Kanthar
Balanathan
DipEE(UK),
GradCert(RelEng-Monash),DipBus&Adm(Finance-Massey), C.Eng., MIEE, MIE(Aus) CPEng, (Retired)
Former Director of Power
Engineering Solutions Pty Ltd, Consulting Electrical Engineers
Melbourne, VIC 3178, Australia
Mobile: 0493 134 626
Email:
pengsol@bigpond.net.au
Web: https://neuronmind.blogspot.com/
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28th January 2016
Professor Ricardo Hausmann
Director of the Centre for
International Development at Harvard University
John F. Kennedy School of
Government
Mailbox 34
79 JFK Street
Cambridge, MA 02138
Dear Professor Ricardo Hausmann,
Introduction
I am a Sri Lankan (SL) Australian who
left SL in 1967, however, I worked for seven years and left SL for good in
1977. I have lived and worked in the UK, Nigeria, Zimbabwe, Sri Lanka, New
Zealand and Australia. I have visited a few European countries, including Canada,
and lived in India for a few months. I am a past student at St. Thomas College
and Hartley College in SL and an old boy at the current University of
Staffordshire in the UK.
Being a resident of the above countries
in the past, I have studied their culture in various dimensions. I can think of
a “mind map”, a long list of
memorable boring irregularities: constraints that restrict economic growth
& employment, bribery& corruption, siphoning funds away from public
services and investments, development limitation, wealth distribution pattern,
taxation, lack of public confidence on investment, deterring patriotism, and
increasing costs.
Professor Ricardo Hausmann: I watched
the two-day “Sri
Lanka Economic Forum” conference on the
7th and
8th of January
2016. We highly appreciate our Prime Minister’s positive, constructive comments
on economic development, and the optimistic and productive ingenuity and
resourcefulness he possesses, however, he has missed several key factors that
he did not highlight.
Your
leadership at the conference in facilitating contributors to provide detailed
analysis to the point is highly appreciated. Professor, your creativity and
originality are unchallengeable. Subsequently, I read most of your
publications, which focused on underdeveloped and developing countries.
While appreciating our PM’s comments
and ideas, I still have a reservation, about whether the SriLankan ethnic
group’s culture, the mindset of conflicting “what is right and wrong”, will allow the Government of SriLanka
(GOSL) to formulate a strategic initiative Framework to implement the items
structured around the four key areas. Further, the mindset to admit and
acknowledge the influence and dominance of the Western powers, including that
of India, has not been addressed by GOSL. The political & cultural
distinction between the so-called powers and the recipient country is so wide.
SriLanka is a small island and the
British left the country with dormant
obstacles with the intent to control the island on a continuous platform.
Before I proceed,
just a comment: Although every male is
born with 1.5 kg of brain, humans perceive different effects about the same
state, as perceptions vary from person to person. People assign different meanings
to what they perceive. This is the reason why conflicts arise. Most have a shortfall
in perception (Balanathan)
Page
Quote: “Perception is an active mental act.
It is a dynamic, dialectical conflict between the self-perspective
transformation and external vectors of power bearing upon us. That which we
perceive is a balance between these antagonists”. (Ref: Understanding Conflict and War: vol. 1: the dynamic psychological
field, chapter 11, by R.J. Rummel)
I would like to discuss two aspects of
governance, unravelling and highlighting the hidden mindset and the rigidness
of our community here in SL.
Political Atmosphere Since Independence
Sri Lanka was granted independence on
the 4th of February 1948. One of the Tamministersters, GG
Ponnambalam, who had a portfolio responsible for Industries commissioned three
plants. (i) Cement Factory in Kankesanturai, (ii) Chemical Factory in
Paranthan, (iii) Paper Mill in Batticaloa. Along with this other economic
development centred on agriculture was done in the East. However, in 1949,
another egoistic Tamil Politician, known as SJV Chelvanayagam (SJVC) inflicted
a diehard manifesto called Federalism for the North & East. Although people
in the North and East speak Tamil, their lineage is of different ethnic groups
from India.
Since 1949, the inflicted racial hatred
by the Tamils caused a deterring effect on economic development in SL. Since
1970, the political party inflicted the trauma of armed conflict as the right
tool to the youngsters causing further restraints on economic development. From
1970 to 2009, the Tamil terrorists caused billions of dollars worth of damage
to GOSL assets and Property Island wide. The cement factory constructed by GG
Ponnambalam was obliterated. I worked in this cement factory for seven years.
Several ministers, civilians and responsible citizens were murdered, including the
late Mr Rajiv Gandhi.
We, Sri Lankans, salute and appreciate
the courage and audacity of our former President Mr Mahinda Rajapaksa, and Mr
Gotabaya Rajapaksa for eradicating terrorism that prevailed in SL for 39 years.
The Western military command was present in Vanni giving guidance to the Sri
Lankan military. It could be implied that it was a conspiracy to eliminate LTTE
command and implicate the President & Co so that the West could imbed a
group that would accept their influence and dominance, knowing that there would
be casualties in the war. Could anyone prove that there will be no civilian
casualties in a war? Well, India has no right to attempt to penetrate SL
politics and talk about HR, because India has the worst record of Human Rights violations.
Every country wants to dominate SL and siphon funds out of it. It is considered
a shame for the West to penetrate a small country like SL. When the Sri Lankan
military has a military court for disciplinary actions against its staff, it’s
shameful to note that foreign judges are ordered by the UN to sit in judgment
of the Sri Lankan military. Can an African or Asian judge sit in judgment of
the US military?
Today the entire dynamic equilibrium of
SL has been brought to a near standstill because of the title “War Crimes & Human Rights”. The
Tamils are up in hand, without patriotism, no sense of economic development,
fervent for punitive action against the military, and attempt to divide the
country. The West and India have a strong influence on the Tamils and are
exploiting the Tamils to achieve their objective. India, to cover up its human
rights violations, is redirecting its voice to SL. It could be implied that the
UN’s actions are regarded as an impediment to the progress and economic
development in SL. A big theme to address. Why is the US Assistant Secretary of
Divisions flying into Colombo frequently? Why do these people fly into Jaffna
and meet Tamil politicians? What has Tony Blair got to do with Sri Lankan
affairs, and why does he fly into Jaffna and meet Tamil Politicians? Tony Blair
himself is being accused as a war criminal because of the WMD war in Iraq.
Could these be interpreted as a process of indoctrination and intoxication of
the Tamils by the West and India?
I have outlined the above components so
that you can have a bird’s eye view of the elements that are obstructing
economic growth and introducing political & economic volatility.
Since 2009, former President Mr Mahinda
Rajapaksa embarked on several facets of development:
(i)
Development of infrastructures
(ii)
Augment the port city of Colombo
(iii)
A vital nodal point in the South was chosen for
the Port and Aviation, which is Hambantota, where an airport and port were
constructed. This raised unwanted criticism from unintellectual quarters.
(iv)
Remove constraints from the captured terrorist
group boys, by rehabilitating them and releasing them into the community,
(v)
Had election and formalized the Northern
Provincial Council (NPC) and allocated NPC with the required funds to carry out
small-scale development
(vi)
Implement the Mega Polis development of the city
of Colombo and others,
(vii)
Clean the city of Colombo free from underworld
gangs, crimes, and shanty temp. Dwellings,
It implies that the above preliminary
work was in preparation for a high-gradient economic development in SL.
However, it is inferred that the opponents who wanted to remove GOSL
parliamentarians with the help of the West used different tactics to capture
power. The Tamil issues were introduced into the election campaign, which is the
cheap politics of the third world. To the Tamils, economic development means
nothing. Since 8th January 2015, the current GOSL has done
nothing, but talk. The promise of limiting ministerial positions to not more
than 30, ended up with several. Every MP wants a minister position. Whatever is
said, nepotism and corruption cannot be eliminated.
On the other side, Tamils want equal
rights and more power in the North which is inhabited by less than one million
people. Since 2013, the Northern Provincial Council (Jaffna), a Provincial
Administration, has not done any development work in the North. Tamil MPs are
unpatriotic and not interested in the welfare and employment of their people.
The Tamils are more interested in punitive and revengeful acts by bringing in a
panel to hear on war crimes. People who died are those who were caught between
the army and the terrorists, and those who were transplanted as human shields
to protect the hierarchy of the terrorists. Why were the 350,000 people kept as
a human shield in Mullivaykal is a question the Tamil politicians have not
answered. Even after billions of dollars worth of assets were destroyed,
civilians and politicians murdered by the terrorists, the Tamils or the Tamil
politicians have not given serious thought to tendering an apology, but go on
fighting, and have become an impediment to economic development.
Well,
Tamils could be itemized as a factor for economic volatility.
Cultural improvement, advancement in
socio-politico-economic knowledge, and political knowledge in the democracy of
the 21st century have to be demonstrated by the people and GOSL.
Tamils in Europe, North & South America, and other countries where Tamil is
not a language study the country’s language and live. What stops them from
studying the local language, and integrating with the Sri Lankan culture and
language?
Views on the economic Development Structured
around the four key areas
It is most welcome that the SriLankan
Government convened a conference on economic development based on four key
areas as follows:
1. Macroeconomics and Fiscal Stability
2. Structural Transformation and
Competitiveness
3. Urbanization and Development
4. Regional Development and Social Inclusion
The views expressed in this letter are
not to disapprove or criticise the theories and principles discussed at the
conference, but to highlight how better SL could perform. Let us look at the
definition for a clearer understanding by all Sri Lankans. I would like to
discuss the first two items only in this letter.
The
government have to adjust its spending levels and tax rates to influence the
nation’s economy. The Central Bank influences its nation’s money supply in its
monetary policy. To direct the country’s economic goals, the two policies are
used in different combinations
First Step: Let
us consider the tax system in Sri Lanka.
The
major shortfall in the economic framework of Sri Lanka is tax revenue. I would
like to refer to the informal system in the North. Except for the government, corporations
and large registered company workers, likely, at least 90% of the breadwinners
(informal) do not pay tax. However, they are engaged in full-time work
generating income to meet purchasing movable and immovable assets. The owners
of such enterprises can be classified under microenterprises.
I
like to give a few examples.
1. Masons
who claim they are builders in the North, start with low capital, and a few
workers in their team. The so-called team may not have a business name but
operate with its leader’s name. There are a significant number of such building
teams. They do not take liability for what they build and complete, have no
insurance, and further none of the workers of the business pay tax.
2. Farmers
growing vegetables, paddy etc. No tax is paid to the government on the yield or
any profit.
3. Fishermen
do not declare what they catch, sell, and collect as revenue. No tax is paid.
4. Small-scale
tea boutiques, and shops, operate with maybe, two tax receipts books. One for
the tax department and, the other, for the actual.
5. The
major portion of individual (microenterprise) revenue is generated from
smuggling. The smugglers also employ a few people in their team. They are the
richest in the North.
This is the situation island-wide where
the country loses billions of tax income. The social inequality widens, because
the smugglers and non-taxpaying become rich, like millionaires, whereas a
government service engineer, accountant, doctor or clerk remains poor. The
government, corporations, and corporate employees’ contributions to the country
are enormous, in supporting and developing, however, the owners of
microenterprises who do not pay one cent of tax contribute nothing.
Sri Lanka’s priority in its economic
development is to overhaul the tax system and the tax department. The tax
Commissioner should be empowered by the Public Service Commission to
recommend/appoint staff to the tax department. The clerks in the tax department
are not to be inter-transferable within other departments, as their knowledge
and service should be considered special. The tax department should be given
special powers by an act of parliament. Tax Commissioners should be given
special power to conduct audits and checks on individuals if they consider such
a person has acquired wealth indirectly and or illegally. The salary of the tax
department staff should be adequate to cover their responsibility and work.
1.
Every breadwinner in a family should have a tax
file number, and a simple system of tax returns should be in place. The tax
framework could have a ceiling below which tax need not be paid, however, tax
returns should be made.
2. Every
microenterprise should request and operate with a business number allocated by
the Tax department or the Provincial Council. (In some countries such informal
business is known as Sole Traders)
3. Every
Province is to have a tax department and provincial headquarters to manage the
tax system.
4. It
is a belief that with the current technological advancement, Sri Lanka could
have a complex computerised system to manage the tax system.
Currently, the country may have a
shortfall in the revenue collected, however, expenditure remains on the
increase. People should understand that Sri Lanka provides its people, with free
health, free education, some free goods, and subsidised items. They also should
understand that SL should generate the revenue to meet the expenditure, have a
sound GDP, low inflation & interest, to provide quality life to its people.
Citizens must pay the required tax on their earnings. Politicians should not
think that such a rigid and sustainable tax system will compromise their
victory in parliament.
During the address by the
PM, he said that SL has a surplus of paddy this year. Has the Minister for Trade & Commerce in SL thought of exporting the
surplus rice?
The overhaul of the fiscal system should
be prioritised. The Finance Minister should become more active in structuring
the fiscal system, and take up the tax system as a priority.
Therefore,
the priority for Sri Lanka is to overhaul the Tax System.
An excerpt from
Citizendium, the Citizens' Compendium: (The
concept of fiscal sustainability is often used in discussing fiscal policy but
it is absence is not directly observable. Fiscal instability, on the other
hand, can be observed in the conduct of the CDS and bond markets).
I wish to refer to an article on
Wikipedia on the Governor of the Central Bank of SriLanka: (Controversy: In
February 2015 CBSL advertised the sale of Rs. 1 billion in 30-year government bonds at an indicative rate of
9.5%.[11][12][13] The
sale was oversubscribed with 36 bids totalling Rs. 20 billion.[11] The
majority of bidders, 26, bided for Rs. 100 million or less at a rate of 9.5%–10.5%.[11] However,
a few bidders, including Perpetual Treasuries Limited, wanted interest rates of
11%–12%.[11] On
27 February 2015, the CBSL accepted Rs. 10 billion in bids at rates of 9.5%–
12.5%.[11][13] The
issuing often the advertised bonds, at a higher-than-expected rate, was alleged
to cost the Sri Lankan government an additional Rs. 40–45 billion ($300–$340 million).[14][15][16] Perpetual
Treasuries were issued, directly and indirectly, with Rs. 5 billion in bonds at
12.5%.[17][18][19][20] Perpetual
Treasuries was one of the primary dealers in the sale and is owned by
Mahendran's son-in-law Arjun Aloysius).
It is a liability noted now, for a worse economic
condition in 30 years, where the same people may not be in power or else. This
is where we could perceive a lack of strategic thinking by our Tamil people.
(Impulsive decisions based on nepotism or?)
On the question of Sustainability, Professor,
I need not outline the “Debt Trap
Identity” formula, which is Δd = f + d(r - g). (Ref: http://en.citizendium.org/wiki/Fiscal_policy/Tutorials) Such actions can be regarded as factors that introduce
budget deficit, cost increase, recession, political and economic conflicts
& instability.
Professor, in your paper: “Does controlling corruption lead to
higher economic growth?” Could this be one of the facets that will limit
economic growth? Of course-Yes.
Informal and Formal Micro-Enterprises
This has a large
impact on the fiscal policy of the country. In the paper “The demand for, and consequences of, formalising among informal firms
in SL”, Dr Suresh de Mel, David
McKenzie, & Christopher Woodruff discuss informality and its impact.
This paper reveals that quote: “Even
among firms employing paid workers, the majority are unregistered with one or
more pertinent agencies”, and only one-fifth of firms operating without paid
workers are registered with any government agency”.
In the 70s, I attended a seminar on “Financial & Cost Information for Business
Administration” in Colombo. The discussion was focused on informal money
management at the Pettah Fish market, where lenders offer money at 300%
interest without collateral to the fish traders. Hundreds of thousands of
Rupees are exchanged between traders and lenders. How does the government
manage tax revenue in such a case? The country operates informal (illegal) pawnbroking
with no tax collected. This could also be categorized as money laundering.
GOSL should
focus on formulating strategies to address the informal business systems and
make them formal. Making the business formal, will self-motivate the business
owners to increase productivity.
Miriam Bruhn, a
Senior Economist of the World Bank categorizes informal business as: “Many firms in developing countries are
informal, that is they operate without registering with the government”.
Structural Transformation
The National Bureau of Economic
Research defines Structural transformation as the “reallocation of economic activity across the broad sectors of agriculture,
manufacturing and services”. Although the PM stated that SL has a surplus
of paddy this year, it may be from only a sector. For example, the North is an
area for agriculture. However, the restraining factor is water. The North is
fertile, but dry land. A large area(s) of barrel land is unused & just goes
to waste. During the grainy season rainwater collects, and runs down to the
sea. Paddy cultivation and agriculture are seasonal during the winter season
only. If GOSL could construct a reservoir with a large catchment area, agriculture could be
made a continuous productive output. In the South there are rivers, and the
First PM of SL late Mr DS Senanayaka embarked on constructing irrigation
distribution systems, which was useful for the so-called structural
transformation of the 40s. So, what has SL proposed to do with Structural
transformation on Agriculture Island?
In the case of manufacturing and
services, SL should encourage SL Diaspora investors to invest in several
industries. The sea could be exploited and exported if proper services were
installed. Chicken and Cattle farms Initiation Island-wide could result in
exports. Our natural resources and raw materials coming out of Coconut, Palmyra
could be utilised for products for exports and local consumption.
Investment in IT College(s) in the
North and IT Industry is a good option. Similar to Bangalore, the Diaspora
could outsource IT contracts to SL.
Well, if a minister demands a 25% cut
from investors, then I have to refer to your statement in your article: “Does controlling corruption lead to higher economic growth”.
Well, the
economic activity could be reallocated across the various sectors.
Competitiveness
Industries, informal and formal businesses
should be able to supply and sell goods and services at a competitive price about
the performance of others in a market-driven economy.
Sri Lanka has been a country of
monopoly, where most large productive organisations have been owned by the
state for many years. People have a lack of knowledge of market-driven economy
and competitiveness. SL should embark on educating the masses on competition
and a market-driven economy.
Flexibility is a key factor that is
required for people to change, and if people are rigid then the first step is
to prepare a strategy for a time frame for transition. How can this be achieved
has to be analysed and decided.
One key
aspect is that people should, rather than seeking government jobs, create their
businesses and industries, formally of course.
Conclusion
•
Speakers at the forum were mostly from foreign
Universities. It is regretted that the Economic Forum did not consider inviting
any one of the academics from the Sri Lankan Universities. We have highly
qualified and competent economists in Sri Lanka, however, SL does not recognize
their intellect. This is one of the weaknesses of the Sri Lankan
Administration. No wonder, why academics and intellects leave the country, to go
and serve foreign countries. I am aware that Sri Lankan academics are
contributing to the West, Australia and New Zealand. With due respect, I think,
our economists and academics would be in a better position to understand the
issues in Sri Lanka concerning constraints on economic development. Further,
the invited experts did not offer their services free of charge. In 2015, I
recommended to the Dean of a Sri Lankan University, to form an “Advisory Council” constituted of
Professors and academics drawn from various Universities in SL. Again with due
respect, you are an employee of Harvard University. I do not see any issues as
to why SL did not draw speakers from the SL Universities. I see no reason why
SL academics cannot form an “Advisory
Council” to guide & recommend various economic affairs in SL to GOSL. I
have seen this as a shortfall in the third world and developing countries.
•
Awareness is one thing people should be given.
Socialism and Communism will not develop a country as it is a monopoly and
dictatorial. People should be taught appropriate subjects, and conferences
should be held periodically for employees and business owners.
•
High-level economic language will be understood
by qualified people, not ordinary people. Topics should be put in simple words
for people to understand.
•
High-level priority is: UN should understand
that they are a constraint to economic development in SL. Tamils should become
flexible and learn how to co-exist in a multicultural environment.
•
Cost-benefit analysis should be taught to
engineers and project managers.
•
It is recommended that SL prepare the plan for the
execution of the economic development based on the four key areas on a “Critical Path Method” (CPM). Knowing the
time and the critical items it could be easily done. GOSL should seek guidance
from the Professors of the Sri Lankan Universities.
Thank you for reading this letter. I
shall be grateful if you could be kind enough to give a reply, please.
Kind Regards
Yours Sincerely
Kanthar
(Nathan) Balanathan
