The U.S. Navy’s Diving and Salvage Center can be found in a location as obscure as its name—down what was once a country lane in rural Panama City, a now-booming resort city
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Excerpts of the research paper published by Hindenburg Research
Today we reveal the findings of our 2-year investigation, presenting evidence that the INR 17.8 trillion (U.S. $218 billion) Indian conglomerate Adani Group has engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades.
Gautam Adani, Founder and Chairman of the Adani Group, has amassed a net worth of roughly $120 billion, adding over $100 billion in the past 3 years largely through stock price appreciation in the group’s 7 key listed companies, which have spiked an average of 819% in that period.
Our research involved speaking with dozens of individuals, including former senior executives of the Adani Group, reviewing thousands of documents, and conducting diligence site visits in almost half a dozen countries.
Even if you ignore the findings of our investigation and take the financials of Adani Group at face value, its 7 key listed companies have 85% downside purely on a fundamental basis owing to sky-high valuations.
Key listed Adani companies have also taken on substantial debt, including pledging shares of their inflated stock for loans, putting the entire group on precarious financial footing. 5 of 7 key listed companies have reported ‘current ratios’ below 1, indicating near-term liquidity pressure.
The group’s very top ranks and 8 of 22 key leaders are Adani family members, a dynamic that places control of the group’s financials and key decisions in the hands of a few. A former executive described the Adani Group as “a family business.”
The Adani Group has previously been the focus of 4 major government fraud investigations which have alleged money laundering, theft of taxpayer funds and corruption, totaling an estimated U.S. $17 billion. Adani family members allegedly cooperated to create offshore shell entities in tax-haven jurisdictions like Mauritius, the UAE, and Caribbean Islands, generating forged import/export documentation in an apparent effort to generate fake or illegitimate turnover and to siphon money from the listed companies.
Gautam Adani’s younger brother, Rajesh Adani, was accused by the Directorate of Revenue Intelligence (DRI) of playing a central role in a diamond trading import/export scheme around 2004-2005. The alleged scheme involved the use of offshore shell entities to generate artificial turnover. Rajesh was arrested at least twice over separate allegations of forgery and tax fraud. He was subsequently promoted to serve as Managing Director of Adani Group.
Gautam Adani’s brother-in-law, Samir Vora, was accused by the DRI of being a ringleader of the same diamond trading scam and of repeatedly making false statements to regulators. He was subsequently promoted to Executive Director of the critical Adani Australia division.
Gautam Adani’s elder brother, Vinod Adani, has been described by media as “an elusive figure”. He has regularly been found at the center of the government’s investigations into Adani for his alleged role in managing a network of offshore entities used to facilitate fraud.
Our research, which included downloading and cataloguing the entire Mauritius corporate registry, has uncovered that Vinod Adani, through several close associates, manages a vast labyrinth of offshore shell entities.
We have identified 38 Mauritius shell entities controlled by Vinod Adani or close associates. We have identified entities that are also surreptitiously controlled by Vinod Adani in Cyprus, the UAE, Singapore, and several Caribbean Islands.
Many of the Vinod Adani-associated entities have no obvious signs of operations, including no reported employees, no independent addresses or phone numbers and no meaningful online presence. Despite this, they have collectively moved billions of dollars into Indian Adani publicly listed and private entities, often without required disclosure of the related party nature of the deals.
We have also uncovered rudimentary efforts seemingly designed to mask the nature of some of the shell entities. For example, 13 websites were created for Vinod Adani-associated entities; many were suspiciously formed on the same days, featuring only stock photos, naming no actual employees and listing the same set of nonsensical services, such as “consumption abroad” and “commercial presence”.
The Vinod-Adani shells seem to serve several functions, including (1) stock parking / stock manipulation (2) and laundering money through Adani’s private companies onto the listed companies’ balance sheets in order to maintain the appearance of financial health and solvency.
Publicly listed companies in India are subject to rules that require all promoter holdings (known as insider holdings in the U.S.) to be disclosed. Rules also require that listed companies have at least 25% of the float held by non-promoters in order to mitigate manipulation and insider trading. 4 of Adani’s listed companies are on the brink of the delisting threshold due to high promoter ownership.
Our research indicates that offshore shells and funds tied to the Adani Group comprise many of the largest “public” (i.e., non-promoter) holders of Adani stock, an issue that would subject the Adani companies to delisting, were Indian securities regulator SEBI’s rules enforced.
Many of the supposed “public” funds exhibit flagrant irregularities such as being (1) Mauritius or offshore-based entities, often shells (2) with beneficial ownership concealed via nominee directors (3) and with little to no diversification, holding portfolios almost exclusively consisting of shares in Adani listed companies.
Right to Information (RTI) requests we filed with SEBI confirm that the offshore funds are the subjects of an ongoing investigation, more than a year-and-a-half after concerns were initially raised by media and members of parliament.
A former trader for Elara, an offshore fund with almost $3 billion in concentrated holdings of Adani shares, including a fund that is ~99% concentrated in shares of Adani, told us that it is obvious that Adani controls the shares. He explained that the funds are intentionally structured to conceal their ultimate beneficial ownership.
Leaked emails show that the CEO of Elara worked on deals with Dharmesh Doshi, a fugitive accountant who worked closely on stock manipulation deals with Ketan Parekh, an infamous Indian market manipulator. The emails indicate that the CEO of Elara worked with Doshi on stock deals after he evaded arrest and was widely known as a fugitive.
Another firm called Monterosa Investment Holdings controls 5 supposedly independent funds that collectively hold over INR 360 billion (U.S. $4.5 billion) in shares of listed Adani companies, according to Legal Entity Identifier (LEI) data and Indian exchange data.
Monterosa’s Chairman and CEO served as director in 3 companies alongside a fugitive diamond merchant who allegedly stole U.S. $1 billion before fleeing India. Vinod Adani’s daughter married the fugitive diamond merchant’s son.
A once-related party entity of Adani invested heavily in one of the Monterosa funds that allocated to Adani Enterprises and Adani Power, according to corporate records, drawing a clear line between the Adani Group and the suspect offshore funds.
Another Cyprus-based entity called New Leaina Investments until June-September 2021 owned over U.S. $420 million in Adani Green Energy shares, comprising ~95% of its portfolio. Parliamentary records show it was (and may still be) a shareholder of other Adani listed entities.
New Leaina is operated by incorporation services firm Amicorp, which has worked extensively to aid Adani in developing its offshore entity network. Amicorp formed at least 7 Adani promoter entities, at least 17 offshore shells and entities associated with Vinod Adani, and at least 3 Mauritius-based offshore shareholders of Adani stock.
Amicorp played a key role in the 1MDB international fraud scandal that resulted in U.S. $4.5 billion being siphoned from Malaysian taxpayers. Amicorp established ‘investment funds’ for the key perpetrators that were “simply a way to wash a client’s money through what looked like a mutual fund”, according to the book Billion Dollar Whale, which reported on the scandal.
‘Delivery volume’ is a unique daily data point that reports institutional investment flows. Our analysis found that offshore suspected stock parking entities accounted for up to 30%-47% of yearly ‘delivery volume’ in several Adani listed companies, a flagrant irregularity indicating that Adani stocks have likely been subject to ‘wash trading’ or other forms of manipulative trading via the suspect offshore entities.
Evidence of stock manipulation in Adani listed companies shouldn’t come as a surprise. SEBI has investigated and prosecuted more than 70 entities and individuals over the years, including Adani promoters, for pumping Adani Enterprises’ stock.
A 2007 SEBI ruling stated that “the charges leveled against promoters of Adani that they aided and abetted Ketan Parekh entities in manipulating the scrip of Adani stand proved”. Ketan Parekh is perhaps India’s most notorious stock market manipulator. Adani Group entities originally received bans for their roles, but those were later reduced to fines, a show of government leniency toward the Group that has become a decades-long pattern.
Per the 2007 investigation, 14 Adani private entities transferred shares to entities controlled by Parekh, who then engaged in blatant market manipulation. Adani Group responded to SEBI by arguing that it had dealt with Ketan Parekh to finance the start of its operations at Mundra port, seemingly suggesting that share sales via stock manipulation somehow constitutes a legitimate form of financing.
As part of our investigation, we interviewed an individual who was banned from trading on Indian markets for stock manipulation via Mauritius-based funds. He told us that he knew Ketan Parekh personally, and that little has changed, explaining “all the previous clients are still loyal to Ketan and are still working with Ketan”.
In addition to using offshore capital to park stock, we found numerous examples of offshore shells sending money through onshore private Adani companies onto listed public Adani companies.
The funds then seem to be used to engineer Adani’s accounting (whether by bolstering its reported profit or cash flows), cushioning its capital balances in order to make listed entities appear more creditworthy, or simply moved back out to other parts of the Adani empire where capital is needed.
We also identified numerous undisclosed related party transactions by both listed and private companies, seemingly an open and repeated violation of Indian disclosure laws.
In one instance, a Vinod Adani-controlled Mauritius entity with no signs of substantive operations lent INR 11.71 billion (U.S. ~$253 million at that time) to a private Adani entity which did not disclose it as being a related party loan. The private entity subsequently lent funds to listed entities, including INR 9.84 billion (U.S. $138 million at more recent substantially lower exchange rates) to Adani Enterprises.
Another Vinod Adani-controlled Mauritius entity called Emerging Market Investment DMCC lists no employees on LinkedIn, has no substantive online presence, has announced no clients or deals, and is based out of an apartment in the UAE. It lent U.S. $1 billion to an Adani Power subsidiary.
This offshore shell network also seems to be used for earnings manipulation. For example, we detail a series of transactions where assets were transferred from a subsidiary of listed Adani Enterprises to a private Singaporean entity controlled by Vinod Adani, without disclosure of the related party nature of these deals. Once on the books of the private entity, the assets were almost immediately impaired, likely helping the public entity avoid a material write-down and negative impact to net income.
Adani Group’s obvious accounting irregularities and sketchy dealings seem to be enabled by virtually non-existent financial controls. Listed Adani companies have seen sustained turnover in the Chief Financial Officer role. For example, Adani Enterprises has had 5 chief financial officers over the course of 8 years, a key red flag indicating potential accounting issues.
The independent auditor for Adani Enterprises and Adani Total Gas is a tiny firm called Shah Dhandharia. Shah Dhandharia seems to have no current website. Historical archives of its website show that it had only 4 partners and 11 employees. Records show it pays INR 32,000 (U.S. $435 in 2021) in monthly office rent. The only other listed entity we found that it audits has a market capitalization of about INR 640 million (U.S. $7.8 million).
Shah Dhandharia hardly seems capable of complex audit work. Adani Enterprises alone has 156 subsidiaries and many more joint ventures and affiliates, for example. Further, Adani’s 7 key listed entities collectively have 578 subsidiaries and have engaged in a total of 6,025 separate related-party transactions in fiscal year 2022 alone, per BSE disclosures.
The audit partners at Shah Dhandharia who respectively signed off on Adani Enterprises and Adani Total Gas’ annual audits were as young as 24 and 23 years old when they began approving the audits. They were essentially fresh out of school, hardly in a position to scrutinize and hold to account the financials of some of the largest companies in the country, run by one of its most powerful individuals.
Gautam Adani has claimed in an interview to “have a very open mind towards criticism…Every criticism gives me an opportunity to improve myself.” Despite these claims, Adani has repeatedly sought to have critical journalists or commentators jailed or silenced through litigation, using his immense power to pressure the government and regulators to pursue those who question him.
We believe the Adani Group has been able to operate a large, flagrant fraud in broad daylight in large part because investors, journalists, citizens and even politicians have been afraid to speak out for fear of reprisal.
We have included 88 questions in the conclusion of our report. If Gautam Adani truly embraces transparency, as he claims, they should be easy questions to answer. We look forward to Adani’s response.
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It has been brought to the immediate attention of the Embassy that some misinformation is being circulated in social media according to which Türkiye has been recruiting manpower in Sri Lanka”, the Turkish embassy in Colombo has noted in a press communiqué.
“The Embassy would like to hereby inform neither the Turkish Embassy in Colombo nor the Turkish Ministry of Interior are related or connected with such recruitment activities, seemingly organised by some private individuals,” the communiqué further asserted.
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The Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 24 January 2023, decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank at their current levels of 14.50 per cent and 15.50 per cent, respectively. The Board, having noted the recent and expected developments and projections on the domestic and global macroeconomic fronts, was of the view that the maintenance of the prevailing tight monetary policy stance is imperative to ensure that monetary conditions remain sufficiently tight to rein in inflationary pressures. Such tight monetary conditions, together with the tight fiscal policy, are expected to adjust inflation expectations downward, enabling the Central Bank to bring inflation rates towards the desired levels by end 2023, thereby restoring economic and price stability over the medium term.
Inflation continued to decline as envisaged in recent months and is projected to follow a faster disinflation path
Year-on-year headline and core inflation, based on both the Colombo Consumer Price Index (CCPI) and the National Consumer Price Index (NCPI), continued to decelerate in December 2022 for the third consecutive month, as expected. The downward adjustment in inflation rates is expected to continue through 2023, supported by subdued aggregate demand resulting from tight monetary and fiscal policies, expected improvements in domestic supply conditions, and the passthrough of easing global commodity prices to domestic prices, along with the favourable statistical base effect.
Domestic economic activity is expected to recover towards the latter part of 2023, compared to the large contraction in 2022
As per the GDP estimates published by the Department of Census and Statistics (DCS), the real economy is estimated to have contracted by 7.1 per cent in the nine months ending September 2022, on a year-on-year basis. With tighter monetary and fiscal policies in place, along with disruptions to domestic supply conditions, real activity in the final quarter of 2022 is also expected to have remained subdued. The economy is expected to make a gradual recovery during the year supported by the expected improvements in domestic supply conditions, underpinned by the timely implementation of corrective policy measures. Meanwhile, the anticipated improvements in foreign exchange flows and the resultant enhancement in business and investor sentiment are expected to reinforce the expected recovery in the period ahead.
Excessive market interest rates have begun to adjust downward and are expected to ease further in the period ahead
Early signs of a gradual easing of excessive market interest rates have been observed recently in response to the administrative measures adopted by the Central Bank, along with the improvements in domestic money market liquidity and overall sentiments in the domestic markets. Recent measures adopted by the Central Bank to reduce the overreliance of licensed commercial banks on the standing facilities of the Central Bank and the concurrent conduct of open market operations helped improve liquidity in the domestic money market. This prompted activity in the interbank money market. Improved liquidity conditions, along with improved investor sentiment on the anticipation of “financing assurances” from official creditors, led to a notable moderation in the yields on government securities recently, reflecting the easing of the high risk premia attached to government securities. Meanwhile, the market deposit rates have also shown a notable moderation, benefiting from improved liquidity conditions. These developments are expected to pave the way for an easing of excessive market interest rates in the period ahead. Nevertheless, outstanding credit extended to the private sector by commercial banks continued to contract in response to the tight monetary conditions and the moderation in economic activity. Monetary expansion also moderated from peak levels, albeit at a slower pace.
The external sector remains resilient despite heightened challenges, and the outlook remains positive with the expected improvements in relation to “financing assurances” from creditors
The merchandise trade deficit is estimated to have contracted significantly in 2022, compared to recent years, owing to an improvement in export earnings and a substantial compression of import expenditure on account of policy measures taken to curtail non urgent imports and foreign exchange liquidity constraints. The gradual improvement in workers’ remittances, together with the revitalisation of tourism, helped improve the external current account balance in recent months while easing excessive pressures in the domestic foreign exchange market. As a result, the exchange rate has remained relatively stable, and recorded a marginal appreciation against the US dollar, thus far in 2023. Gross official reserves were estimated at US dollars 1.9 billion as of end 2022, including the swap facility from the People’s Bank of China, equivalent to around US dollars 1.4 billion. The envisaged finalisation of the IMF-EFF arrangement in the period ahead and the resultant developments that follow, along with the improvements in the external current account, are expected to enhance the external sector outlook.
Policy interest rates are maintained at current levels
In consideration of the current and expected developments, both domestic and global, as indicated above, the Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 24 January 2023, decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank at their current levels of 14.50 per cent and 15.50 per cent, respectively. The Board was of the view that the current monetary policy stance is appropriate to ensure that underlying monetary conditions in the economy remain sufficiently contained to drive inflation along the envisaged disinflation path. While some downward adjustment in market interest rates has been observed lately, the Monetary Board is of the view that there is sufficient space for excessive market interest rates, including lending interest rates to Small and Medium Sized Enterprises (SMEs), to adjust downwards considering the recent improvements in domestic money market conditions and sentiments along with the moderation in the yields on government securities. However, the Board was also of the view that the anticipated further decline in the yields on government securities due to the narrowing of risk premia is unlikely to result in a significant improvement in underlying monetary conditions. The Central Bank will continue to closely monitor monetary conditions in the period ahead and will remain prepared to take swift and proactive measures, as appropriate.
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The sovereign default announced by Sri Lanka on 12 April 2022, was the cumulative result of fiscal folly over many years. This writer has attempted to uncover the root causes of our ‘sovereign predicament’ in a series of interviews with international media between January and July 2022; a curated version of which could be accessed online1.
Two in-depth studies by this writer published in 20162 and 20173 prognosticated what was clearly a looming disaster. These were published in academic journals in 2016 and 2017, they were orally presented at the Inaugural Nagalingam Balakrishnan Memorial Lecture4 in Colombo on 21 June 2014, and at an international conference organised by the Centre for Poverty Analysis5 (CEPA) in Colombo from 1 to 3 September 2014, respectively.
The purpose of this essay is to highlight the specific blunders by successive Governors of the Central Bank of Sri Lanka and members of the Monetary Board since 2006 that has led to the current crisis, and hold them accountable for their actions and/or inactions over a period of 16 years (July 2006-April 2022). Authority and power come with accountability and responsibility.
A couple of retired senior Central Bank staff (retired Deputy Governor of CBSL Dr. W.A. Wijewardena6, and retired Director of Statistics at CBSL Dr. S.S. Colombage7), independent Economists, and many other professionals (for example, Sanjeewa Jayaweera8) have repeatedly and publicly forewarned the Central Bank and the Treasury of Sri Lanka about their risky and wrongful policies since 2006 (if not before). Yet, successive Governors and Monetary Boards have not heeded saner counsel.
This study offers citations/references that amply demonstrate where the fault lines were and who was directly or indirectly responsible for patently risky and wrong policy decisions.
Global best practices in central banking in brief
The independence of the Central Bank is a foundational imperative in an open market-led economic/monetary system. As a corollary, there must be a strict separation of powers between the Treasury/Ministry of Finance and the Central Bank of a country. This demarcation is as important as the insulation of the judiciary from the executive and the legislature.
Countdown to sovereign bankruptcy in Sri Lanka
The very first breach of the independence of the Central Bank and its autonomy viz the Treasury occurred in the late-1990s when Sri Lanka graduated in to the lower middle-income country in 1997 and thereby gained access to borrowings in the private international capital markets. The Secretary to the Treasury was made an ex-officio member of the Monetary Board of the CBSL by the then President of Sri Lanka Chandrika Kumaratunga. A.S. Jayawardane was the then Governor of the Central Bank of Sri Lanka.
Although Sri Lanka was eligible to borrow from the private international capital markets in 1997, the very first such borrowing was in 2007 through the issuance of an International Sovereign Bond (ISB) to the value of $ 500 million. The then Opposition Leader and current President of Sri Lanka, Ranil Wickremesinghe9, wrote to the joint lead managers of the debut float (Barclays Capital, HSBC, & J.P. Morgan) in 2007 that a future government of his would dishonour repayment of the same.
After the election of Mahinda Rajapaksa as President in November 2005, Ajith Nivard Cabraal was appointed as the Governor of the Central Bank in July 2006. It has been the practice to appoint the senior-most Assistant/Deputy Governor to the post of Governor of the Central Bank since its inception in 1950 until President Premadasa appointed Dissanayaka as the Governor in 1992. Dissanayaka was a civil servant in the Ceylon Administrative Service (and its successor Sri Lanka Administrative Service) and was a Deputy Secretary to the Treasury prior to his appointment as the Governor of the Central Bank in 1992.
For the first time in the history of the CBSL a versatile book keeper assumed the role of Governor of the Central Bank in 2006. This appointment of a person who had scant regard for demonstrated and proven principles of central banking put the integrity of the Central Bank in peril.
The decline of the technical competence and integrity of this premier institution was apparent to all but the ruling crony class.
This writer learnt that there were deliberate actions taken by the newly appointed Governor to weaken the technical competence and integrity of the Central Bank by way of side-lining senior competent professional staff such as the then Head of Economic Research, Dr. H.N. Thenuwara, and the then Head of Statistics, Dr. Anila Dias Bandaranaike, among others. Such arbitrary, irrational acts of the new Governor resulted in the premature retirement/departure of Dr. H.N. Thenuwara, Dr. Anila Dias Bandaranaike, Rose Cooray, and the like from the Central Bank. Governor Cabraal wanted a compliant and subservient staff and a pliant Monetary Board as opposed to technically competent and upright senior staff with professional and personal integrity.
The year 2006 marked the beginning of severe politicisation of the CBSL never seen before in the history of the Central Bank since its establishment in 1950. It was not just the beginning of the politicisation of the Central Bank, it was also the beginning of the politicisation of the entire banking and financial sector including the private banks. The modus operandi of such politicisation was as follows. The CBSL under Cabraal utilised the EPF/ETF funds to purchase shares in the two largest private commercial banks. Commercial Bank of Ceylon (Com Bank) and the Hatton National Bank (HNB), and thereby secured memberships in the Board of Directors of such banks to park the retiring senior Central Bank officials such as Assistant/Deputy Governors. For example, Dr. Ranee Jayamaha (former Deputy Governor of CBSL) was appointed to the Board of Directors of the Hatton National Bank, and Dheerasinghe (former Deputy Governor of CBSL) was appointed to the Board of Directors of the Commercial Bank of Ceylon after their respective retirement from the CBSL. The foregoing appointments could have caused conflicts of interest (if not illegal). The justices of courts of law are barred from practicing law after retirement in order to prevent conflict of interest during their tenure as judges. In a similar vein, senior executive staff of a Central Bank should also be barred from working in the financial sector post retirement.
The aforementioned appointments in the largest private commercial banks were made to influence/encourage those banks to borrow foreign exchange from private international capital markets to lend to the Government for its ambitious prestige infrastructure projects, inter alia, for what former Central Bank Governor W.D. Lakshman called the “developmental state”. (See the justification for such politicisation of the entire banking and financial sector by Dr. Weligamage Don Lakshman, one of the successors to Governor Ajith Cabraal (July 2006-January 2015) and the predecessor to Governor Ajith Cabraal (October 2021-April 2022), in 2020. Lakshman, 202010
Similarly, the CBSL under Ajith Cabraal directed state-owned commercial banks such as the People’s Bank and the Bank of Ceylon (BoC), and the state-owned specialised bank, National Savings Bank (NSB), to borrow foreign exchange from private international capital markets to lend to the Government for its ambitious prestige infrastructure projects as well as to fund capital expenditures of the state-owned public utilities such as the Ceylon Electricity Board (CEB) and the National Water Supply and Drainage Board (NWSDB), a state-owned enterprise such as the SriLankan Airlines, and crude oil purchases of the state-owned Ceylon Petroleum Corporation (CPC). (See, Sarvananthan, 201411, for example)
Such Central Bank-directed external borrowings by state-owned banks, private commercial banks, and state-owned utilities/enterprises between 2006 and 2014, inter alia, have undermined the overall financial sector stability, increased the precarity/vulnerability of such semi-government and private financial enterprises, and contributed to the overall volatility of the external public debt portfolio of the country by way of underestimating the real total external liabilities of the Government.
Policy milieu of the CBSL during 2006-2022
The Government’s direct borrowings through the issuance of International Sovereign Bonds (ISBs) and indirect borrowings through state-owned banks (such as syndicated loans) and utilities/enterprises (with and without government guarantee) currently account for over 50% of the total external debt of Sri Lanka. The borrowings by the state-owned banks and utilities/enterprises on explicit government guarantee are called “contingent liabilities”12 of the government in fiscal parlance.
The ISBs bear the highest interest rates (between 5% and 9% in the international borrowings of Sri Lanka (see, for example, CBSL, 201213) among all the available external borrowing mechanisms (bilateral, multilateral, and private international capital market borrowings) to any country. Moreover, the repayments of ISBs are relatively short-term (5-10 years) without any grace period for the commencement of repayments. However, one advantage of ISBs is that borrower has to pay only the interest payment annually, and the entire capital is repayable only at maturity, which gives some breathing space for the borrower.
Between 2007 and 2019, borrowings in the private international capital markets were the primary mode of external borrowings for successive governments of Sri Lanka, in which borrowings do not require justification or do not come with strings attached (conditional upon economic policy reforms or political governance reforms).
Ironically, certain press releases of the CBSL during 2007-2008 explicitly acknowledged that the proceeds of the ISBs were not only utilised to pay for certain infrastructure projects (such as the Hambantota port and southern highway) but also to retire some of the then-existing domestic debt that bore very high-interest rates (between 15% and 20% or higher) (see a series of articles by this author in Montage14 (current affairs magazine) edited by Frederica Janz at that time for criticisms of such external borrowings of the government/CBSL (unfortunately, we could not access the press releases of the CBSL before 2012 on their website now).
In order to lessen the burden of short-term repayments of the ISBs, inter alia, successive Governors of the Central Bank have artificially kept the exchange rates quite stable thereby artificially overvaluing the domestic currency, the Sri Lankan rupee (LKR). This was the key policy blunder that led to the eventual sovereign default of the country in April-May 2022. The Central Bank’s frequent interventions in the foreign exchange market to prop up the rupee also contributed to heightened imports of consumption goods (including luxury motor vehicles, for example), especially during the period 2010-2019.
By keeping the value of the rupee artificially high by fixing the exchange rate/s for prolonged periods of time (years, not weeks or months) through frequent interventions in the foreign exchange market by the Central Bank, Sri Lanka’s exports were artificially overvalued (thereby undermining global competitiveness) in dollar terms, and earnings from tourism were suppressed. These were on top of the loss of the GSP+ facility for exports of goods and services to the European Union (EU) in the early 2010s. However, the GSP facility for Sri Lanka was restored in 2017 but is currently once again under intense review by the EU for the past couple of years.
The severe negative impact of the managed floating exchange rate system practiced by the CBSL (as opposed to free float) is reflected in the fact that the exports of goods and services as a percentage of the GDP in Sri Lanka, in US dollar terms, that was 39% in 2000 and 32% in 2005 fell to mere 17% in 2021 (second lowest since 1960 after just 15% in 2020 due to the pandemic)15.
Were the forgoing of exports and tourism earnings for white-elephant infrastructure projects and retiring of domestic debt rational and prudent management of the external finances of a country? To the best of the knowledge of this author, no sane government in any country would dare to borrow externally in the private international capital markets to retire its domestic debt in spite of the fact that domestic debt directly contributes to inflation.
In addition to the folly of wanton borrowings through ISBs, the then Central Bank Governor Cabraal, and the then members of the Monetary Board (all political appointees) were singularly responsible for the losses incurred on hedging for crude oil imports16 and investments in ill-fated Greek Bonds17. The then Governor and the members of the Monetary Board have never been made accountable, to date, for such losses to the country. These past impunities have contributed to continued irrational and imprudent policy decisions of the Monetary Board (all political appointees), the chairperson of which is the Governor, that eventually resulted in the sovereign default in April-May 2022.
By the time the Rajapaksa regime lost power in January 2015, Sri Lanka’s external debt position had already become precarious. The person who replaced Cabraal as the Governor of the CBSL in early 2015, Arjuna Mahendran, was once again from the international private sector though much more educated than Cabraal. However, Arjuna Mahendran also lacked professional and personal integrity like Cabraal, which resulted in the Central Bank of Sri Lanka bond scandal18. Arjuna Mahendran was removed from office in 2016 by the then President, Maithripala Sirisena, and replaced by Dr. Indrajit Coomaraswamy on 2 July 2016. Dr. Coomaraswamy possessed both educational qualifications and professional cum personal integrity to be the Governor of the Central Bank.
Whatever external borrowings made by the Government between 2015 and 2019 were almost entirely to make repayments of the external borrowings, especially ISBs, made during the period 2007 and 2014. The new President elected in November 2019 appointed “Emeritus Professor” W.D. Lakshman as the 15th Governor of the Central Bank effective from 24 December 2019. In spite of being a former “Professor of Economics” at the University of Colombo, Dr. Lakshman lacked the necessary exposure to the complex world of global commerce and the finer intricacies of international finance.
Dr. Lakshman was an ideologue of a forgotten era. He was a lifelong critic of international financial institutions such as the IMF. Unsuitable to head the Central Bank of an emerging lower-middle-income open economy. Dr. Lakshman was the third worst Governor, after Ajith Nivard Cabraal and Arjuna Mahendran, the Central Bank of Ceylon/Sri Lanka has had in its entire history, though the former is professionally an honest person as opposed to the latter two. Dr. Lakshman’s lifelong pathological aversion to the International Monetary Fund (IMF) played a critical role in Sri Lanka’s procrastination to seek an IMF bailout.
By the time Dr. Lakshman was appointed the Governor in the closing days of 2019, Sri Lanka was shut out of the private international capital markets because of the repeated negative reports about the precarity of Sri Lanka’s sovereign bonds by global credit rating agencies such as the Fitch Group, Moody’s, and Standard & Poor (S&P) Global Ratings. Therefore, since the beginning of 2020, the CBSL was forced to borrow only locally in addition to several ad-hoc short-term currency swaps with Bangladesh, China, and India, a few bilateral credit lines from China and India, and one-off loans from Japan and South Korea.
Money printing and Modern Monetary Theory (MMT)
Ironically, whereas a Central Bank’s role is to be a lender of ‘last resort’ to the government, under the governorship of Dr. Lakshman the CBSL became the lender of ‘first resort’ to the government by buying unprecedented levels of government securities, which literally meant printing money.
While the dogmatic/theoretical inspiration for printing unlimited money is drawn from the fallacious Modern Monetary Theory (MMT), the practical lessons Dr. Lakshman19 cites are from Japan and the Newly Industrialised Countries (NICs) such as South Korea and Taiwan in the aftermath of the World War II, which he dub as “developmental states”.
Dr. Lakshman, during his academic days, has publicly accepted corruption as a necessary evil during any country’s early stages of “take-off”, citing rampant corruption in Korea and Taiwan during their take-off period. I remember him juxtaposing corruption and successful developmental states as a classic chicken and egg conundrum at a public seminar held at the Dr. N.M. Perera Centre in Colombo several years ago, in which this author was a co-panellist.
It is true that Japan, Korea, and Taiwan were developmental states (as opposed to market-driven states) during the early stages of their “take-off”. However, the global political and economic context during the immediate and medium-term post-World War II (i.e. 1950s, 1960s, & 1970s) period wherein victorious western powers regarded the aforesaid countries as bulwarks against communism raging throughout East and South East Asia did play a pivotal role for the resurgence of Japan as an economic powerhouse and the emergence of the so-called tiger economies (ala Korea and Taiwan).
Hence, just because Korea and Taiwan were “developmental states”, Sri Lanka, for example, cannot emulate those “economic miracles”, through a developmental state. This author would argue that third world countries like Sri Lanka need what Prof. Rainer Kattel, et al, calls “entrepreneurial state”20.
Two underlying cardinal principles of MMT are that as long as the public debt is denominated in domestic currency, a government need not worry about unlimited domestic borrowings because domestic currency could always be printed thereby avoiding a public debt default (i.e. states have “monetary sovereignty”), and that unlimited money printing ‘does not’ cause inflation! Both are fallacious according to mainstream economic science in general, and monetary theory in particular. (See, for example, Coats, 201921; Drumetz and Pfister, 202122; Hartley, 202223; Palley, 202024; Prinz and Beck, 202125)
In his oration to mark the 70th anniversary of the establishment of the Central Bank of Ceylon/Sri Lanka on 28 August 2020, Governor W.D. Lakshman promotes the idea of developmental central banking, deviating from the core functions/objectives laid out in the Monetary Law Act of 1949 and amendments thereof made in 2002. Implicit in his 70th anniversary oration was the justification for unlimited printing of money. Dr. Lakshman has been strenuously denying publicly that the printing of money causes inflation. One of Dr. Lakshman’s former students at the University of Peradeniya and later a lecturer in political economy in the same university (long retired), Sumanasiri Liyanage26, has publicly supported the printing of money by the Central Bank in January 2021.
Ajith Cabraal27, who once again functioned as the Governor of the CBSL between October 2021 and April 2022, propagated the myth in April 2021 that money printing does not cause inflation parroting the then Governor Lakshman. During the previous stint of Governor Cabral (at the CBSL) between 2006 and 2014, Dr. Lakshman was an “Adviser” at the Ministry of Finance. Cabraal had a history of shouting/shooting down negative reports by international credit rating agencies28 on Sri Lanka’s creditworthiness since 2006 to date.
The over-stock of money in the market (as a result of money printing by the central banks worldwide), in the absence of a commensurate rise in production (primarily due to lack of demand), depreciates the domestic currencies resulting in hyper-inflation29 (including food inflation). In Sri Lanka, in the 21-month period between 1 January 2020, and 30 September 2021 (during Governor Lakshman’s tenure), due to excessive money printing30 by the Central Bank, the stock of money rose by 38% (i.e. by Rs. 2.9 trillion) whilst the GDP grew only by just 1%. This has caused inflation to rise to over 11%, and food inflation rose to over 18% in November 2021.
These have seen steady rises ever since; resulting in the overall inflation, in terms of Sri Lanka Consumer Price Index (SLCPI), at its peak 74% in September 2022, and the food inflation at its peak 86% in September 2022. During the last quarter of 2022, however, both the overall inflation as well as the food inflation have begun to decelerate.
Both Cabraal and Lakshman have unrepentantly deviated from the holy grail of central banking31, i.e. policy-making in the interest of the “public” as opposed to policy-making in the interest of the government in power or the politicians.
The poor performance of Dr. Lakshman as Governor of the Central Bank is emblematic of poor standard of economic professors in Sri Lanka in particular, and poor pedigree and pedagogical practices of Sri Lankan academics in general. The tertiary level economic curriculum in Sri Lanka requires urgent and substantial revision and upgrading from outdated and irrelevant contents.
Theories of physical sciences are not subject to political or social circumstances, contexts, situations, or territories; that is, the outcomes of physical sciences theories are universal. In contrast, the outcomes of macroeconomic policies/theories vary according to the political and social circumstances, contexts, situations, and territories. Thus, right macroeconomic policies should be adopted taking into consideration of the individual political and social circumstances, contexts, situations, and territories. Just because advanced industrial countries were printing unlimited money for prolonged periods during the pandemic, any developing country cannot afford to print unlimited money for an indefinite period of time to revive its pandemic-affected economy.
Lessons to be learned from sovereign bankruptcy in Sri Lanka
It is high-time the proposed new Monetary Law Act (MLA) in Sri Lanka explicitly and clearly define the qualifications and experiences required for the post of Governor of the Central Bank, members of the Monetary Board, and the members of the Stakeholder Engagement Committee (SEC). The SEC was established in July 2022 amalgamating the former Monetary Policy Consultative Committee (MPCC) and the Financial System Stability Consultative Committee (FSSCC). Moreover, the post of Governor and memberships in the Monetary Board and the Stakeholder Engagement Committee should be openly advertised and recruited and ‘not’ arbitrarily appointed by the President and/or the Governor (in the case of appointments to the Monetary Board & SEC).
While the independence of the Central Bank is sine qua non, there should be necessary checks and balances to prevent abuse of power, corruption, nepotism, and the like in the Central Bank of Sri Lanka in recruitment of staff, consultants, etc., and transparency in the policy-making and decision-making processes. Moreover, Central Bank’s frequent paternalistic diktats to the commercial and specialised banks (including to the private ones, let alone the state-owned banks) and unnecessary interferences in the financial sector in general (under the euphemism of “moral suasion”32) should be tamed (if not done away with) in the proposed new Monetary Law Act (MLA). Every single public authority (e.g., Central Bank Governor, Treasury Secretary, Monetary Board) in Sri Lanka should be made accountable and responsible not only to the parliament, government, and the executive in power, but more so to the general public as well.
Sri Lanka cannot emerge out the current economic quagmire without broader financial sector reforms such as divestiture of the state-owned commercial banks (People’s Bank and Bank of Ceylon) and specialised banks (National Savings Bank) which function as captive sources for funding public debt (both domestic and external) as well as funding perennially loss-making state-owned utilities (Ceylon Electricity Board (CEB), Ceylon Petroleum Corporation (CPC), National Water Supply and Drainage Board (NWSDB)) and enterprises (SriLankan Airlines, Sri Lanka Railways, Sri Lanka Transport Board, Road Development Authority, etc.).
According to a report of the Committee on Public Enterprises (COPE) of the parliament of Sri Lanka, state-owned banks (i.e. Bank of Ceylon and People’s Bank) have complained that they have been repeatedly ordered by the Central Bank to fund the CPC and CEB during 2020-2022. Moreover, in the investigations into the Central Bank of Sri Lanka bond scam of 2015, it was revealed how the CBSL coerced the People’s Bank to back off from bidding. The forensic audit report of the CBSL in the aftermath of the bond scam of 2015 is yet to be made public. This kind of non-transparency cannot assuage the domestic markets or potential foreign investors.
The state-owned banks have also become primary lenders to unscrupulous politicians from all political parties, especially members of parliament and deputy/ministers, who are involved in variety of businesses such as owning liquor shops and fuel stations throughout the country, and involved in construction projects (public works) for public and quasi-public authorities.
We understand that one of the conditions the IMF has put forward for its proposed bailout of Sri Lanka is enaction of a strong anticorruption legislation in parliament. This is just a cosmetic exercise. There are enough laws in Sri Lanka already to arrest corruption; what is lacking is the political and/or administrative WILL to enforce such laws or the law/s are applied only selectively to penalise the political opposition.
In addition to any new legislation, the IMF should insist that an international forensic audit of the personal finances (bank accounts, movable and immovable property, income tax filings, etc.) of each and every member of parliament (including both government and opposition) and their extended family members, and each and every public servant (especially executive grade) (including armed forces personnel) and their extended family members should be carried out and appropriate legal actions taken if their wealth and income cannot be accounted for or justified.
Even today, under a new Governor and management, some of the actions of the Central Bank of Sri Lanka smack of duplicity and double standards in law enforcement as reflected in the recent permanent “revocation” of the license of the Prasanna_Money_Exchange_Pvt_Ltd33 and merely a temporary “extension of the suspension” of the trading of Perpetual Treasuries Limited34, which was the executor of the Central Bank bond scam of 2015. It is important to note here that the Perpetual Treasuries is owned by the son-in-law of the then (2015) Governor of the Central Bank, Arjuna Mahendran.
If Angola35, where the Supreme Court in December 2022 ordered the seizure of $ 1 billion worth of assets of the daughter of the former President and freedom fighter Jose Eduardo dos Santos, and Mozambique36, where the Maputo City Court in November 2022 found a son of the former President and 18 other “high profile defendents” guilty of $ 2 billion illicit foreign loan with government guarantee that bankrupted the country could do it, why not Sri Lanka?
Although, in principle, we welcome the public appeal by 182 Economists worldwide37 on 8 January 2023, urging the hedge fund holders of International Sovereign Bonds (ISBs) of Sri Lanka in particular, and of all the third world countries in default in general, to cancel such debt, in practice any such debt cancellation initiative should be conditional upon barring all those politicians, bureaucrats, and professionals who were responsible for the sovereign default (by their actions or inactions) and who were directly or indirectly involved in the Central Bank bond scam and other mega corruption from holding any public office hereafter. If not, any unconditional and unilateral debt cancellations would become a moral hazard for countries such as Sri Lanka.
Footnotes:
1https://docs.google.com/document/d/1LFQz1Wpqj68_MFVp6tGSRtx7liFBr8H-DFze-1WfLzo/edit.)
2https://link.springer.com/article/10.1007/s10708-015-9637-3
3https://journals.sagepub.com/doi/10.1177/0169796X17735241
4https://docs.google.com/document/d/1Bd9VMNMfAZZEYfiyfP4v6jf8XelKSA0z/edit
5https://www.cepa.lk/events/annual-poverty-symposium/13th-cepa-symposium-post-war-development-in-asia-and-africa/
6https://www.ft.lk/w-a-wijewardena-columns/A-Child-s-Guide-to-Modern-Monetary-Theory-Keynesianism-in-an-old-bottle/885-710459
7https://www.ft.lk/columns/Money-printing-to-repay-Govt-debt-worshipping-MMT-is-likely-to-magnify-economic-instability/4-710612
8https://island.lk/sri-lankas-economic-quagmire-and-how-margret-thatcher-smashed-the-keynesian-consensus/
9https://www.colombotelegraph.com/index.php/wikileaks-bond-issue-2007-unp-will-not-be-able-to-honour-repayment-ranil-wrote-to-jp-morgan-barclays-hsbc/
10https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/speech_20200828_70th_anniversary_oration.pdf
11https://docs.google.com/document/d/1jSY81CmYvMwQSJ-_z9J5OXyFXuTax9ZWPU5nPZyUMY8/edit
12https://www.imf.org/external/pubs/ft/fandd/1999/03/polackov.htm#:~:text=Contingent%20explicit%20liabilities%20are%20legal%20obligations%20for%20governments,on%20future%20government%20finances%2C%20and%20complicate%20fiscal%20analysis.
13https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/press/pr/press_20120717_democratic_socialist_republic_of_sri_lanka_us%24_1_billion_international_sovereign_bond_issue_e.pdf
14https://docs.google.com/document/d/1vCuAxDR7JGBB6pMD7EuDQ-8ppoChlPeBAvjftytSxsQ/edit
15https://data.worldbank.org/indicator/NE.EXP.GNFS.ZS?locations=LK
16https://www.reuters.com/article/srilanka-oil-hedging-idUSL3E8M25SI20121102
17https://www.sundaytimes.lk/120708/news/cabraals-gamble-lanka-loses-billions-in-bankrupt-greece-5565.html
18https://en.wikipedia.org/wiki/Central_Bank_of_Sri_Lanka_bond_scandal
19https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/speech_20200828_70th_anniversary_oration.pdf
20https://iris.ucl.ac.uk/iris/publication/1981807/7
21https://www.cato.org/sites/cato.org/files/2019-09/cj-v39n3-4.pdf
22https://www.intereconomics.eu/pdf-download/year/2021/number/6/article/modern-monetary-theory-a-wrong-compass-for-decision-making.html
23https://www.nationalaffairs.com/publications/detail/the-weakness-of-modern-monetary-theory
24https://www.elgaronline.com/view/journals/roke/8-4/roke.2020.04.02.xml
25https://link.springer.com/article/10.1007/s11293-021-09713-6
26https://www.ft.lk/Columnists/MMT-What-s-wrong-with-printing-money/42-711087
27https://island.lk/cabraal-no-relationship-between-money-printing-and-rupee-depreciation/
28https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/press/pr/press_20210112_unwarranted_rating_action_by_S%26P_e.pdf
29https://www.economist.com/finance-and-economics/is-the-world-economy-going-back-to-the-1970s/21805260
30https://www.ft.lk/columns/Budget-2022-What-s-the-missing-link/4-726282
31https://www.bis.org/publ/othp04.pdf
32https://www.jstor.org/stable/134345
33https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/press/pr/Press_20221212_Revocation_of_the_money_changing_permit_issued_to_Prasanna_Money_Exchange_Pvt_Ltd_e.pdf
34https://www.cbsl.gov.lk/en/node/13817
35https://www.aljazeera.com/news/2022/12/28/angolan-court-orders-seizure-of-dos-santoss-assets-lusa-news-agency
36https://www.aljazeera.com/news/2022/11/30/mozambique-court-hands-out-verdicts-in-2bn-corruption-case
37https://www.theguardian.com/business/2023/jan/08/hedge-funds-holding-up-vital-debt-relief-for-crisis-hit-sri-lanka-warn-economists
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INTERVIEW
It is time for the nations of the global South to build their own way, to self-organize, Gary Dymski, a well-known economist and Professor of Applied Economics at the Leeds University Business School in UK, said in an interview with Sri Lanka Guardian.
Who will lead them? Not Modi, nor Jinping. Who is the Kwame Nkrumah or Julius Nyerere or Sekou Toure of today;” he asked.
Gary Dymski is an excerpt on monetary economics; macroeconomic theory and policy; banking and financial institutions; economic development; political economy; urban economics; inequality; stratification economics. He has been a visiting scholar in universities and research centers in Australia, Brazil, Bangladesh, Colombia, Greece, India, Italy, Japan, Korea, and Mexico.
“Sri Lanka’s situation has to be widely publicized; there are other countries too – less prominent globally, smaller – who have unpayability problems, but none with the tortured contemporary history that your country is now living,” he observed.
“We need a repurposed set of development banks, controlled by progressive forces willing to move past the capitalist system. This does not yet exist,” he suggested.
Being a member of the council of the Post Keynesian Economic Society (UK), Prof Dymski also is an advisor to the Debt and Development division of the United Nations Conference on Trade and Development (UNCTAD) in Geneva.
Excerpts of the interview;
Question: Are we passing through a period of the worse global recession that could lead to an unprecedented catastrophe? If yes, what is the way out?
Answer: We are in a global recession that could develop in an alarming way. There is already an emerging debt crisis that is catastrophic in many developing countries, and will likely get worse. The slowdown of economic activity as such is unlikely to degenerate into a collapse. But the stagnation will most likely continue. So it is more like strangulation of the economies of countries that are lower in the currency hierarchy. Businesses will fail; financing arrangements will either be sustained on a pretend-and-extend basis or will lead to default. India and China have somehow managed to sustain positive growth rates, but this is offset by the damage that Russia’s Ukrainian war is doing to supply chains and agricultural exports.
Q: Collective action and collective responsibilities are two sides of the same coin which will help us to overcome present challenges. But, I wonder, how we can advocate for all countries to come together in a deeply polarized global society. Give us some food for thought, please.
A: Only when an acute crisis emerges, with the mechanisms for leading out of that crisis prove to be broken, will we see a global consensus for a new global framework toward cooperation emerge. The success of right-wing nationalist movements looking backward to conditions for economic reproduction that no longer exists is a huge barrier now; as those seeking softer ways forward look like naïve idealists, and those wanting to put up barriers to the outside world look like defenders of national honour.
The hope I can give you is this: we must see a renewal of impetus – the broad participation in – the ‘global social forum’ movement when it first began. A global generational mobilization, I think, which is pro-equality and pro-sustainability, critical of capitalism, and esp of financial globalization in the way its developed to now – feeding hyper inequality. I think it’s possible. But this bottom-up, across-the-globe aspect has to be there, I think.
Q: You are one of the signatories who called for Sri Lanka debt cancellation. Do you think it is a realistic approach where all stakeholders shall come to a common platform to execute your demand?
A: The stakeholders have diverse interests; they must be forced to the table. Sri Lanka’s situation has to be widely publicized; there are other countries too – less prominent globally, smaller – who have unpayability problems, but none with the tortured contemporary history that your country is now living. I think it has to be framed in terms of the ‘harm and loss’ debate that is now linking climate-change damage to legacies of colonialism and imperialism, not to mention the greater energy/non-renewable consumption of the elite global-North nations. This can be the basis of a common cause for debt forgiveness, I think. But the nations of the global South have to build their own way, to self-organize. Who will lead them? Not Modi, nor Jinping. Who is the Kwame Nkrumah or Julius Nyerere or Sekou Toure of today?
Q: Why do you think the case of Sri Lanka is essential to rethinking and reshaping the global economic order?
A: As answered earlier – the unique conjuncture of colonial-era imperialism, debt crisis, political instability and ethnic violence are a unique toxic mix, leading to unparalleled challenges.
Q: You have raised a vital point by alleging that International Financial Institutions of not living up to their responsibilities at a time when they are most urgently needed. Do we have an alternative?
A: There is no alternative now. We need a repurposed set of development banks, controlled by progressive forces willing to move past the capitalist system. This does not yet exist. The alternative can be imagined in a post-capitalist framework, in which nation-states are led by progressive leaders – enough of them – to force a global transfer mechanism for supporting the financing of the SDGs and climate sustainability on a world scale. I wish I had a different answer. For now, we must attempt to understand the scale of changes in systems of provision, supply chains, in localized production and consumption, required around the world.
The entities that have the capacity to support this are either too tied to capitalist priorities or they are not seeing the need to think holistically. It is not – it is never – too late. But we have to think beyond the limits that have prevented us from being strong enough to see the required planning framework clearly.
- Suppression of wages in the export sector as a whole is the fundamental factor enabling exporters to illegally retain incomes abroad
- Exporters illegally retaining incomes abroad worsens foreign exchange availability in the domestic financial system and causes hyper-inflation.
- Over US$ 40 billion has been mis-invoiced out of the export and import sector between 2009 to 2018
- Unions and civil organisations demand the CBSL and government to take immediate action to repatriate illegally transferred funds and bring perpetrators to justice
- Parliamentary Select Committee consisting of competent persons without conflicts of interest must be set up to investigate illegal outflows carried out by export and import sector
- Government must declare Sri Lanka’s foreign debt as odious debt through an international arbiter
Apparel, tea and rubber exporters’ associations recently announced that they wished to ‘set the record straight’ on serious corporate fraud allegations made by the Central Bank (CBSL) on non-repatriation of export income and allegations of trade mis-invoicing and transfer pricing. In view of the exporters’ statements, the CBSL appears to be withdrawing its accusations, signalling a possible complicity in economically destructive corporate fraud.
It is also made abundantly clear by the misinterpretation of Sri Lankan monetary law by the CBSL Governor in an interview on 8th December 2022 stating that merchandise exporters can repatriate foreign exchange without having to convert such proceeds. The law of the land states that if funds are repatriated the conversion will happen through the local commercial banks by the first week of the following month after the date of repatriation (see Point 8 of CBSL FAQ on Gazette Extraordinary No. 2251/42, dated 28. 10. 2021). Only services sector exporters are authorised by law to repatriate proceeds without converting.
In the following account we will show that the arguments of the business elite to absolve themselves from their fraudulent conduct are only prevarications. Accordingly, we call upon the CBSL to undertake a detailed audit of its own procedures and the export sector dynamics and make arrangements to recover the lost foreign revenue.
Childish fables of Joint Apparel Association Forum (JAAF)
In a seemingly bold disclosure out of desperation under the weight of a collapsing economy, the CBSL Governor recently declared that apparel exporters repatriated only 14% of their export income while their value addition or residual income is around 55% of the gross revenue after meeting various foreign exchange obligations. To justify the gap of 41% non-repatriated export income, the JAAF claims that they paid the balance to local suppliers in foreign exchange, especially for petroleum purchases. Any sensible person would understand it is impossible for the garment factories to consume petroleum to the extent of 41% of their gross revenue. If their assertions were true, then out of Sri Lanka’s total petroleum expenditure of US$ 4.16 billion during the first 11 months of 2022 the garment exporters alone would have consumed 54% or US$ 2.24 billion worth of fuel, which is impossible.
Secondly, it is general knowledge that apparel exporters procure only a few inputs from local suppliers and the rest is all imported. Local suppliers’ inputs usually include knitted fabric, printing and packaging. They form part and parcel of the input cost of 45% from gross revenue. Therefore, even if all local inputs are procured using foreign currency, they need to be paid from 45% attributed to the input cost from gross revenue. Hence, export income after deducting the foreign exchange input costs and other foreign exchange obligations (which is called residual income) should be fully repatriated to prevent 55% value addition in the sector claimed by exporters becoming a ridiculous fallacy.
Garments constitute a technologically backward process resulting in low wages and physically destructive workday lengths and intensities for workers, in contrast to technologically progressive processes of producing inputs. Since the inception of garment manufacturing in Sri Lanka, businesses have failed to reinvest surpluses in producing inputs like yarn and machinery. On the contrary, they have largely siphoned away capital through trade mis-invoicing and destroyed what remains in the economy in conspicuous luxury.
Tea Exporters Association (TEA) fabricating facts on repatriation
Following JAAF’s misleading statement on non-repatriation, TEA also asserted a similarly disingenuous view. The CBSL Governor had underlined that the value addition ratio of the sector is 90% of the total output while the repatriation rate was only 23% from gross revenue. In response, the TEA claimed that they do not enjoy the luxury of keeping income outside the country as its costs constitute 75% of the gross revenue. This is a shameless distortion of facts by TEA.
In 2021 the unit production cost was Rs. 533.13 a kilo of tea whereas the average weighted export price was Rs. 920.76 (CBSL), as much as 72.7% above the cost of production. More importantly, the average weighted export price of tea shot up over 116% to around Rs. 1,990 a kilo in October 2022 from December 2021 (Sri Lanka Tea Board) due to the rupee depreciating over 80% and the increase in the world market price for tea. However, the unit production cost could increase no more than 20-30% given that the estates and exporters brutally suppressed wages that account for over 70-80% of the unit cost. Therefore, the collapse of the rupee, the increase in world market tea prices hand in hand with the suppression of wages multiplied the profits of estates and the franchised tea exporters in 2022, leading to the unprecedented boom in plantation stocks recently.
At current prices, it can be estimated that the unit production cost is only 32% of the average weighted export price of the sector, less than half of the 75% rate claimed by TEA. The export price is a staggering 210% above the unit production cost of the sector. In other words, the weighted average export price of tea is over three times its unit production cost in 2022! This enables them to retain a greater share of the export proceeds outside the country, contrary to what TEA wants us to believe and justifying the initial calculation of 23% repatriation rate in the sector by CBSL.
This means to say that suppression of wages in the export sector as a whole is the fundamental cause enabling the exporters to illegally retain incomes abroad. This in turn worsens the foreign exchange availability in the domestic financial system and hyper-inflation. We therefore demand the increase in export sector wages by the rate of currency depreciation.
Response of Masakorala and CBSL Governor on Illegal Capital Outflows
Instead of reinvesting in expanding and transforming the production structure, the economy’s surplus is stashed away through non-repatriation and trade mis-invoicing to the tune of over US$ 40 billion between 2009 to 2018 according to Global Financial Integrity, the widely cited Washington based think tank. Its report further notes that this figure is a gross underestimation of trade mis-invoicing in Sri Lanka given that it limited its analysis to trade based on Open Accounts and did not consider services and trade based on Letters of Credit. It is to be noted that the latter accounts for a large share of Sri Lanka’s total international trade.
Illicit capital outflows also led to collapsing tax revenue over the past few decades, which corresponds with proliferating BOI firms in mid-1990s (see graph below), the primary agents of capital flight through transfer pricing and trade mis-invoicing. Sri Lanka’s tax revenue as a share of the GDP averaged between 22% to 24% until the mid-1990s. It collapsed to 8.7% by 2022 primarily as a result of under-invoicing exports and imports, and over-invoicing imports made possible by zero percent import tax on inputs for BOI firms and the other sweeping tax holidays they enjoy. Even after imposing draconian taxes on people through 2023 budget, the government can only expect a 2.6% increase in the tax income to GDP ratio in 2023 to 11.3%. This modest increase in 2023 compared to the enormous collapse of the ratio over the years is also projected to be highly unrealistic. The government nor the CBSL, however, seem to have any intention of addressing corporate corruption leading to this colossal and catastrophic loss of tax revenue.
In this regard Rohan Masakorala, Director General of Sri Lanka Association for Manufacturers and Exporters of Rubber Products, states that no one can blame businesses for shifting capital out according to the law of the land. We thank Mr. Masakorala for admitting that businesses have shifted capital abroad and now it is up to Mr. Masakorala to specify the laws of the land that gave the right to transfer capital through trade mis-invoicing and transfer pricing.
The CBSL Governor Dr. Nandalal Weerasinghe stated that between 1994 and 2016 the law allowed businesses to stash their foreign exchange incomes out of the country (see his interview on 8 December 2022). What is the law that allowed businesses to illicitly transfer foreign exchange belonging to Sri Lanka and not generated by them, by means of fraudulent invoicing and transfer pricing?
In fact, it was the CBSL who warned us in 2006 in its own publication titled ‘Preventing Money Laundering and Combating the Financing of Terrorism’ that the country is suffering an outflow of funds through trade mis-invoicing. It states that “money launderers tend to use international trade to effect their laundering activities by the means of inaccurate pricing (mis-invoicing) of imports and exports to hide the transfer of funds. For example, over-invoicing of an import will permit the transfer of funds outside the country.” Even the Justice Minister Wijeyadasa Rajapakshe told the Parliament recently that US$ 53 billion was transferred out by exporters in the last 12 years.
In this light, we demand both the CBSL and the government to take immediate action to repatriate the illegally transferred funds and bring the perpetrators to justice. We demand the government to setup a Parliamentary Select committee with competent persons without conflict of interest to investigate the matter and recommend strong punitive and remedial action.
Demand for debt cancellation
When national savings and external borrowings are illicitly siphoned out of the economy, the capacity of a country and its people to survive and let alone prosper would soon end. However, both international law and U.S. domestic law hold that the burden of proof lies with the creditors when there is widespread evidence of chronic misuse of external borrowings. Creditors should reclaim the funds from those who are accused of misusing or embezzling it, and not from the people who suffered under their control. The legal doctrine of odious debt makes an analogous argument that sovereign debt incurred which does not benefit the people is odious and should not be transferable to a successor government. Applying this principle, Sri Lanka could declare that debts will be treated as illegitimate through an arbiter like the United Nations. Numerous African nations are already demanding the same in collaboration with the United Nations Conference on Trade and Development (UNCTAD) asserting that illicit capital flight through trade mis-invoicing and transfer pricing drained more capital from its region than it received through foreign debt and aid over the past decade.
The recently published statement signed by 182 eminent economists and academics around the world support this position on debt cancellation in Sri Lanka citing the impact of illicit capital flows through trade mis-invoicing and transfer pricing. They underline that illicit capital flight is estimated to be greater than Sri Lanka’s foreign debt during past 15 years. Instead, the government is pushing the cost of economic collapse solely onto the people by imposing unbearable indirect taxes, privatisation and slashing essential expenditures. This unjust and unsustainable status quo must end.
Swasthika Arulingam, President, Commercial and Industrial Workers’ Union, United Federation of Labour
Signed on behalf of:
Ceylon Bank Employees’ Union, Ceylon Estate Employees’ Union, Ceylon Federation of Labour, Ceylon Teachers’ Union, Dabindu Union, Engineers’ Services Professional Association, Families of the Disappeared (Human Rights Organisation), Federation of Media Workers’ Trade Union,Mass Movement for Social Justice, Movement for Land and Agricultural Reform, National Fisheries Solidarity Movement, National Trade Protection Council, North South Solidarity Group, Professionals’ Centre for People, Protect Union, Satahan Media, Sri Lanka All Telecommunication Employees’ Union, Stand Up Workers’ Union, Textiles Garments and Clothing Workers’ Union, United Fishermen’s and Fish Workers’ Congress, Young Lawyers’ Association
Sugath Kulathunga – Former Chairman of Sri Lanka Export Development Board, Prof. (Dr.) M. P.S. Magamage – Former Chairman of National Livestock Development Board, Gratien A. Peiris – Former Chairman of Sri Lanka State Engineering Corporation and Value Chain Expert, Kalpa Rajapaksha – Senior Lecturer in Economics and PhD Student, Amali Wedagedara – Political Economist and PhD Student, Dhanusha Pathirana – Economist
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In the 1920s and early 30s, John Maynard Keynes was embroiled in a controversy with the ‘austerians’ of his time, who believed that balancing the government budget, even in a time of economic volatility and decline and financial fragility, was necessary to restore ‘investor confidence’ and therefore provide stability. Keynes was horrified by the idea.
Zachary Carter’s brilliant biography notes that Keynes felt a package of government spending cuts and tax increases would be ‘both futile and disastrous’. It would be an affront to social justice to ask teachers and the unemployed to carry the burden of deflating a doomed currency, in the name of balanced budgets. Even worse would be imposing austerity on debtor countries, as American banks were then demanding of several European nations.
Keynes was concerned with more than just the lack of efficacy and adverse distributional effects of austerity. He worried that such measures would alienate working people, cause them to lose faith in their leaders and make them prey to right-wing demagogy and incitation to violence. His arguments were not heeded—and fascism in Europe followed. Deflation in Germany under Heinrich Brüning as chancellor left six million unemployed when Adolf Hitler assumed power in early 1933.
Nearly a century on—and after more than a hundred sovereign-debt crises—those in charge of global economic governance appear however to have learnt nothing. Those who do not learn from history are condemned to repeat it—and, sadly, the worst effects of their decisions are likely to be felt by others, not themselves.
Brutal means
Consider the approach being taken to the sovereign-debt crises which are now erupting in so many low- and middle-income countries. Effectively dealing with these requires timely, fair and considered action, designed to help economies grow out of debt rather than squeezing repayments through brutal economic means. Delays increase the size of the problem and add to human suffering.
Forcing austerity and ‘budget balance’ on countries already suffering from falling economic activity and employment merely exacerbates the decline and puts even greater pressure on already devastated people. Just as Keynes had foreseen in Europe in the 1930s, the resulting injustice and mass disaffection can have the most unpleasant, even deadly, political consequences.
Such potential fallout was recognised by ‘the international community’ when dealing with the massive sovereign-debt overhang faced by West Germany after the second world war (fascism having been defeated militarily at great cost). The major creditors of that country combined in 1951 to provide a package of debt relief, which should have offered a template for subsequent debt-management schemes. It involved outright cancellation of around half the debt, while limiting repayments on the remaining portion to 3 per cent of annual export earnings.
Forces beyond control
Contrast this with the treatment now being meted out to countries struggling with exploding debt burdens. For many repayment is difficult, if not impossible, because of forces beyond their control: the pandemic and its impact on their imports and exports; the price hikes in global food and fuel markets since the onset of the war in Ukraine; and the higher interest rates in the United States and the European Union, which have caused finance to flow back to those countries.
Over the previous decade, most low- and middle-income countries were encouraged to take on more loans, particularly via bond markets suddenly interested in more risky debt, because of persistently low interest rates in a world awash with liquidity. This was looked upon benignly by the International Monetary Fund and celebrated at the World Economic Forum (whose annual meeting starts today, at what it more soberly calls ‘a critical inflection point’ of multiple crises). For many countries, the trajectory was unsustainable from the start, but recent events have left even sovereigns deemed more ‘responsible’ facing repayment difficulties.
Indeed, it has been evident for at least three years that several countries face insolvency at existing levels of debt. Yet the international community, especially the G20, has been unacceptably slow in responding.
Kicking the can
The Debt Service Suspension Initiative of May 2020 only kicked the can down the road, postponing the inevitable reckoning. The Common Framework for Debt Treatments was set in motion the following November. It sought to involve both public and private creditors in debt restructuring while taking into account debtors’ capacity to pay and enabling them to sustain essential spending. But not a single country has yet benefited, despite several already being in default or tipping into it.
The common framework is limited to low-income countries, which is a major restriction. Worse, for too many debtor countries, the IMF continues to require moves to balance budgets or even produce surpluses as quickly as possible, in return for providing tiny doses of immediate balance-of-payments support, as the negotiations with Sri Lanka indicate. This approach has to change, as a joint statement I among more than 180 economists and analysts have signed points out.
In addition, for debt resolution the problem goes beyond bringing all official creditors to the table—as already in Zambia and Chad. Rather, the concern is with private creditors. They have generally refused to participate and mostly continue to demand full repayment, even after benefiting significantly from the higher returns derived from the higher risk premia such debt carries. Even among public creditors, the steadfast refusal of the international financial institutions to reduce their own debt is increasingly hard to justify.
Provisions for write-off
Meaningful debt resolution requires the active involvement of private creditors—which, if it remains voluntary, will simply not happen. Some of the action must shift to the legal and regulatory systems of New York and the City of London, where the vast bulk of international debt contracts are made. Regulatory changes in both jurisdictions could entitle sovereign debtors to treatment similar to that provided to private debtors, with provisions for debt write-off.
Without speedy resolution involving all parties, more debtor economies will face problems of not just illiquidity but insolvency. That will heighten inequality, instability and conflict within and between countries—in a script we really do not want to see play out again.
This is a joint publication by Social Europe and IPS-Journal
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“I know it is bad, but we must finish it.
It does not finish. There is no finish to a war.
War is not won by victory.”
Extracted from A Farewell to Arms by Ernest Hemingway
There is a famous Latin maxim Inter arma enim silent leges attributed to Cicero – known by some as the greatest orator who ever lived – which translates as “In times of war, the laws are silent”. In the 21st century, this maxim, which was purported to address the growing mob violence and thuggery of Cicero’s time, has taken on a different and a more complex dimension, extending conventional warfare in the air to the use of lethal drones (remotely operated flying missiles) as arbitrary killing machines.
The devastating damage caused by drones in war causes the greatest number of civilian fatalities along with destruction of buildings, reducing them to piles of rubble. This type of attack was seen in 2011 where an American drone is reported to have hovered above Pakistan’s Waziristan area one day in March 2011 and unleashed three missiles on a gathering of people, some of whom were armed. Most of the 40 or so killed were civilians. These drones were operated in most instances, far away from the actual zone of attack by trained personnel operating hand held consoles. A strike is called a bugsplat. .
In March 2011, the United Nations Security Council adopted Resolution 1973 which inter alia decided to establish a ban on all flights in the airspace of the Libyan Arab Jamahiriya in order to help protect civilians. The Resolution also authorized Member States to take all necessary measures, to protect civilians and civilian populated areas under threat of attack in the Libyan Arab Jamahiriya, including Benghazi. This resulted in concerted air attacks by NATO forces on Libya.
The First Question
The first question is: “what redress do innocent victims of war have against egregious air attacks?”
From an international perspective, the operative law with regard to victims of war is international humanitarian law. This limb of law is also known as the law of war, the laws and customs of war or the law of armed conflict. Basically, international humanitarian law encompasses four limbs, the first being that persons who are not, or are no longer, taking part in hostilities must be respected, protected and treated humanely. They must be given appropriate care, without any discrimination. Secondly, captured combatants and other persons whose freedom has been restricted are required to be treated humanely. They should be protected against all acts of violence, in particular against torture and if they are brought to trial they have the right to enjoy the fundamental guarantees of a regular judicial procedure. Thirdly, the right of parties to an armed conflict to choose methods or means of warfare is not unlimited. No superfluous injury or unnecessary suffering must be inflicted. Finally, in order to spare the civilian population, armed forces are required at all times to distinguish between the civilian population and civilian objects on the one hand, and military objectives on the other. Neither the civilian population as such nor individual civilians or civilian objects should be the target of military attacks.
Within these four precepts, international humanitarian law is entrenched as the legal corpus comprised of the Geneva Conventions and the Hague Conventions as well as subsequent treaties, case law, and customary international law. The Geneva Conventions consist of four treaties formulated in Geneva, which set the pace in Standards for international law as applicable to humanitarian concerns. The fourth Convention, which relates to the protection of civilians during times of war in the hands of an enemy and under any occupation by a foreign power, provides in Article 3 that even where there is not a conflict of international character the parties must as a minimum adhere to minimal protections that should be accorded to certain categories of persons. These persons are described as: non-combatants, who usually are civilians, members of armed forces who have laid down their arms, and combatants who are hors de combat (out of the fight) due to wounds, detention, or any other cause. Article 3 also requires these persons to be in all circumstances treated humanely, with the following prohibitions: (a) violence to life and person, in particular murder of all kinds, mutilation, cruel treatment and torture; (b)taking of hostages; (c) outrages upon personal dignity, in particular humiliating and degrading treatment; (d) the passing of sentences and the carrying out of executions without previous judgment pronounced by a regularly constituted court, affording all the judicial guarantees which are recognized as indispensable by civilized peoples.
Article 4 defines a person protected by the Geneva Conventions as one who, at a given moment and in any manner whatsoever, finds himself, in case of a conflict or occupation, in the hands of a Party to the conflict or occupying power of which he or she is not a national. However, it explicitly excludes nationals of a State which is not bound by the Convention and the citizens of a neutral state or an allied state if that state has normal diplomatic relations with in the State in whose hands they are.
What is : “War?”
The term “war” is no longer used in its traditional restrictive sense of a conflict involving international dimensions. In the modern sense, war is any prolonged state of violent, large-scale conflict involving two or more groups of people and is now considered to include non-international armed conflicts as referred to in Article 3 of the fourth 1949 Geneva Convention. Also, humanitarian law does not apply only to victims of wars between international actors. Professor Rainer Hoffman, in his report to the International Law Association’s seventy second conference observed that if present international law admits of an individual’s right against a State for injuries suffered during the course of a war in which that State is involved, it must necessarily follow that it is difficult to maintain that the same right might not prevail against international organizations and non-State actors. He further stated that if such Organizations and non-State actors are subjects of international law and engage in acts which could have been committed, under traditional international law, only by States and thus behave like or as States, then they should, in principle be held accountable in the same way as States.
The Second Question
The Second question addressed in this article is: Can the law, administered by the courts, play an active role in preventing or bringing the carnage caused by drones to a halt?
When the PAN AM disaster over Lockerbie in Scotland which was caused in 1989 was considered by the International Court of Justice, Vice President of the Court – Justice C.G. Weeramantry – delivered his famous judgment where he said inter alia: “A great judge once observed that the laws are not silent amidst the clash of arms. In our age we need also to assert that the laws are not powerless to prevent the clash of arms. The entire law of the United Nations has been built up around the notion of peace and the prevention of conflict. The Court, in an appropriate case, where possible conflict threatens rights that are being litigated before it, is not powerless to issue provisional measures conserving those rights by restraining an escalation of the dispute and the possible resort to force. That would be entirely within its mandate and in total conformity with the Purposes and Principles of the United Nations and international law. Particularly, when situations are tense, with danger signals flashing all around, it seems that this Court should make a positive response with such measures as are within its jurisdiction.
If the conservation of rights which are sub judice comes within the jurisdiction of the Court, as I have no doubt it does, an order restraining damage to those rights through conflict must also lie within that province. If international law is to grow and serve the cause of peace as it is meant to do, the Court cannot avoid the responsibility in an appropriate case.
I would indicate provisional measures proprio motu against both parties preventing such aggravation or extension of the dispute as might result in the use of force by either or both parties. Such measures do not conflict with any decision the Security Council has made under Chapter V11, nor with any obligation arising under Article 25, nor with the principle underlying Article 103. The way towards a peaceful resolution of the dispute may thus be preserved before the parties find themselves on paths from which there may be no return. This action is based on Article 41 of the Statute of the Court and Articles 73, 74 and 75 of the Rules of Court”.
Conclusion
The imposition of sanctions against an aggressor, coupled with military aid to the State attacked has not historically worked. They have only made one party more determined in its actions. An example is Cuba which carried on relentlessly amidst decades of sanctions imposed against it. Short of nuclear devastation, capitulation is rarely achieved in the modern age. On the other hand, diplomatic negotiation based on judicial interpretation and intervention might well work in modern warfare. For this, the entire world should coalesce.
We should give this approach a serious try.
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It’s good to learn from your mistakes. It is better to learn from other peoples’ mistakes…Warren Buffett
The pandemic wrecked havoc on aviation over the past three years and now the end seems in sight. Those starved of satiating their appetite for flying no longer face stringent health barriers and have unleashed their pent up frustrations of claustrophobia with a vengeance, filling up aircraft all over the world. The demand for air transport has bounced back in leaps and bounds, perhaps much more than expected, prompting Thomas Romig, Vice President of safety, security and operations at Airports Council International (ACI) to say: “ as countries lifted measures, the traffic just bounced – almost on a vertical line. It would be flat for a little while and then another vertical leap in demand. Growth like that has obviously been much harder to manage”. The International Air Transport Association (IATA) has said: “ The travel recovery continues to gather momentum. People need to travel. And when governments remove COVID-19 restrictions, they do. Many major international route areas – including within Europe, and the Middle East-North America routes – are already exceeding pre-COVID-19 levels”. The International Civil Aviation Organization (ICAO) in a statement issued in May 2022 said there were ” “ clear signs of a strong global recovery in air traffic, characterized by increasing airline confidence and a range of regional air connectivity and air travel facilitation improvements”.
Air Transport
The volatility of geopolitics, public health and the energy crisis effectively precludes one from reaching any accuracy in forecasting. However, it is not difficult to hazard a conjecture based on plausibility and foresight. The introduction of masks, safety protocols, and service disruptions has left its impact leading to a continuing trend of “permanxiety” – a word coined by Skift in 2017 “to describe how social, political, and climate turmoil is coloring consumer expectations of everything, including travel. Skift went on to say that “travelers endure a barrage of worries about terrorism, security, neo-isolationism, racial tension, Trumpism, technology and its adverse role, the widening economic gap, culture wars, climate change, and other geopolitical and local issues.”
Permanxiety could be seriously aggravated by delays in border crossings in 2023 brought about by inadequate staffing, computer glitches and delays in visa processing. It has been estimated that in the United States alone “The delays will prevent 6.6 million international inbound visitors from coming to the U.S”. Prolonged visa processing times, lack of trained staff have also affected Europe which have exhibited “pathetic turnaround times”.
All these factors have given rise to a trend where pre Covid business travellers and tourists resorted to “bleisure” – a hybrid of business and leisure travel. The hospitality industry joined in on this concept, an example being the Hilton chain which started a competition to identify and provide for the blended business and leisure traveller. It is plausible that this compromise trend will continue through 2023.
Intriguingly, these bottlenecks and implosive trends seemingly do not adversely affect the revenue side of the equation for airlines. Aviation by Inform says: “Moody’s Investor Service is forecasting a positive outlook for the aviation industry in 2023. The organization is projecting operating profits for those airlines it rates to increase by more than 200% in 2023. Its projection is based on the premise that increased travel by large corporations and the rebuilding of long-haul international routes will make the recovery more resilient despite declining gross domestic product (GDP) forecasts and other economic factors could increase the risk of falling passenger demand”.
Airports
There are other encouraging ongoing trends as well. From a technological perspective, airports are increasingly becoming space tech hubs, turning into g spaceports and vertiports. As an example, in Houston, spaceport integration has already begun. The United States Federal Aviation Administration (FAA) has a Spaceport Office which has so far licensed 14 spaceports. Furthermore, continuing trends in airport technology include the foray into using liquid hydrogen as an energy source to help in combatting climate change and global warming; the use of artificial intelligence for facilitation; and the “Digital Twin” which can effectively plan and determine where passengers, gates and planes should be located and directed. The Digital Twin is being used at Schiphol in Amsterdam, San Francisco International and Vancouver Airport.
The Digital Twin is a virtual replica of every aspect of airport operations and performance “to maximise efficiency and increase capacity in a more timely and cost-effective way”, as an article in the magazine Passenger Terminal World reports. Its most effective purpose is to alert airports to anticipated problems on a 24-hour basis and flag operations staff at the airport so that they can obviate the threat and operational difficulty that could ensue. It also points to problem areas that could inconvenience and delay passenger flows, thus avoiding congestion.
Another useful purpose of the Digital Twin is that it can alleviate passenger stress. An example cited is the airport and flight experience it offers before the actual experience, thus enabling passengers who are anxious to be more prepared when undergoing the actual experience. One category that benefits from this platform is the autistic community.
The Digital Twin can also offer insights into the future. For example, if an airport has an aspirational goal of net zero carbon emissions by 2030, it can model the aircraft and on-ground vehicle movements as well as other activities on the airfield. These models can be applied to machine learning that can reflect the most efficient way an airport can be run. Even in the planning process of an airport, the Digital Twin could offer the best iteration as Schiphol has done in the application of building information management software to generate a 3D digital version of physical and functional characteristics of an airport infrastructure
On the economic side, Airport Economic Zones (AEZ) – which, according to Paul Woodley, a senior lawyer, are “ suburban areas where infrastructure, land use and economy are focused on the airport” – are increasingly becoming popular where the community around an airport has the airport as the focal point of economic and financial progress. A major study conducted by Gatwick International Airport and a partner in July 2022 revealed that the airport could generate 8.4 billion British Pounds by 2028 through the development of an AEZ. The same study envisions the creation of 50,000 jobs in the AEZ by 2028.
Another burgeoning concept running into 2023 is the “Freeport” – where customs duties and tax do not apply to goods that stay in the airport and are directly shipped overseas. An example is the East Midlands Freeport in The United Kingdom which encompasses three main sites: the East Midlands Airport and Gateway Industrial Cluster (EMAGIC) in North West Leicestershire, the Ratcliffe-on-Soar Power Station site in Rushcliffe in Nottinghamshire and the East Midlands Intermodal Park (EMIP) in South Derbyshire.
Paul Woodley explains that these areas are strongly supported by robust infrastructure comprising “strong existing road and rail freight infrastructure connecting them to all other parts of the country, including seaport-based freeports. There is significant room for growth across the sites, accelerating regeneration, increasing skills and training opportunities and helping to level-up some of the UK’s most deprived areas. The site development process will be managed by the respective landowners and any future development proposals will be subject to planning approval and public consultation”
The Regulator
States must formulate their own strategy on how best to regulate air transport in an year where the end of the pandemic is in sight. One starting point could be a Resolution adopted by the 41st Session of the ICAO Assembly in the third quarter of 2022. States should strengthen their crisis management capacity, including by establishing a crisis framework and mechanism while ICAO should continue to collaborate with the World Health Organization (WHO) and other public health groups, with other relevant aviation medicine and other relevant specialist medical organizations, with Planning and Implementation Regional Groups (PIRGs) and the Regional Aviation Safety Groups (RASGs). ICAO should, while keeping close contact with its regional offices be on the alert for public health information from them while working with the Air Navigation Commission, with aviation subject matter expert groups including such as the Personnel Training and Licensing Panel, and the Safety Management Panel to enable the sharing of information and resources for purposes of global harmonization relating to the prevention and management of public health emergencies.
ICAO should also develop an Aviation Health Management Plan by ICAO supporting implementation efforts of comprehensive management of health in aviation, by consolidating the various references to medical and health-related Standards and Recommended Practices in the Annexes to the Chicago Convention into a comprehensive repository for the management of health in aviation.
Conclusion
From early 2020 to date, we have had numerous lessons that must be learned if air transport is to continue in a safe and orderly manner in 2023. The first is that there must be harmonization in communication. Timely exchange of information is crucial. The second is that geopolitics should not interfere with civil aviation and respect for global harmony in adherence to the principles of international aviation law. There must not be repetitions of blatantly egregious breaches of established norms of international law.
Two instances in this context stand out: the first where Ryanair Flight 4978 which was operated from Athens to Vilnius on 23 May 2021, while over the airspace of Belarus, was diverted to Minsk National Airport in Belarus on seemingly spurious grounds. The Boeing 737-800 which carried 126 passengers and 6 crew members was just 45 nautical miles south of Vilnius and 90 nautical miles west of Minsk when it was ordered to divert from its course and land; the second where The Democratic Peoples’ Republic of Korea (DPRK, which is a member of ICAO), launched, without prior notification to the international community, two short-range ballistic missiles 22 minutes apart on a trajectory over its eastern waters, seemingly in defiance of the redeployment of an aircraft carrier by the United States near the Korean Peninsula, which had been in response to Pyongyang’s previous launch of a nuclear-capable missile over Japan. The launches were ominous in that they landed between the Korean Peninsula and Japan.
As a sage once commented, if we do not learn from history, we are doomed to repeat it.
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by a Special Correspondent
Sri Lanka Guardian has received a copy of A. Rameez’s (Vice-Chancellor, SEUSL) professorship application (Dated and signed on 04th September 2019). A. Rameez is serving as a professor in Sociology at South Eastern University of Sri Lanka since 05th September 2019.
The readers might be aware that Sri Lanka Guardian published two articles in November 2022 (http://slguardian.org/inside-story-rogue-academics-in-sri-lanka, and http://slguardian.org/inside-story-rogue-academics-in-sri-lanka-part-2) regarding major research fraudulence committed by A. Rameez. Both articles made shocking revelations about Poor Academic Ethics & Integrity by A. Rameez and the Teacher’s Association of South Eastern University of Sri Lanka (TASEU) urged the current Vice-Chancellor A. Rameez to step down following the allegations made in Sri Lanka Guardian. But A. Rameez is still holding on to the VC’s chair despite his Academic Integrity being in the graves.
While there is a huge argument regarding A. Rameez still being the Vice Chancellor at SEUSL, the new shocking evidence in his professorship application brings serious questions on his eligibility to be a professor at the institute and to continue to serve as an academic staff member.
A thorough and detailed investigation of his professorship application was carried out. This revealed evidence, showing that a significant number of research publications with various types of research fraudulence authored by A. Rameez have been included in his claim for the professorship.
A critical analysis of the findings from his professorship application is summarized below;
- “Ageing and Health Seeking Behaviour: A Medical Sociological Approach to Nintavur Divisional Secretariat, Sri Lanka”. Professor A. Rameez, being the primary and corresponding author has published this abstract in the South Eastern University Arts Research Session 2015 (http://ir.lib.seu.ac.lk/handle/123456789/1532). This abstract has been written by A. Rameez and his co-authors by stealing nearly 80% of an abstract of another published journal article related to actual research conducted in Nigeria. (The original article has been published in Vol. 7, No. 1 (2014), pp. 201-210 of International Review of Social Sciences and Humanities (ISSN 2248-9010 (Online), ISSN 2250-0715 (Print)). The abstract “Ageing and Health Seeking Behaviour: A Medical Sociological Approach to Nintavur Divisional Secretariat, Sri Lanka” co-authored by Rameez .A, Riswan.M and Lumna.N (http://ir.lib.seu.ac.lk/handle/123456789/1532) was published in the South Eastern University Arts Research Session 2015.
- A. Rameez has claimed points for the above fraudulent abstract as “Rameez, A. (2015). Aging and Health Seeking Behaviour: Medical Sociological Approach to Ninthavur Divisional Secretariat, Sri Lanka, Proceedings of Fourth International Conference on Emerging Trends in Multidisciplinary Research and Practice, South Eastern University of Sri Lanka, Oluvil, ,(22nd December, 2015)”.
He has claimed points for this plagiarized abstract as if it was a work of his individual authorship and presentation while concealing the contribution of the other co-authors in his application to become a professor. The sole purpose of this act of malice is to claim the complete marks possible for this publication in his professorship application. This act raises question whether Riswan. M and Lumna. N were really involved in the above mentioned plagiarism or it was Rameez.A alone!
- “Rameez, A. (2019). Disasters and Social Capital in Sri Lanka: A Conceptual and Theoretical Analysis, Classical Thamizh, Vol.07(01): 319-330, January-March 2019, Raja Publications, Tamil Nadu, India.”
This article has been published in a print only journal by A. Rameez in 2019 and he has committed plagiarism by copying the genuine work of Vincent Hazleton and William Kennan (Social capital: reconceptualizing the bottom line; Corporate Communications: An International Journal Volume 5 . Number 2 . 2000. pp. 81-86)
“Disasters and Social Capital in Sri Lanka: A Conceptual and Theoretical Analysis, Classical Thamizh, Vol.07(01): 319-330, January-March 2019, Raja Publications, Tamil Nadu, India.” is a 100% self-plagiarism by A. Rameez. He had already published the same article in year 2016 in KALAM -International Research Journal, Faculty of Arts and Culture, South Eastern University of Sri Lanka, Volume X Issue 1, 2016. The print version of Kalam Journal issue is still carrying the same article from page numbers 01-13.
- A. Rameez has published “Rameez, A. (2019). Chronic Kidney Disease in Sri Lanka: Factors and Impacts, Classical Thamizh, Vol.07(01): 331-337, January-March 2019, Raja Publications, Tamil Nadu, India.”. More than 70% of this article has been copied from “Sameera Senanayake, Chronic kidney disease in Sri Lanka: a glimpse into lives of the affected, Journal of the College of Community Physicians of Sri Lanka 2018, 24 (2) DOI: https://doi.org/10.4038/jccpsl.v24i2.8158”.
A.Rameez has directly translated the contents of “Sameera Senanayake, Chronic kidney disease in Sri Lanka: a glimpse into lives of the affected, Journal of the College of Community Physicians of Sri Lanka 2018, 24 (2) DOI: https://doi.org/10.4038/jccpsl.v24i2.8158” from English to Tamil and he has published this as his own scientific work.
- A. Rameez has published “Rameez, A. (2019). A Sociological Analysis on Current Economic Dynamics in Postwar Eastern Sri Lanka, Modern Thamizh Research, Vol.07(01): 349-356, January-March 2019, Raja Publications, Tamil Nadu, India.”
More than 70% of this article has been stolen from the 4th chapter of a book, Shadows of Conflict in Northern & Eastern Sri Lanka: Challenges & Way Forward written by Anna O’Donnell, Mohamed Ghani Razaak, Markus Kostner, Jeeva Perumpillai-Essex in 2018. The 4th chapter of this book is “Current Economic Dynamics in Postwar Sri Lanka”. A. Rameez has filtered the contents relevant to the Eastern Province carefully from this book chapter and composed his article. But the particular book chapter describes the economy of Northern and Eastern Provinces. Several other errors that may amount to data fabrication have also been observed in the version by A. Rameez.
- A. Rameez has completed his M.Phil studies at University of Peradeniya to attain his promotion and confirmation. The title of the thesis is “The role of social capital in Disaster Management: A study of a Tsunami affected coastal village in Eastern Sri Lanka”. A preliminary check-up of his thesis has revealed word to word plagiarism from page number 32 to 39 appearing as continuous flow of text throughout pages, having been stolen from another journal article by V. Hazleton and W. Kennan.
A.Rameez has several other articles listed in his professorship application to have been published in print-only Journals from Tamil Nadu, India – all by the same publishing company, whose official address is the same as the residential address of one Dr. M. Sadik Batcha, an associate professor of Tamil Studies at Jamal Mohamed College based in Tamil Nadu, India (https://www.jmc.edu/include/department/tamil/staff/profile/Dr.SADIK-10-08-2021.pdf). The Journal of Classical Thamizh and Modern Thamizh published by Raja Publishers from Tamil Nadu, India has published 08 articles authored by A. Rameez during the period of 2018 & 2019. One of the main editorial board members of the Modern Thamizh Research journals is a chair professor of Tamil Studies at the same faculty at SEUSL where A. Rameez is also an academic member. Among these 08 publications, 03 of them had major research fraudulences as described above. The rest of the publications in these journals by A. Rameez has revealed poor standard of academic publications and evidence of fraudulency.
- Rameez, A. (2019). Islamophobia and Increasing Trend of Extremism in Muslim Countries, Classical Thamizh, Vol.07(01): 464- 471, January-March 2019, Raja Publications, Tamil Nadu, India
- Rameez, A. (2019). Economic Initiatives in Post War Sri Lanka: A Perspective of Northern and Eastern Province, Classical Thamizh, Vol.07(02): 186-193, May-June 2019, Raja Publications, Tamil Nadu, India.
- Rameez, A. (2019). Conflict Theory of Gumblowics and Sri Lankan Society, Modern Thamizh Research, Vol.07(02): 357-366, May-June 2019, Raja Publications, Tamil Nadu, India.
- Rameez, A. (2019). Social Media and Ethnic Violence: A Sociological Perspective of Ampara and Digana Riots, Modern Thamizh Research, Vol.07(01): 357-366, January-March 2019, Raja Publications, Tamil Nadu, India.
- Rameez, A. (2019). Cultural Dimension of Eastern Muslims of Sri Lanka: A Sociological Perspective, Modern Thamizh Research, Vol.06(04): 276-294, October, Decemebr 2018, Raja Publications, Tamil Nadu, India.
Sri Lanka Guardian still wonders about the review processes followed by these local and international journals, where A. Rameez was able to publish his fraudulent articles. In an era with sophisticated tools to identify plagiarism, the above-mentioned journals have missed smelling this significant fraudulence. Do these journals have the policy to retract all publications from a fraudulent author and declare the action of retraction in public?! This may help to regulate the publication mafia and to establish standards in academic publishing in these peripheries of Sri Lankan academia.
Quite interestingly, A. Rameez has also listed the publications below in his professorship application:
- “Rameez, A. (2018). Sociology of Sri Lankan Muslims: Dealing with different dimensions of Muslim Society, Journal of Engineering and Applied Sciences, 13(07): 1782-1793 (Indexed in Scopus)”. This publication has been listed among one of the five outstanding research papers/ publications in the professorship application by A. Rameez.
- “Rameez, A. (2019). Second Minority in Sri Lanka: Genesis and Current Crisis, International Journal of Advanced and Applied Sciences Vol. 6(4): 53-58 (Indexed in Emerging Sources of Citation Index (Clarivate Analytics)).”
One may wonder what’s the relevance between the journal names and the titles of the published articles. Journal of Engineering and Applied Sciences is a publication from Medwell Publications. Sources such as Beall’s List have named this publisher as a Predatory publisher! Similarly, the International Journal of Advanced and Applied Sciences is listed as a Predatory publisher in Beall’s List. Further analysis is required to confirm the claims of indexing and the truth behind these journal metrics having been claimed.
A professorship application with a composition of fraudulent and predatory publications has been reviewed and evaluated at various levels by many salaried academics in the Sri Lankan state university system. Though this application passed all the checkpoints, many questions now originate regarding the Review and Evaluation processes. Another interesting fact in the application noted was that, Professor M.M.M. Najim serving as the Vice Chancellor of SEUSL in 2019 has recommended the Application and the List of Publications, while the Curriculum Vitae attached by A. Rameez with the professorship application mentions Prof. M.M.M. Najim as one of his Non-Related Referees.
An academic, who has been clever enough to escape various steps of scrutiny is the current vice chancellor of South Eastern University of Sri Lanka. The damage to the academic standard which can be caused by this vice chancellor can become irreparable at any cost and can affect the quality of undergraduate and postgraduate education. The Senate and Council of South Eastern University of Sri Lanka have a responsibility in these matters. Allowing these substandard applications for further processing and approval is drastic damage to the overall academic standard in the whole university system in Sri Lanka. The focus on increasing the number of professors should be aimed out on bringing about well-qualified professors at this institute. It is a million-dollar question from Sri Lanka Guardian, how did A. Rameez escape all the steps in the evaluation of becoming a professor? Or else, was it a well-orchestrated coercion by an academic underworld to make this man of near zero quality and no integrity a professor in order to make him stand out as a justifiable candidate for the contest for the position of vice chancellor in the very following year?!
Who is responsible to repair these damages already done?! The Registrar or the Senate or the Council of the South Eastern University of Sri Lanka have the authority to carry out complete and thorough investigations on A. Rameez and to revoke the professorship gained through fraudulent publications and false claims. A Vice Chancellor, who should be an exemplary academic member at various calibres, cannot be a role model for fraudulency.
The consequences of the negligence of signalling by academic members of the institution of systematic fraudulence are apparent now. Research fraud is a Professor and Vice-Chancellor. He is being paid many millions of Rupees from the Taxpayers’ money per annum. Imagine the number of millions he can earn through these fraudulent till his retirement! Isn’t A. Rameez accountable for the taxpayers’ money?! A bankrupt country can only become even more bankrupt by producing academically bankrupt outputs by academically and ethically bankrupt academics.
Sri Lanka Guardian is curious to raise these questions at His Excellency the President of the Democratic Socialist Republic of Sri Lanka, Hon. Minister of Education and the respected Chairman of the University Grants Commission of Sri Lanka:
- Is A. Rameez still eligible to hold the position of Vice-Chancellor?
- Is A. Rameez still eligible to serve as a professor?
- Is A. Rameez still eligible to hold a teaching and academic supervisory position at a government university?
Sri Lanka Guardian has received further evidence regarding another professorship application from the same institution. An academic in the field of Information and Communication Technology has published more than 20 indexed publications in a particular year right before he applies for the professorship. The Scopus ID of the particular academic doesn’t show any of those publications to have been listed as indexed publications under his name! It was further brought to the notice of Sri Lanka Guardian that, the promotion interview of this particular applicant was postponed at the last moment due to the withdrawal of the evaluators, who were supposed to have functioned as the field-related experts, just a few days before the evaluation interview! Notably, this candidate has not completed his Doctoral degree and the provision for this in UGC circulars is being exploited by a few corrupted academics to become professors. Currently, there are a number of professors in this institution who have attained professorships with their Master’s Degrees alone by publishing more than 20 (indexed?) research papers in a year just before they apply for professorship! A prominent example of this nature of professorship can be seen at the Department of Management & Information Technology at SEUSL. This academic member has published more than 20 (? Indexed) publications in a year before his application to become a professor. These few of the corrupted academic individuals at SEUSL can be used as samples for case studies to show; how they are academically corrupted, how they have mishandled the publication ethics, how they have exploited the UGC circulars and how they have mishandled the public fund. Imagine the volume of public funds mishandled by these academics from this institution if there are 11 such professors in this category, for example!
The South Eastern University of Sri Lanka is a national asset. It is run with Taxpayers’ money. The country is currently in an economic downfall. Production of High-Quality Graduates is necessary for the recovery of this country. From a spoiled Chief Executive Officer and from a few corrupted fake professors and unqualified academics, the production of High-Quality Graduates will be a Nightmare! Imagine the damage this does to the perceived quality of the random Sri Lankan graduate in any field of study that’s also available at SEUSL! Imagine the challenges that are to be faced by the graduates of the rest of the universities while abroad when the overall assessment of the quality of Sri Lankan graduates are negatively affected by the products of the academic underworld made of the underqualified professors of SEUSL! Imagine the unfair disadvantage that the poor quality products graduated by the academic underworld comprising the likes of A. Rameez of SEUSL will be putting the graduates of the rest of the Sri Lankan university system, who go through scrutiny and rigour, at when competing in the job market in Sri Lanka, especially in the Sri Lankan public sector, especially in academia! According to the assessment schemes for recruitment to university academic positions, a first-class is a first-class regardless of whether it was conferred by ordinary academics of Sri Lanka or by the academic underworld at SEUSL – you are ahead with 5% additional marks in comparison to a graduate with a second-class-upper-honours.
A rapid rectification with state intervention is the need of the hour within this institution to preserve the Academic Standards of all the graduates being produced from the South Eastern University of Sri Lanka. The autonomy provided to universities has been exploited at the best in this institution by the current and previous vice-chancellors in producing substandard professors. If no immediate intervention is done to regulate this Higher Education Authority by the Government of Sri Lanka, it will make the Billions of money allocated for the functioning of SEUSL meaningless and it may be equivalent to throwing all of that money into the river flowing adjacent to this university.
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