Mangala, a genuine politician of our time

Mangala Samaraweera, one of the most genuine politician of our time left us exactly a year ago. At this most crucial time, both politically and economically, the country feels the void created by the untimely demise of a man of his calibre more than ever before.

I had the privilege of working closely with him as the State Minister of Finance during his tenure as the Minister of Finance. Although finance and economics was not his forte, as a very seasoned and intelligent politician he could get a quick grasp of the subject within a short period. We were friends and as Minister of Finance, he was keen that I come and work with him as the State Minister.

Moreover, Mangala’s philosophy and mine also matched, he believed that everyone was equal as no one had the option of choosing his or her country of birth, race or parent’s religion at the time of birth. Whether you are a priest or politician, businessman or labourer, you are essentially a human being and all were equal and had the same dignity.

"He was never scared to confront issues. When he was the Minister of Telecommunications, he had the courage to take head on the widely held views in the government sector against privatization and private capital. He saw the future of telecom and knew that we needed better technology and management and invited foreign capital"

One day Mangala and I participated in a ceremony in the BMICH where we were giving away certificates to some students. When the students came to collect their certificates, they showed their respect by bowing before us. Mangala suddenly intervened and said “don’t do that” and in his speech, he said, “I don’t want parents to teach their children to do the wrong thing”. He said it was correct to respect your parents, grandparents, priests or teachers in that manner and it was part of our culture, but you should not bow before politicians whom you don’t know because you may be bowing before people with criminal records.

Another day he and I were driving past the Galle Face Green and we noticed that Palmyra trees planted along that stretch during his time as the Minister of Urban Development were being uprooted and replaced with other trees probably because Palmyra tree was identified with the country’s north.  He said to me “can you believe that these are people who are talking about one country but cannot understand that the tree in the north also belongs to everybody.”

He was never scared to confront issues. When he was the Minister of Telecommunications, he had the courage to take head on the widely held views in the government sector against privatization and private capital. He saw the future of telecom and knew that we needed better technology and management and invited foreign capital. That is how the telecom sector got opened up and today in terms of using smartphones Sri Lanka is not second to any country in the world.

These are a few anecdotes to demonstrate who Mangala was. He was a man of courage, far-sighted and had a vision and thus came to be recognized as a true patriot. With his demise I lost a brother, in fact, Mangala and my elder brother were classmates and literally, Mangala was like an elder brother to me.
Mangala had a unique lifestyle. He was fun-loving and a very arty person by his training. He had a beautiful house in Bolgoda and even though he had moved away from active party politics, politics was in his blood. I continued to visit him because of the old friendship. And at that point, COVID was rising across the country and there was a huge delay in getting vaccines. 

"Mangala’s philosophy and mine also matched, he believed that everyone was equal as no one had the option of choosing his or her country of birth, race or parent’s religion at the time of birth. Whether you are a priest or politician, businessman or labourer, you are essentially a human being and all were equal and had the same dignity"

Mangala and I talked about that and explored how we could help. He being a former Foreign Minister had all the connections to help the country. He had connections even with the US at the highest level of government and personally I know how Mangala intervened and helped the country to get the vaccines without delay. Since nobody knew his role in getting vaccines, I wanted to leak the story to the media and he requested me not to do so and said we need not compromise anyone but get the job done as people are suffering. That was Mangala Samaraweera.

When he became the Finance Minister in 2017 the first thing he had to deal with was fiscal weaknesses in the economy because by 2014 Sri Lanka’s revenue to GDP was 11.6%. It was the lowest in the world but if you go back to the mid-nineties it was 20%. Expenditure was roughly 16-20% and they were largely salaries, interest and welfare and it was not unusually high as a percentage of GDP.  

"Although finance and economics was not his forte, as a very seasoned and intelligent politician he could get a quick grasp of the subject within a short period"

The real issue was revenue. In the tax revenue, indirect taxes were 82% and direct taxes were 18%. In the direct taxes, there were a lot of tax holidays and basically, the burden was on the poor. But Mangala’s philosophy was to remove all the upfront taxes and help businesses to flourish and once they have made profits to tax them.
Another thing we did was introduction of a new Inland Revenue Act in 2017 under which we rationalized many things. We had a high corporate tax rate of 28% and the second rate was 14% for exports, tourism, IT, education, SMEs and the third was 40% for alcohol, tobacco and gambling. The second feature of that Act was withholding taxes for services. With the new Act, tax compliance went up and the third important thing which happened with the Act was we did away with tax holidays and introduced capital allowances. The fourth idea that came in the Inland Revenue Act was the concept of taxing wealth because Sri Lanka had become such an unequal society. But we did not go directly for wealth tax instead only imposed a 10% tax on capital gains. However, that was not applicable to equity, for trading in the stock market. The result was that we were moving to a rule-based system rather than one based on discretion. 

As a result of introducing the new Act in one-year tax collection went up by 44%. Another positive thing was in 2018 we had about 986,000 registered taxpayers and it went up to 1.5 million taxpayers in one year. Also, in one-year direct taxes went up to 25% and indirect taxes came down to 75%. 

The other achievement was that in 2017 and 2018 we managed to have a primary surplus in our budget after a long time. Previously 1954, 1955 and 1992 were the only three years in our history we had primary surpluses. Then the budget deficit in 2017 and 2018 were 5.5% and 5.3% respectively and was much under control and we were targeting to get it down to 3.5%.
Then from 2015 to 2018, we were putting all this fiscal discipline, the average GDP growth rate was 4.3% and we must not forget we had a drought in 2017, a constitutional coup in 2018 when GDP growth went down to 2% in the last quarter. 

 
Then another thing we were after was trade liberalization. Today we see we are a bankrupt country mainly because we have not been able to export enough to create dollars. So in 2019 on the Competitive Index for trade openness, out of 141 countries, Sri Lanka was positioned 140 and that is almost like being a closed country. 
We began the journey of eliminating the para tariffs basically to make the economy more competitive because when you have high levels of protection for long you kill innovation within the country.  We came up with a five-year phase-out plan of para tariffs in November 2017.

As capital was in short supply, ‘Enterprise Sri Lanka’ was launched where long-term financing was provided interest-free or at concessionary rates through banks. The national budget absorbing the cost of investment. 
We also started welfare reforms mostly the Samurdhi programme where half the beneficiaries are people who should not be getting it. It is not well targeted and highly politicized. Finally, we gazetted the criteria to target welfare reforms in June 2019 but we couldn’t implement it.

Then comes monetary policy legislation which was designed to make the Central Bank independent of the government and also to make the monetary board accountable and to stop the practice of monetary policy being determined by the fiscal policy. Here the Central Bank led by Dr. Indrajit Coomaraswamy and Dr. Nandalal Weerasinghe played a positive role but again because of the change of government we could not implement the new monetary policy and that should definitely be brought in. 

In closing, I should say we were working on the November 2019 budget and had almost finalized it when the constitutional coup took place. We also had come up with the Active Liability Management Bill for managing the liabilities of the debts but with the constitutional coup the country’s direction was reversed and within two months foreign investors exited. During that period from October 26, to December 26, 2018, the rupee depreciated, there was capital flight and reserves went down from USD 7.9 to USD 6.9 within two months. The yield on International Sovereign Bonds went up because Sri Lanka’s access to the debt market disappeared. The Treasury bill rate also shot up and the economic growth came down. The Supreme Court gave their decision on December 13 and it was only in March we could present the budget and we had to re-negotiate with the IMF so that we could get access to the global markets. A decision was made by the Finance Ministry and the Central Bank and we raised more than four billion dollars in the market and put into the reserves. It was to make sure that we go through the two impending elections and yet pay all the external debts in time. Otherwise, Sri Lanka would have defaulted earlier.
I lost a brother; the country lost a future president.