Though the final result was announced to the public the process did not lack intense debate over the correctness of the procedure.

At least one member of the council objected to their having to choose one out of three candidates nominated by President Maithripala Sirisena in contrast to the practice adopted in appointing the Attorney General in February.

Speaker Karu Jayasuriya was of the opinion that this should be considered a special occasion given that one contender was in charge of President Sirisena’s personal Security Division and also hailing from his hometown.

He amicably mentioned that if the President was asked to nominate one, he will land in an awkward situation. Prime Minister Wickremesighe also had pointed out that there is no hard and fast rule in the process of nomination clearly stated in the Constitution.

Which proves the arguments that the procedure adopted by Constitutional Council in approving individuals, must be revealed to the Parliament is valid.

In the case of nominating an Attorney General, the Council returned the three names suggested for consideration by the President and asked him to make one nomination which he later did and which was ratified by the panel.

Meanwhile, another question was raised on the ethics of Minister Champika Ranawaka sitting in the Council where the future IGP was appointed despite him being accused in a hit and run case.

In fact, MP Vjitha Herath of the JVP had raised the issue of his presence at a time MEP leader Dinesh Gunawardena had also sent a letter to Speaker Jayasuriya requesting him not to include the Minister in question to sit in the panel which decided on the future IGP.

Prime Minister Wickremesinghe pointed out that the members of the Council have no mandate in deciding who should be included in the panel. He in fact pointed out that Minister Ranwaka is the only representative nominated by the President to the Council thus in fact those who are opposing him should write to President Sirisena and not to the Speaker.

Members of the Council noted that reports from the Bribery Commission as well as the Human rights Commission of Sri Lanka were called on all three candidates. While the Human Rights Commission had cases against all three contenders, the Bribery Commission had reported there were cases against the two main candidates with SDIG S.A. Wickremasingha having a pending case against him.

The Council decided to go in for a vote at the Speaker’s Chamber in Parliament where only eight out of the 10 Council members were present.

Two of the three civil society nominees were absent from the landmark meeting to elect the first IGP following the 19th Amendment that was designed partly to de-politicize the Police Department.

Mohamed Shibly Aziz, 70, eminent President’s Counsel and Radhika Coomaraswamy, 63, a former Under-Secretary General of the UN, were not present while A. T. Ariyaratne, 84, was the sole civil society voice.

It was a pathetic situation given that once again the appointment was being a political one. The earlier plan to appoint more civil society members were prevented by the heavy campaigning by pro-Mahinda Rajapaksa faction in Parliament and on top of it two out of the only three civil society members being absent was a big setback.

Rear Admiral Colin Kilrain meets Navy Commander

Former US Navy SEAL Commando, presently Commander US Pacific Special Operations Command, Rear Admiral Colin Kilrain met Commander of the Navy to discuss future joint training schedules of the US Navy SEALs and Sri Lanka Navy Special Boats Squadron (SBS). The interaction between SEALs and SBS started with a long association through joint training (Exercise Balance Style) started in year 1995. The Commander of the Navy, Vice Admiral Ravindra Wijegunaratne was the founder of SBS in 1993 and Commanded this elite unit twice in his naval career.

This column recently revealed that even though many neighbouring countries, including India may find it difficult to believe the possibility, it is expected that the US will station its Pacific Command in the Indian Ocean with the assistance of Sri Lanka. The first sign of this was US Navy’s Seventh Fleet Flagship, USS Blue Ridge, arriving in Colombo on 26 March for a five-day port call, with 900 sailors on board. And, now various politicians and interested parties are questioning whether this is another development in future plans

Courtesy:Ceylon Today