A market economy model vital - Dr. Sarath Amunugama

*Free education and health

*Retirees must be held accountable

*Surveillance on global economy

*Transport and fertiliser subsidised

By Uditha KUMARASINGHE

A former member of the elite Ceylon Civil Service and one-time Ministry Secretary, Director of Information, Lake House Chairman, international civil servant of the Paris-based UNESCO, writer and literary critic, Dr. Sarath Amunugama is the Senior Minister for International Monetary Cooperation in the UPFA Government. He often shuttles between Colombo and Washington to negotiate foreign aid for the country.

Dr. Amunugama in an interview with the Sunday Observer said that in Sri Lanka, education and health facilities are provided free to the people while transport has been largely subsidised. The fertiliser subsidy has helped bring down the prices of rice and various other products. They are huge investments. When the people demand salary increases, they tend to forget what is given to them free by the Government.

A salaried person in Sri Lanka does not realise that he is actually getting more than double his salary as he does not pay for his childrens’ education and health facilities. He is benefited by subsidised transport and electricity.

Dr. Amunugama said, “we have to think of market economy models irrespective of the label it carries and maintain financial discipline. It is good for a country to have surveillance by the International Monetary Fund (IMF). There are criticisms made on the US economy by the IMF on the basis of certain criteria. Today, we have a global economy. we should have an institution which will maintauin surveillance and see that the failure of one country will not lead to the collapse of the system.

The Auditor General has said in his reports that our auditing system is investigative and more of a post-mortem. By that time the horse has bolted from the stable. New proposals have to come. Many of the senior officials who are responsible for irregularities have retired and they feel that once they retire they are out of harm’s way. But it should not be so. We are trying to introduce new legislation so that even if they are retired they will be found culpable if they have made mistakes.

Excerpts of the interview:

Q: The Gross Domestic Product (GDP) as the basic economic indicator is flawed to the extent that it is not directly based on development in health, education and literacy rates in developing countries. Would you like to elaborate on this?

A: All countries use the GDP standard which helps them to focus on health or otherwise of an economy. The factors that go into checking the GDP are basically statistics that deal with the growth process. The subjects that you mentioned are also integrated into other statics that we take into consideration for GDP. So this is a universal system and we also have to stick to it.

Q: In your capacity as Senior Minister for International Monetary Cooperation, how would you explain Sri Lanka’s immunity to the recession that affected US and Europe?

A: Sri Lanka is not immune from recession because our export markets are mostly in the US and Europe. When the purchasing power and imports of those countries come down, it will have an impact on the demand for our export goods. For example, if you take the garment industry, tea or tourism, the demand for it will drop to some extent because those who could have afforded to buy them will now not buy them. So to that extent the market has come down.

If there is a specialised group of people who prefer to buy Ceylon Tea, then we can secure that market. The advantage is that we are not dependent on the export sector.

This was one of the flaws in our growth strategy. Now we have to expand it in the light of the demand dropping. Since the volume of our production is small compared to global exports, I think we can manage if we work harder, do better promotion and price our goods in a satisfactory way. Other countries such as China and Japan are dependent much on exports.

There is export-led growth in those countries. When there is a drop in demand in developed countries, naturally they will feel the pinch. We also feel the pinch. But I think we can survive.

Q: Can you comment on the current state of the economy. There are many allegations specially by the Opposition that the economy has been mismanaged?

A: Every Opposition says that the economy is mismanaged. When we are in the Opposition, we say that the Government is mismanaged. When we are in the Government, the Opposition says we are mismanaging. Nowhere in the world is there is any Opposition that says that the Government is managing the economywell. If they concede that then they can’t remain in the Opposition and they have to join the Government.

But as I mentioned before there are certain objective criteria whether the economy is moving forward or not.

Basically it is GDP growth and it is based on growth in the agriculture sector, manufacturing sector or industries and in the services sector. We can see an improvement in each of these sectors.

When we say agriculture sector, a great deal of tea, rubber and paddy have been produced and it has been sold. Finally it has to be related to the facts on the ground.

As far as Sri Lanka is concerned, we can see that growth is there. For example, if we are getting $ 4 billion remittances every year, then that is recorded as money coming in to Sri Lanka through the banking system and it is recorded through the Central Bank. Then we know the money goes to the rural areas. Nobody can deny that money has come to rural areas. You can see the receipts of these workers to check how it comes to Sri Lanka and how the money goes to the villages.

Then you can see the exports and also the imports. How can we say that the economy has been mismanaged when we can see the statistical growth. If we take telephones as an example, today we have 120 percent growth in mobile and land lines. Over a million motorcycles and half a million vehicles have come in. So these are facts. One cannot deny that there is growth.

Q: Would you like to narrate your experiences with the aid-giving bodies such as World Bank, IMF and similar international organisations?

A: The simple fact is this, that we cannot live on our earnings alone. We are like a family where the father is not getting enough by way of his salary to upkeep his wife and children.

This is due to two reasons. One is that your income has not increased. The other is that without that income, we have given so many things to our children which we can’t afford. As a result there is a big gap between what we earn and what we spend.

The so-called socialist countries as well as democratic countries are borrowing money and spending it largely on social welfare. In Sri Lanka education and health facilities are given free while transport is subsidized.

The fertiliser subsidy has brought down the prices of rice and of various other products. These are huge investments. When the people talk of their salaries, they don’t remember all these facilities that have been given free to them.

Any salaried person in Sri Lanka should realise that he is actually receiving more than double his salary. Because he does not have to pay for his children’s education and health.

He has subsidised transport and electricity. So almost everything has been subsidised and that should be added to the salary.

When people demand higher salaries they should bear in mind that if the costs of subsidies are added, they could have got a bigger salary. One must look at all those services too when one looks at one’s salaries.

That is to find the money to give concessions under the budget. Some parts of the loans are used for infrastructure development. Why do we go to the World Bank and the IMF? That is because there are different types of loans. You can get credit by way of small loans.

We receive money as grants. Some countries give small amounts as give away. We get that as well. Then there are multilateral loans. For example, when we borrow from the World Bank, Asian Development Bank (ADB) and IMF, that is a type of concessionary credit. These terms are much better for Sri Lanka than commercial credit.

Now bilaterally most of the countries are going for commercial credit. They give us small amount as grants and another small amount as concessionary credit. But basically we have to borrow from their import-export banks. China, Japan and India, have set up import-export banks and we have to go to these banks to borrow from them.

We have grants, concessionary credit and commercial credit. When we go to multilateral agencies, they are more favourable to us with lower interest and longer repayment periods. As a result, we prefer to get multilateral assistance. But if that assistance is not sufficient then we have to go for commercial credit as well as funds from import-export banks.

Q: As a member of the former elite Ceylon Civil Service (CCS) you are aware of the Treasury’s paramount position in the control of public funds. Why can’t the same Treasury check wasteful expenditure today?

A: The Treasury tries hard to restrain wasteful expenditure. Firstly the Treasury gives various allocations to different Ministries. But the those Ministries don’t stick to such allocations. If you have a budget, you should not entertain supplementary estimates, because the budget tells what your earnings are and how much your expenditure is. What has happened in Sri Lanka and also in other countries, right through the years is various Ministries present new demands. They get Cabinet approval and expect the treasury to fund their grand schemes. We have to find money for all these things. Then the Treasury begins to bring supplementary estimates. Supplementary estimates tend to distort the whole budget.

Actually it is useless to talk of budget if throughout the year the Ministers continue to send supplementary estimates.

They have other ideas for which they seek funds. The reason why you can’t control this is that Government’s expenditure is not confined to what is proposed in the Budget.

They have got every opportunity to put in their projects before the Budget is prepared.

But it never works like that. Right through the year they make further requests. So it’s difficult to maintain financial discipline.

I mean we cannot have ideal situations because there are unforeseen events in which case you have to make special provision for which supplementary estimates have to come.

It is simply that every Government has breached financial discipline that should be maintained through the budgetary process.

Q: Audit exposure and Public Account Committee (PAC) strictures were feared in the good old days. Should we not give more teeth to these two bodies to control the waste of public funds ?

A: Yes. We have to give them more power. Yet these two bodies are representing Parliament. I am the Chairman of one and Senior Minister D.E.W.Gunasekera is Chairman of the other and we have to report to Parliament.

Then Parliament can take action regarding those disclosures. What has happened is our auditing process is mostly what is called a post-mortem. That is we just do investigations into previous misdemeanours. We don’t do a running audit. We don’t look at how things are being managed at present time. Of course Minister D.E.W. Gunasekera and I are trying to change that a little bit.

Officials come before us and we look at the plans they have and their corporate plans and see how we can stick to that. But still our auditing system is very much of an investigative type and more or less a post-mortem.

So new proposals have to come. Many of the senior officials who are responsible for irregularities have since retired and they feel that once they retire they are out of harms way. But it should not be so.

We are trying to bring legislation so that even if they retire they will be held culpable if they have made mistakes.

Q: The COPE’s startling revelations justify punitive action against the culprits. Your comments?

A: Now what has happened is that most of the culprits have left the service or retired. So we have to find ways of bringing them to book.

Q: Economically the EPF is a more productive investment as against the increasingly unaffordable Pension Bill. Have you not drawn your attention to this situation?

A: What has happened is that the normal EPF and ETF guarantee is a certain return to the beneficiaries of those schemes. Basically they are pension funds. Up to now they have been lending only to the Government. The Government has been giving them a standard return.

But that is not the only way of dealing with these funds. These funds are reimbursed only when a person retires or leaves the service. Then he gets his entitlement. There is another view that you can invest this money in ventures which will give a higher return than the percentage that is paid by the Government. So generally the Government tries to give them an interest which is higher than the normal inflation rates.

But the better way is to get them to invest on stocks and shares so that when the shares go up, they get a bigger return than the normal interest that is paid on EPF and ETF. That is why the Government has invested in various bluechip companies.

That is the idea that their returns will increase by investing. There is nothing to fear because this is a Government scheme. There is no way that they will lose their entitlement because it’s a state-backed scheme.

Thirdly this money must also be utilised to promote the economy.

There are so many ventures which need funding. Once they do well, they will be more than happy to pay the dividends.

So it’s a shift of the EPF and ETF from merely being a pension fund lending to the Government to a more creative situation where they are going into the Stock Market.

When the companies do well. Most of them are bluechip companies, then the funds will get more money.

Q: What are the initiatives taken by the Government to increase and diversify exports and also to increase foreign investment?

A: This is a key area. We need to have more foreign investment. Recently Dr.Saman Kelegama has said that we need about $ 8 billion by way of Foreign Direct Investments (FDI). At present the maximum we will be getting is $ 2 billion. So this is an area where we have to give more thought and encourage more investments.

Otherwise it will affect the growth rate and not only that it will affect the employment situation as well.

Today every Government is concerned with job creation. Without creating jobs, though there maybe growth, there will be social distress. That is what has happened in the West.

They have had growth but it is not largely due to the use of technology. This is the problem in the US as well. How can we generate growth without bringing in the private sector? Sri Lanka has come to the limit of giving government jobs.

Today nothing can be done. A job that has to be done by one person is done by about five people.

Governments are caught up in a trap. When the public sector expands, it begins to threaten the Government and the facilities and concessions given to them will be at the expense of the population. As far as I can see Sri Lanka is walking straight into this trap. The only way out is to expand the private sector and absorb the unemployed.

Q: The UNP and the JVP lash out at the Government that its economic and financial policies are moulded according to the whims and fancies of the IMF and World Bank. Is there any truth in this?

A: That is absolute rubbish. Whether it is World Bank, IMF, Central Bank or the Finance Ministry, all economists basically agree today on the monetary and fiscal policies that have to be followed.

A healthy economy. Earlier there was the communist model in countries such as Russia and when there was also the free market model. Today there is no such thing.

The so-called controlled economy or State-run economy or the central planning of the economy is no longer there in those countries.

The failure of that model is shown by the fact-except for some countries such as Cuba - that is also for a very short time, there is no other country in the world that is following these socialist policies. Whether we like it or not, the world is going into economies which are market-driven.

As far as I can see whatever the label may be , we are thinking of the market economy models. Under that we can all agree to the type of financial discipline.

Q: Unlike Western countries which pontificate on human rights, Sri Lanka has rehabilitated and reintegrated LTTE terrorists into the mainstream. Yet some have levelled war crime and charges against Sri Lanka. Could you explain this contradiction?

A: I mentioned recently when the book on “Gota’s War” was launched that I feel our case has not been presented properly to the global community. Maybe not that the External Affairs Ministry, Media Ministry and media personnel have been on the wrong track. Our humanitarian work has not been featured.

We are only trying to respond to criticism either by the diaspora or something like the British Channel-4. We are only trying to confine ourselbes to the problems. If we look at the core issue, we have done well.

I mentioned that 150,000 Tamil civilians at Pudumathalan were brought across by the Security Forces. It is a heroic effort. One of the greatest humanitarian operations in modern times. Our soldiers under fire crossed the lagoon at Pudumathalan and went through the terrain and took charge of the bund that was built by the LTTE.

They called upon over 150,000 people including men, women and children, to crossover to the Government-controlled area. I don’t think as many as 150,000 people would have crossed the Berlin Wall.

A maximum of 10,000 people would have crossed the Berlin Wall. I don’t think it is even 10,000, but it may be about 5,000.

In Sri Lanka 150,000 people crossed over. Have we ever witnessed even one instance in the world where as many as 150,000 people have physically crossed over to the side of freedom. We are only talking about what happened at Nandikadal lagoon.

Nobody talks about what happened at Pudumathalan lagoon. We have not expressed the humanitarian activities of our heroic Armed soldiers.

As everybody talks about rehabilitation. I mean, these are matters that we have to highlight. My feeling is that our media strategy has been weak. We have not focused on the important aspects of our case.

We have been spending our time trying to explain the way, the others did. As a media person and one who had been the Media Head of UNESCO, I can tell you that it is the worst thing to try to respond to various criticisms. We have to show what we have done. I think our strategy has been a failure.

Q: The 13 Plus, home-grown solution, Parliamentary Select Committee (PSC) and peace with honour, are all in the political cauldron today. At the turn of events, is there a way out for a permanent political and ethnic stability in the country?

A: The Government has clearly stated that it will set up an all party Parliamentary group to come up with a solution.

The reason is that if we can agree, we can ensure a clear passage through Parliament. Earlier various proposals came up starting from the regime of S.W.R.D. Bandaranaike, Dudley Senanayake, J.R. Jayewardene to Chandrika Bandaranaike Kumaratunga.

All these Leaders brought up proposals. They were rejected in the Parliamentary arena. Now we are trying to get the Parliament to decide which means the Parliament will make use of previous experiences and studies done.

At the given moment I think what is most important is to go ahead with the PSC to get the results fast.

I think President Mahinda Rajapaksa has said that he wants this committee to report within six months. So we have to proceed in that direction. I think the good sign is that the TNA also seems to be moving in that direction. We have to talk about this matter and I think if the TNA and the UNP also come in, then we can take this to some resolution.

Q: Treasure hunting is a black mark on our cultural heritage. As a lover of arts and culture, what would you propose to check this menace?

A: It is very simple it is a criminal act. So the culprits must be dealt with. It doesn’t matter whether they are politicians, civilians, monks or NGOs. Whatever it is, it is a criminal act and it has to be dealt as a criminal instance.

Q: Politicians of your expertise, experience and scholarly pursuits are still needed in the country compared to those who have shortcut to politics. How would you look at this picture?

A: That is politics. All sorts of people come into politics. That happens all over the world. That seems to be the political pattern.