Sri-Lanka
faces huge economic, political and social problems in the years ahead. Most of
these problems stem from the Rajapakse regime’s incompetence and corrupt
activities. The country can expect high inflation, high interest rate, high
taxes, high unemployment, depreciation of the currency and political unrest.
Standard
& Poor’s (S&P), has recently classified Sri Lanka as a “very high risk” (a risk score of 8)
for economic resilience and credit risk, and a “high risk” (a score of 7) for
economic imbalances. On a scale of 1 to 10 (lowest risk to highest risk),
S&P placed Sri Lanka in group 8 of its Banking Industry Country Risk
Assessment (BICRA).
The
S&P report pointed to the country’s weak external liquidity “in the context
of low income levels, relaxed lending practices and underwriting standards, as
well as a weak payment culture and rule of law.”
S&P’s
report drew attention to economic imbalances produced by the annual 28 per cent
growth in credit during the past two years.
During
the past 10 years, two state banks, Bank of Ceylon and Peoples Bank, wrote off 125 billion rupees, with the loan defaulters mostly backed by
government politicians.
Fitch
Ratings has stated that Sri Lanka, among Asian countries, was “most at risk” from any disruption to
global funding markets.
Foreign
Direct Investment (FDI) has largely been limited to hotels and other tourism
related projects. Foreign investment is being deterred by perceptions of
corruption and arbitrary governance, as well as continuous protests and
violence and issues in media freedom.
The
S&P report also voiced concerns about government manipulation of the stock
market, through pension funds controlled by the Central Bank.
Market
regulator Tilak Karunaratne quit in August 2012, saying he could no longer
battle against a "mafia of
crooks" preventing probes into insider trading and "pump-and-dump" scams in
which investors drive up shares and then sell them.
Karunaratne's
predecessor, Indrani Sugathadasa, also resigned in 2011, saying she was
unwilling to compromise her "principles".
No
one has been jailed in Sri Lanka for securities fraud and previous cases of insider
trading have been settled by the parties agreeing to pay small fines without
accepting guilt.
Rajapakse
has in the past pointed to the rocketing share prices as proof of his
government’s economic success. The financial press hailed “one of the best
performing share markets in the world,” but the “success,” amid the global
financial crisis, was built on rampant speculation. In 2011, the bubble burst
and the index is currently hovering around 5,800 points compared to 7,800
points in February 2011.
Foreign
investors have been withdrawing funds and Colombo is rated as one of the
world’s worst performing markets.
Karunaratne
admitted that speculation had been a major factor in the share price rises.
“The major contribution came from people who used unfair means in pumping up
the market, which made it reach extreme high levels,” he told the media.
The
Central Bank encouraged this speculative frenzy by releasing money from the
Employees Provident Fund (EPF), the country’s biggest pension fund, to purchase
shares, including in ailing companies such as Galadari Hotels, Laugfs Gas,
Piramal Glass Ceylon, Ceylon Grain Elevators and Browns. The release of EPF
cash for private sector investment was a longstanding demand of the
International Monetary Fund (IMF).
The
results have been disastrous. For example, the EPF purchased 23.7 million
shares in the loss-making Galadari Hotels at a price of 32.50 rupees a share in
2010. By July 2012, the share price had plummeted to 11 rupees, resulting in a
loss of 500 million rupees for the EPF. Overall, the EPF had lost about 6 billion rupees by the
middle of last year.
The
newly-appointed SEC chairman, Nalaka Godahewa, is well connected to the
government. He was given the job despite heading the Colombo Lands and
Development (CLD), which is also under a cloud for share manipulation.
According
to Transparency International, about $ 500 million of the tsunami aid for Sri
Lanka is unaccounted for and more than $ 603 million has been spent on projects
unrelated to the disaster. In a report examining the funding, the group
concluded the discrepancy between relief money received and money spent ''does
not have a credible explanation''.
The
government has removed the Chief Justice, Shirani Bandaranayake and appointed a
crony of the Rajapakse as her replacement.
The
removal of the Chief Justice is a witch hunt to punish Bandaranayake for ruling
against a key government bill which centralises development work under one of
the president's brothers.
The
impeachment has drawn international condemnation with the International
Commission of Jurists (ICJ), saying Mohan Peiris' appointment raised serious
concerns about the future of the rule of law and accountability in the country.
"ICJ
condemns this appointment as a further assault on the independence of the
judiciary and calls on the Sri Lankan government to reinstate Chief Justice
Shirani Bandaranayake. If there are grounds for questioning the chief justice's
actions, they should be pursued following due process and a proper impeachment
process."
Faced
by rising unrest over its austerity program demanded by the IMF and the high level
of corruption and cronyism, the regime will increasingly depend on repressive
methods in order to hold on to power.
“False words are not only evil in themselves, but they infect the soul with evil.” Socrates
