Gunaruwan’s questionable MCC report hampers Sri Lanka’s economic and investment prospects

By Francis De Almeida
The future of MCC remains bleak. Last year, the government appointed an experts panel to review the content of the agreement and the panel report was presented to the members of the Cabinet for their recommendations before the last parliamentary election. The government now has a two-thirds majority in Parliament and is in a position to make a final decision on the signing of the agreement. 

President Gotabhaya Rajapaksa’s government is currently battling a major economic crisis, due to the impact of the global pandemic. Sri Lanka’s foreign reserves are shrinking due to repayment of loans and the government is desperately looking for a way out.  MCC offers a US $ 500 million to the Sri Lanka government for a project involving two main components — lands and traffic management. A section of the government seems willing to reconsider their approach on the MCC agreement while another section has adopted an adamant position against it. It is clear that the government must make a judicious decision on the future of the agreement based on the correct facts and valid information. 

However, a serious question remains whether the report, prepared by a panel chaired by Prof. Lalithasiri Gunaruwan, offers the correct insight into the content of the agreement. 
The report, in this writer’s view, contains serious disinformation and seeks to mislead the government. Anyone making a decision on the future of the compact must take this so-called ‘expert report’ with a pinch of salt. 

US $ 10mn transfer
The most striking piece of disinformation in the report is the alleged transfer of US $ 10 million under the previous government under “mysterious circumstances”. The report also says the money has “gone missing”. The US Embassy clearly stated that no money was ever transferred to the former government. 

The former government and MCC office had agreed that the latter would spend up to US $ 10 million across two preparatory agreements for feasibility and design studies, baseline surveys and EIAs. This is separate from and in addition to the US $ 480 million and was managed by the MCC office. 

However, nearly all activities were cancelled or postponed, due to the constitutional crisis and subsequent delays. Failure to examine this matter thoroughly is a serious lapse on the part of the expert panel. 

Another key issue is the panel’s intention to connect MCC with the ACSA and SOFA agreements. These two agreements are mentioned in connection with MCC 12 times in the report. 
From the information available in the public domain, there is zero connection to ACSA or SOFA and the section 2.7 of the agreement specifically prohibits MCC from using grant funding for military, militia, police, etc. ACSA was first signed by the then President Mahinda Rajapaksa in 2007 and renewed in 2017. 

SOFA was first signed in 1995, long before MCC was created in 2004. The agreement makes it clear that MCC would only ever have two total official American staff in Sri Lanka, as Sri Lankans and not Americans would implement the programme. Diplomatic immunity is standard for all officials serving their countries abroad at the invitation of the host government, including for Sri Lankan diplomats in the US.

According to the draft agreement, the MCC programme, if signed, would be implemented by a Sri Lanka management unit and overseen by a largely governmental Sri Lanka board of directors, with Prime Minister and Finance Minister Mahinda Rajapaksa serving as the Sri Lankan government’s Principal Representative.

The government can propose any structure for the management unit, such as a dedicated project management unit under the Finance Ministry or whatever it wishes. Whatever the eventual structure, it will be overseen by a largely government board of directors. MCC has no voting rights on the board and only one observer seat. This is all spelled out in the draft agreement in Annex I, pages 34-35.

A letter sent by the Attorney General’s (AG) Department to the MCC office in October 2018 stats MCC has no impediment to proceed as far as the country’s law is concerned. It is unclear whether the ‘expert panel’ saw this observation as the report makes no reference to such a letter from the AG’s Department. 

Another observation included in the report is that the MCC programme has left its partner countries in “tragic situations”. They have only terminated programmes mid-implementation in a handful of cases, where there has been a political coup or other egregious governance abuse and they have never stayed in a partner country after winding down a programme.
The review committee report cites “authorities”, including the GMOA, Shenali Waduge, SPUR, OPA and Samantha Kumarsinghe, the owner of a beauty product line, who now serves in the Central Bank Monetary Board. 

Independent, third-party audits of these programmes done by the US Government Accountability Office and Office of the Inspector General that are available online will give ample evidence with regard to the track record of the programme. 

Private auditors
Also, all MCC partner countries are required to hire private auditors and independent evaluators like KPMG, PWC, EY and Grant Thornton. It is important to note that every MCC partner country that has benefitted from a first compact has requested a second one. Cape Verde and Georgia, which have completed two compacts now, are now asking for a third.

It is a widely held misconception among some circles that the Colombo-Trincomalee economic corridor was created by MCC and not by the Government of Sri Lanka. On September 25, 2019, former UDA Chairman and NPPD Director General Jagath Munasinghe issued a public statement in a daily English newspaper making clear that this conceptual corridor was identified by the government, not MCC and dates back to the 1980s. Other Government officials, academics and fact checkers have publicly stated the same, including Factcheck.lk, which concluded that MP Wimal Weerawansa had been falsely attributing plans for a Colombo-Trincomalee economic corridor to MCC and the US government. 

The clock is ticking and many questions still remain unanswered. As Sri Lanka is grappling with the economic fallout of a global pandemic, we cannot let petty politics hamper our prospects of bringing in more foreign currency.  It is understood that the majority of those who voted for President Gotabaya Rajapaksa in November 2019 did not want the MCC agreement to proceed in the current form. 

The government, therefore, has every right to engage with the right parties and negotiate the way forward through proper channels. But, everything must be done in the best interests of the country without paving way for political opportunism. 

(Francis De Almeida, a retired senior government servant, can be contacted at [email protected])