sector still lacks confidence
the promising start to the peace process and economic reforms made
by the government, the private sector apparently remains unconvinced.
Except in a few cases private investors have yet to put in big money
into the island.
There are still
deep misgivings about the ultimate success of the peace effort,
the government's ability to push through unpalatable economic reforms,
the stability of the ruling coalition itself, rumblings of discontent
among labour unions, and the possibility of a People's Alliance-Janatha
Vimukthi Peramuna combine replacing the United National Front.
about the ultimate success of the peace talks was always a factor
that made private investors hesitant about committing large sums
of money for long-term investments. They would naturally want to
wait until a final deal is signed to make sure the last shot has
been fired in the Eelam war. True, the stock market appears to be
zooming but funds invested in stocks can be pulled out quickly,
unlike in the case of project investments. The LTTE's partial pullout
of the peace talks has struck a further blow to investor confidence,
making them even more reluctant to put money in.
of plans by President Chandrika Kumaratunga to topple the UNP government
through a PA-JVP alliance is also troubling for the private sector,
which would naturally be wary of any government with left wing tendencies.
That would surely affect the confidence of foreign investors.
sector has always been worried about a JVP influence in any future
government as this could dilute reforms and introduce an unhealthy
bias towards labour and prevent badly needed improvements in productivity.
The UNP government
is hoping that the big sums of aid already pledged by donor agencies
like the IMF, World Bank and ADB would be seen by investors as a
sign of confidence which in turn would give them the confidence
But there is
another issue that is affecting investor sentiment. That is the
enormous amount of red tape and delays still encountered by businessmen
in getting approvals for their projects and the problems caused
by having too many ministries with overlapping functions. This is
one area where the government can clean up its act if it really
wants to. But it apparently lacks the will to do so.
Under the circumstances
the least the government can do is to make it easier for investors
by cutting red tape and making government machinery function more
efficiently as it keeps promising to do. But there are growing complaints
that this government lacks direction and is too lethargic.
As Dr. Dushni
Weerakoon from the Institute of Policy Studies pointed out recently
red tape and the presence of too many ministries has been cited
as one of the factors discouraging investment. Apart from political
uncertainty, the private sector has not taken advantage of the peace
process to invest heavily in the economy largely due to administrative
Even the latest
economic statistics put out by the government, while pointing to
a healthy recovery, apparently has not done much to inspire confidence
in the corporate sector.
But it is also
the responsibility of the business community to bolster what is
"their" government - to make it work better and ensure
it does not fall in any future election because voters are dissatisfied
with the government's efficiency and its inability to curtail abuse
of power and corruption. Some of the private sector people who have
come into government appear to be doing a solid job and have made
an impression, turning around and giving a new look to the organisations
that are in charge of. It is up to others to do the same.
devolution: Key issues of concern
Professor Willie Mendis, Senior Professor, University of Moratuwa
The `Peace Process' is now at the threshold of the core
issues of conflict resolution through dialogue. It began with the
inclusion in the Agenda of Talks between the Government and the
LTTE, the aspect of `Fiscal Devolution'. The parallel initiative
was to establish the Sub-Committee on Immediate Humanitarian and
Rehabilitation Needs (SIHRN). The latter being to undertake the
Needs Assessment which would enable the provision of national and
international resources as are adequate for the purpose of meeting
the immediate needs of reconstruction and rehabilitation in the
conflict-affected areas. It was the correct decision taken by the
parties involved in the `Peace Talks', as there was no tangible
development work associated with the same.
scenario described above therefore seems to co-terminously manifest
the evolution and change of the administrative system in the conflict
areas. Certain functions continue to be performed with the government's
mainstream administration alongside newly emerging policy and developmental
functions under SIHRN. These unorthodox Institutional Systems to
undertake orthodox functions have raised concerns in the minds of
the general public and even others, about its implications for the
reform agenda for public management in the country as a whole. It
is therefore opportune to review the orthodox Institutional System
which had evolved in the democratic process to meet the challenges
of sub-national development, and to source its salient features
that are universally relevant in whatever form of governance that
will arise through Constitutional Reform when the peace process
moves forward transiting the current unorthodox institutional arrangements.
In the above
context, it is most relevant for everyone to be reminded that Sri
Lanka always had a system of governance at the local level. Until
1987, the two-tier system of government in Sri Lanka comprised a
partnership at two levels, namely the national and the local. Its
inadequacies arose primarily out of the massive dominance of the
national government over local government. The latter was aptly
set out as follows by the then Commissioner of Local Government,
the late Mr. Shirley de Alwis, in the foreword of the pioneer publication
in 1975 on Local Government in Sri Lanka which was authored by the
writer of the current article:
range of functions assigned to local authorities, the encroachments
on the sphere of local authorities by statutory boards and corporations,
the failure to reform the local government structure, inadequate
financial resources and the ill-defined nature of the relationship
with the Central Government have contributed to the ineffectiveness
of local government in this country. The crisis in local government
needs no further elaboration. It is a crisis that is found in many
countries of the developing world."
system of Local Government (commencing from 1865) as against what
existed in the early times, have thus always received the `back-office
treatment'. Its continuous inadequacy was attributed to the lack
of capacity to satisfactorily undertake the mandated functions assigned
to it by the respective statutes which created them. On the other
hand, what was done to facilitate `capacity building' of the local
authorities, were hugely under-resourced. Its most significant lapse
was the absence of `professional help' for them to frame specific
By-Laws that would have not only helped better local governance
but also improved revenue generation to undertake its mandated function
of "regulation, control, and administration of all matters
relating to the public health, public utility services and public
thoroughfares, and generally with the protection and promotion of
the comfort, convenience and welfare of the people and the amenities
in the area".
functions and the array of opportunities afforded statutorily to
raise revenue, other than by taxation, thus went into decay and
retreated to the backwoods in every Local Authority. The latter
compelled the Centre to acknowledge the importance of professional
help in framing By-Laws as a fundamental feature of democratic local
governance. Therefore, it determined that it will facilitate the
same by the framing of `model By-Laws'. The experience of the latter
has nevertheless been that it did not catalyze the members, officers
and servants of local authorities to begin taking it seriously in
its usage to frame custom-designed by-laws for its respective areas.
alone would not have been effective tools for local development.
It may help to bolster revenue, but its sustenance requires trained
professional staff for the proper management of the assigned functions
related to the same. The inability by the local authorities to afford
such recruitment to the Local Government Service, prompted some
Central Government agencies to annex its professional staff in promoting
local development. In this connection, a key agency which was mandated
to complement the assigned functions of local government, comprised
the Department of Town and Country Planning established under the
Town and Country Planning Ordinance No. 13 of 1946. It began to
assist those local authorities which requested its assistance to
prepare Land-Use Plans and its accompanying Planning and Building
Regulations. However, such `external assistance' made it being literally
regarded as Technical Assistance for the specific functions of regulating
`building construction' and `land-sub division'. On the other hand,
it was not incorporated as an important tool for corporate management,
inclusive of its leverage on revenue generation for budgetary purposes.
Consequently, only a few local authorities made use of this `free'
It is in the
above environment that two phenomena in mainstream social and economic
change began to impact upon the orthodox institutions. One was increased
urbanisation accompanied by the emergence of the `Information Revolution'.
The other was the social demand for participation in the development
process. The former resulted in the compulsory annexation by the
Urban Development Authority (UDA) of all Urban Local Authorities
and of several non-urban ones, in the integrated planning and implementation
of development activity under the Urban Development Authority Act
No: 41 of 1978 and its subsequent Amendment Acts. While, the latter
transformed some of these authorities, especially in the Western
Province, the majority became even more marginalized by being centrally
driven. This prompted the UDA to subsequently exercise the power
vested by its Act to decentralise UDA Planning and Development Control
functions to the Local Authorities by Circular instruction issued
on 27 March 1985 to "All Mayors of Municipal Councils, All
Chairmen of Urban Councils, and District Secretaries of the then
Development Councils in respect of areas within their jurisdiction
declared under the UDA Law". It came too late as the duties
cast under its own laws together with the delegated powers under
the UDA law, overwhelmed the local authorities. Consequently, while
the profile of the UDA itself hit the high-point, the local authorities
were only able to clothe themselves under powers of the UDA without
necessarily undertaking development activity of their own in their
under the second of the aforesaid phenomena, social tensions developed
unabated. The consequence of same was the enactment in November
1987 of the 13th Amendment to the Constitution. It created another
tier of government called the Provincial Councils which were established
under its Act No: 42 of 1987. Accordingly, by the Constitutional
Amendment, Sri Lanka now has a three-tier system of Government -
namely National, Provincial, and Local. While, they are independent
horizontally, they inter-lock vertically with Centre - Periphery
dependence between National and Provincial Governments, and between
Provincial and Local Governments. The significance of the 13th Amendment
was the designation of the unit of the 2nd - tier of government
to be co-terminus with the conventional administrative provinces.
It also had exclusive lists of functions assigned to the National
and Provincial levels of Government. However, for whatever the wisdom
of the legislature, it retained a third list of functions called
the "Concurrent List", within the prerogative of the Centre.
The 13th Amendment
further introduced the concept of `Fiscal Devolution' affirming
that the country had embarked on the process of devolution in governance.
The latter could have only been effective to the extent it had access
to adequate resources to meet the needs of each devolved unit. The
latter therefore became central to the harmonisation of the Constitution
- crafting with fiscal devolution. However, the enabling institution
for the latter, namely, the Finance Commission, provided under Article
154 of the 13th Amendment, was unable to meet the aspirations of
the devolved Governments for several reasons beyond its control.
Consequently, the issue of `Fiscal Devolution' has re-emerged as
the centrepiece of negotiations at the on-going Peace Talks.
The most controversial
aspect is the interpretation of Article 154R(3) of the 13th Amendment,
which stipulated as follows:
shall, on the recommendation of, and in consultation with, the (Finance)
Commission, allocate from the Annual Budget, such funds as are adequate
for the purpose of meeting the needs of the provinces".
the above, the Finance Commission remains obligated under Article
154R(4) and (5) of the 13th Amendment to recommend the allocation
of funds to the provinces based on certain principles with the objective
of achieving balanced regional development in the country, taking
* the population
of each province;
* the per capita income of each province;
* the need progressively to reduce social and economic disparities;
* the need, progressively, to reduce the difference between the
per capita income of each province and the highest per capita income
among the provinces.
In the interpretation
of the aforesaid Article 154R(3) lies the origins of the concerns
on Fiscal Devolution which need to be resolved through dialogue
at the Peace Talks. Its agreement will be the beacon for its next
stage which are then likely to focus on Functions, and thereafter
on the Unit of Governance, and finally on Governance itself.
It is thus
pertinent to note that as far back as June 1989, the Finance Commission
sought clarifications from the Attorney General on the terms, "needs
of the provinces", and of "adequate funds". The reply
as follows to this gives useful guidance to those interested in
Fiscal Devolution during the on-going Peace Talks:
Needs of the
Sub-Article 3 states that the Government shall on the recommendation
of the Commission "allocate from the Annual Budget such funds
as are adequate for the purpose of meeting the needs of the provinces."
The use of
the plural form "provinces" would emphasise that the "needs"
contemplated are those of all the provinces taken as a whole, in
respect of meeting the expenditure necessary for effectively implementing
the devolved (List 1) or the concurrent (List III) functions on
the provinces by the Amendment. In other words, regard should be
had to the ascertainment of what amount of monies out of the annual
budget will be sufficient to meet the fiscal needs of all the provinces
to implement the devolved and concurrent functions. The Commission
will have to take into consideration, among other things, the willingness
and the capability of Provincial Councils to exercise their functions,
the need for the Government to maintain the services in respect
of devolved and concurrent subjects until the Provincial Councils
are geared to perform such services, and the financial resources
which are actually available to Provincial Councils utilising their
fiscal powers in List 1 and their borrowing powers implied in the
Provincial Council's Act.
The needs of
each province would vary, depending on the actual position prevailing
in a particular province in respect of the matter stated above.
The Commission, in recommending the allocation of funds, will first
have to compute the "needs" of each of the provinces determined
as set out, and then aggregate the whole as the "needs of the
Since the provincial
administrations are permitted revenue sources of their own (such
taxation in specified fields and borrowing), the duty to allocate
would not extend to all their needs but only in respect of such
needs which they cannot meet by exercising their fiscal and borrowing
powers. The Government, guided by the recommendations of the Commission
would have to meet the shortfall.
for the purpose
Once a determination is made by the Commission of the "needs
of the provinces", it becomes necessary for the Government
to provide adequate funds for meeting these needs. Basically, the
Government should seek consultation with the Commission, to fill
the gap between the expenditure needs of the provinces and the revenue
collections available to them from the devolved tax revenues and
other revenue sources which may be envisaged in the 13th Amendment.
to making a determination on the "adequacy" of such funds,
it is possible to take into consideration the fact that the Provincial
Council is empowered to borrow monies, provided that the nature
and extent of the actual potential to obtain finance by borrowing
is clearly assessed.
interpretation therefore prompts us to contrast same with experiences
in other countries.
available on the experience of Fiscal Devolution in many countries
clearly indicates that it can never be modelled on a universal system.
It must necessarily be country-specific; although benchmarking models
can be useful. In this connection, it is however, pertinent to note
a remark made by the Attorney General in the course of his aforesaid
clarification on Article 154R. He submitted that "the structure
of the Finance Commission; requires a mix of fiscal and socio-economic
expertise". The relevance of the latter reinforces the nexus
between the Provincial Councils and Local Authorities with the Town
and Country Planning legislation. It had the advantage of formulating
the Provincial and Local Plans that were statutorily obliged to
intrinsically integrate the economic, social, physical, and environmental
aspects of land in its declared bounds. Consequently, inherent in
the Plan would have been the mix of expertise which was referred
to by the Attorney General. It could have therefore been the `centrepiece'
of the budgetary process in these respective bodies, as it would
have clearly set out the planned duration, and the manner in which
the Projects and Programmes of their mandated functions were to
be financed, whether from taxation or borrowings or from transfers.
It could have thereby facilitated the Finance Commission to formulate
its recommendation to the Government for the allocation of funds
as would have been adequate for the purpose of meeting the needs
of the provinces.
in 1999, the National Government reacted positively to strengthen
the devolved tiers of Government. Thus, by Act No. 31 of 1999 the
Sri Lanka Institute of Local Governance (SLILG) was established
to focus on the capacity building of Provincial Councils and Local
Authorities; more specifically "to provide training to their
members and officers and servants with a view to equipping them
to perform their official duties efficiently and effectively".
Consequently, the statutory mandate and responsibility of this fledgling
institute offers a potent solution to the negotiations on both sides
of the divide in the on-going Peace Talks. It has already structured
itself to assist the Provincial Councils and Local Authorities in
the spheres of, a) General management, b) Financial management,
c) Engineering, and d) Physical planning. Under this umbrella it
also provides assistance in the formulation of By-Laws on revenue
generation and non-revenue generation subjects. Furthermore, it
has established a Research Division to undertake work on the Needs
Assessment of the devolved bodies which could in turn strengthen
the Institute's overall efforts in their Training and Capacity Building.
The SLILG functions
in collaboration with the Provincial Management Development Training
Units (MDTUs). The latter also straddles the Central Governments
premier training arm, namely, the Sri Lanka Institute of Development
Administration (SLIDA). Accordingly, the SLILG occupies a key slot
for the success of a devolved system of governance.
strategic role of the SLILG is reflected in the composition of its
Governing Council. Of its ex-officio membership, five are Secretaries
of key Cabinet Ministries, and in addition, includes representation
from Academia, Private and Non-Governmental Sectors, Professional
Organisations and from the Association of Local Authorities. It
is therefore a powerhouse of enablers. It cannot be, and should
not be marginalized in the current context of events. Hence the
focus on this relatively low-profile agency is essential, timely