ECONOMYNEXT – Sri Lanka has published by gazette more than two million persons who will receive welfare benefits including 400,000 severely poor beneficiaries who will receive payments of up to 15,000 rupees a month.
About 400,000 families identified as ‘severely poor would receive payments of 15,000 rupees a month for three years from July 01, 2023, under a welfare scheme branded ‘Aswesuma’.
About 800,000 recipients identified as ‘poor’ will get 8,500 rupees a month for three years.
Another 400,000 recipients identified as ‘transitional’ will get 2,000 rupees a month until December 2023 and 400,000 identified as ‘vulnerable’ will get 5,000 rupees up to March 2024.
Economists are able to expand poverty easily by denying monetary stability to the poor, and taking away the anchor that preserves the value of their salaries and financial savings, through unworkable intermediate regimes also known as soft-pegs or flexible exchange rates.
Sri Lanka pushed large sections of the country into poverty by operating a flexible inflation targeting regime with output gap targeting, or operating domestic monetary policy to suppress rates, while simultaneously, running and exchange rate policy to operate a reserve collecting central bank (an external and domestic anchor conflict).
Then anchor conflicts and stimulus led to a collapse of the currency from 200 to 360 the US dollar and lending by banks using injected funds (including using reserves for imports and offsetting interventions with new money) instead of real deposits has triggered a banking crisis as mal-investments turned into bad loans.
Sri Lanka had been operating anchor conflicting monetary policy and depreciating its currency from 4.76 to the US dollar since a money printing central bank was set up in 1950.
Currency depreciation intensified from the 1980s (the anchor conflict in the 1980s did not come from an inflation target but mostly from a domestic money supply target) helping worsen social unrest, critics have said.
There is strong support among Sri Lanka’s economic policy makers for currency depreciation and unworkable anchor conflicting monetary regimes.
Sri Lanka does not have a domestic doctrine of sound money to resist monetary instability coming from unworkable anchor conflicting regimes peddled to third world countries by interventionists sitting comfortably in single anchor regimes, critics have said.
As a result the country has become an IMF recidivist nation with chronic forex troubles which emerge when the anchor conflicts intensify and rates are suppressed under various frameworks.
In the last seven years, Sri Lanka ran into three currency crises including in 2016 and 2018 under so-called data driven monetary policy with a reserve collecting peg.
Simultaneous exchange and money policy are to be explicitly brought back in a new monetary law along with room for output gap targeting, which was not permitted under the current monetary law despite being operated under central bank independence and other procedures.
Sri Lanka welfare benefit schemed under flexible exchange rate is in sharp contrast to the country at independence when there was free trade and import of foreign labour under a single anchor regime like Dubai and Singapore does now.
When dual anchor conflicts began to emerge in addition to trade restrictions, quotas had to be placed on outward remittances, students of economic history say.
Under the flexible exchange rate (called BBC policy in the 1980s) large numbers of Sri Lankan have sought employment in countries with monetary stability.
(Colombo/Apr22/2023)