The Sunday Times FT - Human smugglers rise again

Human smugglers have been active again due to the precarious security situation in the northeast region, smuggling people to the west after about four years, a report on the economy has said.

The Point Pedro Institute of Development, Point Pedro in its regular report on the economy said ‘anecdotal’ evidence suggests that Colombo and suburbs have become a hive of activity of such human smuggling operations. “Dogs of war are unleashed in terms of bribery and corruption as well from people and vehicles plying between the north and the east, and Colombo,” the second quarter 2006 report on the economy by Dr Muttukrishna Sarvananthan, the Institute’s Principal Researcher, said.

In a section on human smuggling and corruption, he said as a result of the re-establishment of numerous security checkpoints by the police and army along the roads connecting the northeast and the rest of the country (particularly Colombo) they have become dens of bribery and corruption.

The Anuradhapura to Puttalam highway is particularly notorious for this. Police and armed forces personnel reportedly demand bribes from drivers of passenger and goods vehicles for unhindered passage. Unloading the entire passengers and/or goods for checking harasses people who refuse to pay up which naturally delays the journey. In order to avoid such unnecessary delays many people do bribe the police and army. However, due to multiple bribe seeking along each highway many cannot afford to pay at every checkpoint and therefore had to undergo severe hardship and delay, the report said.

In addition, bribery and corruption in and around Colombo has also intensified. Frequent checking of lodges and boarding houses invariably involves bribing security forces personnel in order to minimise harassment. Kidnapping coupled with ransom seeking has also begun to raise its ugly head again, it said.

Harassment of foreign entrepreneurs
In Ampara and Batticaloa districts, several petty traders from India were either abducted and/or killed on the suspicion of being spies during the second quarter. Since the signing of the ceasefire agreement in February 2002 hundreds of petty traders flew into Sri Lanka from India to sell sarees, salwars, and sarongs through door-to-door marketing in Colombo, the hill country and the northeast region. They served in both the government-controlled and LTTE-controlled areas. Until early this year they were trading unhindered with payment of taxes to the LTTE. However, in recent months several disappearances and at least one killing were reported in the Eastern Province, the report said.

“Due to this anti-Indian phobia in the province several sculptors from India who came to renovate and reconstruct Hindu temples in the Jaffna peninsula have returned to India during the second quarter,” it said.
Excerpts of the report:

Economic growth
The second quarter Gross Domestic Product (GDP) growth rate is not out yet, and is expected to be released only on September 29. The economy in the first quarter posted an impressive growth. The GDP grew by little over 8% in real terms during the first quarter 2006, which is a record quarterly growth in the past six years. The services and agriculture sectors were the largest contributors to this record growth. The quarterly GDP growth rate is worked out in relation to the GDP data of the corresponding quarter in the previous year (base). Since the quarterly GDP in the first quarter 2005 was low because of the impact of the tsunami the first quarter 2006 growth was unusually high. The GDP growth rate in the first quarter 2006 was higher than the preceding quarter (6.3%) and the corresponding quarter last year (4.4%).

The services sector posted the highest sectoral growth rate in the first quarter 2006 with almost 10% growth rate followed by the agricultural sector with over 7% growth. Telecommunications, financial services, defence, and wholesale and retail trade stimulated the services sector growth. At the same time, a bumper paddy harvest stimulated agricultural growth. Services sector growth in the first quarter 2006 was higher than the preceding quarter (5.9%) and the corresponding quarter last year (5.3%). Similarly, agricultural growth in the first quarter 2006 was higher the preceding quarter (4.2%) and the same quarter last year (-1.6%).

However, industrial sector growth in the first quarter 2006 (5.9%) was lower than the preceding quarter (8.6%) and the corresponding quarter last year (6.9%). This was due to the slow down in construction activities in the conflict region and decline in demand for manufacturing exports. Industrial sector growth is however expected to be higher in the second quarter due to the rise in manufacturing exports.

Agricultural
Tea output increased from 77.5 million kgs in the first quarter to 87 million kgs in the second quarter 2006, up by 12%. However compared to the second quarter last year (93 million kgs) tea output dropped by nearly 7% in the quarter under review (87 million kgs). On a monthly basis, tea output has been declining consistently during the second quarter 2006.

Rubber production dropped by 7.5% to 27 million kgs in the second quarter from over 29 million kgs in the first quarter.

Further, rubber production in the quarter under review (27 million kgs) was marginally lower than that during the corresponding quarter last year (27.5 million kgs). Rubber production has been hovering around a monthly average of 9 million kgs in the second quarter 2006.

Industry
Both the private and public sector industrial production indices (1997=100) dropped marginally in April and May but increased in June 2006. On a quarterly basis, the private sector industrial production index increased from almost 146 points in March to over 149 points in June. On the other hand, the public sector industrial production index declined from almost 104 points in March to almost 101 points in June.

However, both the private and public sector industrial production indices were considerably higher in the months of April-June 2006 in comparison to the same months last year.

Industrial exports increased by almost 12% in value terms in the second quarter compared to the previous quarter. Industrial exports increased from $1,166 million in the first quarter to $1,302 million in the second quarter. Furthermore, total industrial export value in the quarter under review was significantly higher (almost 20%) in comparison to the corresponding quarter last year ($1,090 million). On monthly basis industrial exports dropped consecutively in April and May but shot up in June 2006.

Inflation
In terms of the Sri Lanka Consumer Price Index (SLCPI 1995-97=100) the point-to-point rate of change in inflation has been rapidly rising, while the annual average rate of inflation has been consistently declining during the second quarter of this year.

The point-to-point rate of inflation declined by 1.1 points to 5.3% in April (from 6.4% in March), and then shot up by 3.1 points to 8.4% in May. It further increased to 10.7% (by 2.3 points) in June. On the other hand, the annual average rate of inflation dropped by 3.1 points to 6.5% in April (from 9.6% in March). It further declined negligibly by 0.3 points to 6.2% in May and by 0.1 points to 6.1% in June. The point-to-point rate and annual average rate of inflation during the second quarter were significantly lower than that in the corresponding quarter last year.

However, in terms of the Colombo Consumer Price Index (CCPI) both the point-to-point rate and annual average rate of inflation have consistently and considerably risen during the quarter under review. The point-to-point rate of inflation in terms of the CCPI increased to 13.2% in May (from 9.2% in April) and further to 17.7% in June. Similarly, the annual average rate of inflation in terms of the CCPI increased to 9.4% in May and 10.1% in June.

Rising world oil price and depreciation of the rupee have been the main causes of the cost of living rise. Further, growing public expenditure is also an additional burden on the cost of living by way of increasing demand for money.

Public debt
Sri Lanka’s total outstanding public debt increased to Rs 2,401 billion by the end of the second quarter from Rs 2,305 billion by the end of the first quarter 2006. This amounts to almost Rs 100 billion or 4% rise in just one quarter.

Total public debt incurred during the second quarter was higher than that incurred in the first quarter because of the increase in foreign aid received. Domestic debt decreased marginally by 1.4% to Rs 62 billion from Rs 63 billion in the first quarter. On the other hand, external debt increased by 45% to Rs 34 billion from Rs 24 billion in the first quarter.

Hence, total public debt increased by 11% to Rs 96 billion by the end of second quarter compared to Rs 87 billion in the first quarter. Total public debt incurred during the second quarter last year was only Rs 4 billion. Total government revenue has been Rs 207.5 billion whereas total government expenditure has been Rs 328.5 billion in the first six months of this year. Thus, there was a deficit of LKR (-) 121 billion in the first half of the year.

International trade
The quarterly values of exports, imports, and trade deficit in the quarter under review were unprecedented. Exports values increased to $1,643 million in the second quarter, which was 8% higher compared to the first quarter. On the other hand, imports value increased to $2,652 million, which was 15% higher compared to the first quarter. Hence, the trade deficit shot up by almost 30% to $(-) 1,009 million in the second quarter from $(-) 784 million in the first quarter. Industrial products (especially readymade garments) dominated the exports (accounting for 78% of the total) while intermediate goods (especially petroleum) dominated the imports (accounting for 61% of the total) during the first half of 2006.

Despite the record trade deficit, drops in net private remittances received and tourism earnings, the gross official reserve increased by the end of the second quarter because of the increase in foreign aid received ($100 million) during the quarter unde review. The gross official reserve increased from almost $2,800 million by end of March to little over $2,900 million by end of June, up by $112 million or 4%.

Remittances
Net private remittance received during the second quarter continued to be high though bit lower than the first quarter. Net private remittance received during the second quarter was $510 million, which was about 8% lower than that received during the first quarter ($557 million). For the first time, quarterly net private remittances received surpassed $500 million during the first two quarters of this year.

Moreover, net private remittance received during the second quarter 2006 was 32% greater than that received in the same quarter last year ($386 million). Besides, the net private remittance received during the first half of this year ($1,067 million) was almost 27% greater than that received during the first half of last year ($842 million). On monthly basis, net private remittance declined in May and June compared to the first four months of this year.

Tourism
The total arrival of tourists dropped from almost 160,000 in the first quarter to 137,500 in the second quarter (14% decline).
However, tourist arrivals in the second quarter 2006 were 7% higher than the corresponding quarter last year (128,900).
Similarly, earnings from tourism also declined by 14% to $100 million in the second quarter in comparison to $116 million earned in the first quarter. Nevertheless, tourism earning in the second quarter 2006 was 7% higher than that in the same quarter last year ($94 million).

Peace
In the aftermath of the signing of the ceasefire agreement in February 2002 many health professionals (doctors, technicians, nurses, etc), educationists such as school and tertiary teachers, construction professionals (engineers, draughts-persons, surveyrs, etc), and business persons returned to their places of origin in the northeast from other parts of the country, and a small number from abroad as well.

Many of these returnees and many more are now heading back to self-imposed exile in other parts of the country and abroad. Since they are displaced on their own will, there is no data other than anecdotal evidence.There are many students of Jaffna University who are deserting their academic studies and fleeing to other parts of the country or abroad. Businesses in the northeast are also moving to safer environs in and around Colombo.

This human and financial capital flight is depleting the meagre human and financial resources available in the conflict-affected region. This is going to weaken the economy and society in the northeast in due course.

Livelihood losses
Population displacements and curtailment of productive and economic activities continued during the second quarter as well. Fishing continues to be affected due to security restrictions. During the quarter under review fishing restrictions spread to the northwestern coast as well.

Exodus of people from the northeast, particularly from Mannar, Trincomalee, and Vavuniya, to India continued. Post-tsunami reconstruction activities continued to be hampered due to quantitative limitations on the movement of building materials to LTTE-controlled areas.

This has led to thousands of job losses in the casual unskilled labour market. There are job losses in the agricultural labour market as well due to constraints faced in marketing agricultural produce due to stringent security measures that hampers transport services within the conflict region as well as to outstations.

Cost of living
For the purpose of this report essential commodity prices were collected regularly in Kalmunai (Ampara district), Batticaloa town (Batticaloa district), Jaffna town (Jaffna district), and Vavuniya town (Vavuniya district). Twice every week prices are collected in each of these markets and then the average for the month is worked out.

The cost of living continued to soar in the conflict region. In the Ampara district prices of basic food items increased marginally but cooking and other fuel prices increased considerably during the second quarter.

Batticaloa district also experienced a similar trend whereby the rise in basic food items was marginal but the rise in fuel prices was considerable. Generally, prices in Ampara were marginally higher than in Batticaloa during the quarter under review.

On the other hand, in the North prices of both basic food items and cooking and other fuel items soared significantly. In Jaffna, for instance, price of rice, wheat flour, sugar, bread, and most vegetables increased significantly during the second quarter. Prices of fuel items also increased significantly. Due to the imposition of quantitative restriction on cement supplies to Jaffna and the Vanni the price soared by 33% to Rs.800 a bag in June from about Rs.600 in February/March. Further, in Vavuniya the price of basic food items and fuel increased considerably while the price of LP gas dropped marginally. However, locally produced perishable items such as vegetables and onions are sold at very low prices in the immediate vicinity of production because of lack of transport facilities to market further away.

Most expensive town
Jaffna was the most expensive town in the northeast followed by Vavuniya. Besides, the price gap between Jaffna and other districts of the northeast has increased in the second quarter in comparison to the previous quarter. Ampara and Batticaloa were the least expensive. The price difference between Ampara and Batticaloa was negligible. Besides, the price difference between Ampara, Batticaloa, and Vavuniya is marginal. Prices in the northeast are significantly higher than in Colombo barring basic food items such ar rice and vegetables.