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Calm before the storm

15 Jan 2022

It was only last week in this very space that we highlighted the seemingly growing disconnect between key members of the current administration that is threatening not only its own survival prospects but, more importantly, the collective fate of an entire nation. In our editorial titled ‘Left, right and centre’ we pointed out that the left hand appears not to know what the right hand is up to while the centre appears to be at sea with both. That the ship of State is heading into uncharted territory is no longer mere speculation, but very much a part of evolving reality and the hapless citizens on board can only hope that those responsible for charting the course ahead do so with the best interests of the nation at heart rather than be dictated by personal and political egos that usually get the better of them. It is now common knowledge that there is a battle of Titanic proportions brewing at the very top of the administration between those responsible for running the economy of this country. We can only hope that the country’s economic interest takes precedence over these battles and power plays that will ultimately lead to the very real prospect of this ship running aground sooner than later. To put things in context, we did not have to wait long for validation of our observation of the left-right disconnect, as just days later the persistent gas issue blew up in the face of the already-overwhelmed administration still struggling to not only provide adequate stocks of gas to consumers spending long hours in lengthening queues, but also to contain the spectre of exploding gas cookers. Matters came to a head when the State insurance giant, Sri Lanka Insurance (SLIC), which owns Litro, wrote to the company’s Secretary stating that the incumbent Chairman should be removed forthwith and its nominee, whose name was mentioned, should be appointed in his place. It is obvious that the letter went out with the knowledge and tacit support of the Finance Ministry and the Minister in charge under whose purview SLIC operates. This sudden development led to further upheaval at the company with the sitting Chairman who has presided over the ongoing mayhem being asked to resign to make way for the new Chairman nominated by its owners.  It so happened that the very same day, the President, who appointed the current Chairman, decided to visit the storage terminal of the company with the sitting Chairman in attendance. Hours later a fresh news release was issued to the effect that the current Chairman will continue in the post. The Finance Ministry ended up with egg all over its face in its attempt to unseat the Chairman, but the bigger picture here is how dysfunctional the Government has become. If how this incident played out is any indication, there is little wonder as to why no action has been taken against the Chairman, who under normal circumstances would have at least been subjected to a Police inquiry in light of the multiple complaints lodged directly with the Criminal Investigations Department (CID) on the issue of exploding cookers that continues to cause grave damage to life and property. The contradictions in the highest echelons of Government are further highlighted by the manner in which the Finance Minister at a press conference early in the week hinted at urgent discussions with the International Monetary Fund (IMF) in view of a bailout, only to be contradicted by the Central Bank Governor less than 48 hours later. The inherent message here is that the Governor seemed privy to information regarding anticipated fund inflows to which the Finance Minister was obviously not. The Finance Minister however appears to have had the last laugh following successful discussions with the Indian Foreign Minister yesterday (15) to secure an economic lifeline in the form of an extension of a $ 400 million swap facility, deferred ACU settlement of $ 515 million, term loan facility of $ 1 billion and credit line for fuel purchases to the value of $ 500 million. What must be kept in mind is that, as with any transaction of this magnitude, with money comes terms and conditions. That the successful completion of the Trincomalee Oil Tank Farm deal earlier this month was a sweetener for the Indian pitch is now a foregone conclusion and also explains why no funds seemed to be forthcoming for that specific transaction. However, Indian assistance of this magnitude is bound to antagonise the still vociferous Tamil diaspora and also explains the last-minute cancellation of the combined Tamil political party meeting with the Indian High Commissioner in Colombo before he took flight to Delhi last week. In a move that is likely to appease Tamil Nadu, the Indian Foreign Minister as part of the deal has requested an end to the persecution of Indian fisherfolk in Sri Lankan waters and the release of fishermen held in custody in Sri Lanka. However, this is likely to come at the expense of local fishermen, with reports surfacing of northern fishermen being harassed by naval authorities. Even though the Finance Ministry has been somewhat transparent in its attempts to secure funding, the same cannot be said of the Central Bank. When asked during a TV talk show last week as to why the Central Bank could not clearly reveal its sources of funding like when it announced reserves had gone up to $ 3.1 billion at the end of last month but did not reveal how, the Governor’s response was that the Central Bank like any other bank was bound by secrecy laws. This is where he appears to have got things wrong, because unlike commercial banks which are legally bound to respect customer confidentiality, such laws do not apply to the Central Bank which does not have customers or competitors per se and is wholly owned by the people of Sri Lanka and operated through their elected representatives in Parliament, which notably is an open forum. Therefore, to even contemplate that the bank deems it is duty bound to hide its activities from the people in the view of its Governor, is unfathomable. Even though rumours of a Cabinet reshuffle have been doing the rounds for some time now and even if it were to in fact materialise in the coming days, it would be akin to changing the pillow for what has now become the mother of all headaches for the Government, because the issues it is facing on a daily basis are a consequence of the economic situation – either directly or indirectly. There is next to nothing that a round of ‘musical chairs’ can achieve at this point in time given that the prognosis for the patient has changed from mild therapy to serious surgery with an extended period of recuperation that can potentially last the entire duration of the next administration as well. But then the show must go on. Despite the economic haemorrhaging, the Central Bank is adamant on settling the maturing International Sovereign Bond (ISB) of $ 500 million it obtained in 2013 later this week in order to avoid the country being tagged a defaulter for the first time. However, the country’s main Opposition has been pushing for restructuring of all debt even at the risk of being a defaulter, citing the more urgent economic necessities.   Their argument is that by hustling up all available financial resources, including liquidating gold reserves for the purpose of settling the ISB, it would starve the economy of resources for more urgent needs of the people such as food and medicines that urgently need to be imported. Already the Ceylon Electricity Board (CEB) is running a hand-to-mouth operation with power generation dependent on the fuel made available to it by the Ceylon Petroleum Corporation (CPC), which in turn is also struggling to secure supplies. Supply failure on the part of the CPC is likely to result in instant blackouts as experienced last week when two generators at Kelanitissa ground to a halt due to lack of fuel. That situation is likely to ease for the time-being with the Indian lifeline, but with a part of this funding becoming due in just a couple of months and in the absence of substantial forex inflows, the relief is most likely to be short-lived.  

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