Virtual Media Roundtable with US Ambassador to Sri Lanka Alaina B. Teplitz: Command Economies a Failure
By Ishara Gamage
US Ambassador to Sri Lanka and the Maldives, Alaina B. Teplitz said on Thursday (8) that the US Government is always ready to support Sri Lanka’s socio-economic development with a more open and transparent policy framework.
Joining a virtual question and answer session, with Sri Lankan business journalists, including Ceylon FT, she said, “We know from the past what has built the strong trade imbalance in Sri Lanka’s favour. Of course, it initially started as garment industry sales. I would say that today the garment industry in Sri Lanka is no longer simply a maker of apparel, they’re actually a product design and distribution, logistics and full service set of major global companies that have proved in fact that market competition helps them improve their business game.”
According to her observations, the US has tried to help in creating an open and transparent, economy to help Sri Lankan firms, in particular, to grow a lot of its development support and its aid has been targeted at small and medium enterprises in Sri Lanka to grow business connectivity.
“We’ve got a history that goes back to the 1970s and looking at how to create sustainable economic growth in Sri Lanka, one may not know that the United States helped modernise the Colombo Stock Exchange in the 1980s. Now it is a leading regional exchange. We’ve helped with agro enterprises and we have helped with the technology sector. We have helped businesses with various sorts of clusters like jewellery, rubber, tea and spices; create networks, many of which have led to their respective business Councils. The Ceramics Council and the Spice Council are two examples where we’ve also trained entrepreneurs through various programmes over the last 20 or 30 years, resulting in the creation of thosands of jobs,” she said.
“What is needed now is open markets. What is needed is contract enforcement and the honouring of commitments. What is needed of course, is good environmental stewardship.”
She also said that this gives Sri Lankan products brand premium globally, which earns Sri Lanka more money, but corruption is something that has to be fundamentally addressed.
“Not only is it illegal for US firms to engage in corruption. But, it’s a turnoff because there’s enormous opportunity costs that come with corrupt and inefficient systems,” she elaborated.
“So I definitely think there are great opportunities in Sri Lanka. My team and I work every day to help enable the very talented Sri Lankans that we know and we do so to create not just a more prosperous Sri Lanka, but also more prosperous United States, where we have the opportunity to engage with solid forward leaning innovative business partners here, to the benefit of both of our countries, and this is a job generator for both of our people,” she said.
During this virtual meeting, the questions asked by the Media from the Ambassador and her answers were as follows:
Accelerated and sustainable economic recovery is essential for Sri Lanka, not just for the economic reasons, but also to maintain its geopolitical balance in the region. What, in your view, are the chief areas that Sri Lanka could address to accelerate its economic recovery while remaining largely independent of borrowings?
A: That’s a really great question because I think economically vulnerable countries do risk their sovereignty and independence. They have to look for high cost financing, they have to end up accepting less than quality investments. And basically, they’re the beggar and not the chooser, in that old cliche of beggars can’t be choosers. So what would be the chief areas to help accelerate economic growth. Well, I think, a private sector emphasis is very important. I’ve just shared with you a little bit about how we, the US Government, has focused on private sector development as an engine of growth and not looking to the Government to necessarily deliver that growth.
Growth itself is a producer. I think there are over 400 State-owned companies in Sri Lanka, many of them do not perform well, and therefore they are a drag on the national budget. The private sector can do better, it’s not always the solution. Sometimes there are reasons, to have regulation or certain tightly controlled markets, but I’d say in general the private sector can do better and unleashing it and ensuring that Sri Lanka is positioned to be an open and transparent trading economy is going to lead to success. And, within that, focusing on small and medium enterprises is crucial. That is the engine of growth, it’s the engine of growth in the United States, even with our very large economy. We always hear about the big companies the brand names, but it’s really the small and medium enterprise businesses that are the true job generators, they have the potential to grow and expand and to innovate and become those big companies.
We have a number of programmes today we’re focused on that providing business literacy working on access to finance, and in fact you might have seen from our press release a few weeks ago, where we’ve committed $40 million through the SANASA Development Bank, to making sure that there will be loans to about 1,500 businesses. In fact, with a deliberate bias towards women -owned businesses, to give them the access to finance which they need to grow. This is the kind of thing that’s going to be necessary for the economy to have a sustainable trajectory going forward. I think we proved that in the 1970s and ‘80s, and, you know, into the ‘90s as command economies failed all over the world. That sort of State-led economic growth is not the key to unlocking economic potential.
Ambassador, you spoke about a transparent and open economy, but the dedication is that so far, there’s nothing. The Government is kind of travelling in the opposite direction. We have all these import restrictions, there is a great deal of State involvement, and of course this is very much to do with Sri Lanka’s debt dynamics, and the government is concerned that if there is a huge inflow of imports etc. For example, that, it is going to lead to a payments crisis. So, how do you think the Sri Lankan Government should navigate this very delicate situation?
A: Good question, I mean first on how to navigate the economic situation, you know, we are all struggling because of this pandemic situation. This is a difficult time and countries are going to have to really focus and have a strong consolidated economic vision moving ahead in order to achieve recovery. And, I think for Sri Lanka, which is already was labouring under an enormous public debt burden, the situation has only become more challenging in that regard and thus the need for a vision is important.
That vision has to include not just some of the things I was talking about like you know an emphasis in the private sector and efforts to facilitate, small and medium enterprise which could be helped through removing regulation or these other sort of time consuming barriers of trying to ensure that small businesses are not subject to corrupt practices that really dragged down their income opportunities, making sure contracts can be enforced, all of those things that relate to these, of doing business would definitely help the domestic economies in domestic companies not just foreign investors, but the macro-economic fundamentals of the country are also really crucial. And this is where the debt management is going to be very important, because Sri Lanka’s debt obligations have not really decreased over time.
Successive Governments of course have managed payments. But part of that is just because they’ve taken out new debt. So there has to be, you know, carefully thought out, economic reform measures put into place to manage the economy, and it’s unfortunate that Sri Lanka is not in a position to just sort of buy its way out of this economic slump and to stimulate a recovery. In fact I noted that Sri Lanka’s Government revenue fell over 28% in the first 11 months of 2020. That’s according to the World Bank, that’s a tremendous loss of revenue that would be needed in order to support, let’s say, social services, let alone, fill gaps created by under-performing State-owned enterprises.
So the debt management is going to need some careful management and it really requires international partners to manage. I’m not sure what the reluctance is to work with the International Monetary Fund (IMF) when Sri Lanka is a member of the IMF. Sri Lanka has a right of recourse to the IMF resources and to its support and help. And I think, while some of the Economic Forum’s potentially suggested might be challenging that’s negotiation, the Government obviously could have discussed with the IMF to work things out, but the critical need is to get the country on a smoother path going forward because as we’ve seen, the credit rating, has been downgraded several times, global financial analysts have provided very critical reviews of the Sri Lankan economy and its management which I think doesn’t bode well for potential investors. These are all barriers that at some point will become insurmountable, for the country and they’re really going to deliver lacklustre growth in the short run, just to close on this question.
You also mentioned the import ban. That’s very problematic. I do not know why it was put into place. Your concern about the balance of payments and a run on the dollar or running out of dollars, but at a certain point these prevailing import controls must be removed.
And I think, again, coming back to this idea, that command economies don’t work, it’s impossible to manage on a line item by line item basis which imports are good and which are bad. The economic lifeblood of this country has been trade over hundreds of years, and to attempt to artificially manage that I think is going to be very challenging. Going forward, it obviously presents obstacles to companies that work in the export industry, which rely on some of those inputs.
The latest port city investment and sweeping tax cuts that have been introduced as part of it. There have been concerns expressed from different quarters that this can have adverse repercussions and I would really like to know your view on these two points.
A: In terms of the Port City, I read some news reports, that were focused on the challenges that the legislation around Port City, which were very compelling. And, of course his arguments about being careful about tax breaks and cutting into revenue have some credibility. I noted that the Government has lost 28% of its revenue since the beginning of last year. That is a real challenge. When you consider the size of the public sector in Sri Lanka and how that needs to be funded. And that when you look at investment and why you want it, it is to help bring wealth to this country, not just to rent out one office building, you want to be growing wealth here and creating jobs, and, making sure that the public is benefiting from that presence so I think any legislation related to Port city has to be considered very carefully for its economic impact.
It also has to be considered very, very carefully for unintended consequences, and of course, among those unintended consequences could be creating a haven for money launderers, and other nefarious actors who want to take advantage of what was perceived as a permissive business environment for activities that actually would be illegal. So there’s a lot that needs to be done I do recognise that the Government in Sri Lanka wants to take advantage of the investment that’s already been made in creating the port city foundation. But the legislation really needs to reflect on these challenges and be careful about what it might do to open doors to bad practices and unfair competition in the rest of the country.
Within the current context would the US support any debt relief efforts?
A: Yeah, I mean, as I mentioned earlier I think that, you know, the Government’s got to look at its debt burden. Realistically, practically, and think about sustainability going forward, it’s not a problem for a Government to be carrying debt, but it’s got to be able to pay for that debt, in a way that doesn’t then exclude its ability to fund all the other necessary activities that are required.
Yes, the United States would support the Government in managing its debt and finding a more sustainable path forward. And, you know, we’d be happy to have those conversations, we’ve already indicated that, we would like to see more economic stability in the country and we, we would want to support that we’re contributing in a small way to that through our development programmes. But we would be happy to have the larger conversation as well.
Where exactly is the status of the policy on ‘Trade Shift’ that was being promoted only a few months ago by USAID and the American Chamber of Commerce in Sri Lanka to capture re-location out of China to, say, India and Sri Lanka. Any examples of such re-location under the Policy?
A: Right now the American Chamber of Commerce had been engaged in, yes. So, early on, we had supported the Chamber’s efforts to assess what COVID was going to do to international supply lines and how Sri Lanka could be poised to take advantage of shifts in a global company practices. For example, efforts to better distribute production facilities, globally. And perhaps some of those facilities could come to Sri Lanka. So, some studies have been done. Those studies have been shared around, and I hope Sri Lankan companies will take advantage of that data that’s out there and seek opportunities. I also hope the Government will look at that and seek to pave the way for potential investors who could bring more light manufacturing businesses to Sri Lanka again.
All the ease of doing business issues that we’ve discussed stand as a small barrier in that way, but there’s obviously potential and if Sri Lanka can present, sort of a unified business friendly, open transparent investment environment approach. I think businesses will come here and they will be quality investments, and I might say that, there is a difference in investment companies that aren’t sharing technology and companies that bring their own workforce. You know, that’s not good investment for Sri Lanka, you want to have technology and experience transfers and training opportunities. You want Sri Lankans to be employed in those enterprises. That’s how US firms operate, and so Sri Lanka should be looking for that kind of business.
Please say few words on the plan envisaged by US Oil and Gas companies to expand Oil and Gas supply to Sri Lanka?
A: There are major US firms who are in the energy sector and who would like to invest in Sri Lanka. I hope there are going to be opportunities in this space again. There needs to be fair, open, and transparent tendering procedures and commitments that can be followed through, in order to see those investments come to fruition. I think if some of those investments can be finalised then Sri Lanka has a great opportunity to play those up and potentially attract even more investment in that space and so that would be an LNG. That would be other alternative energies. And I wanted to offer an example in that regard, of where you end up with missed opportunities.
There’s always a lot of talk, I think around the energy sector, there’s some tenders that are out right now. But the follow through isn’t there. And that’s the thing that has to be different this time around, you know the deals have to be closed, the power plants have to be built the LNG terminals have to be built. There was an oil refinery proposed by a leading US company about 10 to 12 years ago. It never came to fruition. You know, nothing happened is you know the refinery is what it is today. Had there been a competitive tender process. You know, today the country would have that refinery and you wouldn’t be paying about a billion and a half dollars annually for refined petroleum and fuel products. This contributes significantly to the balance of payment issues. It was a lost opportunity for investment and attracting a world class company.
The deal just wasn’t closed. So I think, you know, the challenge today is there’s interest in Sri Lanka as they look at companies, look at growth in the region and the growth potential that Sri Lanka itself has. The deals have to be closed. And they’ve got to be, they have to be deals, obviously, we would argue, transparent and free from corruption. But, but some deal have to cross the finish line in order for Sri Lanka to actually demonstrate that it’s, It’s committed to investment in the energy sector.
Ambassador, you must be regularly engaging with US, investors. So, what is their feedback on possibilities for investment in Sri Lanka, and if there is any sort of wait and watch, attitude, what are the factors that are holding them back from investing here?
A: Good question. You know there is interest and again it’s in these major sectors, energy and tech. Those sectors hold a lot of promise. But we got a lot of talk and we don’t necessarily see a lot of investment at the end of the day and I think what is holding them back are sort of the lack of obvious and transparent pathways to making investments, especially since the energy sector in particular is highly controlled by the Government and there’s not as much sort of private opportunity to move forward. And then, I hate to keep raising this but the general ease of doing business, is just opaque to do business here.
There is a board of investment, and they obviously can clear, many many hurdles but who’s the right person to talk to. How does the company know that the timelines that have been put forward are going to be kept? Do they have assurances that agreements made are going to be followed up on. All of these things are really a little bit lacking in the business environment here. And, and it takes a very persistent company to pursue its objectives.
Big business deals don’t happen overnight. Anyway,it’s something that takes several months, it could even take a year or two to put together a big investment, but the parties are usually really committed and there are clear pathways and a clear indication of regulatory hurdles or what would need to be done in terms of the next step. It’s not always very clear in Sri Lanka, and so that’s often the feedback that we’re receiving. There are a lot of private sector to private sector transactions. That is happening all the time. The US Government doesn’t direct its businesses, the way other countries might do. So, I know that that’s happening but, the big high profile sectors where they have to be government to government liaisons. This is the feedback we hear.
Will the US renegotiate MCCA or bring forth an amended version or can we say we have seen the last of such Agreements? Has the friendship between Sri Lanka and the United States been damaged by the termination of this agreement?
A: No. There is no opportunity to revive that agreement now.
So, as you know, the Millennium Challenge Corporation Development (MCC) Assistance Grant was a proposal to address some development needs that the Government of Sri Lanka had identified and asked the United States Government to support. After spending our own funds, on the feasibility studies and gathering the data necessary to develop the project, which was done in collaboration with the government and stakeholders from outside the Government, including business, civil society and a number of Sri Lankan academics, who contributed to the effort, the development grant did not move. And at a certain point due to the lack of engagement.
We just reallocated the funds elsewhere, there were other countries that had asked us for similar support, and we wanted to be able to put that financing towards the programmes that we’re going to get off the ground and this one clearly wasn’t, it was very disappointing because I continue to read in the newspaper about needs in the transportation sector, particularly around Colombo and the need to modernise the land administration framework that could deliver, for example, digital deeds to landholders, I read about these as priorities of the President, I read about these as things that people say they want, this is the kind of thing the project would have funded but there is no chance of revisiting that on, and so we’ll just have to focus on other things.
You know the relationship has to transition and of course, you know, our environment is different with the pandemic, and some of the needs are shifting and so we’ll see what opportunities there are there for partnership going ahead. I do hope that one of the areas where we can find partnership is a thing we’ve been coming back to, in the context of many of your questions which is US investment here and looking for ways to make sure that Sri Lanka’s economy can grow sustainably and an inclusive faction and continue to offer partnership opportunities.
How does the US Contribute to the Global and local Fight against COVID-19?
A: The United States has provided a great deal of assistance to Sri Lanka for COVID more than $7.6 million, in direct support and the US Government also donated 200 ventilators to the country.
This support was meant for immediate response and the US Government also supported the The World Health Organization (WHO) and supported UNICEF in their public health interventions in support of the Sri Lankan Ministry of Health.
We also re-directed some of our programming because we knew there would be longer term consequences beyond these immediate needs, and we were looking specifically at the, economic aspects of this and we have thought a lot about how to support businesses getting back on their feet or frankly in entrepreneurs who are just trying to get started in an environment that has been constrained by the tremendous downturn of the pandemic,.
The United States is also the single largest donor supporting COVAX. You may have heard the name, but it is essentially that platform to provide global access, and distribution of safe and effective high quality WHO authorised COVID-19 vaccines, so it is providing support to 90 low and middle income economies that can’t afford to fully pay for the vaccine, Sri Lanka is one of those countries. And in fact, is going to be receiving a couple of million doses through COVID The first tranche came in March I understand there’s another one due at the end of May and then in the second half of the year, more will be delivered. So I think it’s important to understand that the United States is a major contributor to the COVAX alliance with US$ 2 billion donated to date and then another US$ 2 billion to come.
And so we are indirectly supporting that vaccine that’s coming to Sri Lanka, it is a testament of the economic power of the United States and what I hope holds promise for our relationship with Sri Lanka, of course, in terms of innovation and being able to leverage the resources and creativities in the global network. We’ve been able to facilitate this vaccine production. So the US Government did mobilise resources at the beginning of the pandemic to ensure that vaccines could be developed rapidly.
They can be tested and then ultimately they could be distributed so the US spent billions of their taxpayers dollars to make sure that the world was going to have not just one vaccine but a variety of vaccines, And so we’re very proud of the accomplishment there, and together with other partners in covax vaccine and beyond, we’re working to ensure distribution and of course, it will take longer than anybody would like, but it’s going to happen in that fifth scene is going to be there and we can see the reality in Sri Lanka already with those initial distributions.
In terms of post COVID world, obviously vaccination is going to be important. People have to be able to congregate, they have to be able to meet and travel for business, and they have to be able to work in factories or in offices.
We can’t constantly have the threat renewed. You know, renewed infection hanging over us into the vaccine is going to be crucial for economic recovery.