FACING THE CHALLENGE

A $480 million US government grant that seeks to improve transport and land administration hangs in the balance

THE US GOVERNMENT’S MILLENNIUM CHALLENGE CORPORATION (MCC) HAS PROVIDED SRI LANKA WITH A $480 MILLION GRANT (COMPACT) FOR DEVELOPMENT PROJECTS BASED ON THE COUNTRY’S COMMITMENT TO GOOD GOVERNANCE .

However, the grant agreement hasn’t yet been signed. It’s become embroiled with the renewal of two US-Sri Lanka military deals which are facing intense criticism. Jenner Edelman, the new Resident Country Director for Sri Lanka, discussed the Compact, and the difficulties it is facing. Here are excerpts:

Could you give us an introduction to the MCC Compact in Sri Lanka?
The Compact has two projects. A $350 million project to improve urban and rural transportation and a $67 million investment in the land registry. The remaining $63 million is for technical assistance,project administration and monitoring.

For transport, our objective in the Western Province is to reduce congestion on more than 200 kilometres of the busiest roads through an automated traffic management system, which will analyze traffic flows and respond in real-time. I think everyone who lives here can relate to sitting in traffic and how frustrating that can be. In 10 to 20 years, the situation will become dire, and we don’t want another Mumbai or Jakarta here. If Colombo is to become an investment and financial hub, we need to address the situation now.

There will be geometrical reconfiguration to 132 junctions in and around Colombo so that individual turn lanes do not have to wait at traffic lights for 70 seconds.

We will also modernize the bus fleet to be safer and more reliable. The fleet will be modern, low-floored buses which improve accessibility for women, children and those with disabilities. Priority bus lanes and a mix of government and private buses operating on set schedules and routes will also be introduced.

On land activity, our primary objective is to improve the availability of information and land tenure security. We will be supporting several government initiatives which have historically been under-resourced. We will fund a parcel fabric map of state and private lands in 8 districts. Then it will be populated with records from various government organizations that own property. It will be called the e-State Land and Permission Management System. Currently, it is onerous for investors who are interested in leasing land, in finding out what’s available, which government agency owns it and how they can try to get a lease. We will introduce modern valuation techniques. The government, which owns 80% of the land, can then derive better revenues out of leases. We will also be digitizing the deed registry offices in the same districts to prevent fraud, theft and loss of records. Private land deeds will be converted to titles, which are a more secure form of land ownership. They can then be leveraged to set up businesses, mortgage or sell properties. These projects will stimulate real estate activity.

What are the economic returns for Sri Lanka through the Compact?

For all of our projects globally, we only invest in those that provide a sufficiently positive economic rate of return for a country. Our minimum is 10%. In Sri Lanka, our team of economists looked at reductions in travel time, higher productivity and an increase in tourism activity from the transport project. With the other, they sought to see how the land market is likely to be stimulated.

For the transport project we are expecting a 19% economic rate of return and for land, 26% over 20 years. There are also gains for Sri Lankan construction firms because MCC compacts do not have conditions which say that only American firms are eligible for projects.

What legislative changes are required for the success of the Compact?

For modernizing the buses, we will require reforms to fix the incentive structure. Buses now race from one bus stop to another to collect as many passengers as possible. It’s neither safe nor efficient.

One of the policy reforms we want to introduce is a move from the current fare model. We will be advocating for changes together with the regulatory authority so that individual bus operators have specific routes and all the revenue will go into one central pot. They will get paid based on their schedule adherence, and the number of kilometers serviced instead of the number of passengers. We will also look at how a license is issued in the new system. This will be a much more regulated environment. We have had several conversations with the bus lobby and the authorities on the reforms. There will be some funds available initially as we’re rolling this out because we want to ensure that no bus operator is making a significant loss until we work out the kinks. The fare card system will also help bus owners, as drivers and conductors who collect money will not be able to dip into the pot.

This is a scaled-up version of the previous Sahasara program, and we’ve learned a lot from that experience. Then the government implemented all the changes at once, and it was too much for the passengers and bus operators to handle. We want to take a more phased approach.

For land reforms, we don’t know what shape those will take right now. The government had initially proposed working through the Land Special Provisions Act to make some legislative changes. However, that act has been withdrawn for several different reasons. I need to emphasize that no foreigners, including the US, are trying to buy, own or sell land under this project. That is illegal. We would very much like to see legislation passed so that state land can be converted to absolute freehold land, where we have individuals who’ve been living on them for more than 10 years.

ON LAND ACTIVITY, OUR PRIMARY OBJECTIVE IS TO IMPROVE THE AVAILABILITY OF INFORMATION AND LAND TENURE SECURITY. WE WILL BE SUPPORTING SEVERAL GOVERNMENT INITIATIVES WHICH HAVE HISTORICALLY BEEN UNDER – RESOURCED.

How will you monitor the program?

We will be setting up a team of 65 professional Sri Lankans under MCC Sri Lanka to implement this program on a day-to-day basis. A Sri Lankan board of directors will oversee the team.

That board of directors will include several members of government including a representative from the Prime Minister’s Office, a representative from the President’s Office and all the secretaries from the relevant ministries who work with the Compact. There will also be civil society and private sector members on the board.

There will only be two Americans here. Myself and my deputy. Our role is simply one of oversight. We want to make sure that goods and services bought with US taxpayer dollars are done in an open, transparent manner with sound financial management.

We will have stakeholder committees that will be comprised of members, civil society, several institutions, and members of the general public. That’s very important. That’s in addition to the supervisory board that I mentioned.

The general public will also be able to monitor the progress through the MCC Sri Lanka website, which will be set up as the Compact begins implementation.

How large is the Sri Lankan compact compared to others?

It’s definitely on the larger side. First compacts are usually smaller. I worked in Malawi a few years ago, were the first Compact was $359 million. The largest Compact we have ever done was $698 million in Tanzania, so Sri Lanka’s is sizable. We decide on the size of a Compact based on the population and investment needs of a country, and how much money MCC has.

Some fear that agreeing to this Compact would allow the US military to set up bases in Sri Lanka. Is it true?

No. Unfortunately, our grant has been conflated with SOFA and ACSA, which are two separate agreements. MCC is owned by the US government but is independent, bipartisan and apolitical. It has absolutely nothing to do with these two military agreements, which are simply renewals of long-standing agreements that Sri Lanka has had with the US.

Our embassy has put any discussion of those agreements on pause for now because we don’t want them to be conflated with the MCC and they are not as time-critical. The Compact is a priority now for the MCC and the embassy here because everyone knows that the window is narrowing and we have collectively worked so hard to develop this programme.

We don’t have anything to hide. All our Compacts are public as soon as they are signed. This will be no different. If you look at our website, we have been working on 37 Compacts in 29 countries in Africa, Central and South America, Eastern Europe, Middle East, South Asia and South-East Asia over the past 15 years.

Elections are around the corner. If a new administration implements policies which cause Sri Lanka to perform poorly on the governance scorecard, will the Compact expire?

We do select partner countries based on how they perform on our scorecard. These are not our indicators but of third party institutions that are well respected, globally.

MCC Compacts are five years in duration, so this is not new for us. We’re apolitical and willing to do business with different types of democratically elected governments, so long as they are generally committed to good governance, economic freedom and investing in people, which are selection criteria.

We do not stop a compact unless something egregious happens. There have been only a handful of cases in MCC’s 15-year history, where we’ve had to suspend a program. Those have been in situations of coups. I can only think of Madagascar and Mali.

We don’t stop after implementation. Once we’ve entered into a formal partnership with the partner country, we continue dialogues, and when we see slippage, we work with our partner to see if there’s a way that we can support them. We don’t suspend implementation for that. However, there are a couple of criteria that are very important for us, what we call our democracy indicators. These are political rights and civil liberties. However, we will not produce a scorecard for Sri Lanka anymore because it is now an upper-middle-income country. Morocco and Kosovo are in the same boat.

ONCE WE’VE ENTERED INTO A FORMAL PARTNERSHIP WITH THE PARTNER COUNTRY, WE CONTINUE DIALOGUES , AND WHEN WE SEE SLIPPAGE, WE WORK WITH OUR PARTNER TO SEE IF THERE’S A WAY THAT WE CAN SUPPORT THEM .

Why is the window to sign the agreement closing?

Sri Lanka has been working to develop, finalise and sign this grant agreement since 2017 after extensive consultations with the private sector, civil society, several think tanks and universities. Based on a study by Harvard University, the government identified weak transport infrastructure and land as critical constraints to economic
growth. In 2018, our investment committee and our chief executive officer approved those project. In 2018, a team from all ministries related to the projects, led by the Treasury Secretary, arrived in Washington to finalise activities and agreement terms.

We had hoped to sign the agreement in December. However, due to the political crisis here in late October, we had to put the programme on hold temporarily. In April, our board approved it, and we have been waiting to get cabinet approval so that we can sign. This is not our programme. This is your programme. The window is narrowing because, in July, Sri Lanka graduated to upper-middle- income status. MCC is an economic development organization committed to poverty reduction has historically partnered with low and lower-middle-income countries. As the MCC approved this agreement last year and in April, we want to honor that commitment. However, we need to get that finalized before our board next meets in September. If the program isn’t signed, then our board may suggest that we use those resources elsewhere.

In December there will be another formal meeting to determine which partner countries are or are not eligible and there will be some tough conversations, given Sri Lanka has graduated to upper-middle-income status.