A land of poverty, sleaze, drugs and lawlessness

Turn on the news programme on television. There is a burly ASP delivering a blow with full force on the right ear of a skimpy young man. Doctors have diagnosed severe damage to his inner ear. A week earlier there was an attack by a group of people on a small group seeking refuge from mayhem in Myanmar, no matter what religion they professed, who had done us no wrong but accidentally sought temporary shelter until they found a land where they would be welcome. They were the equivalent of a family stepping on to your verandah to escape a deluge of rain. You don’t open with a blast from a double barreled gun, whatever the form in other parts of the world. Many people from our country, rightly or wrongly, sought refuge in other lands in the same way, and for the most part, were treated humanely. Refugees from disasters of various sorts are a common feature all over the world now and decency should have dictated a response entirely different from what we saw in a land where it would be hard to miss, day in day out, the admonition ‘mettankarothamanusiyapajaya’.

A few days ago, a book was published which laid down in gruesome detail, the murder in mid-November 2012 of 27 prisoners in Welikada jail, in central Colombo. The latter two groups are people (the last, citizens) under the care of government, which, Hobbes claimed came into existence to ensure that life is not ‘nasty, brutish and short’. It turns out that ours was a government that excelled in ensuring the law of the jungle where life is violent, tortured and whimsical. Worse, the Minister now in charge of the Police Department, a few days ago, got up in Parliament to say, that under his government the law is supreme and will be administered without fear or favour. This, the same man as who intervened, as revealed in a careless telephone call between him and the Head of the Police Department, to save the former’s kinsman from imminent arrest according to law. The minister was not booed in Parliament. I thought if MPs were good at anything, it was at that. The Head of Police was not reprimanded for his indiscretion and lack of professionalism. The minister who was in charge of prisons in 2012 is back in Parliament, his constituency endorsing his behavior during that massacre. Ministers in the Rajapaksa administration who had said nary a word about the mid-November 2012 massacre shamelessly rose to challenge lawlessness in 2017 in the conduct of the police in the Hambantota incident.

The legal fraternity, professors of law, lawyers and some others claim time and again, at times with vehemence, that we possess a system of judicial administration completely satisfactory and adequate to investigate, prosecute and try any kind of crime or other wrong doing. That system includes the police who investigate wrong doing, government lawyers who prosecute, lawyers who represent those prosecuted and judges who try the cases and deliver judgment. Deputy Minister Ajith Perera informed Parliament a few weeks ago the data gathered by an Oversight Committee of Parliament. ‘The average length of time from the date of commission of a serious criminal offence, prosecution at high court till the conclusion of the prosecution in the High Court is ten years and two months. It takes seven years for the completion of two appeals in the courts of appeal and the Supreme Court subsequent to the hearing of a case in high court. Thus the entire process takes about 17 years.’ You call that system efficient! The Deputy Minister detailed reforms proposed by government to increase the number of courts and judges. Government seems to have forgotten the behavior of the police and the private bar.

Barely a week later, lawyers appeared in court on behalf of two criminals who had been sentenced by Judge Gihan Kulatunga to three and a half years of imprisonment each and hefty fines. They pleaded that the appeals would take seven years to be heard and concluded and it was wrong to keep his clients in prison when their sentences ran for only half that time. Lawyers for the government made no plea and the prisoners were set free. This seemed fair enough. But it raised several important questions to be answered. What about other prisoners suffering the same fate? Based on this judgment is it right (and how) to keep them imprisoned because of delays in court? Does the government want every one of them to file a case seeking redress? Would each appeal take seven years to be heard? Would some convicted criminals stay imprisoned because they lack funds and sophistication to file an appeal? Would the gavravaniya, pujaniya, and vandaniya and most reverend members of the maha sangha (I want to be certain that I don’t commit lese majeste against them) go begging for funds for them? Is that fair and just? There is a second and more complicated but no less important issue. These two convicted criminals were sentenced go pay Rs.50 million or so each as reparation. The successful appeal against the judgment withholds that payment for at least seven years. At current rates of interest, Rs.50 million will double to Rs.100 million in seven years. The probable beneficiaries from the award would lose Rs. 50 million (the interest they would earn) when payment is delayed by seven years and the criminals could pay in sesven years that fine entirely out of interest earned from investing Rs. 50 million now. The criminal gains and the victim loses! How fair and just is that? One solution is to place that sum in interest bearing escrow accounts administered by court to be distributed after the Supreme Court will have expressed itself on the matter. That also provides incentive for both parties to hasten with the case to lay its hands on the pot of money. The lawyers and judges must think hard. Because of delays in the judicial system, justice is denied grossly.

A report in The Island of October 10, 2017 ran as follows: ‘…. Nimal Siripala de Silva told Parliament yesterday that he and other SLFP leaders had remained silent, out of fear, when former President Mahinda Rajapaksa was giving away the Port City and Shangri La to Chinese companies during the previous regime’. Do you believe your ears? Powerful ministers who went about campaigning for the election of Mahinda Rajapaksa for President in 2015 now claim that they behaved in the Cabinet of Ministers out of fear! Did they seek the re-election of Mahinda Rajapakse in 2015 for the same reasons? Who and what were they afraid of? Do they still harbor such fears that they would not tell the public about them? Are those craven leaders of the SLFP still in Parliament and how can we trust that they vote on issues freed of such fears? How can democracy prevail in a society governed by such fear? How careless were we, ordinary folks, to imagine that with LTTE vanquished, we could move about without care?

 

Narcotic drugs

I once wrote a report on the international problems of drugs control. In what little of it that I can recall, it classified the problem fourfold: production (both growth and manufacture), transport, street distribution and consumption. All four aspects were attacked by governments and voluntary association, yet the problem remained impermeable. We do not produce plant narcotic drugs on any sizeable scale nor do we produce synthetic varieties. The marihuana (ganja) that we grow is quite small in quantity. The growing demand for drugs is satisfied with imports. Huge amounts of narcotics from the main producing countries pass through Colombo. South America is a long way from Sri Lanka but container loads of cocaine pass through Colombo and the Customs Department occasionally catches a container in transit. Supplies (heroin) from Afghanistan and other neighbouring countries pass through Colombo regularly. I am not sure whether much from the Golden Triangle makes the same trip. There is a growing local demand but that accounts for a small fraction of what is distributed through Colombo. Since we are a not so large island, it might be thought that if we have good surveillance of our sea borders and air transport to close supplies routes, that we could prevent invasion by narcotics. You did not factor in the sleaze that pervades this society. Those who engage in this trade are immensely rich, powerfully armed, politicians on their own and highly connected to politicians even more powerful. They have established a narcotic drugs hub in Colombo. It provides a veritable example of a hub for a commodity arising from objective factors in societies. Fanciful talk by senior bureaucrats and politicians about establishing an education hub, a financial hub and transport hub is shown clearly to be rubbish, when a hub in the narcotics trade has emerged, no matter how much government apparently tried to prevent it.

How can an education hub develop in a community that has not a single high grade university, no academic press putting out books and journals of any quality or a bustling academic community? China alone sent out 500,000 students to academic institutions overseas and 385,000 of them to universities in the United Sates in 2015. India and other countries must have sent in at least as much. So there is no deficiency in effective demand for study in foreign universities. A hub cannot develop without suppliers. Similarly a transport hub cannot develop in Sri Lanka simply because there is massively growing trade among countries in South and East Asia on the one side and Africa and Europe on the other. It is simply poppy cock to crow about a transport hub without physical facilities to carry it on. I think any hope of a financial a hub in Colombo has died of severe infection, almost a plague, as revealed by recent developments in local financial markets. To that horror story, I now turn.

 

Sleaze

Last week, news broke out that out of $60 million electronically hacked from a bank in Taiwan (China) some large quantity of money ended up for credit to account holders in a state owned bank in Colombo. It turned out that one of the account holders was a chairman of a government controlled corporation! A few years back, an account held by the central bank of Bangladesh with the New York Federal Reserve Bank was similarly hacked and some of the proceeds ended up in a bank in Colombo. Why does this happen so frequently? Because we have rightfully earned notoriety for a society where sleaze is pervasive, indulged in by those in high office and that lawlessness ensures impunity from prosecution and thieves walk away with the loot. The supervision of financial institutions (bank and non-bank) is the responsibility here of the Central Bank of Sri Lanka. It is manifest that that institution has done a lousy job. Whether it does so because of sleaze or shear incompetence, one cannot say without deep inquiry.

The Central Bank of Sri Lanka (Ceylon) was an institution of unquestioned integrity and competence until two governors ago. In 1958 when Minister Ilangaratne established the Employees’ Provident Fund by law it was the Cabinet’s decision to entrust its management to an independent Board, appointed by government. Trade Union leaders and their members protested that they wanted the Central Bank to manage it because they had the highest confidence in its integrity and competence and it was so decided. In 2002 the Bank was of the persuasion that agency functions that the Bank did for government in managing EPF and the Public Debt conflicted with the principal objectives of the Central Bank in maintaining economic stability through monetary policy and maintaining financial system stability. Besides, these Departments were very large in staff strength and imposed an unwelcome burden on the management of that large staff, distracting the attention of the Bank from its principal tasks. The service departments swelled in numbers to service these two departments. Again Trade Unions intervened to insist that the Central Bank continue to manage EPF and the government did not agree to hive off the Public Debt Department from the Bank. Events since 2005 and to date have demonstrated that the Central Bank of Sri Lanka is now not the bastion of integrity and competence that it was prior to that.

The Public Debt Department has been manipulated to impose a much heavier burden of interest on debt to benefit a bond dealer with close ties to the top management. It has transpired that senior officials of the Bank, except a few, did not feel compelled to defy instructions to perform these improper activities and indeed connived with their superiors to give effect to them. It is doubly difficult to understand that the Monetary Board watched with equanimity this ugly scenario being enacted. We learnt earlier that ministers of government agreed to certain decisions driven by fear. But what motives drove members of the Monetary Board to act as if they were babes in the woods when all these improprieties were inflicted on the public? They cannot plead that they were unaware of what went on without being charged with dereliction of duty. The minimum that they can do is to hasten to resign from membership of the Board. Now that the Teflon cover that protected the Central Bank is in tatters, it is timely for the Public Debt Management Office to move to its natural home, the Ministry of Finance and for the Employees’ Fund Management Office to move to its legitimate home, the Ministry of Labour. Trade Unions must have grown in maturity during the last 60 years to look after their members’ precious savings. The Central Bank will then turn into a much smaller institution focusing its attention on the fundamental responsibilities entrusted to it by law. The need for a good economist to lead the Bank will then be clearer than obvious.

In 2002 and there about, the Bank examined the need to develop a market for bonds, both government and corporate. The market for government bonds was incipient and the Bank studied the problem and sought the opinion of scholars and practitioners the world over, one of whom happened to be our own Nihal Kappagoda, who had advised the governments of both Thailand and the Philippines and some other countries on the problem. The Bank decided that one of the steps towards a market for bonds was to establish a scheme of Primary Dealers who would bid competitively for bonds when issued. They would then sell them to other dealers and retail investors. And so it was expected that there would emerge a competitive market for bonds both government and corporate. As the price of a bond gives the rate of interest, it was expected that rates of interest and its time structure would emerge from the market. There has been loose talk about the superiority of administratively decided price of government bonds without realizing the difficulties of arriving at such estimates. The most sophisticated models for guessing interest rates in the New York bond market went awry to destroy Lehman Brothers, a highly respected bond dealer in the market and that set off the panic that triggered the financialcrisisof2007-08. In Colombo the decision makers who espoused the cause of private sector primary dealers had not factored sleaze as a way of life in Sri Lanka. It is now evident that those in the in the public sector were conniving at venality that brought about the debacle we call the bond scam. It is greater the pity that the Central Bank which stood for most that is good in the public sector has now been mired in mud. (I worked there, once.)

I have also begun to suspect that investment patterns have been determined by how much sleaze could be generated by each activity. Large investments made, en bloc, are more paying in sleaze than small investment that would bring in higher returns to society. Infra structure projects like harbours, airports, expressway, other highways, large dams to provide irrigation and generate power and the purchase of airplanes can bring in huge commissions and bribes, no matter what the return to society. During the last two months I traveled twice on the Southern Expressway and on routes A17 and A18. (I have also traveled on express ways for many years in other lands.).Traffic is very thin on these routes and acutely scarce on routes A 17 (Matara to Madampe and on Route 18 (from Nonagama to Pelmadulla). We have heard much on Mattala and Magampura. It was a popular saying in the 1980s that Mahaveli flowed to Trinco through a well known firm in Colombo. There is now high fever about expressways to the highlands and worse allegations of chicanery in the presentation of bills for consideration by Parliament.

 

Poverty

Despite claptrap about middle income traps, we are distinguished by poverty. About 20 percent of our labour force cannot find employment at home. More than half of these workers outside Sri Lanka are engaged in unskilled work as cleaners, drivers or watchers, because the domestic economy cannot offer them adequate employment. Indians working overseas remitted $65 billion last year partly because of the larger numbers, partly for the same reasons as in Sri Lanka. Now those enthusiastic about free international trade in labour as in commodities and capital will ask me what is wrong about that. In contrast to the international movement of commodities and capital, there are social costs which raise opportunity costs of movement of labour and these are not compensated for in wages. (Trump played an ace when he hit upon social costs of emigration of capital.) A response might be that workers who move know all when they make the move. This is a rationalization a priori and behavioral economists like Thaler will tell you that it is not true. They leave because poverty expels them.

We export tea competitively because workers in plantations are paid low. ‘Rents is high because prices are high’ as David Ricardo wisely said. Wages are low because prices are low. So with Chinese workers who beat the world to export manufactures. It is a question of time before tea plantations will find it impossible to export tea competitively.

This litany of woe about our society is long and sad. I had better stop now.