India's External Affairs Ministry reportedly informed the Madras High Court that Douglas Devananda, as a cabinet minister of Sri Lanka, could not be arrested as he enjoys diplomatic immunity, warning that any attempt to arrest Devananda would sour relations between Sri Lanka and India.

Devanda, leader of the pro-government paramilitary group-cum-political party, EPDP, is wanted in a 1986 shootout and murder case in Chennai, Tamil Nadu.

He was also been accused of kidnapping a boy in 1988. In 1989, he was arrested and later let out on bail.

Under Secretary in the Ministry of External Affairs, Kaghal Matha Praphullachandra Sharma, also stated that India did not have an extradition treaty with Sri Lanka.

However, according to a report in the The Hindu, under sub-section (1) of Section 3 of the Extradition Act, there was an extradition arrangement between the governments with effect from September 1, 1978.

Leaked US embassy cables, sent in June 2009, describe Devananda to have a "violent and even criminal history", showing "few signs of reforming".  

The cable's author, also drew attention to the "close ties [that] continue between the top levels of the GSL and Devananda", before concluding,

"Embassy has privately pushed the Sri Lankan government not to install a Devananda-led regime in the north. 

"In light of Devananda's lack of legitimate popular support, we remain concerned that local or provincial-level elections held hastily in the North could be manipulated to put Devananda and the EPDP into power at the expense of legitimate Tamil representatives, thereby undermining the post-conflict reconciliation process."

"We have told senior interlocutors (including Devananda himself) that the violence of its armed wing's tactics and the continuing criminal activities of EPDP cadres in Jaffna and Colombo would pose serious obstacles to U.S. cooperation with a provincial government led by him, or working in conjunction with an EPDP-led northern administration on reconstruction efforts."

A group of Australian academics, politicians and human rights campaigners is calling for Sri Lanka's suspension from the Councils of the Commonwealth until the government agrees to cooperate with an international investigation into war crimes.

“Commonwealth nations have to take [their institution] seriously or otherwise it just becomes another gentleman's club where everyone slaps everyone on the back and says nice things.

“The Commonwealth is an important means of assisting the less wealthy and less powerful members of the Commonwealth, but unless they start dealing with serious breaches of human rights and rule of law and war crimes, then it will not be taken as seriously.”

- John Dowd, from the International Commission of Jurists in Australia. See Radio Australia’s interview with him here.

See also our earlier post:

Australia's Greens urge suspension of Sri Lanka from Commonwealth
 

The Janata Vimukthi Peramuna (JVP) has suffered a major split and a new party has been formed according to reports in The Island.

The dissidents led by Dimuthu Atygala, Pugbudu Jagoda and Waruna Rajapakse are said to have walked out a Committee meeting on Monday after announcing the breakaway.

The breakaway faction, who claim to have the support of more than half of the JVP’s 24-member committee, are expected to register a new political party soon.

However, JVP leader Somawanse Amarasinghe downplayed talks of a crisis at the party.

“The JVP is functioning like before and there is no crisis to talk about. I won’t respond to rumours and at present we are focused on the local government polls,”

Sri Lanka’s trade, currency and debt quandary

The International Monetary Fund suspended its programme of supplying Colombo with credit in exchange for reform on Monday after Sri Lanka refused to follow advice and abandon a policy of actively intervening in foreign exchange markets to support the value of the Rupee.

Earlier this month Brian Aitken, the IMF’s head of mission in Colombo, warned that Sri Lanka’s policy of selling dollars to maintain the value of the rupee “does not seem to be in line with the fundamentals in the economy”’ and that the policy was rapidly depleting foreign currency reserves.

He pointed out that Colombo’s “non-borrowed reserves.. have steadily declined, reflecting foreign exchange sales by the central bank.”

(See Reuters' report here).

In July alone the central bank sold $416 million to support the value of the SLR against the US$ and is estimated to have sold over $300 million in August. (See LBO's report here).

Although the Central Bank claims that it holds $8 billion in reserves, most of this is in the form of loans: Sri Lanka actually only owns $700 million of reserves.

This is even lower than the $900 million Sri Lanka held in June 2009 when the war ended and it was forced to seek an IMF bailout in order to avoid defaulting on foreign loan repayments.

Expanding trade deficit

Sri Lanka’s trade deficit expanded a staggering 62 percent in the first half of this year compared to the same period last year, reaching $4.2 billion.

Against the IMF’s criticism, Sri Lanka’s Central Bank governor Ajith Cabraal, on Monday defended the policy of selling dollars to maintain the value of the rupee. Cabraal petulantly added that while Sri Lanka would take all advice, it would nevertheless steer its own path.

Analysts said that surging import demand was being fuelled by credit growth as Colombo used its growing control over the banking sector to fund government debt whilst also increasing credit to the private sector, thereby generating import demand.

Central Bank figures at the end of June showed that total bank lending increased by 29 percent between January and July, and in the same time banking lending to the government expanded 28 percent. (See p9 of this report).

(On a related theme, see also our earlier post on the links between bank lending and ethnicity in Sri Lanka).

Bank nationalisation by stealth?

Over the past few months Colombo has actively expanded its control over the banking sector by using state owned pension and insurance funds to buy shares in commercially owned banks. (See comments by opposition lawmaker Eran Wickramaratne here).

IMF mission chief Aitken has warned that Colombo’s use of state owned pension funds was undermining private sector confidence.

In loaded, if diplomatic language he said Colombo’s actions could be “misconstrued” and raised the potential for “negative perceptions” – meaning the government’s actions appeared to be nationalisation by stealth.

As such, Aitkin advised, “it may be good for the government to make its intentions clear and this would be better for private sector investor confidence.”

Domestic bank lending to the state grew by 14 percent from December to June, while soft loans from international development agencies (or foreign concessional lending) grew by just 2 percent. (See chart)

Foreign commercial (or non concessional) lending to the government also grew to 10 percent – making it even more critical for Colombo to maintain adequate foreign currency reserves to repay this foreign debt.

As an example of concessionary lending to the state, the Commercial bank has a loan of Rs 1.5 billion for the state run Road Development Authority (RDA), the Sunday Times reported.

The loan is payable over an extended period of fourteen and a half years while the terms of interest are unclear.

Sri Lanka has a long history of using its nationalised banks to provide cheap loans to Sinhala farmers and business as well as for welfare projects, such as housing construction that almost always benefit the Sinhala areas. Such loans are rarely ever repaid.

Earlier this month, the IMF formally noted the expanding credit, cautioning: 

“Banks and other financial institutions should also guard against a relaxation of lending standards and the accompanying risk of a build-up of nonperforming loans.”

Why manipulate rates?

Although it is normal practice for banks to lend to governments, as most government debt produces safe returns, in Sri Lanka the state-linked banks are being directed to buy government debt at concessionary interest rates.

Ideally, the interest on government debt should be set by the market – i.e. the rates at which lenders are willing to risk their capital (lower interest rates indicating lower risk).

In Sri Lanka, however, the government is setting the interest rate of its debt at artificially low levels through Central Bank intervention and by directing state-linked (‘captive sources’) banks, pension and insurance funds to lend at cheap rates.

(See reports here, here and here).

So, if Colombo were to allow the exchange rate to rise, it would not only make imports more expensive, individuals and government agencies would use their borrowed cash either for domestic (rather than imported) purchases or, more likely, would not want to borrow as much.

As a consequence, in theory, import demand would fall and credit growth would slow.

But Sri Lanka has a problem: the economy simply doesn’t produce enough domestically, including sufficient food products, for example. (This is, incidentally, despite the heavy government subsidies to Sinhala farmers.)

Consequently, as the LBO analysis points out, Colombo wants to maintain both the exchange rate at a high value (enabling cheaper imports) and keep interest rates down (to allow it to continue borrowing at will).

(See LBO's analysis on the problems of the ‘soft peg’ here and here)

The effect of an overvalued rupee and unnaturally low interests is to produce both inflation and pressure on the currency to devalue.

Magic cycle

Colombo’s manipulation of the banking sector is further confounded by certain activities of the Central Bank.

As Sri Lanka’s banks run down their reserves of cash by lending at concessionary rates, the Central Bank has stepped in to maintain bank reserves by buying government debt held by banks in exchange for cash - cash that it simply prints at will (i.e. without underlying value).

In effect, the government borrows from the bank, and then the Central Bank prints rupees to ‘pay off’ the debt.

The banks are then encouraged to lend their newly printed cash at concessionary rates again, and thus the cycle repeats.

This expansion of money in the economy, without an increase in productivity, (which is what printing money means) has led directly to soaring prices on the street (inflation).

The government’s own preferred index is recording an inflation rate of 8.9 per cent, high by any standards. However, the LBO noted that the alternative wholesale price index has recorded an increase of 20 percent, a figure more in keeping with the soaring cost of living actually felt by ordinary people.

Exchange rate pressure

Meanwhile, government agencies - and those private consumers able to borrow - use cheap loans from state-linked banks to purchase even more imports, leading to pressure on Sri Lanka’s rupee to devalue.

The recent loan to the Road Development Authority, for example, will be used to purchase equipment and raw materials, much of it imported. (The percentage taken as graft by contractors, bureaucrats and ministers will also inevitably be used to buy luxury imports).

Foreign vendors have cottoned on to this. For example, in recent months, both Porsche and Range Rover have rushed to make their latest models available to Sri Lanka’s wealthy.

Meanwhile labourers hired to work on RDA and other government projects will likely spend their wages on food, much of it again imported.

For an import dependent and debt laden country like Sri Lanka, a weak currency is a problem. Not only does it increase the cost of essential commodities, such as oil, but a devalued currency would also make international debt repayments more expensive.

The government’s deliberate and repeated efforts to compel the domestic banking sector to fund its own shortfalls are thus having predictable consequences: fuelling inflation whilst also creating the conditions for yet another foreign exchange crisis.

And all good things eventually come to an end.

Speaking at an event held to mark International Day of Peace, John Rankin, the British High Commissioner to Sri Lanka, stressed that the absence of war does not necessarily equate to peace and that peace "means different things to different people.

"On Peace Day, I think it is important to reflect both on the importance of peace and the challenges to achieving it. The absence of war does not automatically mean that peace has been achieved."

"Peace means different things to different people."

"But I am sure we can all agree that the inclusivity, trust and respect are essential to creating and maintaining peace."

Sixteen Human Rights organisations, including Amnesty International, FORUM-ASIA, Human Rights Watch, International Crisis Group and International Commission of Jurists undersigned a letter addressed  to the High Commissioner of the Human Rights Council, Navi Pillai, appealing for

“...your leadership in enabling the Council to fulfill its responsibilities towards ensuring accountability for the alleged violations of international humanitarian and human rights law committed by both sides during the final stages of the conflict in Sri Lanka.”

The groups also requested the High Commissioner to acknowledge the receipt of the Panel of Expert Report and to invite Sri Lanka and the Secretary General of the UN to “present to the Council at its 19th regular session in March 2012 their undertaken activities with respect to the implementation of the joint communiqué, including the findings of the LLRC.”

For full letter click here.

Sri Lanka’s ambassador has urged the US to pass the GSP programme in a joint letter sent to the Senate on Monday.

Sri Lanka was joined by the 9 other members of the Coalition of Generalized System of Preferences in advocating for the renewal of the GSP program, which will be discussed in the Senate later this week.

The letter details the adverse effect the suspension of the program has had on the members’ respective economies.

Sri Lanka is said to have lost top supplier positions to China, with US imports of construction vehicle tires dropping by 28.5%, although imports from China increased by 50%.

Imports of Gold and Jewellery into the US have also been affected, with Sri Lanka registering a drop of 26.5%.

Sri Lanka complained to the US, saying that the decrease in imports is causing job losses, economic downturns in many regions, reduced output in various industries and a drop in competitiveness for much needed investment.

For full letter click here.

''It is likely these asylum seekers will be treated harshly when all they have done is exercise a legal right.

People who are desperate to get away from Sri Lanka know that it is a dangerous enterprise coming by sea. We Australians praise ourselves as great humanitarians - this is hardly an example of compassion.''

''Australia should be helping build protection frameworks in the region, not praising countries for trampling on the rights of their own citizens.''

Australia's Greens launched a campaign to call for the suspension of Sri Lanka from the Commonwealth until a credible independent invesigation into alleged war crimes takes place, reported The Australian.

Greens senator, Lee Rhiannon, reportedly expressed hope of 'building bipartisan political support' for the suspension of Sri Lanka.

The Greens have the backing of several human rights activists and jurists.

John Dowd QC, a member of the International Commission of Jurists and former New South Wales attorney-general explained,

"If Sri Lanka is used as a host, it ignores the fact that war crimes have been committed. The Commonwealth has to realise it can't keep being polite when one of its members is guilty of (such) crimes."

Senator Rhiannon added,

"We will be looking at whether delegates of the Sri Lankan government may be refused a visa to visit Australia for CHOGM if it can be proved they do not meet the 'character test' and 'public criteria test'."

The upcoming Commonwealth Heads of Government Meeting will take place in Perth, Australia, later next month.

Last week, the Canadian Prime Minister, Stephen Harper, pledged he would boycott a Sri Lanka-hosted CHOGM in 2013 unless there had been meaningful progress on human rights. Harper called on other member states to take a similar principled stand.

See "Canada calls to boycott Sri Lanka CHOGM"

A British Tamil man has been arrested and held in Sri Lanka for over four years without charge under the Prevention of Terrorism Act (PTA), reports the Guardian.

Father of two, Viswalingam Gopithas, from South London has been under Sri Lankan custody since April 2007, accused of trying to supply night vision equipment to the LTTE.

Reports have also emerged of other British Tamils, including a fifty-one year old woman, Vasugi Kaunanithy, being held by Sri Lankan security forces under the Prevention of Terrorism Act, since August 2011.

Gopithas' continued detention has prompted expressions of concern from the both the British Government and legal charities, bringing into focus the Sri Lankan government's draconian anti-terror legislation.

A spokesman for the British Foreign and Commonwealth Office said,

"FCO minister Alistair Burt raised Mr Gopithas's continued detention without charge with the Sri Lankan foreign minister, [G L] Peiris in June this year … [and] more broadly, the UK has regularly expressed its concern about legislation in Sri Lanka that allows for prolonged detention without charge."

Gopithas says he was arrested for purchasing mobile phones and global positioning systems to bring to UK for use in a friend’s minicab business.

The equipment was in fact never actually brought into Sri Lanka, but left with customs officials at Colombo on his entry to Sri Lanka, while he visited family. Shortly before his departure, Gopithas went to the airport to ensure that the items were ready for transport back to the UK, but came under arrest by the Terrorism Investigation Department (TID).

In any event, Gopithas also pointed out, the equipment was not prohibited at the time.

From there, he was made to sign a statement in Sinhalese, a language that he does not understand and has since spent his custody in New Magazine prison in Colombo.

Fair Trials International, a UK-based NGO, has filed an application with the UN Human Rights Committee on Gopithas’s behalf, challenging his detention.

Jago Russell, the charity's chief executive said,

"The Sri Lankan conflict ended years ago but thousands of people, including Mr Gopithas, still languish under so-called 'emergency laws' with no trial and no end date to their detention."

"British authorities must pressure the Sri Lankan authorities to either try Mr Gopithas fairly or put an end to his arbitrary detention, and allow him to return home to his wife and two young daughters in London."

Current British Foreign and Commonwealth Office travel advice warns that the "Sri Lankan Prevention of Terrorism Act and Emergency Regulations permit prolonged detention without charge or trial."

It is also noted that, “anti-Western (particularly anti-British) rhetoric has increased” and urges visitors to avoid “military, government and paramilitary locations”.

They also state that in Sri Lanka "you should exercise a high level of vigilance”.

See our earlier post: "Army defends use of PTA on civilians" (Sep 2011)

“We must be clear about the fact that Sri Lanka is a rogue nation. It has carried out genocide against the Tamil people, and we must do all that we can to stop the persecution of the Tamils once and for all.”

“We must make a distinction between murder and genocide—genocide is scientific, organised killing”.

“Britain must take a brave and principled lead—just as we did in Kosovo and, with France, in Libya—and do all that it can to ensure that a full independent international investigation of war crimes takes place.

Those of us who believe in justice want the people responsible to be held to account, just as all of us would agree about Colonel Gaddafi, Radovan Karadzic and Charles Taylor.

We cannot allow the international community to slip back to the cosy days of 2009, when the UN disgracefully ignored calls for a war crimes investigation, or when the Secretary-General spoke of Sri Lanka’s ‘tremendous efforts’.”

“The allegations of war crimes and other human rights violations committed by both sides in the military conflict are of great concern to us.

The UK has consistently made its position clear: Sri Lanka needs to address accountability through an independent, thorough and credible process that meets international standards and allows the people of Sri Lanka to move towards reconciliation and lasting peace and security.”

“What I want to say, to everyone in the House, is that we have a duty.

We have a duty to represent not only our constituents, but those who have no voice, wherever they are in the world. We have a duty to stand up for innocent people, whether they be Tamil or Sinhalese, and to get justice.”

“The world must say to other Governments that there is nothing to be gained from taking the Sri Lankan option of brutal repression and war crimes.”

“Beyond the sphere of domestic Sri Lankan politics, the international community has a responsibility to secure justice.

Justice must be sought because that is the right thing to do, but it is also right that we should pursue justice as a means of deterrent. Writing recently in The Times, Lord Ashdown made a poignant observation:

‘The point about law is that it exists not just to deliver justice after the event but also to govern behaviour beforehand.’”

“I call on the Minister to reassure the House that he will not permit Major-General Silva to serve here. I want Britain to prove its place at the head of the international community, and I hope that the Minister can enable it to do so by removing this man’s diplomatic privileges.”

 “Sri Lanka still wants to host the Commonwealth summit in 2013. We should be clearly saying “No, not until there is a fully independent, UN-led international inquiry.” I hope that if one thing comes out of today’s debate, it will be that commitment.”

"There is a saying that one judges a man by the friends he keeps. In the same way, one can judge a Government by the allies they keep.

In the past decade, Sri Lanka’s key allies have been Iran, North Korea and Colonel Gaddafi. Colonel Gaddafi gave Sri Lanka £500 million in financial assistance for so-called development projects. In return, Sri Lanka strongly opposed the no-fly zone in Libya and offered him sanctuary. Even after Gaddafi was threatening Benghazi, Sri Lanka organised mass rallies in his support, protesting against NATO intervention.

We all know the story of North Korea, yet Sri Lanka was happy to sign a major weapons contract with it in 2009.

We also know the story about Iran, yet Sri Lanka signed business and oil contracts with that country in defiance of international sanctions.

Despite that, Sri Lanka continues to be a member of the Commonwealth and the United Nations."

“I have expressed concerns about holding of the next Commonwealth Summit, the one after the one coming up in Sri Lanka.

I intend to make clear to my fellow leaders of the Commonwealth that if we do not see progress in Sri Lanka in terms of human rights and some of the issues you’ve raised, I will not as Prime Minister be attending that Commonwealth Summit I hope that others will take a similar position, but I hope this will pressure the Sri Lankan government to take the appropriate actions."

 "Mr Rajapakse must think very carefully about who he brings."

Leaked US embassy cables reveal how then Ambassador Robert Blake warned Sri Lanka that mass civilian civilian deaths would ensue, if its military stormed the government-declared safe zone.

A March 2009  cable, detailing a meeting with Sri Lankan Foreign Minister Bogollagama, said:

“Ambassador recalled continuing reports he has heard that the military intends to take the safe zone by force and told the Foreign Minister if the government did so thousands, perhaps tens of thousands, could be killed.

“If such casualties occurred the government would be accused of war crimes and its actions would diminish Congressional and public support for future US assistance to Sri Lanka.”

Sri Lanka warned

Blake, now US Assistant Secretary of State for South Asia, went on to urge Sri Lanka to think “very very carefully” on the next steps to be taken after the military surrounded the government-declared safe zone.

Thereafter, Sri Lanka launched a massive air, sea and ground offensive, escalating the bombardment of civilians.

The following month, in another meeting with Bogollagama, Blake said that,

“comparisons are already being made to what transpired in Rwanda where the international community did not do enough to prevent a catastrophe.”

Blake added that if they pursued the military option then Sri Lanka could expect “escalating international criticisms.”

“The Ambassador said such actions could include suspension of aid to Sri Lanka, closer scrutiny of IMF lending, possible war crimes investigations, and perhaps other actions.”

Denials 'not credible'

When Bogollagama defended the Sri Lankan military's conduct and denied any shelling of the safe zone took place, Blake replied that

“such a claim was simply not credible, given multiple, credible, independent sources on the ground in the safe zone.”

Blake also referred to a phone call from Secretary of State Hillary Clinton to President Rajapakse, which stressed that the Sri Lankan Army should not be firing into the safe zone.

Medicine blockade

He also urged Sri Lanka to stop blocking medicine reaching the civilian population, noting that apart from a small shipment of basic supplies, no medicine had been allowed in for almost 6 weeks.

(Sri Lankan continued its blockade till the end of the war.)

The cable read:

“Ambassador recounted appalling stories [the embassy] has received of amputations and other operations done without anesthetics and stated, "frankly, it's unconscionable" that the Sri Lankan military was still preventing medicine from reaching civilians despite repeated assurances from Basil Rajapaksa that they would be let through.”

Rajapakse unrepentant, 'bewildered'

Blake ended the cable by concluding that President Rajapakse was disregarding the potential of any negative response to Sri lanka's military action.

"The President's genuine popularity among his Sinhalese voter base and his eagerness not to appear to be cowing to international pressure may be creating a situation in which he does not understand or refuses to believe the extent to which the international community will react in outrage if GSL troops enter the safe zone forcibly.

These thoughts were echoed by Blake's successor, Ambassador Butenis, who following an August 2009 meeting with the President wrote to Washington:

"President Rajapaksa expressed bewilderment and frustration at "President Rajapaksa expressed bewilderment and frustration at U.S. policy for encouraging him to fight terrorism and then criticizing him when he did."

“The Government of Sri Lanka has not taken credible steps to ensure accountability for the grave allegations of war crimes and crimes against humanity identified in the April 2011 report of the Secretary- General’s Panel of Experts on Accountability in Sri Lanka.

Nor has the government pursued policies to reconcile the country’s ethnic communities after decades of political violence and conflict.

Instead, its post-war agenda has been to further centralise power, expand the role of the military, undermine local civilian authorities, and politicise the institutions that should uphold the rule of law and combat impunity.”

“should be prepared in March 2012 to endorse an international inquiry into allegations of crimes by both sides in Sri Lanka’s civil war, unless the government implements a credible accountability process before then.”