Mangala calls for systemic change

Says can’t go on encouraging the culture of handouts and freebies

Finance Minister Mangala Samaraweera, who recently celebrated 30 years in politics and presented a budget, which many experts praise as forward-looking, says he strongly believes in free enterprise and wants Sri Lanka’s present political system completely overhauled.

Excerpts -

"Because budget is passed on April 5, we are only looking at a very small time span before the end of the year. I’m planning to have six budget implementation committees..."

"We did negotiate very robustly...came to a compromise and I’m determined to somehow work towards achieving these targets. Working with the IMF is a very good thing as the country needs fiscal discipline at this juncture to survive. At least now when my colleagues call for all kinds of handouts and frivolities I can always put it on the IMF and say we can’t "

Q  How difficult was the budget-making process this time given the tight fiscal situation and the upcoming elections?

Well, in the run-up to the budget there was a lot of pressure from some of my colleagues to make it what is termed as a populist budget. But I explained to them how populist budgets really don’t win elections anymore. 
You can’t go on encouraging a culture of handouts and freebies, which are generally given in so-called election budgets, just for the sake of winning elections. Also, I told them a populist or election-oriented budget would have made us look weak. That was why I went ahead and did a budget, which I thought election or no election, this is something Sri Lanka needed and I wanted to continue on the things I had started last year. 
I hope that the people will understand that Budget 2019 is not merely done with the elections in mind but is taking a longer-term view on the economy. So far from what I’ve seen, people have responded well to the budget. In fact, I saw a survey was done recently, which said about 64 per cent felt that it was a good budget. That is encouraging.

Q  Was the Budget 2019 you presented earlier this month different from what you had originally planned for November, last year?

No, I think the basic theme, the structure and the direction are more or less in sync with the one we planned for November 5th. But there were one or two areas where we were a little more cautious because, in the November one, I wanted to put one or two interesting bombshells into it. But now that it’s too close to the elections, I thought I’ll save them hopefully for the next year.

Q  Would you like to reveal what those bombshells were?

No. (Laughs)

Q  Most of the fiscal targets set in the budget for this year and beyond seem very ambitious. How are you planning to achieve those?

Yes, you are right. They are ambitious. If you look at many of the budgets presented last 10 to 15 years, actually the implementation rate was very low. In fact in my last budget, while having had a small committee whose designated task was monitoring the implementation, we had only completed the implementation of 25 per cent of the proposals. 
About 48 per cent was in various stages of being implemented. But of course, as you know certain proposals are not confined to one year. All in all, there has been a slight improvement compared to the previous years. 
But this year, especially because the budget is passed on April 5, we are only looking at a very small time span of about seven months before the end of the year. I’m planning to have six budget implementation committees to see if we can push the proposals through as early as possible.

Q  Many have pointed out that achieving a 3.5 per cent fiscal deficit target by 2020 set by the International Monetary Fund (IMF) is unfeasible. Didn’t government negotiate with the IMF to extend the timeline?

Yes, it is very challenging, to say the least. But we have to work towards that goal. We did negotiate very robustly. But finally we came to a compromise and I’m determined to somehow work towards achieving these targets. Working with the IMF is a very good thing as the country needs fiscal discipline at this juncture to survive. At least now when my colleagues call for all kinds of handouts and frivolities I can always put them on the IMF and say we can’t (Laughs).

Q  How would you respond to the criticism that Budget 2019 is an IMF budget?

OK tell me what’s wrong with an IMF budget even ours is not. Everyone looks at the IMF as if it is some sort of a monster. Many of the requests of the IMF, not regarding the budget, were beneficial to the country. IMF has imposed an important element of fiscal discipline and we need that. 
If not for the IMF and my determination to work within the boundaries of fiscal discipline, Sri Lanka would have faced a Greece-style situation by 2016. But the very fact that we have managed to avoid all that and managed our liabilities in a very systematic way is actually beginning to show results.
When Mahinda Rajapaksa became president in 2004, the primary surplus was minus Rs.155 billion. When he handed the government over to us in 2015 it was minus Rs.322 billion. But since the first time in the 1950s, Sri Lanka showed 1 per cent primary surplus last year, which is in the region of Rs.91 billion. That in itself is a great achievement. We were able to achieve that due to the rigorous fiscal discipline we committed ourselves to. Going forward we are planning to increase our primary surplus to 1.5 per cent of the GDP. 
These may be figures which have been suggested by the IMF. But if we are to survive as an economy and create a strong Sri Lanka for the next generation, we have to make certain sacrifices. This is only the beginning. We have to further liberalise the economy and make it into an effective market economy if we really want to achieve what we want for our children.

Q  But the shipping sector liberalization you proposed in the Budget 2018 has not happened?

Yes, even I’m rather disturbed because up till now I haven’t been able to proceed with that proposal. It is a must. In every speech we make, we talk about making Sri Lanka a hub in the Indian Ocean. We have to truly liberalize the economy to achieve that and liberalization of the shipping sector is a must because at the moment we are mostly dependent on Indian transshipment. 
But as India is aggressively building up ports and developing its maritime infrastructure, maybe in 30 to 40 years, Indian transshipments may not need to go through Colombo. 
Then we should be able to attract the rest of the world here. Otherwise, there is a danger of Colombo port becoming yet another museum piece. So for that, we have to open up. But of course, at the time this was proposed there was a slight difference of opinion between the two parties in the then government as you know. That was one of the reasons why we couldn’t do it. Now that we are going forward as a UNF government, basically consisting of people with the same economic outlook, I can’t see anyone within the UNP who can object to the liberalization of the shipping industry. But I’m hoping to discuss this matter with the President. Even though it’s a UNF government we have a duty to refer the matter to him. I’m hoping it can be done as soon as possible.

Q  What is the timeline you are looking at?

I’d like to do it tomorrow. But I don’t want to give a timeline because timelines given before have not been kept.
Despite you and your junior minister going on record criticizing the low productivity of the public sector, you have rewarded them with a Rs.2, 500 allowance. This is not in sync with fiscal discipline you have been talking about.
Well, if you remember after the railway workers’ strike to resolve their salary anomalies, President Sirisena appointed a salaries commission. The final report is just out and another Cabinet Committee has been appointed to work out the details of those proposals. Until such time, I was compelled to give this allowance of Rs.2, 500, but of course, with the proposals, the new salaries will also be amended.
Having said that yes, I certainly believe that we need to deal with the public sector effectively. But to do most of the changes, I’m beginning to think that there has to be a systemic change. I think Sri Lanka has come to a stage where these ad hoc changes in order to keep the system going are not enough. We are still fighting within the system. But to do what you are saying, hopefully in the not too distant future there could be a more enlightened leadership, who will turn the system inside out, who could turn not only the system but the thinking of the people.
In fact, everyone blames successive governments for Sri Lanka’s failure. I say it is a failure within the context of 70 years since our independence. One of the British papers on the day of our independence in 1948 wrote Ceylon would undoubtedly be the Switzerland of Asia. Lee Kuan Yew in the initial stages modelled Singapore after Sri Lanka. But 70 years later, we are right there at the bottom and whereas a number of countries which were much poorer than us have surged forward. The reason for that is not only the failure of successive governments— because I believe many governments have sincerely tried to develop this country—but also the failure of our own people to understand the difficult decisions a country must make if it is to move forward.

"OK tell me what’s wrong with an IMF budget even ours is not. Everyone looks at the IMF as if it is some sort of a monster. Many of the requests of the IMF, not regarding the budget, were beneficial to the country. IMF has imposed an important element of fiscal discipline and we need that. 

But the governments while trying to please and appease all these groups have lost the plot. That is why I say there has to be a systemic, complete overhaul and to do that overhaul we have to first tell the people the hard truths about themselves."

Our failure as a nation to come to terms with the fact that Sri Lanka is a multi-ethnic multi-religious nation, finally created a war which lasted for 30 years and then this ‘frog in the well’ attitude of many of our students and the inherent Marxist ideology which seems to be there with the so-called Sinhala intellectuals has held this country backwards.
The JVP, which is always blaming the successive governments for their failures, should share part of the blame because they try to obstruct anything progressive being implemented. Recently I remember asking from Mr Anura Kumara Dissanayake, whom I consider a friend and admire his outspokenness and integrity, what kind of economy was he talking about? I said I’m not a great economist but if he could tell me the kind of country he wants Sri Lanka to be, maybe I can help him.
Both China and Vietnam, which have socialist governments, have very competitive economies. The only country which they (JVP) could talk about I suppose is Venezuela. Even recently they were outside the US embassy. Venezuela is going through an extremely dark patch at the moment. People are fighting for food. Even Cuba is now changing. This socialist mindset is something we should overcome as quickly as possible. The centralized planning has never worked.
Also the belief that the government owes you a living from the cradle to the grave should be cast aside. The time has come for all the parties to come together to tell the people the hard truths. All this time everybody has been telling us what we should be doing from the public to the Maha Sangha to the Catholic Church. But the governments while trying to please and appease all these groups have lost the plot. That is why I say there has to be a systemic, complete overhaul and to do that overhaul we have to first tell the people the hard truths about themselves. They too must take a substantial part of the blame for the failure of the country.

Q  But are there any politicians who are capable of doing it?

Sri Lanka over the years has produced some world-class politicians. But unfortunately, when it came to the crunch time, many of them seemed to have had a little problem with their spines to meet the challenges. Even S.W.R.D. Bandaranaike, when he tore up the Bandaranaike- Chelvanayakam pact just because of a handful of Buddhist monks were protesting outside his residence at Rosmead Place, it basically opened up the doors for whatever happened later in this country. If he had the courage to say no, things would have been drastically different because at that time it was nearly a language issue. Likewise, there have been two JVP insurrections and after each one, we tried to accommodate Socialist type of thinking by changing various types of laws to suit those people.
For me, the person whom I admire and respect for his vision is Ranil Wickremesinghe because I can think on the same terms. But having said that I would say President Sirisena is also a good politician and Mahinda Rajapaksa, for whatever his sins of the past, is still a very popular politician. We can do politics and win elections but the country needs to win.

Q  Do you see a leader who can bring about such systemic change you are talking about?

Why do you want ‘a’ leader? This whole concept of ‘a’ leader or a ‘strong leader’ is not something I believe in. The required leadership can be brought about by the people. It can be done by a group of people. Look at the 52-day crisis. What really inspired me was for the first time in the long years I have been in politics, I saw people coming out voluntarily to protect certain values which they thought were important. Certainly, it was not the beginning of the yet another Arab Spring or anything of that sort, but that could be the beginning of the systemic change that I’m talking about.

Q  A very innovative proposal in Budget 2019 was to facilitate private sector internships for 1, 000 graduates of state universities.

Yes, we wanted to support some Arts students who get left behind because the private sector feels that they don’t have the required skills. That is why we wanted to help the private sector by paying while they are training these graduates. More than ever before in the history of mankind education is important now in this age of social media, Artificial Intelligence and the Internet Of Things (IOT). When you are exposed to so much knowledge and information, you must have a set of young people who have a strong sense of right and wrong. You can’t do that through censorship. The only way we can do that is through education. I believe we need to reintroduce civic studies to the school curricula.
If I’m there for the next budget, I’d like to even start reducing the money on the defence budget. Even though the war has been over for 10 years, if we look at the defence budget, we are still a country at war. We can utilize that money on sectors such as health and education. We have more or less doubled the percentages on health and education but still, it is under 3 per cent, which is far too low. These are the things we can do until we see a systemic change which could help the final process.

Q  You have also given a lot of emphasis on labour reforms in the Budget 2019 as it should be the case given Sri Lanka’s fast-changing demographics.

Well, it is an urgent requirement and we are trying to bring the reforms as early as possible. But as you know it is something that is very sensitive. All the unions and some others will see that as an infringement of their rights, which is not. Without these reforms, we are basically maintaining a moribund system which has been stagnating for so many decades. This is why we need the systemic change that I mentioned earlier. All these things are connected.

Q  Although your government has been talking a lot about reforming the State-Owned Enterprises (SOEs), nothing really has happened. Many of them are still making colossal losses.

We are doing certain reforms but within the system so to speak. Because again, that is a hugely sensitive area. But frankly almost all SOEs are huge white elephants the government is carrying either due to nostalgia or sentimentality or we are simply too frightened of the unions. I don’t believe that the government is there to be doing business or making money. We have to really concentrate on looking after the poor and the downtrodden and the weak. The rest of the things the private sector can do that much better. That has been proven all over the world and that is why even in countries like China where the private sector is given its due place.
Now that as you may know SriLankan Airlines was Gazetted under me and I’ve handed over it to State Finance Minister Eran Wickramaratne to deal with the issue full time. My personal view, not as the Finance Minister is if I really had the way I would get rid of it as quickly as possible because it is a vanity project Sri Lanka could hardly afford. I would like to use the word criminal to describe the way how SriLankan had been run over the years. We don’t need it. If we come out of it, we might be able to find some private sector party who might still be wanting to use the name SriLankan. This has happened in other countries. But this is too much of a sensitive area and that is why I’m saying this is only my personal view.

Q  But criticism against Sri Lanka’s private sector is that they are more or less dependent on the government.

Exactly. In fact in my budget speech that’s why I said in Sri Lanka you get a so-called private sector, which is the more vociferous and visible. I don’t call them the private sector because many of them are deal makers who pretend to be the private sector, who basically have benefitted from crony capitalism. They have come to where they are by their association with those in power and not through competition. In the face of competition and free trade, they all come running to the government looking to be mollycoddled. You are absolutely right. The private sector, first of all, should learn how to compete in a free world. That’s why I’m hoping through Enterprise Sri Lanka we can probably at least in future create new, modern, young entrepreneurs who are able to compete on a level playing field. We want to create that new private sector and we are willing to give them a hand.

"That’s why I’m hoping through Enterprise Sri Lanka we can probably at least in future create new, modern, young entrepreneurs who are able to compete on a level playing field. We want to create that new private sector and we are willing to give them a hand"

"We are doing certain reforms but within the system so to speak. Because again, that is a hugely sensitive area"

Q  Since you brought it up, what is the overall response to Enterprise Sri Lanka programme so far and how is it progressing?

Actually during the first few months when we started last year, we got hundreds of complaints because many banks as you know spend more time dissuading a young person taking a loan than finding ways of giving them one. That is why we started the 24-hour hotline 1925. If they feel that they are unfairly treated or their application for a loan was unfairly dismissed, they can tell us so we can try and address their grievances. Since then things have improved significantly.
In fact, starting from this Saturday (23rd) we are taking the Enterprise Sri Lanka programme around the country as a mobile service. The banks and a number of state institutions will be there to facilitate the entrepreneurs. For example, those who are doing homestays, the Tourism Board will be there to give them the required permission, the Excise Department will be there to give them beer licences etc. This is something we are determined to push because I feel that this is our way of achieving growth.

Q  What is the participation of private banks like?

In the beginning, I met almost all the CEOs of private banks. At that time they didn’t show much interest. But it’s changing now. I’ve been telling them to give these loans as much as possible to first time or new entrepreneurs. Because of the lower interest rates, certain banks had told some of their existing clientele to take these loans. As a result, we couldn’t reach the target group. But now I have told them at least 60 per cent of the loans given under Enterprise Sri Lanka must be for people under 40 and first-time loan takers.

Q  Sri Lanka just raised the US $ 2.4 billion through dollar bonds. But we have about the US $ 5.9 billion debt repayment scheduled for this year. Are you looking at more fundraising activities?

Yes, we will have to. We will be seriously looking at Panda and Samurai bonds.

Q  If one were to look at your political career, you have taken some bold decisions—from breaking the telecom monopoly and more recently introducing a fuel pricing formula, which several finance ministers failed to do. What has been your core belief that drove you to do these things?

I would say the core belief is free enterprise. When we went ahead with Sri Lanka Telecom privatization, it had 42 trade unions and the unions said it would be over their dead bodies if this was going to happen. What we did was we sent letters to their families directly informing them of the benefits. We also arranged for them to go to places like Argentina and Chile where privatization of the telecom sector had really worked. That changed their mindset. Even Mr Hettiarachchi, who was a hardcore union leader opposing the move at the time, came for the celebration of my 30 years in politics, which I thought was very nice of him. At that time we were arch enemies. (Laughs)