No breakthrough, no breakdown at Shangri-La

US-Chinese defense chiefs meet for first time in 18 months while Filipino leader keeps
rhetorical heat on China at Singapore talk shop

MANILA – Rising tensions between China and US allies in Asia set the tone for this year’s Shangri-La Dialogue in Singapore, a defense talk shop that brought together defense officials and policy experts from across the Indo-Pacific and beyond.

In his highly anticipated keynote speech, Philippine President Ferdinand Marcos Jr pulled no punches by slamming Beijing’s aggressive actions in the South China Sea.

In a barely veiled criticism of the Asian superpower, the Filipino leader highlighted its “illegal, coercive, aggressive and deceptive actions [which] continue to violate our sovereignty, sovereign rights and jurisdiction” in the hotly disputed waters.

More broadly, Marcos Jr warned of the “permanent fact” of China’s aim to achieve “determining influence over the security situation and the economic evolution of this region.”

Faced with criticism at home and overseas for his hard pivot back to Western allies after six years of his predecessor Rodrigo Duterte’s pro-China foreign policy, Marcos Jr underscored the “stabilizing presence of the United States [as] crucial to regional peace.”

Nevertheless, the Filipino leader made it clear that, similar to other Southeast Asian states, he is not fully aligning with one superpower against another since “[i]t’s never a choice” and “[b]oth countries are important” for regional peace and prosperity.

Recognizing the dire consequences of an untrammeled New Cold War, the two superpowers also initiated vital conversations on the sidelines of the mega-event.

During his meeting with China’s newly-installed defense minister, Dong Jun, US Defense Secretary Lloyd Austin held what the US characterized as “firm but professional” conversations on a wide range of issues including disagreements over Beijing’s nuclear, space, and cyber development policies, actions in the South China Sea and the Taiwan Straits, and alleged “lethal aid” to Russia in the Ukraine conflict.

This marked the first meeting of its kind between US and Chinese defense chiefs in 18 months, raising hopes of restoring guardrails in their bilateral military relations. The two chiefs agreed to reopen hotlines in a move that will help keep tensions from spiraling into confrontation in Asia.

This year’s Shangri-La Dialogue couldn’t have been more timely. It came hot on the heels of China’s massive drills around Taiwan shortly after the self-ruling island nation inaugurated its new president, Lai Ching-te.

Although the new Taiwanese leader has emphasized his commitment to maintaining a stable status quo, Beijing has stepped up its intimidation tactics by expanding its missile deployment close to and expanding aerial patrols across from the Taiwan Strait in demonstrating its growing ability to conduct a complex, multidirectional invasion of the self-governing island China sees as a renegade province.

“If China stops its provocation and intimidation, then peace and stability can be maintained,” Taiwan’s Defense Minister Wellington Koo told reporters following China’s latest drills, painting the Asian superpower as the main cause of trouble in the region.

Meanwhile, China has also upped the ante in the South China Sea against the Philippines, a US mutual defense treaty ally. Chinese maritime forces have clashed with Filipino patrol and resupply vessels close to the Second Thomas Shoal and Scarborough Shoal on at least five occasions in recent months, leading to the injury of several Filipino servicemen and major damage to multiple Philippine vessels.

ENB Poster-820-South China Sea

During his question and answer with media at the Shangri-La Dialogue, Marcos Jr made it clear that the death of a Filipino coast guard or naval servicemen would cross a “red line.” “If a Filipino citizen was killed by a willful act, that is very close to what we define as an act of war. We would have crossed the Rubicon. Is that a red line? Almost certainly.”

On multiple occasions, the Biden administration has signaled its “ironclad support” for the Philippines and, accordingly, said that the 1951 US-Philippine Mutual Defense Treaty would apply in the event of an armed attack on Philippine public vessels and troops in the South China Sea, raising the prospect of great power conflict over the disputed land features. 

A deep source of concern is the dearth of institutionalized dialogue between the two superpowers just as risks of armed confrontation have increased in recent months. Following then-US House Speaker Nancy Pelosi’s visit to Taiwan in 2022, China suspended various communications channels with the US as a form of diplomatic retaliation.

Chinese paramount leader Xi Jinping and US President Joe Biden met on two occasions in November 2022 and also on the sidelines of the Asia-Pacific Economic Cooperation Summit (APEC) in San Francisco last year, where they agreed to re-establish guardrails in bilateral relations.

In particular, the Pentagon has pushed for setting up a communications channel between the US Indo-Pacific Command (INDOPACOM) chief in Hawaii and his Chinese counterpart overseeing operations in the Western Pacific including over Taiwan, Japan and the South China Sea.

Last month, the US and Chinese defense chiefs held talks over the phone to set the tone for their in-person meeting in Singapore for the Shangri-La Dialogue.

“The [US Secretary] expressed concern about recent provocative [People’s Liberation Army] activity around the Taiwan Strait and he reiterated that [China] should not use Taiwan’s political transition – part of a normal, routine democratic process – as a pretext for coercive measures,” US Air Force Major General Patrick Ryder Ryder said in a statement following the 75-minute meeting between Austin and Dong.

After meeting Austin in Singapore, Dong said the “stabilization” of military-to-military relations “does not come by easily and shall be cherished dearly,” Chinese Defense Ministry spokesperson Wu Qian, told reporters after the meeting, adding that Dong stressed that neither side should “contain or smear” the other side, but rather build mutual trust.

Dong also said that when it comes to areas surrounding China, especially the South China Sea, commercial ships and aircraft “can always operate safely,” but that “there is a huge difference between freedom and willfulness, between navigation and trespassing.”

“It is important to respect others’ security concerns, and security should be mutually respected. No one can pursue one’s security at the expense of another country’s security,” Dong said, according to the ministry spokesperson.

For the Philippines, Marcos Jr’s keynote speech, the first-ever by a Filipino leader, marked a major diplomatic victory. It provided Manila a major platform to rally international support as well as increase pressure on Southeast Asian neighbors to address rising tensions in the South China Sea.

Singapore served as a perfect venue for Marcos Jr to highlight ASEAN’s shortcomings in exercising agency and leadership in shaping regional affairs as well as underscore his country’s defensive approach to ongoing disputes. 

He underscored the inviolability of the Philippines’ sovereign rights and “strategic agency” while highlighting China’s aggressive actions, including its recently passed law against “trespassing” in Beijing-claimed waters across the South China Sea basin.

“We have defined our territory and maritime zones in a manner befitting a responsible and law-abiding member of the international community,” the Filipino leader emphasized, pushing back against China’s narrative that the Philippines is the source of trouble.

“As President, I have sworn to this solemn commitment from the very first day that I took office [to defend our sovereign rights]. I do not intend to yield. Filipinos do not yield,” he added, warning China that its current course of action spells a lose-lose situation for the whole region.⍐

By RICHARD JAVAD HEYDARIAN   JUNE 1, 2024 Asia Times

CEO of Kelani Valley Plantations admitted to hospital following workers’ protest

CEO of Kelani Valley Plantations admitted 

to hospital following workers’ protest

Minister Thondaman denies wrongdoing, blames estate management

by Hemantha Randunu and Norman Palihawadane

Chief Executive Officer of the Kelani Valley Plantations Anura Weerakoon has been admitted to the ICU of the Nuwara Eliya hospital following a protest staged by a group of workers led by Water Supply and Estate Infrastructure Development Minister Jeevan Thondaman on Saturday opposite the Nuwara Eliya Police station.

The protest was led by Thondaman following a complaint lodged by the plantation company that Minister Thondaman had threatened some of its senior managers.Minister Thondaman and his men arrived at the Kelani Valley Plantations company premises to protest against the suspension of two workers by the company on 30 May.

The company management has complained to the police that the Minister and his armed security personnel held them incommunicado for hours, demanding the reinstatement of the workers.The incident occurred while a senior official from the Pedru Estate under the Kelani Valley Plantations company called over to complain to the police over an incident on the estate on Thursday.

Hours later, the Minister and his supporters left the police station, claiming that the complaint against him had been withdrawn. However, the plantation company officials said that they had not done so.

A senior police officer confirmed that the complaint had not been withdrawn.Following the incident, the Ministerial Security Division (MSD) personnel detailed to the Minister surrendered their firearms to the Thalawkelle police.

However, the weapons were returned to the police officers subsequently. Contacted for comment, a senior officer told The Island that the weapons had been given back to the MSD personnel in view of threats to Minister Thondaman.

Minister Thondaman said that he had visited the plantation company office to discuss a trade union issue with other officials of the CWC and the company management had summoned the police unnecessarily. “I went there to secure the release of some workers being forcibly held by the company management.

I stand by my people. It is my duty as the CWC leader to protect their rights. The issue is being misinterpreted by plantation company owners,” he said, adding that the conduct of the police was questionable. He said that police had no right to participate in meetings between plantation owners and trade unions. Workers have constitutionally guaranteed rights to engage in union actions. Police are biased against unions,” he said⍐.

The Island 2024/06/3

Economic Transformation Bill sets frame work to prevent economic crisis

 Economic Transformation Bill sets frame work to prevent economic crisis

ENB Poster:820-ETB

The Economic Transformation Bill sets in place a common minimum macroeconomic framework that is required to ensure the country does not fall back into a state of economic crisis, Finance Ministry Secretary Mahinda Siriwardena said.

The following is the views of Mr Siriwardena regarding the Economic Transformation Bill;

Sri Lanka has had a long history of incomplete economic stabilisation programmes. The country’s macroeconomic framework that has historically been characterised by persistent budget deficits and deficits in the current account of the balance of payments. This twin deficit leads to frequent balance of payments crises, reserve depletion, and bouts of inflation.

As the crisis sets in Sri Lanka has often sought the support of the International Monetary Fund (IMF), following which macroeconomic stabilisation measures are introduced. However, as soon as a degree of stabilisation sets in, Sri Lanka has a tendency to revert to past habits of fiscal excess, accommodated by monetary policy. Such stop-go policy cycles are not uncommon in countries where a 5 year political cycle tends to dominate economic imperatives. There is always a temptation for the political leadership to promise more relief than competing political players. Countries with a weak institutional framework are all the more vulnerable to such cycles.

Sri Lanka has been able to get away with policy fluctuations of this nature over a long period of time. Until 2006 Sri Lanka had access to low cost external concessional financing to finance internal and external deficits. Since then Sri Lanka was able to raise 10 year maturity funds in international bond markets, which only commenced substantial maturities in 2019. This was during a time of extremely liquid global capital markets where funds were flowing into emerging and frontier markets seeking yield.

These favourable conditions have dramatically changed. Sri Lanka no longer has access to international capital markets. The country also lacks access to substantial concessional financing since it is a middle income nation. Global financing conditions have tightened considerably countries like Kenya raising bonds at yields over 10% in early 2024. These external factors along with the loss of access to concessional financing due to weak credit ratings has led to budget deficits having to be almost fully financed by domestic debt – putting pressure on interest rates and crowding out productive private investment. In the lead up to the economic crisis Sri Lanka ran out of all of its fiscal and external reserve buffers as debt to GDP increased to 128% and usable forex reserves declined to near zero levels in 2022.

Considering the above, it is clear that Sri Lanka no longer has to luxury of returning to past habits now that a degree of stabilisation has been re-established. There is no scope for additional external borrowing to fill in deficits and the inflationary risks of monetary financing have been clearly demonstrated in 2022. Given Sri Lanka’s recent experience, it is highly unlikely that the international community will once again be willing to rescue Sri Lanka if it falls into another crisis due to failure to maintain a sustainable macroeconomic path.

Sri Lanka has been to the IMF 16 times in the past. This is because every time a programme ends, the country reverts to bad practices in the absence of an external anchor of discipline. For this 17th programme to be the last programme, it is necessary for the country to continually behave as if there is such an anchor of discipline. The mechanism for such an anchor is effective legislation. Countries that have successfully emerged from crises are those which have adhered to a broad consensus of basic macroeconomic objectives such as fiscal discipline, monetary prudence, and economic competitiveness. India post 1991 and the East Asian Tigers post 1997 are good examples of this. Such a framework allows different governments with different political or economic ideology to go about achieving those fundamental objectives in different ways, but the objectives themselves remain a common goal.

The Economic Transformation Bill endeavours to serve a similar purpose. The macroeconomic objectives and targets set out in the bill establish a common minimum framework including fiscal discipline, export orientation, debt sustainability, and labour market competitiveness. Each of these objectives could see broad agreement across the political spectrum though different groups may seek to achieve those objectives through different means. The legislation provides flexibility to the executive such that a shortfall in target is tolerated as long as the executive explains to the legislature the measures being put in place to return to the required path. The key is the continuous pursuit of the objectives that are commonly agreed across all groups. Sri Lanka has lacked a macroeconomic anchor which has resulted in constant deviations and cycles, which can no longer be afforded by the country.

It is also well understood that legislation alone is not sufficient to drive meaningful change. The weak outcomes of the Fiscal Management Responsibility Act of 2002 is a testament to this. Institutions also matter. That is why the government is strengthening institutions such as the Central Bank, establishing new institutions such as the Debt Management Authority, and the Parliamentary Budget Office, which can support the implementation of durable economic stabilisation. Going forward, the economy also requires the establishment and strengthening the institutions that can drive sustainable economic recovery and growth.

Successive governments have failed to drive growth through building economic competitiveness. As a result, growth has required stimulus through fiscal expansion and monetary loosening, which contribute to these dangerous macroeconomic cycles. Sustainable economic growth is only achieved through continuous improvement in productivity, which is necessarily driven by competition and competitiveness. Sri Lanka became an increasingly inward economy as the country built up tariffs, allowing exports and trade as a share of GDP to decline dramatically over the last 3 decades and competition to decline. Inward investment has been limited, and particularly low in efficiency seeking sectors such as export oriented investments in manufacturing, services, and agriculture. Rising external liabilities were combined with declining non-debt creating inflows, making it a matter of time before the economy collapsed.

The other component of the Economic Transformation Bill is the establishment of institutions that create the enabling environment for a competitive, outward oriented economy where growth is driven by non-debt creating inflows including exports of goods, exports of services, and foreign direct investment. FDI inflows to the economy have been weak, and therefore it is necessary to review and revamp the institutional framework that promotes and manages investment into the economy. The new Economic Commission established through the Economic Transformation Bill sets the institutional and legislative framework for this.

The Office for International Trade established by the Economic Transformation Bill creates the institutional framework to enable Sri Lanka to effectively negotiate complex trade agreements with strategic partners. Trade agreements of this nature are essential for countries like Sri Lanka to effectively participate in global and regional value chains that drive trade in the modern global context. Sri Lanka’s isolation from these value chains is a key reason for the lack of growth in the countries trade and exports. In parallel to developing export markets through trade agreements, it is necessary to build domestic competitiveness and productivity to enhance supply capacity and to withstand greater exposure to global competition. The Productivity Commission is established by the Economic Transformation Bill in order to serve this purpose of supporting the productivity and competitiveness of domestic firms as they compete with the rest of the world.

In sum, the Economic Transformation Bill sets in place a common minimum macroeconomic framework that is required to ensure the country does not fall back into a state of economic crisis. Future governments can choose whichever mechanism it intends to achieve those targets, but the targets should be commonly agreed by all. The Bill also puts in place the institutional framework that enables the economy to shift into a different gear of competitiveness that enables the country to drive productivity and compete on the global stage. Whilst legislation alone is not enough to achieve success, Sri Lanka’s past experience has shown the disastrous outcomes of going forward without a legislative anchor of discipline, and the institutional framework to support it. ⍐

The Sunday Times lk Jun 3, 2024

Public tug of war on wage hike for plantation sector workers

Public tug of war on wage hike for plantation sector workers

Planters’ Association says it’s an arbitrary, reckless decision by the government

They reiterate their commitment to a productivity-linked wage model

Warns against any attempt at expropriation by the government

The plantation industry raised its strongest possible objections to the government’s arbitrary, reckless, unilateral decision to drastically hike minimum wages for tea and rubber sector workers by an unprecedented 70%.All producer stakeholders issued a unified warning against the devastating impact the latest increase would have on the plantation sector, leading crippling operational challenges, ultimately leading to severe economic instability for the nation.

 “This decision was made without proper consultation or consideration of the needs of all industry stakeholders. In particular, it fails to provide any consideration and threatens to cripple every segment of the Sri Lankan tea and rubber industry. This current effort to force such a clearly unsustainable mandatory minimum wage on tea and rubber smallholders and the Regional Plantation Companies (RPCS) is impossible for the industry to absorb, even with radical cuts to basic operational necessities. The continuity of the entire plantation sector is now at risk, and most critically the livelihoods of the very workers and communities who are connected to the industry across Sri Lanka,” The Planters’ Association of Ceylon stated.

As a result of the decision, the cost of production for tea and rubber is set to rise dramatically, with estimates indicating a minimum 45% increase in the cost per kilogram of tea. This surge in operational costs will render Sri Lanka’s tea and rubber industries uncompetitive in the global market, further exacerbating the financial strain on these sectors.

Additionally, the wage hike will place an enormous burden on Regional Plantation Companies (RPCs), which will face an annual increase in excess of Rs. 35 billion inclusive of EPF/ETF and gratuity payments. This financial strain is unsustainable and threatens the livelihoods of thousands of workers in the plantation sector.

The PA also noted that the current approach of the Government in attempting to coercively set wages for the private sector, and interfere in management of the sector from key Government figures represent a stark violation of the terms of the IMF agreement, which is crucial for Sri Lanka’s economic recovery. This decision is very clearly driven by short-term populist politics aimed at securing electoral victories rather than fostering long-term economic health of the industry, and securing the interests of workers.

The IMF’s $3 billion Extended Fund Facility (EFF) for Sri Lanka is contingent on several stringent conditions aimed at ensuring fiscal consolidation including reduced intervention in state-owned enterprises (SOE). Historically, state control over enterprises has led to inefficiencies and financial burdens, as evidenced by the failures of numerous state-run businesses in Sri Lanka.

Historically, the state has consistently failed to manage State-Owned Enterprises (SOEs) effectively, leading to steep losses and in many instances, near total collapse. By the time of privatization in 1992, state owned plantations made continuous losses that had to be heavily subsidized by the Government up to Rs. 5 billion per year which was borne by the Treasury.

A further Rs. 8 billion was owed by the JEDB and SLSPC to the Bank of Ceylon and Peoples’ Bank as a result of a US$ 300 million lending facility which was extended to the state plantations by the World Bank. While these funds were intended for the improvement of the plantations industry, there were no significant improvements and the plantations did not have the ability to repay the debts, and the Government was eventually compelled to absorb this debt.

Following privatization, worker wages appreciated sharply, and with a significantly larger workforce of 327,123 within the RPC sector the industry was able to operate more effectively, investing substantially towards the development of the industry, including all of the key certifications and standards that have allowed Pure Ceylon Tea, and rubber to maintain a reputation for unmatched quality relative to global competitors.

These efforts have led to improvements in efficiency and productivity, which are now at risk due to the proposed wage hike. It is also important to note that all these companies are publicly traded companies listed on the Colombo Stock Exchange. Any attempt at a second and immediate expropriation by the Government will therefore contravene Securities and Exchange Commission and SEC rules, the Companies Act and other related statutory provisions.

 Such an arbitrary and impractical decision also risks severe damage to local and foreign investor confidence alike. The PA warned that this would have negative consequences beyond the plantation industry, especially at a time when Sri Lanka desperately requires foreign direct investment to help boost strategically important sectors in manufacturing and services, as well as the agriculture sector.

The PA has long advocated for a shift to a productivity-linked wage model or a revenue share model, which aligns worker compensation with productivity and revenue earned at auction. This approach not only incentivizes productivity but also ensures a fair and sustainable wage system for workers. Already workers under revenue share under the previous wage structure recorded earnings in excess of the minimum wage that was recently gazette.

The current daily attendance-based minimum wage model is outdated and does not reflect the realities of the modern plantation industry. Any disruption to production or quality standards could send shockwaves through export markets, diminishing export revenues and competitiveness.

“We urge policymakers to prioritize long-term economic stability over short-sighted decisions and to consider the industry’s proposals for a productivity-linked wage model,” the PA said.⍐

The Island  2024/06/3