• Explains policy decisions at HSBC Power Breakfast in association with Daily FT

A large and diverse audience was in attendance at the Cinnamon Grand for HSBC’s Power Breakfast in association with the Daily FT to listen and interact with Deputy Minister of Policy Planning and Economic Development, Dr. Harsha De Silva who spoke on the subject of ‘Sri Lanka’s Economy: Challenges and the Way Forward’. The discussion itself centred on the rationale behind many economic and political policy decisions taken both in the build up and subsequent to last January’s Presidential election before moving on to the issues of Government corruption, wealth inequality, and his views on the true meaning of development while a brisk Q&A session saw many other issues being brought into focus including one of the key areas of contention for the private sector, the controversial Super Gain Tax as set forth in the Interim Budget 2015. Commencing his address on a lighter note De Silva joked that the large audience may have been more interested in the sumptuous breakfast spread provided by Cinnamon Grand than his views on matters of economic policy “So when I was told that there is a crowd which is a little bit more than usual I realised why. But let me first of all thank HSBC for inviting me for this important event. Many of you have lots of questions and I have limited answers but let us see how we can match the demand and supply. “I too am a customer of HSBC and so in the past I would often be seated where you are today and I would ask some tough questions. We also did this inside Parliament and outside. We wrote to newspapers and even created a television show so we could take our message to the masses in Sinhala. The response was good and people were engaging, sometimes we would get faxes coming in non-stop with people giving their views on a particular show. As the election approached, we went around the country and spoke to the people and it was then that we realised that we actually did have a chance to topple the previous regime if we focused on the economics.” While commending former President Mahinda Rajapaksa for his strong political leadership in helping bring an end to decades of conflict in Sri Lanka, De Silva asserted that the previous regime had – in essence – lost the peace. “There are no partisan views on this matter, we all respect President Mahinda Rajapaksa for ending the terrible Tiger war and he had a golden opportunity thereafter to win the economic war. But we realised fairly early on in the game that he was squandering that opportunity and as a political party, we did what we had to in order to rectify this situation. “Some of the stories that we’ve heard since then and continue to hear today are what we usually call ‘horror stories’. I am hesitant to believe everything that I hear about the previous regime and while there may be some doctoring of the numbers, I’m giving them the benefit of the doubt at least for now that overall figures and outcomes would not be drastically different,” he qualified, before embarking on one such tale of corruption. Describing the specifications of an average bathing well – a structure 10 feet in diameter with two columns and a pulley – De Silva asked the audience to estimate what the total cost of renovation for such a well could be, inclusive of labour and material costs. Audience estimates ranged from Rs. 10,000 to Rs. 30,000. “I have with me a file from the former Ministry of Economic Development and it has a whole bunch of projects that were undertaken in the Minuwangoda Divisional Secretariat. So as you can see I’ve got files just like the ones that they [the previous regime] were talking about. As I was going through this something struck my eye: ‘Gama Neguma Minuwangoda’ under which funds for the renovation – not construction but renovation – of several bathing wells had been allocated. “Each one cost – hold on to your seats – Rs. 500,000 each. Now I’m sure there is a big story behind that and I’m just taking one example out of hundreds of thousands of examples in the files that I have. But this is the scale of corruption that has been symptomatic of the development we’ve had until now. So the question then is: where did the money really go? This is the kind of inequitable distribution of growth that led to the defeat of the previous regime,” De Silva asserted. Building a social market economy Shifting his focus to the wider economic policy envisioned by his Government, De Silva joked about how the United National Party’s emphasis on social justice had been characterised by some newspapers as being a dramatic shift from capitalism to socialism before clarifying that policy that puts the development of the private sector first would always be the primary objective of his party. “We’ve been talking about equitable distribution of growth and justice for the people of this country. When J.R. Jayewardene came into power in ’77 he changed the way the economy was run. Perhaps some people were sceptical at the time and wondered if it would work but the fact is that it has worked. Maybe not perfectly but well enough to create a private sector that is the engine of growth which took Sri Lanka from where it was to where it is today. “Just like J.R. Jayewardene made changes in ’77 and ’78, Ranil Wickremesinghe will also make changes to the way our economy works from 2015 to 2020 and that change is being made to ensure the devolution of economic power,” De Silva stated. Referencing comments he made while on the campaign trail, De Silva reiterated the importance of average Sri Lankans being allowed to enjoy the benefits of the country’s post-war boom. “People must feel empowered. You are empowered because you are wealthy, have a good job, a successful business, you have a house – if it’s over a certain amount of square feet you’ll have to pay a tax but let me just clarify that this is based on the assessment of the Colombo Municipal Council (CMC) or the Municipal Council is situated and it’s only on the value of the house, not the value of the land- that is the reason why you feel empowered. “Imagine if you didn’t have that, imagine if you didn’t have well paying job, you didn’t have those two BMWs, you didn’t have the house you have, how would you feel? There are 20 million of us in this country, not just the 200 who come for these events, this is only the 0.001% of our population. If you create wealth for the 1% and you don’t create wealth for the 99% then we’re going to be in trouble and there will be social disharmony,” he cautioned. “This goes beyond economics or bond markets or the price stock price of John Keells or any other company for that matter. It is the responsibility of a nation, a state, a Government to provide, as it says in the Constitution, for the people as a whole. When we talked about devolution of power, what we said is that we want you to be able to buy the TV you wanted, to buy the three-wheeler or motorcycle you always wanted to get,” De Silva added. Elaborating on some of the hardships being suffered by average Sri Lankans, De Silva offered up his anecdotal experience of a train journey that he took from Panadura recently. “How many of you have travelled by train in the last 10 years? Not an air conditioned coach to Kandy but an actual office train? Do you know the agony of travelling this way? A few of us got into a train at Panadura and it was just incredible. The shoving, the pushing to get on board. You’re completely sardine packed, sweating and smelling through the whole journey and you just don’t realise how much of a tough time that the ordinary people of this country go through just to make ends meet,” he observed. Pointing to further hardships undergone by low to middle income earners in the country, De Silva pointed to high rates of jewellery pawning and the shock that such people went through when gold prices fell and credit growth contracted sharply in the recent past. “Many people in this country had to go into debt just to be able to afford to arrange a wedding for their children. So it was clear we needed to address the questions that people are facing and find answers for the common people of this country. In fact that was a lot of the thinking behind what we termed a ‘Radical Statement’ that we issued in 2012.” Quoting from the Radical Statement policy manifesto of that time, De Silva placed emphasis on segments of the manifesto related to the creation of a market economy which ‘is determined by a political process which is committed to providing equality of opportunity for all’. “So what do we mean when we talk about this social market economy? We believe that the market is the most efficient way to allocate resources, so fundamentally no one is moving away from the fact that the market is the best way for demand and supply to be brought into equilibrium. It is not in any way possible for administratively set prices to bring about this result whether it is in energy or education. We have to have a price that determines the best, most optimum allocation of resources of this country. We also strongly believe in the need for regulatory mechanisms. Without a regulatory mechanism, markets fail and when markets fail, governments must intervene. “The core principle is that we have to make markets efficient and we have to make smart, effective, non-disruptive regulation while ensuring that there is political, social and economic justice for the people of this country. That is what we mean when we say a social market economy. We’re not moving away from what we all believe as capitalists. There is no better way, but we have to make sure that we provide not just for ourselves but that we must provide for people who work hard. If you work hard, and play by the rules, you must be able to get ahead in life. These are fundamental principles on which successful countries have been built. Everyone has a role to play in development and everyone must benefit from it,” De Silva asserted. GDP per capita or average household income as benchmark Delving into the statistical benchmarks for development, De Silva highlighted glaring discrepancies between the previous regime’s often-cited statistics on GDP per capita of Rs. 35,000 and average household income at Rs. 11,930. “If you look at the two highest deciles, the top 20% of this country share 55% of this country’s income while the lowest three deciles, or the bottom 30% take only 8% of this country’s total income annually. Development in this country was measured using the top number but for us development does not mean how tall the Lotus Tower is – and by the way, I heard that it is LIBOR + 400 basis points – or how broad the flyover is on Mattala road where nobody travels. That is not development to us. What development to us is how well off is the household? What is the real income growth in the household? Is the family better off than the family was a year ago? That is development. Development must be measured at the grassroots because that’s where the real people are, at the bottom. “While the economy was growing at 7.5% annually based on the figures that the Census and Statistics gave us, and keep in mind that that is the real number after inflation, 7.5%, the annual growth rate of the real income of the household was 0.5%. I wouldn’t call that ‘Ascharaya’. I wouldn’t call that a fast growing economy. I wouldn’t be proud of that. I’m simply disappointed that as a country we were showing up having these great big presentations and very nice slides to depict something that simply was not the case,” De Silva stated. He further noted that if household income was growing at only 0.5% annually, and that figure were to include Sri Lanka’s most prosperous households, then in reality, many households would have suffered negative growth in their real income. “So where is this wonder? Where exactly was the success of this previous model?” he queried. “This is the area that we want to change. To get there we had to win the election and we had to give some promises, have a 100-day program, and we have to fulfil that, so we had an interim budget. Some of you may be critical of some of the items in there, and I’m not saying that we did everything right, we may have made a few errors here and there but work with us. It is one time. Work with us because it is going to be for the benefit of everybody if we keep social harmony. If we help people, make people happy, make your employees happy so they feel good about working,” De Silva urged. Rebalancing trade and foreign policy Meanwhile, discussing the role of external trade in Sri Lanka’s future growth story, he stated that a rebalancing of Sri Lanka’s exports would be implemented with help from both China and America, a feat which would require a realignment of Sri Lanka’s foreign policy as well. “Our foreign policy cannot be mutually-exclusive from our trade policy. We cannot get on the stage and say the Americans and the Europeans are getting together to take someone to the Hague therefore this country must have nothing to do with these people. The bulk of our exports go to the United States and Europe so shouldn’t we have a foreign policy that is in line with our trade policy? Shouldn’t economic policy be a subset of foreign policy? “We have already started to make that change and Mangala [Samaraweera] is in the United States already making major strides. He has asked the international community to give us a little time to meet our obligations and informed them that we are ready to meet those obligations and ensure that there is justice served to one and all,” De Silva noted He added that a committee has already been set up in order for Sri Lanka to re-apply for the GSP+ facility which had been revoked under the previous regime while discussions on a Trade and Investment Framework Agreement (TIFA) with the United States will also be commenced in the near future. “All these things become possible when you recalibrate your foreign policy to link with your economic and trade policy. Is that wrong? Is that being unpatriotic? If you do an FTA with the US are we being unpatriotic? No! I think that is being patriotic because we are doing what needs to be done to make sure our people are better off. We’re not saying we are going to move away from the Chinese, but only that we will balance it,” De Silva clarified. Drawing a comparison between the export performances of Hong Kong, which amounts to a ratio of exports to GDP that is close to 300%, and Sri Lanka whose performance had been lacklustre in comparison, both over the last decade and at its present value. “Sri Lanka was 35% 10 years ago. Today it is 15%. We want to arrest that downward trend and turn it around and take it about 100%. If we want to accomplish this objective, we have got to align our partners well and that is what we’re trying to do,” he observed. In that regard, De Silva stated that a strong focus would be placed on improving export competitiveness in tradable goods, instead of non-tradable items like wholesale commodities, retail and construction. “These are not going to be the driving force of this country in years to come. We have to put money in tradable exports and we have to get more foreign direct investment. It is a sorry state of affairs that we only get $1 billion in FDIs and we have to borrow, borrow, and borrow for the rest,” De Silva added. In that context, he noted that many of the loans entered into under the previous regime had been taken out at exorbitantly high interest rates including a $306 million loan from the Exim Bank of China at an interest rate of LIBOR +0.9%, according to the original agreement for the construction of the Hambantota Magampura Mahinda Rajapaksa Port. “I made this statement during a televised debate against Bandula Gunawardena and people started asking me if that was even possible. LIBOR at the time was 5.1% or slightly above 5% and of course we know what happened to LIBOR soon after, this was in October 2007. “In the subsequent eight to nine months LIBOR fell to about 2% and the lender requested that the rate be fixed at 6.3% for the remaining 15 years. The Minister of Finance then issued a Cabinet paper saying that the lender has requested it to be fixed at 6.3% therefore we shall fix it at 6.3%! LIBOR today is at 0.4%. Add a premium of 0.9% and its 1.3%. So how and why are we paying 6.3%?” he questioned. He added that FDI into Sri Lanka was being blocked by ‘entry-fees’ which had discouraged Volkswagen from entering Sri Lanka despite showing an initial interest in the country. Market inefficiencies and market-oriented pricing Shifting gear to discuss the performance of agriculture markets, De Silva questioned as to why agricultural poverty was rampant in the country despite the cost of food remaining persistently high. “Under the previous regime we had programs like ‘eka gamata eka bogayak’ – one crop for one village – and they just haven’t worked, they will never work, because that is going outside the market. The reason why there is so much agricultural poverty in Sri Lanka is because agricultural markets are inefficient. They do not work. So unless we really understand the problem and fix it, we will never have a long term sustainable solution to get this country’s poor out of poverty,” he stated. Noting that only an approximate 10% of total lending is directed towards the agriculture sector, De Silva stated that it was a top priority would be to ensure more funding is pumped into the agricultural sector through agricultural insurance and credit schemes. “These farmers are exposed to the vagaries of the weather but can he buy insurance so he’s not brought under or hammered when there is a drought or a flood? What about the information asymmetry between the agricultural market and the farmer? “You’ve seen photographs in the newspapers that elephants are fed with tons of vegetables at the Dambulla market and then the next month your wife will complain: ‘you know tomatoes are 200 bucks!’ So you do without tomatoes,” he stated. In that regard, De Silva asserted that it was down to market inefficiencies that the average consumer had to undergo drastic fluctuations in the price of agricultural commodities. “The real transaction and the financial transaction have been bundled together. There are no instruments for the farmers to use to hedge themselves against volatility. We haven’t looked at financial markets creating the right type of instrument for the farmer. So these are major changes. Developing the bond markets and making sure that there are the right types of instruments and that there is financial inclusivity,” De Silva noted. He further noted that under his Government, a new regime of market oriented pricing would be embarked upon particularly in energy markets. “We’re headed towards market oriented pricing, that decision has been made. If the global oil prices can benefit the consumer, then the consumer must benefit from that. That does not mean that the tax that the treasury gets is reduced, it doesn’t, it’s the same amount, but you’re not making money on those poor people because you entered into some hedging deal that went sour and refused to pay and you’ve been asked to pay, or because of the utter corruption within the Ceylon Petroleum Corporation and the Ceylon Electricity Board that you have to tax the people so much to make ends meet and you still can’t. So we’re going to move into market oriented pricing in energy and we will soon empower the Public Utilities Commission of Sri Lanka to do a good job,” he stated. Independence of the Central Bank Meanwhile, discussing the performance of the Central Bank of Sri Lanka (CBSL) and the role of the regulator in future, De Silva emphasised on the fact that the CBSL must remain independent and impartial at all times. “The Central Bank must do its job. It is not a political mouthpiece for the Government; it should never be one! It must advise the Government, not just go around and say that everything is hunky dory. If it is not then the CB’s responsibility is to say that it is not good. “The Central Bank has no business bidding for the Commonwealth Games. The Central Bank has no business buying property in the United Kingdom or the United States. The Central Bank has no business getting into various contracts with various pimps around the world. Instead it must focus on price stability and financial market stability and be an independent advisor to the Government. If we can do that we will be moving in the right direction we believe, to regulate properly and to create the platform for people like you to create the instruments that are required,” De Silva stressed. Reaching the end of his speech, De Silva went on to give a few insights into what his new role in Government meant for him and what he hoped to achieve in the widest possible sense through his time at the Ministry. “My job is an amazing one. I’ve wanted to do this job ever since I learned of the word economics. I’m humbled and even scared of the responsibility to try and help create a Sri Lanka that we all want. In this policy planning process, what we want to do is to avoid planning policy in silos. We want to be truly inclusive in the policy planning process. “What you want as voters, industrialists or entrepreneurs, is what we have to create the policies around so that you can succeed. It is with that objective that we have taken some of these institutions out of the day-to-day operations of the finance ministry and that is why the Prime Minister has taken it out himself and this just goes to show how much priority that we place on the new Ministry and we hope to engage you effectively and meaningfully in the days to come. I hope I was able to explain the thinking behind why we are doing the things we are doing and why we are committed to making markets work better while ensuring that there is social, political and economic justice for the people of this country,” he concluded.   Pix by Daminda Harsha Perera and Lasantha Kumara

Question and answer session         Subsequent to Deputy Minister of Policy Planning and Economic Development Dr. Harsha De Silva’s address, the floor was opened to questions from the audience, moderated by Savithri Rodrigo. Following are excerpts: Q: You said you strive to build a highly-competitive social market economy. In that context what are the three key challenges that you would be facing? A: I think I’ve already explained that we need political justice. We have to feel free and I think we’ve already given this country that freedom. You’re no longer worried about speaking out, you can say what you want, there are no white vans, and there is media freedom. We’ve unblocked Colombo Telegraph. We’ve given people some space, we’ve given all the space we can and we’ve announced that the first 1,000 acres will be released to the people of the north from the High Security Zone. That’s political freedom and the political justice that we want the people to have. Social justice and economic justice I don’t want to get into because we’ve already talked about it quite a bit now but property rights particularly in the context of economic justice, economic freedom. A basic and fundamental principle of property rights is that your property is your property! Your property cannot be expropriated tomorrow by the Government. So you must know that you have this investment in your name for today, tomorrow and the day after. So that is the kind of justice that we’re talking about. Q: There has been a lot of rhetoric about the GDP growth rate. Can we maintain it at the same rate over the next few years? A: You don’t need a government in this country for the economy to grow at anything around 6% I think. The private sector is engine of growth. We want to take the economic growth to double digits. We want to grow this country at 10%. Really at 10% mind you, not a doctored 10% but truly 10%. Q: It’s over 35 days from the 100 days the UNP has to win and the way forward as you have said is to put the economic hitmen and robber barons in jail. Enough of the rhetoric, now we need action. When are you going to catch the big fish? A: That is a tough question you see. We don’t want to take the law into our own hands. If we can create an independent Judiciary, then the Judiciary will do its job. For instance the Constitutional Council, once it is set up will appoint judges to the higher courts, it will appoint a police commissioner, it’ll appoint the independent commissions that will get the job done. So I don’t think that Harsha De Silva or Ranil Wickremesinghe or Sajith Premadasa or someone else can say: ‘look he is guilty so he needs to go to jail.’ That cannot happen so we can get the Police to investigate, we can get the Bribery Commissioner to investigate and we have a new Director General at the Bribery Commission’s office and we are going to give them the 78 computers that they want and allow them to do their job. Q: On the same note, how could we minimise if not eliminate some of the things you talked about like the Rs. 500,000 wells and the entry fees and these ‘gini-poli’? Can you give an example at a strategic level as well as an example at a practical operation level? A: Thank you for that question. Procurement is a seriously-flawed process in this country. Whether you’re procuring the services of a mason to build or repair a bathing well or procuring the services needed to build a port, airport or highway. So we have to make sure that there is – as much as possible – competition in the procurement process. So whether we go back to the National Procurement Agency or whether we introduce new laws where competition is compulsory whether it is in the market or for the market, we have to create competition in the procurement process. We have already appointed a committee to look into the start, this whole unsolicited proposal phenomena that seemed to have brought in larger amounts of corruption than otherwise. So how do we deal with unsolicited bids? Do we simply say ‘no’ to unsolicited bids? I don’t think so. I think what we need to do is have a process whereby these bids go through some competitive evaluation. So that’s where we’re headed with it. But for instance with these Rs. 500,000 wells, we’ve cancelled all of these and we’ve actually dissolved the Ministry of Economic Development. The Ministry of Economic Development was only another layer of corruption. That’s all it was. Q: Could you give us an insight into the GSP+, the benefits for the exporters, particularly the garment industry? A: So we have to meet all these international covenants. The problem that we had was with the International Covenant on Civil and Political Rights (ICCPR) as well as issues on torture and child rights. So the last two I don’t think is going to be a problem anymore but the ICCPR is what we have to work on. We are hopeful that we can overcome that challenge. We’ve appointed a four-member team headed by my Secretary, Professor Kithsiri Liyanage. He is the new guy at the Ministry of Policy Planning. He is a PhD in Electronics Engineering from the University of Tokyo and has a lot of experience with the East and the West and brings a new flavour, he’s not your typical Sri Lanka Administrative Services person. So we’re looking at fresh ways of looking at projects. We also have some others with experience in the European Parliament, the former Director General of Commerce, and the current Director General of Commerce. So let them work on the initial groundwork and we have a lady from Brussels who is helping out. So it is moving and soon we will be able to make some announcements as to how much progress we’ve made but we’re certainly making progress and we will soon make that application. Q: You were critical of the previous regime’s policy of keeping the currency artificially high. Do you now feel that these concerns were warranted? A: When I say markets must work, markets must work! I mean, whether it is in the agriculture markets or the foreign exchange markets. The issue is whether you are putting resources that you don’t have to make the market work. I don’t want to go too much deeper into this because then I would contradict myself when I say that the Central Bank must be independent because I am in Government. Arjuna and Nandalal and the rest of his team will have to meet with the new Monetary Board and talk with them about the true – I repeat the true situation – and determine where we have to go with the exchange rates. We always have to be mindful when they depreciate. There is a burden on the Government because we’re highly indebted in dollar terms so we have to manage that but that doesn’t necessarily mean that we fall into a bigger rut in months to come. So let the Central Bank decide what the best course of action should be and let the politicians be out of it. Q: Taxing the private sector through one-off Super Tax measures will negatively affect the amount of investment and job creation in this country, in turn affecting economic growth. How will this affect policy and what was the reasoning behind the Super Gain Tax? A: I know some of you are very upset and mad at us. Please work with us. We’re looking at a one-time imposition of this tax. I agree that the retrospective nature of this tax is not the best precedent to keep as we take office but this is a one-off tax, you have to believe us on this and we have to meet fair expenditure and target. So as I say, work with us. You won’t have it again and remember that we did this budget in just a week or two. It is our joint responsibility as a Government so I’m not going to say that X did this and Y did that, we have made as a Government this decision which we presented in the Budget and the policy going forward is going to be what I explained and there when we talk about economic justice, we mean taxes that should be fair. They need to be predictable; they should not be regressive but progressive. What’s happening is that when you put high taxes on food, they become really regressive taxes on the poor which is really hurting the poor even more. If you look at the tax structure, it is very unfortunate that some of the best minds in Sri Lanka sat down and came up with the National Taxation Report headed by Prof. W.D. Lakshman and I don’t know if Saman Kelegama is here but IPS is also under us now and the report has been ready in all three languages for several months and the previous Government didn’t want it released. I mean we have to understand that we’re only making 11% of GDP as revenue when it should be 17-19%. It’s a huge issue. I mean where does the Government get revenue? Taxes! So is it that GDP is totally overstated and people are actually paying taxes and therefore it is unfair to say that they are only paying 11% because if the GDP was not doctored taxes would be 14% or 15% or 16%? I don’t know. The second thing is the regressive nature of tax. The direct taxes are only about 20% and the indirect taxes, food and others are 80%. It shouldn’t be like that. Direct taxes should go up to about 40% and indirect taxes should come down to about 60%. So we are working on restructuring and bringing fairness to taxes as a whole. Q: Where should Sri Lanka invest to safeguard current levels of growth? A: If we’re to create a highly competitive economy, our top priority should be education. We have to create the labour force to be able to deal with the kind of high-tech, higher value-added exports. So we lack the right type of graduates coming out of the Universities for the kind of jobs we want to create. The government is already committed to increase its education budget up to 6% with a view to creating these graduates who can capture high-paying jobs. Q: The Budget 2015 imposes a fee of $ 10 per export box from Sri Lanka. Shouldn’t this be imposed on imports instead of exports to be in line with export promotion? A: Like I said, there are some contradictions in our budget, I’m the first to say that there are and the issues can be brought up and discussed. These have not been legislated, gazettes have not been published and approved in Parliament so there is still time. There are cases where we’ve spoken to the professionals and tried to change and revise some of these things. Q: What are the key risks to growth in your view? A: I don’t want to talk about global risks at the moment but locally if we somehow miss the bus in creating and maintain that peaceful environment, I think that would be the biggest risk to growth. That is also the biggest challenge, that we create that social justice and political justice. If we can start thinking like Sri Lankans, not Sinhalese or Tamil or Muslims, then I think that would be a massive victory for us which can then leverage so many other things be it foreign investment, international investigations against us and all those things. That is the biggest risk at this time and we have opportunity of a Government that consists of UNP, SLFP and everyone else, and the Prime Minister says that the next five years should be a National Government, not a UNP government or an SLFP government. So let’s get that going and agree on our policy, our education policy and our health policy and then get it done. Q: Why is the Port City going ahead? It was said to be full of corruption, do we proceed or do we stop? A: No, our Government has not agreed to proceed with the Port City project. What our Government has done is to appoint a committee to look into the various angles and aspects of the project. It’s environmental impact, costing. I know for a fact that several people are working on it. I’m privy to some of the findings but I’m not authorised to talk about it here but soon a statement will be made in Parliament on our stand on the Port City. So if people say we’re stopping it, that’s wrong and if they say that we’re going ahead with it that is also wrong. Q: Thank you for your insights. You were talking about engaging the private sector to help achieve your objectives or reaching a social market optimum so how do you do that? A: We are in fact right now speaking with some people yesterday as well. We’re creating a private sector committee to work with the Government agencies and they will have subsectors. We have a financial market sector. We have taken national planning, physical planning, IPS and Census and Statistics and all those things that are important in the planning process and on the other, the regulatory bodies in the financial sector, the Central Bank, the Insurance Board and the Securities and Exchange Commission. So we want to create the right type of policies for the real economy and the financial market. What we’re trying to do is get private sector experts to help us by sitting down in the next six to seven weeks and come up with the kind of policies that would be expected and possible to be developed, working together. So it is a convergence of what you want and what we can do to create broad policy. In the next few weeks we will be making public a plan to engage with private sector. Here we don’t mean putting advertisements and asking people to send us letters, we will properly work with associations and experts in various fields. Q: What will be the policy on exchange rates and interest rates and what is the ideal policy rate for Sri Lanka? A: No comment.   Q: The mobile telecom industry might well go into liquidation lock stock and barrel with the 25% tax, how would the Government handle that? How would a small-time distillery pay Rs. 200 million in tax a year, do you want them to exit the market? A: The distillery question I’m not going to take, if it is a company specific matter I don’t want to discuss it but the telecom tax is something that we need to find a solution for. On my way here I was speaking to Treasury officials about it. We certainly don’t want to make companies bankrupt. That is not our objective and we believe that the mobile operators are doing an excellent job and cutting transaction costs so the benefit to society is far greater in terms of connecting people and that has to happen and we need to move to the next level of information and communications technology so let us work together on it. Nothing has been legislated so there is still room to negotiate.