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Better eliminate corruption not Chinese funding from development projects

10 February 2015 04:43 am - 0     - {{hitsCtrl.values.hits}}

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he new government has launched the most ambitious programme of democratic reforms for the first time since Sri Lanka’s independence. The commitment shown by the top political leadership --mainly by the president, which may have led the others to fall in line -- was also unseen in the past. (On the contrary, political leaders in the past,  ranging from Sirimavo Bandaranayake to JR and to Mahinda Rajapaksa, further consolidated their power at the expense of independent democratic institutions) 


The people in general (perhaps with the exception of the cronies, stooges and wheeler-dealers who benefited from the previous regime) are feeling a sense of optimism, that has long been absent in the country. However, to sustain the people’s support and the long-campaigned-for democratic reforms, the government should win over the country’s economy. The problem is that not all good economics is good politics. In the current context, this predicament is further compounded by the common opposition’s sustained attack on the handling of the economy by the Rajapaksas, including the alleged corruption in costly mega development projects. Given that the government is heading to a general election after April, there is the temptation to stick to the old rhetoric, some of which – such as the kleptrocratic nature of the previous regime and its failure to see that the dividends of development had trickled down to the people -- have their merit, but some others are just rhetoric. 




The people in general with the exception of cronies, stooges and wheeler-dealers who benefited from the previous regime, are feeling a sense of optimism, that has long been absent in the country. However, the government needs to win over the country’s economy


That explains the announcement by the Cabinet spokesman and Minister Rajitha Senaratne that the new administration would proceed with the Chinese-funded US$1.34 billion Colombo Port City Project, which he said had its Environment Impact Assessment (EIA) for the land reclamation done by the Moratuwa University. However, contradictions within the administration were evident when Prime Minister Ranil Wickremesinghe told Parliament, in a reply to a question by JVP Leader Anura Kumara Dissanayake that no decision had been taken to proceed with the Chinese-funded project. Mr Wickremesinghe, during the run-up to the presidential election, had said that the project would be scrapped because of its ‘adverse’ impact on the environment and that neither the EIA nor the feasibility study done on the project had been presented to Parliament. Minister Senaratne, who says that both reports had been submitted and were compatible with the local and international standards, contradicts Mr Wickremesinghe’s position. 

Those concerns and contradictions have more to do with the political considerations of the forthcoming election, than the project details themselves. This is not the first time that this has happened in the country. It reminds me of a series of other protests ranging from those against the proposed  coal power plant in Trincomalee in the late 80s, the Kandalama Hotel in the early 90s, cable cars in Unawatuna in the 90s, the private medical school in Ragama in the 80s, etc. What is missing in the calculation, though, is the economic cost incurred by the country due to the delay and the development that was lost because of the several protest campaigns orchestrated by vested political interests. Sri Lanka now risks repeating the old mistake, which is partly responsible for the current backlog in infrastructure development in the country.

To further compound an already messy situation, Finance Minister Ravi Karunanayake says that China’s presence in Sri Lanka should be “reduced to minimise corruption.” (He said so in an interview with Daily Mirror two weeks back).

We have a knack for finding scapegoats for our misfortune, be they the US and the EU (over the UNHRC investigations), Norway (for mediating peace) India (for all sorts of things) and now China (for corruption). But the thrust of the matter is that like all other problems, corruption is also our fault and we should own up to it and rectify it.  Of course, Chinese loans do not come with strict conditionalities which are generally attached to financial assistance extended by the other International Finance Institutions (IFIs) such as the World Bank and the IMF. That is partly due to Beijing’s stated policy of non-interference in the internal affairs of other countries, as well as the different political culture in China which places less faith in independent institutions. However, the onus is on the host government to put in place a transparent and accountable mechanism to deal with the foreign lenders and multi-billion dollar development projects, which the previous regime failed to do because of political and personal preferences of the leaders of that regime.

Blaming China or any other development partner for the mishandling of the previous regime, though convenient is devoid of logic. Also, a pertinent question to ask is as to who would fill the void in development financing, should we dislodge China from its current economic role in Sri Lanka. Minister Karunanayke says that the IMF would give us concessionary loans. Concessionary loans which accounted for 98 per cent of the loan portfolio in 2000 reduced to 50 per cent by 2012 after Sri Lanka was elevated to a middle income country status. 

There are also hopes for a greater international involvement in development activities in the country. While optimism is a good thing, it is always better to be grounded in reality. On this account, one should ask how much of the US$4.5 billion pledged at the Tokyo donor conference in 2003 was materialized. (Of course, the ouster of the then Wickremesinghe administration and the renewed fighting in the North-East waned the international interest in the Sri Lankan peace process, which was also responsible for the limited materialisation of donor pledges.) 

Also, during the last decade, the international financial market has undergone drastic changes- and the trend is continuing. China is emerging as the primary lender to the global South. Beijing provides more loans in Africa and Latin America than the World Bank, IMF and Inter-American Development Bank combined. For instance,  China has provided loans of more than $100 billion to Latin American countries from 2005-2013, it is more than what the IMF, World Bank or the Inter-American development Bank provided to the region during the same period. In Africa, China has increased its loan commitments to $30 billion. 

 The fact is that the Chinese do have deep pockets these days and are gradually diversifying the investment of their surplus capital, which was earlier invested mainly in the US treasury bonds. Chinese loan commitments in Sri Lanka are insignificant compared to its economic interests elsewhere. However, the Chinese are still the largest lenders to Sri Lanka. The current active portfolio of Chinese loans is $5.2 billion, of which 34 per cent was earmarked for road development, 26 per cent for ports and 30 per cent for power and energy,  all key strategic areas, which for decades suffered from the lack of investment. (On the contrary, donor assistance from the United States since 1948 is $3.6 billion, two-thirds of which was in food aid).

The previous government set a target of six per cent of the GDP in public investment, though it failed to achieve that. Also given the absence of adequate domestic savings, 40 per cent of public investment expenditure is generally financed through external financing. In this context (as well as given the absence of concessionary loans) Chinese financing is a major source that bridges the gap between savings and the target public investment. 

Finally, we should not have misgivings about being part of an ideological crusade or a greater geopolitical project to balance against China. Of course, we do have stark differences in terms of political values and fundamental freedoms, something Rajapaksa failed to understand, when he tried to emulate China politically. However, those contradictions have not prevented countries from fruitfully engaging with each other. Australia is a case in point. In fact, sometime back, Kevin Rudd, who was then Prime Minister pulled Australia out of a de facto alliance, a concert of democracies proposed by Japanese PM Shinzo Abe and involving Australia, India, Indonesia and Japan, and of which the ostensible motive was to check China. Mr Rudd cited Australia’s economic interests in China as the reason.  Of course, we will always be more comfortable with the current world order shaped by the US than any other challenger to the international hierarchy.  At the same time, there is nothing wrong from benefitting and further exploiting the opportunities offered by China’s economic rise. We should enhance China’s economic presence in Sri Lanka, rather than trying to reduce it and trying to increase our absolute gains.  We should eliminate corruption and not China from development projects.

Follow Ranga Jayasuriya @RangaJayasuriya on Twitter
 

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