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Tuesday April 16th, 2024

How effective has Sri Lanka’s COVID-19 lockdown been?

ECONOMYNEXT – Since May 21, Sri Lanka has been under lockdown in all but name, with curfew-style movement restrictions imposed island wide in an effort contain surging COVID-19 cases. At the time of writing, with confirmed daily cases still well over 2,000, restrictions that were supposed to be lifted June 14 have been extended till June 21 and are widely expected to continue till the end of the month.

Though cases have seen a dip since June 03, there has also been a corresponding drop in daily PCR tests. Exactly how effective has the lockdown been in terms of slowing the spread of the virus?

Authorities maintain that, given the virus’ incubation period, laboratory delays and other logistical factors, the results won’t be apparent until some time has passed. Others, however, contend that the restrictions don’t seem to apply equally to all, with thousands still moving freely and potentially contributing to more cases – a problem aggravated by what they call a collapse in testing, particularly random testing, and contact tracing. Still others have called for continued restrictions, imperfections notwithstanding.

The lockdown was imposed in the face of a spike in cases that belonged to a so called “New Year cluster” that officially began on April 15, the day after the Sinhala & Tamil New Year holidays which saw thousands of people gather in bustling shopping districts in Colombo and elsewhere.

Case numbers continued to rise  throughout the restriction period, with 3,410 infections confirmed on June 03. Army Commander Gen Shavendra Silva, who heads Sri Lakna’s COVID-19 task force, said numbers will continue to rise until four weeks after the lockdown.

“We hope to see a decline in cases after June 11 or 12. At present, we’re seeing the results of our past behavior,” he told reporters on June 10.

Some 88,000 vehicles come into Colombo every day during the lockdown, according to police, though a vast majority of these claim to be essential services.

Related: Sri Lanka police discontinue lockdown traffic sticker; parties continue undetected

“We have to wonder if these restrictions have actually been imposed, because we still see a lot of vehicles on road and coming into Colombo,” President of the Sri Lanka Medical Association Dr Padma Gunaratne told reporters on June 15.

Despite the large number of vehicles, officials claim, no mass gatherings have been observed.

However, thousands have been arrested for violating the lockdown, or “quarantine law” as it is officially called – among them celebrities who threw birthday parties and loudly protested an alleged double standard. The Kurunegala mayor was also in hot water when no less a person than the local Assistant Superintendent of Police (ASP) organised a birthday event in his name – in close proximity to the police station. The ASP was transferred, though no action appears to have been taken against the mayor.

Authorities were also baffled, seemingly, to find that residents of Colombo had driven over 100 kilometres to Galle to receive the second dose of the elusive AstraZeneca vaccine that was reserved for locals. Luxury vehicles bearing Western province (WP) license plates were seen parked outside the Southern province vaccination centre, despite islandwide movement restrictions.

Related: Sri Lanka vaccine conundrum: How did Colombo residents get AstraZeneca in Galle?

All this against a backdrop of ordinary citizens being frog-marched into police buses for allegedly violating quarantine laws.

Related: Police arrest 7,316 Sri Lankans for alleged non-compliance of quarantine regulations

Private sector businesses engaged in essential services have been permitted to operate. Apparel companies, which bring in much-needed foreign exchange, continue to operate at great risk to staff and possible risk of quarantine leaks. Trade unions have demanded that garment factory workers are prioritised in Sri Lanka’s vaccine rollout the same way frontline workers in the health sector and the military are. Trade unions also complain of stigma against workers, with people fearing that returning workers could bring the disease with them. One incident in Kilonochchi in early June where villagers had compelled a group of garment factory workers to not board their factory bus was a case in point.

Programme Coordinator of Dabindu Collective Chamila Thushari told EconomyNext on June 14 that more and more positive cases are identified within Sri Lanka’s export processing zones. She claimed that the correct numbers were not been published and that workers are not allowed vacation.

“Supervision by management and health officials is very poor,” she said.

With regard to the vaccine, Thushari said most workers are under the age of 30.

“Even if a vaccine rollout is initiated, the country’s most valuable workforce will neglected,” she said.

Chairman of the Public Health Inspectors (PHI) Union Upul Rohan told the privately owned Derana network that the lockdown has indeed been useful.

The restrictions have aided PHIs and Medical Officers of Health (MOH) to detect more patients and trace contacts, said Rohana.

“Before the restrictions, there were times when we would go to get a patient’s information or trace contacts and nobody would be at home. But now we can direct close contacts to quarantine facilities and patients to treatment centres without much difficulty,” he said.

The Sri Lanka Medical Association (SLMA) has called for continued restrictions.

What with over 2,000 cases reported a day, now is not the time to relax and act as if the danger has passed, said Dr Gunaratne.

“If we don’t make some sacrifices now to bring the situation under control, we will see a rapid increase in cases again,” she warned.

Police Spokesman Deputy Inspector General (DIG) Ajith Rohana conceded on June 15 that there has been an increase in traffic in the city.

“An analysis by intelligence officers has shown an increase in vehicles. We have focused our attention on this, and we request the public to remain indoors as much as possible,” he said.

In a letter addressed to President Gotabaya Rajapaksa on June 11, SLMA President Dr Gunaratne said the lockdown shows promise.

“We find that the number of new cases, though still high, have remained fairly stable. This is a major improvement compared to the time before the lockdown when the COVID incidence was rising exponentially. It will take two-three weeks for the ‘lockdown’ to have an impact on case numbers, and even longer, on deaths. This is because of the incubation period of the disease, the time it takes for the disease to progress, and for people to seek health care,” she said.

However, movement restrictions were not highly stringent. Some workplaces such as factories and some offices continued to function during the lockdown, and this too will slow the impact of the lockdown, said Gunaratne.

The SLMA chair also noted that vaccines in general have “markedly less action on transmissibility of the infection”.

Gunarante has recommended that the lockdown continue till at least June 28. She has also called for more stringent implementation of the restrictions as well as increased surveillance for COVID-19 in factories and workplaces. The SLMA’s other recommendations include increased random PCR tests in the community, better communication strategies, and a ban on tourists from countries with ongoing transmission.

Executive Director of the Institute for Health Policy (IHP) Dr Ravindra Rannan-Eliya believes the lockdown has not been as successful as it could’ve been.

“I have to say I don’t really understand the “lockdown” or whatever the government calls this. Clearly there is a lot of movement for some people, but not all,” he told EconomyNext on June 14.
Rannan-Eliya is of the view that Sri Lanka’s movement restrictions have not been very effective in containing the spread as it has failed to substantially reduce transmission.

Testing, tracing and isolation which he said are the most critical interventions in managing the crisis have collapsed, he claimed.

“The drop in testing and substantial collapse in contact tracing and isolation makes the reported case numbers an unreliable metric of actual infection trends.

“Given these issues, it’s hard to know what is happening, but I would not exclude the possibility that the lockdown has failed to result in a decline in transmission rates,” he said. (Colombo/June15/2021)

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Sri Lanka could get hit from a disorderly US tumble

ECONOMYNEXT – Sri Lanka is recovering fast but the country could get hit from an unravelling of advanced economies, particularly the United States, which is skating on very thin ice, after exceptionally bad monetary policy, which has destroyed fiscal metrics as well.

The US was running bad to atrocious monetary policy since 2001, when Ben Bernanke misled Alan Greenspan into printing money to run an 8-year cycle, firing a commodity and housing bubble which collapsed after rates were kept at around 5 percent for about a year.

That was the end of the Great Moderation started by Paul Volcker and continued with some skill under Greenspan, until the Fed was infected by Bernanke, the depression scholar. Keynes was also a ‘depression scholar’, in essence.

Gold prices fell from 800 to 284 dollars an ounce under Volcker-Bernanke, until Bernanke cooked up a false deflation scare with a healthy banking system and started to reverse it, firing the housing bubble and the Great Recession in its wake.

Then came quantity easing after the banking collapse and Frank-Dodd to control banks.

From around Covid and until March 2022, quantity easing resumed no holds-barred with fiscal policy also deteriorating as the government used the money.

It is now almost a year since interest rates have been at 5 percent in the US after Powell started to raise rates.

But this is not the US of 1980 or 2000, and it not just some companies but the government is chocked to the gills in debt after the MMT style stimulus and Covid handouts and perhaps the most aggressive ‘full employment’ policies in the history of the Fed.

Warning Signs

F A Hayek said this of Keynesianism and the policy rate to boost growth through full employment policies (now called targeting potential output in Sri Lanka).

“It was John Maynard Keynes, a man of great intellect but limited knowledge of economic theory, who ultimately succeeded in rehabilitating a view long the preserve of cranks with whom he openly sympathized.”

In continuing with quantitative easing with a healthy banking system, the Fed and the ECB is putting Keynes and John Law to shame.

It was perhaps no accident that the IMF taught Sri Lanka to calculate potential output a few years ago, with this ideology running high in Washington, eventually taking both the Yahapalana and Gotabaya Administration down and driving Sri Lanka to default.

There was an unprecedented overall deterioration of policy around the world that spread from the Fed and US universities, just like in did in the 1920s when the policy rate and deliberate open market operations were invented and 1960s when its own anchor was busted .

From last year the US broad money supply has been shrinking in absolute terms, something that has rarely happened.

The Fed no longer looks at money supply, under their current framework.

Economist Steve Hanke, who was ad advisor to the Reagan Administration when the landmark action was taken to bring monetary stability back in the early 1980s, and kick-start non-inflationary growth, has pointed out that absolute falls in the money supply is very rare in the US.

Hanke also accurately predicted the 2022 inflation spike from Fed’s inflationism.

Bad Money, Bad Budgets

US budgets are shot.

After years of bad Fed monetary policy (which also helped Sri Lanka borrow in dollars from sovereign bond holders and China), US rates are going up and interest costs are rocketing like in Sri Lanka.

Is it possible for a US Treasuries auction to fail?

In theory no, since the Fed can buy it up as Sri Lanka’s central bank does to cut rates and trigger external crises.

But any such event can send bad vibes which can be the proverbial straw that broke the camel’s back.

The US Treasury had almost a perfect system going until around 2000, with the China and East Asia buying up US debt and importing the stability of the Great Moderation to become investment and export powerhouses.

But US Mercantilists who believe that exchange rate pegs made East Asia export powerhouses, at the expense of the US trade deficit, put pressure on China and other countries to break the peg, losing a big buyer of their debt.

IMF backed Self Destruction

The IMF fully supported these efforts.

China then broke the peg from around 2005 and diverted savings to the Belt and Road project.

When the housing bubble broke, China was in pretty good shape with tighter than US policy until then.

After quantity easing started US rates were low in any case. Sri Lanka was one of the countries that the money was diverted to.

Bond holders, also awash in liquidity started to buy crappy bonds from low rated countries which are now defaulting like dominoes.

The Fed, by triggering commodity bubbles and oil prices that tends to incentivize leaders of illiberal mineral rich countries into war, Arab Israeli wars or Russian aggression.

US dealt itself another blow during the Ukraine crisis.

The lack of knowledge in US policy circles was clearly shown by the freezing Bank of Russia reserves invested in the US.

It prevented Russia’s central bank from using reserves to mis-target rates and sterilizing the interventions with printed money, and helped Russia avoid a monetary meltdown.

Instead of printing money to mis-target rates after intervening to trigger a currency crises like repeated IMF backed countries and Latin America does, Bank of Russia hiked rates to 20 percent virtually the day after reserves were frozen and clean floated.

As a result, the US budget has lost another customer for its bonds. More to the point it has discouraged others from buying US bonds as well. If reserves are frozen, then countries which have bad relations with the US will no longer buy US bonds.

Clean floating countries will not collect reserves in any case.

The steeply rising gold prices now, are partly driven by central bank purchases, who would perhaps have bought more US bonds in the past. If more countries are driven to external crises though flexible inflation targeting, they will also sell US bonds.

The IMF has has started peddling flexible inflation targeting to Vietnam.

In the last Article IV consultation, the IMF also promoted expansionary fiscal policy dealing a death blow the central bank efforts to stabilize the external sector by replacing private credit with government credit.

Curiouser and Curiouser

There is another curious phenomenon seen in Fed statistics that should make people sit up and take notice.

The reserve balances component of the US monetary base (there is no longer a required reserve rule in the US amid the latest deterioration of its monetary framework) is climbing even as the Fed is engaged in quantity tightening.

This is clear liquidity preference behaviour, where the smart banks are getting ready for the worst instead of – say – buying government treasuries.

Sri Lanka saw a similar situation among the best managed foreign banks in Sri Lanka during the country’s ‘mother of all currency crises’.

Fed wants to quantity tighten, but banks are building up liquidity. Essentially the effect on the economy is the same – some banks are not lending. The difference is these banks may be smarter.

There seems to be two types of banks, which are acting in completely different ways in the US.

While some banks seem to be loading up on liquidity others are lending – at 5 percent plus.

Commercial bank credit which stopped growing and fell from the time the Fed started to tighten policy in March 2022 (a very quick response) has started to edge up over the past few months.

It is not clear who is taking the loans, at 5 percent plus which is a very high rate for a highly leveraged economy like the US. At least some of it must be going for commodity speculation.

Meanwhile gold has hit 2,400 dollars an ounce. Gold was only 284 dollars an ounce when Bernanke induced Greenspan to print money for positive inflation targeting by falsely firing a deflation scare in 2000.

There was some expectations by various technical analysts that gold will hit 2,400 an ounce. So, it can be a self-full filling prophecy.

Whatever it is, a commodity bubble at the tail end of a rate hiking cycle is not a good omen. A similar trend was seen just before the collapse of the housing bubble. It is like the dead cat bounce of the commodity world.

Soft-Landing or Disorderly Unravelling of the Powell Bubble?

In the Greenspan-Bernanke bubble it was HSBC’s housing unit in the US that showed that the system was rotten.

The jitters over the Iranian attacks show that US markets are skating on very thin ice.

It is not clear to what extent US companies are over-leveraged.  It was mostly a housing bubble that broke in 2008. But this time credit has shifted to other sector.

Government debt is one. The recent bank failures related to marked-to-market long-term government bonds confounding those who promote full reserve banking.

But there are signs that some other companies, including those in infrastructure which tended to be pretty safe, have borrowed and engaged in activities like leveraged dividend recapitalizations.

Over recent years there had been a spate of leveraged dividend recaps.

Jerome Powell said last week that the Fed will continue to tighten with inflation still high.

“The recent data do not, however, materially change the overall picture, which continues to be one of solid growth, a strong but rebalancing labor market, and inflation moving down toward 2 percent on a sometimes bumpy path,” he said.

“Labor market rebalancing is evident in data on quits, job openings, surveys of employers and workers, and the continued gradual decline in wage growth. On inflation, it is too soon to say whether the recent readings represent more than just a bump.

“We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent. Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy.”

Under the Fed’s (historical) data driven monetary policy and its dual mandate (which by the way was generally ignored by both Volcker and Greenspan in favour of stability) there is no chance to cut rates, so he is justified in the stance.

But it does not necessarily mean that the historical data he is looking at will lead to a soft-landing or another deflationary collapse.

This time, the US government will have less room than in the past to engage in various macro-economic policies to manipulate the economy given its debt and the political crisis in Washington.

The banking system may also not respond to Fed actions as it had done in the past.

In earlier collapses, gold, dollar notes and US government debt were investments of choice for economic agents, as shown in Exter’s pyramid.

The US so-called ‘weaponizing’ of the dollar has reduced its attractiveness overseas, but not necessarily at home as shown by the recent liquidity preference behaviour.

Sri Lanka hit by bad US policy in the past

In past US monetary crises, whether the Great Depression, the 1960s inflationism (Sri Lanka first started its journeys to the IMF in the middle of that decade and passed the import control act), the 1971 collapse of the Bretton Woods (Sri Lanka closed the economy), the country has been hit.

In 1980s when US improved policy Sri Lanka failed to capitalize on it unlike dollar pegged East Asia.

From 1978, at the tail end of the Great Inflation period, Sri Lanka lost a credible anchor leading to high inflation and social unrest and missed stability that East Asia got by maintaining external anchors with the Fed improving its policy.

The US and the US dollar survived in 1951 and 1980 as hard money people got back into the driving seat and inflationist macro-economists lost favour.

However it did not happen in 2008. Things essentially got worse as it did in the 1930s with quantity easing infecting even once prudent reserve currency central banks, as Keynesianism and the policy rate did after the Great Depression, leading to mass devaluations in the 1930s.

It may be time to look for countermeasures. Sri Lanka at the moment is fixing its budgets and has reasonable monetary policy though the operational framework is deeply flawed. Companies and individuals may also need to hedge their bets.

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IMF urged Sri Lanka to preserve “hard earned gains” after economic crisis: State FinMin

ECONOMYNEXT – The International Monetary Fund has urged Sri Lanka to preserve the hard earned gains after an unprecedented economic crisis under the global lender’s programme, State Finance Minister Shehan Semasinghe said.

The Sri Lankan delegation led by Shehan Semasinghe met Kenji Okamura, the Deputy Managjng Director of the IMF on the first day of the IMF and  World Bank Spring meeting.

“Mr. Okamura commended the Sri Lankan authorities on strong programme implementation and excellent reform progress. He emphasised the need to preserve the hard earned gains Sri Lanka has experienced since the beginning of the IMF programme and continue strong ownership,” the State Minister said in his X (Twitter) platform.

He said the Sri Lankan delegation including Central Bank Governor Nandalal Weerasinghe and Secretary to the Treasury Mahinda Siriwardana explained the recent socio-economic developments to Okamura.

He also affirmed the IMF top official on the authorities’ commitment to ensuring continuity and consistency of macroeconomic policies and reforms undertaken under the programme. (Colombo/April 16/2024)

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Sri Lanka State FinMin meets BCIU in US; discusses post-crisis investment prospects 

ECONOMYNEXT – Sri Lanka’s State Finance Minister Shehan Semasinghe met Business Council for International Understanding( BCIU) in Washington on the sideline of the IMF/World Bank Spring Meetings late on Monday and discussed investment prospects in the island nation which is gradually recovering from an unprecedented economic crisis.
“Our discussion centered on the potential that Sri Lanka offers for international investors. Explored various sectors, including education, tourism, renewable energy, agriculture and technology, where strategic investments can drive sustainable economic growth and development,” Semasinghe said in his X (Twitter) platform. 
“We reviewed the current macro-economic landscape of Sri Lanka, including recent reforms that have transformed to results. Glad to concluded the forum by marking constructive dialogue and a shared commitment to support the economic development of Sri Lanka.” 
“We thank participants, stakeholders holders and global partners for the significant interest shown in unlocking the full potential of the Sri Lankan economy and fostering greater international understanding and cooperation.” (Colombo/April 16/2024) 
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