The revelation by a Sunday newspaper (not the Sunday Island) last week that the Sri Lankan government had moved courts in ‘a Middle Eastern country’ to freeze the account of the ‘son of a VVIP of the former regime’ set the cat among the canaries. The courts were to freeze the account last Sunday (since Islamic countries work on Sundays) but we have not heard anything about it thereafter.
Be that as it may the government officially confirmed last week that not one but three secret accounts had been discovered in the Middle East,
- one containing 1,086 million USD,
- another holding 1,800 million USD and yet
- another with 500 million USD.
The account that was to be frozen last Sunday was said to be the one containing 500 million USD. It was also said that a sum of 650 million USD had been transferred from this particular account to ‘an Eastern European country’ some time ago.
No mention was made in the newspaper or by the government whether this was money belonging to the Rajapaksas but any reference to ‘VVIP’s of the former government’ are taken to mean the Rajapaksas and it is in that sense that this writer takes these reports. Even though these secret bank accounts allegedly maintained by the Rajapaksa family or whoever else, have now been discovered and are on the verge of being frozen, it must be said that they were certainly better at hiding and preserving their ill-gotten gains than many others of the same ilk. Pablo Escobar the legendary drug lord was so inept at stashing away what he earned that it is said by his closest associates that a good part of his money which was buried in cultivated fields, stashed in false walls or simply kept in warehouses was eaten by rats or destroyed by water seepage or termites.
The Rajapaksas can now make a career as consultants to international crooks by showing them how ill gotten gains running into hundreds of millions can be transferred between countries without attracting attention. The transfer of 650 million USD to ‘an Eastern European country’ if it happened was certainly a financial tour de force which has not been paralleled in recent times. Court proceedings to freeze these accounts, according to the Sunday newspaper mentioned above, comes just before the budget for 2016. This writer asked the former Governor of the Central Bank Ajith Nivard Cabraal whether it would be possible to obtain international advances of cash against assets that are in the process of being frozen, and confiscated by the state and his reply was that he has not heard of any such instances but that anything is possible at a bilateral level. In layman’s language what he was saying was that it might be possible to persuade a friendly country to advance money to the government with a view to holding the targeted bank accounts as collateral. The present writer feels that the USA which has a handle on all US dollar denominated transactions and who would be in possession of all the details necessary to seize this money, would be willing to advance money to the government against the secret bank accounts of the Rajapaksas (or whoever) if these stories are true.
Chasing after red herrings
Last week the Pathfinder Foundation had published a recent estimate that they had come across of the money that the government can realize by selling off shares in state owned enterprises on the stock exchange. This article was written in support of the Singaporean Temasek Model in managing state owned enterprises where a holding company owns the assets and shares of government owned enterprises which is then floated on the stock exchange – which the UNP promised in their August parliamentary election manifesto. This is on the argument that the losses made by some of the main state owned enterprises such as the CEB, the CPC and the National Water Supply and Drainage Board are acting as a drag on the economy. This also goes in tandem with the recommendations made by the IMF on 18 September. However what should be of interest to us here is the paltry sum that can be realized even after privatizing virtually everything that the government owns including the Norochcholai Coal Power Plant. The amounts mentioned by the Pathfinder Foundation were as follows.
- Hilton Hotel: 250 USD
- Hyatt Regency building: 100 million USD
- Water’s Edge: 100 million USD
- Grand Oriental Hotel: 75 million USD
- UDA Rest Houses: 40 million USD
- Govt. Equity in LECO: 100 million USD
- Kerawalapitiya Power plant: 300 million USD
- Puttalam Coal Power plant: 1000 million USD
- Government equity in private companies including NDB and Seylan Bank: 500 million USD
- Remaining shares of SLT: 300 million USD
- Public listing of Mobitel: 200 USD million.
- Litro Gas: 250 million USD
- Lanka Hospitals: 250 million USD
- Government holding in Sri Lanka Insurance: 250 million USD
- Ninety nine year leases of plantation companies: 200 million USD
- CPC Retail Petroleum Distribution: 150 million USD
- Hambantota Port/Airport 40% equity plus management for 10 years: 50 million USD
- Bandaranaike Airport 40% equity plus management for 10 years: 300 million USD
- The total potential income – 4,865 million USD
If the total that can be realized after selling off all these assets is less than five billion USD, that underscores more than anything else is the vital importance of recovering the nearly 3,500 million USD of ill-gotten gains that has already been discovered in a Middle Eastern bank. Instead of directing all efforts at recovering the 3,400 million USD that has already been discovered and is on the verge of being frozen, and the other remainder of the 18 billion USD that the government officially announced through the foreign minister as the total amount purloined by the Rajapaksas, the government seems to be running after red herrings. Last week former President Rajapaksa was hauled before the Presidential Commission to probe Serious Acts of Corruption and Fraud over some silly issues that would leave people wondering about the very mental stability of the people running the government. There were five reasons for summoning MR before the commission.The first issue was the appointment of Anura Siriwardena as the Chairman of ITN when there was no vacancy for the post. The explanation has been made by MR’s lawyers that this appointment was made after the previous Chairman resigned. In any case, this is a country where a new prime minister was appointed on January 9 before the incumbent prime minister was removed. So does it really matter to anyone in this country as to whether there was any overlap in the appointment of a chairman to an institution like ITN? The second matter over which MR had been hauled up is an alleged loss of 10 million due to the non-payment of advertising dues to ITN by a private advertising company. Yet the said advertising company had obtained confirmation in writing from ITN back in January this year that the money outstanding had been paid in full! The other matter is a financial loss of Rs. 24 lakhs allegedly caused by another advertising firm not paying their dues. According to MR’s lawyers, the money owing in this regard too had apparently been paid.
Another allegation was that ITN had not broadcast advertisements sent by Maithripala Sirisena and had returned the money advanced thus resulting in a loss of Rs. 8.6 million to ITN. The fifth matter is that Maithripala Sirisena had been charged twice the normal fee for advertising by ITN thus discriminating between two equal candidates. If Sirisena had been charged twice the usual rate by ITN, what is surprising is that such a thing was never mentioned on the political platform or even discussed in the media during the election. If such a thing had actually happened, that in fact would have been an ideal talking point during an election. Nobody even knew of any such thing until it appeared in the letter that summoned MR before this commission. Be that as it may, what is clear is that the government is expending a lot of effort on non-issues like the non-payment of dues to ITN that have already been paid!
Kusal Perera, a veteran political commentator, penned a blistering critique last week of the song and dance made by the government about unpaid advertising bills to ITN. He wrote that any company, be it State or private, first deals with cases of payment default by any of its clients on its own. The company demands payment and then lays down timelines for final and complete payment by the defaulting client. In the case of advertising in the media, whether print or electronic, there is always a registered “Agency” which handles media buying for commercials. They earn a legal commission of 15% on the value of the advertisements generated. In all major media companies including State owned corporations, there is a “commercial department” that handles advertising. They often go into contracts with clients that are advertising agencies, to carry commercials for long periods and as main sponsors of programs. This is usually based on a contract the advertising agency has with its “customer” – the company. Therefore customers of advertising agencies have no responsibility towards media companies the advertising agencies work with.
“Advertising agencies that do media buying for a political party or a candidate remain the client of media companies. Politicians or political parties and candidates remain as customers of the advertising agency. Therefore any issue with payment of advertising costs to the media company, remains the responsibility of the advertising agency that handled advertising for Rajapaksa’s election campaign at the last presidential polls.”
Minister Susil Premajayantha who was present at the BMICH to give evidence before the Commission gave a very similar explanation as that of Kusal Perera about the client customer relationship between media organizations and the advertising agencies and about how far removed the candidate at an election is from the media organization running his advertisements. The moot point is why is the government making a song and dance of these irrelevancies when there are much richer pickings to be taken? The 3,400 million USD that the government has discovered in the Middle East will wipe out a third of the budget deficit in one fell swoop. The remainder of the 18 billion USD of stashed away loot that the government has announced they have traced will more than suffice to develop this country. With that kind of money, it is possible to build more coal power plants in addition to dozens of highways, scores of hospitals and even to set up desalination plants right around the Island. All the woes of the government will be over if even half of that 18 billion USD can be recovered expeditiously instead of just talking about it.
Ceylon Chamber gently shows the way
The Ceylon Chamber of Commerce which is now facing its most turbulent period after the early 1970s issued a 10 point statement last week. The Finance Bill which introduces a whole raft of new taxes hangs like a sword of Damocles over the whole private sector in this country. The week before last, the CCC in a statement requested the government to review that Bill. They have expanded and generalized the theme in their 10 point program. There is no Business Acquisitions Act this time for the government to take over private businesses, but as in the early 1970s, the private sector is once again in danger of being taxed out of existence. Business chambers don’t go for head-on confrontations with governments even at times when the very existence of the private sector is at stake. In the 1970s when the Sirima Bandaranaike government was out dismantling the capitalist system, there was little that organizations like the Ceylon Chamber of Commerce could do.
Indeed in the early 1970s, the government even acquired the private house of the then Chairman of the Ceylon Chamber of Commerce Mr P.C.S.Fernando. This stately mansion now houses the State Intelligence Service. After something like that you can’t really expect much from a trade chamber. There are times when businessmen don’t really want to do business, they just want to remain alive and they’ll do whatever is necessary to ensure that. The fact that the Finance Bill now before parliament (which imposes among other taxes, the super gains tax of 25%) was not challenged before the Supreme Court indicates that an early 1970’s style of self-preservationist mind set has affected the private sector. The Ceylon Chamber of Commerce did ask the government to review the Finance Bill, but that is not the same as challenging it in courts. The 10 point plan appears to be an attempt to give the government some guidance in the direction it should take because it is clear that it does not have a sense of direction. Three of the ten points refer to matters that are of political import.
The CCC ten point plan asks for ‘a stable policy framework, which does not create distortions and does not create uncertainty’ and for ‘regulatory systems that are non-discretionary’. This is obviously a reference to the Finance Bill which is the biggest single issue confronting the business sector at the moment. Taxes like the super gains tax are not based on any stable policy but is a one off measure taken to temporarily tide over a persistent problem. Because the problem which necessitated the imposition of the super gains tax will not go away even after it is charged the first time, the entire business community is now on tenterhooks not knowing what other horrors are on their way in the 2016 budget. The super gains tax also creates serious distortions because the most successful firms will be forced to hand over to the government the better part of their profits for this year as they have to pay the retrospective super gains tax on top of all the usual taxes for this year, thus sending all their plans for the next year completely out of gear. The CCC further stressed that government policies that regulate private sector activity must ‘be predictable and not subject to ad hoc changes’. The same point was stressed in relation to attracting foreign direct investment.
Another matter on which the Ceylon Chamber cautioned the government about is the Comprehensive Economic Partnership Agreement with India – though they had never mentioned CEPA by name. Point 5 of the CCC’s 10 point statement stressed that “Trade agreements that Sri Lanka becomes party to must be mutually-beneficial, must recognize size asymmetries between our economy and the others, must be signed after prudent, transparent and broad-based domestic consultations with the relevant stakeholder groups, and must be anchored to the country’s national and strategic interests. Importantly, decisions on entering into trade agreements or not must take an all-of-economy view, and should not be based on narrow considerations of a few players.” Usually a trade chamber need not be apprehensive about such matters. Any government would as a matter of course do what the Ceylon Chamber has requested the government to do. But this government is not an ordinary government. It has special needs!
Chidambaram the man of the hour!
The Ceylon Chamber may have been particularly perturbed by the way the government handled the American sponsored UNHRC resolution. They basically agreed to all the operative paragraphs unfavourable to Sri Lanka and then they try to claim back home that the resolution is very favourable to the country. Just imagine the damage that will be done if the government adopts the same modus operandi with regard to CEPA with India! The UNHRC resolution can be simply ignored if the government so wishes. But CEPA once signed, will automatically come into force on the appointed date. So the CCC is spelling things out for a government which obviously does not know whether they are standing or sitting. The whole business sector now appears to be involved in a massive ‘shramadana’ to guide this rudderless, clueless, dysfunctional government. The former finance minister of India P.Chidambaram will be delivering the 20th Tax oration at the Institute of Chartered Accountants of Sri Lanka next week. Guess what the topic will be – “Challenges Faced by Emerging Economies in Revenue Collection” – a topic that is undoubtedly of immediate interest to the present government! The EconomyNext website which gave publicity to this event introduced the speaker with this telling sentence – “In the budget for 1996–1997, Chidambaram brought discipline in government spending and launched an ambitious tax reform program to tackle an unwieldy fiscal deficit.”!!