PLUGGING ECONOMIC LACUNAE
Janaka Perera sees threats facing the state’s role in developing economies
Two forces threaten the economies of developing countries. The first is the state’s role in economies that are under pressure from developed countries.
According to the former Executive Director of Geneva based South Centre Martin Khor, large companies in the US, Europe and Japan look to enter the markets of developing countries, which they consider to be sources of future profits.
MNCs generally view state support for domestic businesses as a hindrance to their quest for expanded market share in these countries. If new international rules are implemented to curb the state’s role, the future prospects of such nations will be adversely affected.
The other and most significant threat to a state’s economic role is obviously money laundering.
Several years ago, the public was reminded of this offence when a local politician and two others were indicted over facilitating money laundering in violation of Central Bank of Sri Lanka (CBSL) regulations in connivance with a Sri Lankan born billionaire domiciled abroad.
Money laundering needs to be thoroughly probed – this is because money illegally remitted overseas deprives national exchequers of the ability to meet the people’s needs. This leaves a nation’s economy in a dilapidated state. It is money snatched by way of kickbacks and other unfair means.
Most developing countries face this menace, which takes different forms: bulk cash smuggling, trade based laundering, casinos and businesses that run on cash incentives.
According to the Financial Action Task Force (FATF) – an international body established to fight money laundering on a global scale – the economic and political influences of criminal organisations are bound to weaken a society’s social fabric, collective ethical standards and democratic institutions.
In general, economic mismanagement, wastage, corruption and bribery threaten a state’s economy. They have plagued Sri Lanka for nearly three decades. And no one has been able to conduct a proper study of economic losses caused under different governments. State owned enterprises were seriously affected as a result under both the present and previous regimes.
The apex of this was the Central Bank bond scam.
An institutional failure prevented the state from reacting to this fraud – the largest bank heist in the country’s history – effectively. No authority has probed the real fault lines that led to a systemic breakdown despite many accounts being written and discussed in the media.
The blame should lie with the three branches of government and the media, which some allege focussed mostly on irrelevancies.
One is therefore inclined to question why the executive branch permitted the judicial and legislative branches to deal with this act of corruption, enabling the scammers to get away. Excessive legislative intervention has clearly undermined the executive’s ability to probe grave financial crimes.
Massive fraud of this nature can never be prevented unless anticorruption bodies are shielded from undue political meddling in accordance with OECD guidelines. There has been no independent appraisal of the bond scam, which should be a watershed event to initiate systemic change to prevent the recurrence of irregularities of this magnitude. Eventually, it is the public who has to bear the brunt of these crimes.
Regardless of his political ideology, Committee on Public Enterprises (COPE) Chairman Sunil Handunnetti achieved a difficult objective in the midst of strong opposition, resulting in his COPE report becoming a sound base for the presidential commission. It’s high time this report is made available to the public.
However, the Central Bank has said that stern action cannot be taken against money launderers and illicit foreign exchange dealers because of a lack of necessary provisions in the Foreign Exchange Act.
Central Bank Governor Deshamanya Dr. Indrajit Coomaraswamy reportedly stated that although the penal code demands this to be an offence, it is loosely defined in the new act. Any person can enter into and deal in foreign exchange in furtherance of current transactions without any exchange control restrictions.
According to press reports, the government will be introducing new regulations to tackle corruption in high places – the nexus between money launderers and sections of political leadership regardless of who is in power.
New regulations and guidelines will be presented soon, enabling the Department of Foreign Exchange to strictly monitor capital flows and processes associated with current account transactions, as well as various foreign currency and rupee accounts. A senior official of the Ministry of Finance says it is aimed at strengthening intelligence, law enforcement and financial regulatory agencies.
State Minister of Finance Eran Wickramaratne has been quoted as saying that the Foreign Exchange Act could be amended if it has loopholes that legitimise money laundering.
We hope that this will become a reality sooner rather than later.