If the paralysis in government and the prevailing conundrum of the UNP-SLFP cohabitation have been too long drawn, the heightened invective and counter vituperation within the UNP itself is beginning to have its impact on the country’s economy. Going by media reports, this week’s Cabinet meeting witnessed a right royal blow-up between Cabinet colleagues over the funding, or the lack of it, for the long overdue Central Expressway, and then over a pay rise for plantation workers resulting in one Minister walking out.
A US grant of 480 million dollars negotiated by the Prime Minister’s Office is already being held up by the President. The bulk of the money is towards transport projects and a Central Ring Road connecting Colombo with the suburbs. The sticky point is the funding of the balance over land issues, which, given the recent uproar over a controversial military pact (SOFA), has seen alarm bells rung over US motives.
Either way, the President is sitting on this grant. There are economic implications involved. One is the need to factor the ‘time lost’ and the resultant increased costs by delayed projects (we saw this in the Port City project), and also the ‘time factor’ for the ultimate beneficiaries – the Sri Lankan people who, according to a report by the University of Moratuwa, perform two million trips a day in the Colombo-suburb corridor. This will rise to 4.5 million by 2035.
With the ‘Enterprise Sri Lanka’ programme being the showpiece of the UNP Government and aimed to turbo-boost an otherwise stagnant economy, the bickering between Cabinet colleagues does not augur well. In any government, the Finance Minister is not always the most popular member of the Cabinet, especially when he has no money to dispense. But with a crucial election looming and jockeying for leadership roles within the party hierarchy — for which UNP Ministers, including the Finance Minister, have come out publicly taking sides — partisanship in doling out funds for crucial public infrastructure projects must not colour decision-making where the country is concerned.
The Central Expressway is a long overdue project. The Finance Ministry argues that there are no sources of funding for it, while Ministers who have made election pledges to complete the project are tearing their hair, or what is left of it, at the thought of facing the electorate with unfulfilled promises. The Treasury has allocated funds for the Outer Circular Road from Kerawalapitiya to Kadawatha, the Kadawatha-Mirigama section and the Matara-Hambantota extension of the Southern Expressway, but work on the Central Expressway is stalled.
The ‘political disputes’ have extended to the Energy Ministry. The Treasury feels the Ceylon Electricity Board (CEB) has raised salaries unnecessarily and should, therefore, find ways of raising its own funds. It has also disputed CEB claims about the high use of thermal power during the drought season.
With deadlines approaching for picking a presidential candidate, and the ruling UNP in the throes of an internal crisis, warriors from the different camps must not play politics with the nation’s economy. It is already too late to expect rapprochement between the SLFP President and his estranged UNP Government as the corrosive state apparatus — and the economy — drifts aimlessly towards an election.
Egged on by policymakers who saw it as a panacea for post-war ills, Sri Lanka went hurtling into microfinance without a stitch of regulatory oversight in place.
Now, with hundreds of thousands of people — overwhelmingly women, in dire debt, the government is only lumbering towards finding solutions. Researchers warn that nothing the authorities have tried so far is sufficient to rescue borrowers who are already so entrapped that many are either contemplating or committing suicide.
Microcredit should have been a leg-up to the poor. The rationale was that small loans granted without collateral, notwithstanding an interest rate higher than traditional financing, would spur entrepreneurship and lead to a positive economic and social transformation.
In Sri Lanka, it did lead to an economic and social transformation but in the reverse. The microfinance sector stopped pretending to be about financial inclusion, livelihood development and women’s empowerment and started chasing profit.
What is today being sold as “microfinance” are just high-interest loans given without collateral to women—and men, to a lesser degree—who already are heavily in debt. And most new loans are taken to service old ones. Businesses started on such borrowed funds are few and far between.
Microfinance started out as a “development tool” avidly promoted by administrations seeking to promote free enterprise without too much trouble for them. The problem is, lending is only one component of microfinance. And there was nobody to enforce the other elements to ensure that the poor received the package deal.
Today, it has turned neighbours into foes (the loans are given to groups of three with the others having to meet the dues of anyone among them who hasn’t paid). It has caused strife in families with husbands incensed at young, male debt collectors hanging around their homes with allegations of sexual favours being sought, sometimes granted, in lieu of loan instalments and spouses claiming loans were taken without their knowledge.
But this was a tragedy waiting to happen. There are examples around the world of microfinance going wrong in precisely the same way as it has in Sri Lanka. Take Andhra Pradesh, for instance, where, in 2010, there was a spate of microcredit related suicides. The difference, however, is that Governments move in swiftly to rectify the faults. The Andhra Pradesh State Government did just that, suspending microcredit and introducing a strong law to prevent multiple lending.
Sri Lanka has no such laws. The Microfinance Act of 2016 is so weak that even the Lanka Microfinance Practitioners’ Association, a well-meaning industry body with just 66 members (the estimated number of microcredit companies in the country is around 5,000) is pushing for more stringent regulations. And why wouldn’t it? The sector has taken a reputational beating.
What is concerning is the slow pace at which the Government is moving. The Central Bank, the financial sector regulator, recently invited public comment on a law that envisages the setting up of a credit regulatory authority. But this could take two years to be passed. There is also a strange reluctance to intervene in this sector despite the widespread and dire nature of the prevailing situation.