Sajith the better negotiator?11 min read

The Prince of Kandy

Sajith Premadasa positions himself as a superior negotiator compared to Ranil Wickremesinghe, claiming that his negotiation skills, particularly with the IMF, will set Sri Lanka on a more prosperous economic path. He suggests that the country’s difficulties stem from mismanagement by foreign creditors and the current government. As a Sri Lankan, I hope for the success of our future president, but how achievable is this claim, and how effective will it be as an electoral strategy?

His primary opponents, Ranil Wickremesinghe (RW) and Anura Kumara Dissanayaka (AKD), are not directly part of the administration at fault for the crisis. Further the negotiations are not with one monolithic IMF as suggested by Sajith but rather with numerous and multifaceted stakeholders who due to the ‘Most Favoured Creditor Clause’ will cause further delays in the restructuring.

Observers might question the effectiveness of Sajith’s past roles, like his tenure at the housing ministry, where notable achievements are absent. Intriguingly, despite his resources and historical backing, he has been losing key party members to RW’s faction. Maybe the ability to keep ones own MPs is a more telling feat of negotiation.

Contextual Background

The debate intensified after a session at the Shangri-La during the SJB National Visionary Summit, which featured speeches by Reliance CEO T Krishnakumar and former Indian civil servant Dr. Montek Singh Ahluwalia. Their remarks seemed misaligned with the broader policy objectives of the SJB, sparking controversy. One speaker was linked to a company bidding for SLT, a process highly criticized by Sajith. Dr. Ahluwalia positioned as the economic genius backing the SJB failed to toe the policy line espoused by Sajith and seemed slightly unprepared to speak on Sri Lanka.

When an SJB moderator pressed Dr. Ahluwalia about IMF renegotiations, he acknowledged the complexity of Sri Lanka’s need for debt restructuring. Sri Lanka’s process involved a debt write off while India’s under Dr. Ahluwalia did not. Either way if comparing influential economic allies, with an anti-IMF bent RW arguably has the upper hand with connections to renowned critics like Joseph Stiglitz. RW can further point to the growth diagnostic that he got done for the country through Harvard. [i]

I had the chance to speak to Dr. Ahluwalia after the event and he confided in me that he believed that he was under the impression that a professional body had invited him to the event. He was unwilling to comment on the efficacy of RW’s policies during the crisis. I strongly believe he was just a currently irrelevant old figure that was looking for publicity and a speaking assignment.

I advocate for straightforwardness and argue that RW was not part of the administration that led Sri Lanka into crisis. He likely would have resisted continuing debt payments under severe economic strain. I assert that it was not solely foreign creditors but rather grave misjudgments by Sri Lankan policymakers, in collaboration with international lenders, that precipitated the current turmoil. Politically, it might be more advantageous if he were to step aside prematurely.

Ranil and the Legacy of Debt Servicing

Historical observers will recall that the 2015 election was expedited largely due to looming debt challenges. The Yahapalanaya government, in office at that time, faced the arduous task of renegotiating debts while implementing tax hikes to address fiscal mismanagement from previous administrations.

This period marked significant decisions, such as relinquishing control of part of the Port to the Chinese government and enacting retrospective taxation—both challenging yet necessary measures. Additionally, Ranil Wickremesinghe spearheaded reforms like the capital allowance scheme at the Board of Investment, shifting away from the previous more nebulous investment incentive structures. His tenure also saw the introduction of the Active Liability Management Act and movements towards an independent Central Bank, which if in place would have curbed the indiscipline of the subsequent Gotabhaya administration.

Ranil Wickremesinghe was categorically not a part of the government when Ajith Nivard Cabraal as governor engaged in the ill-advised depletion of reserves to service debt and artificially maintain the rupee’s value, falling prey to an apparent accounting fallacy that seemed clear to everyone but him. By the time RW assumed control, Cabraal had effectively disappeared from any significant policy-making roles within the government.

The Risks of Renegotiating Now

Current economic perspectives often miss the mark. International financing has largely resumed in Sri Lanka, with significant undertakings like the Bandaranaike International Airport expansion, the Light Rail Transit system, and the Central Expressway Project progressing well. These developments suggest that maintaining the current trajectory towards debt restructuring, without rushing its conclusion, could be beneficial. This approach might enhance Sri Lanka’s macroeconomic indicators just in time for a potential reevaluation.

Evidence of economic recovery can be seen in sectors such as construction. As per the June 2024 Central Bank Purchasing Managers’ Index[ii], the Construction PMI reached an all-time high of 59.5 over thirty survey rounds, driven by projects funded by multilateral agencies, particularly in road rehabilitation and water distribution. ADB projects have resumed signalling Japan’s willingness to continue to finance our capital investment.

To initiate new negotiations now would jeopardize this progress, casting doubt on the stability and introducing uncertainties that could hinder both local and international capital formation. Not biding by the agreements completely or seeking further concessions in fresh loans is a far more expeditious strategy and one that RW has more than enough experience in.

Moreover, China is poised to convert further debt into equity stakes, potentially gaining significant control over strategic assets like Mattala Airport and parts of the Central Expressway linking Trincomalee to Colombo, while giving us much needed room in terms of debt servicing.

The Conundrums of Populist Promises

In the current presidential campaign, we observe candidates, including Ranil Wickremesinghe (RW), pitching policies aimed at appeasing specific voter blocks. RW has pledged a controversial wage increase for the state sector, while Sajith promises a monthly allowance of Rs 20,000 to those suffering from poverty.

If we take Sajith’s promise at face value, it still seems implausible that he could effectively establish an accurate database of recipients in time, potentially delaying any real payout until after the parliamentary elections. Moreover, with the election timing and the current parliamentary setup, even a victorious Sajith might lack the legal framework to implement this policy before he must face the electorate once again.

The decision to distribute this allowance monthly over a two-year period, rather than as a lump sum, could also dilute its impact. A lump sum of Rs 480,000 might significantly contribute to a large expense like house construction, whereas Rs 20,000 monthly might not accumulate meaningfully for the poorest, especially if it’s intercepted by an exploitative family member.

If we are to work on the assumption that he will just increase the current allowances given under Samurdhi, Aswesuma, and other Welfare Benefits Board schemes then it really isn’t a new or novel policy direction.

Vague Promises in Policy Speeches

Discussing policy specifics with Sajith is challenging, as he tends to speak in generalities rather than concrete terms. For example, at the recent Capital Markets Conference, his comments did not resonate enough with industry leaders to inspire any formal response or policy documentation. Sajith stated, “The development of capital markets is crucial for economic growth, as they are key in mobilizing savings into productive investments.” Yet, after speaking at length, his concrete policy suggestions merely echoed existing industry trends without introducing novel directives.

For someone like Sajith, the presidential race isn’t merely about good intentions; it demands actual competence and clear policy direction. It is essential for informed observers and constituents to press him for more detailed explanations of his plans, particularly regarding debt renegotiation and social welfare, to gauge his potential effectiveness as a leader.

Addressing the Unspoken Challenges in Public Transport Reform

Consider the pressing need for reform in Sri Lanka’s bus system. The existing setup, where small-time operators collude over bus routes and schedules, represents a failure on multiple fronts. This collusion results in a paradox where consumers face limited options due to a restrictive route issuance system, yet encounter fierce competition for buses during peak hours, followed by a complete absence of service during off-peak times.

Efforts to overhaul this system frequently encounter severe obstacles. Any proposed changes are met with highly coordinated strikes by bus operators, which effectively paralyze transportation for ordinary citizens. To successfully implement any meaningful reform in such a volatile environment, policymakers might need to employ an element of surprise. This strategy could circumvent the initial resistance and disrupt the status quo long enough to introduce necessary modifications.

Similarly, when dealing with international financial entities like the IMF, the element of surprise can also be a strategic tool. Renegotiating terms with the IMF, much like restructuring a deeply entrenched public service system, may benefit from unexpected moves that preempt resistance and facilitate smoother transitions. This approach allows for the introduction of reforms before opponents can fully mobilize against them, potentially leading to more effective and lasting changes.

Inconsistencies and Missed Opportunities within the SJB

The Samagi Jana Balawegaya (SJB) was established with the intention of creating a space for center-right politicians within a more democratic framework than its predecessor, the United National Party (UNP). The founding members of the SJB were adamant about the necessity of electing its leaders democratically to reflect its foundational principles. Despite these intentions, the approach to the current presidential bid diverged from these democratic ideals, as the leadership was not elected. Implementing such a democratic process for selecting a presidential candidate could have reinforced the party’s democratic credentials and potentially prevented individual members from splintering off to run independently, which could be seen as a strategic misstep.

Moreover, regarding policy initiatives, particularly the Millennium Challenge Corporation’s project on the digitization of land records—a reform that falls within the remit of the housing ministry—Sajith’s leadership notably lacked initiative. This project, crucial for modernizing the cumbersome system of deeds, met its demise due to widespread unfounded public opposition, with no alternative solutions proposed. The failure to advocate for and implement this straightforward policy of digitization starkly contrasts with the emphasis on digital transformation professed in the SJB’s current manifesto. This inconsistency not only highlights a gap between stated intentions and actions but also points to a missed opportunity to streamline and improve governance through technology, which could have significant long-term benefits for the country.

Analyzing the GDP Growth Projections and Policy Implications

Former Central Bank Governor Indrajit Coomaraswamy’s assertion that exceeding a 3% GDP growth rate for Sri Lanka is a certainty [iii]sheds light on the conservative nature of the country’s economic projections. The debt sustainability efforts have strategically employed a modest GDP growth estimate, which simplifies the achievement of fiscal targets[iv]. This conservative approach is well-documented and accessible to anyone following economic discussions in the media.

It raises concerns, however, when political entities such as the SJB capitalize on these intentionally low projections. The SJB’s promises to surpass these already attainable targets can appear opportunistic, suggesting a strategy more about political gain than genuine economic improvement.

Additionally, the involvement of SJB-aligned and USAID-funded Verité Research has introduced another layer of complexity into the economic framework. Their advocacy has led to the adoption of macro-linked bonds[v], which have controversially shifted some control over domestic policies to external creditors. This move, which was met with strong opposition from the treasury, was reluctantly accepted after significant influence from those associated with Verité Research. Such maneuvers have sparked debate about the potential undermining of national economic sovereignty, highlighting the intricate and often contentious interplay between local policy decisions and international economic influences. It is not RW but Sajith that should be kept out of negotiating with the IMF if the interests of the Sri Lankan state are to be secured.

Strategic Considerations for Sajith’s Political Future

In light of Sajith Premadasa’s current third-place positioning in public sentiment as indicated by Google Trends, there are critical strategic decisions to be made regarding his continued candidacy. If he is unable to improve his standing, it may be prudent for him to consider stepping down from the presidential race. However, Sajith’s reputation as a skilled negotiator suggests another pathway forward.

If Sajith is as adept in negotiations as he professes, he possesses the potential to still orchestrate a victory for his economic policies and political agenda through parliamentary maneuvers. By shifting his focus from a direct presidential contest to influencing policy and power dynamics within the parliament, he could effectively leverage his position and the support of his party.

Such a strategic pivot could not only enhance his influence over key economic decisions but also align with a broader effort to combat the entrenched corruption associated with the previous Rajapaksa regime. By consolidating efforts within the parliament, Sajith and his allies might be able to orchestrate significant reforms and governance improvements that a direct presidential campaign may not permit. This approach could serve as a testament to his leadership capabilities and his commitment to substantive, rather than symbolic, changes in governance.

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[i] https://growthlab.hks.harvard.edu/publications/sri-lanka-growth-diagnostic

[ii]https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/press/pr/press_20240731_sl_pmi_2024_june_construction_e.pdf

[iii] https://www.dailynews.lk/2024/07/16/business/588890/exceeding-3-gdp-growth-a-certainty-coomaraswamy/

[iv] https://frontpage.lk/imf-projections-make-it-easier-to-hit-debt-targets-cal/

[v] https://www.veriteresearch.org/wp-content/uploads/2024/02/20231207_GovernanceLinkedBonds_InvestorPitch_V3.pdf