An Echelon Media Company
Tuesday May 30th, 2023

PC polls postponement partly due to Right-Wing pressure

FILE PHOTO – President Gotabaya Rajapaksa offers a gift to the Mahanayake of the Malwatte Chapter Thibbotuwawe Sri Siddhartha Sumangala Thero

ECONOMYNEXT – Sri Lanka’s decision to indefinitely postpone Provincial Council (PC) elections controversially was made due to sustained pressure from Sinhala Nationalist organisations who argue that the government had pledged to do away with the PCs during the election campaign.

On Tuesday, Environment Minister Mahinda Amaraweera told reporters the leaders of the political parties in the governing Sri Lanka Nidahas Podujana Peramuna had decided to put off the polls due to the pandemic and also on “a request made by the Maha Sangha (Buddhists Monks).”

The party leaders’ meeting took place a day after the Collective of Nationalist Organisations (ජාතික සංවිධාන එකමුතුව) met key members of the Asgiriya and Malwatte Chapters in Kandy on Sunday.

A representative of the Collective, Dr Malwane Chandrarathana Thero told reporters that the PCs which were “forced on us by India as a solution for the separatist movements” had not succeeded in that endeavour.

He added that the government has promised to formulate a new constitution within a year of coming to power which would offer an alternative means of devolving power.

“We are waiting to see what the government’s policy on this issue is,” the Thero who heads the Sinhala Department at the Kelaniya University said.

The leading prelates at the two influential sects agreed with the Collective.

The Anunayake of the Malwatte Chapter Dimbulkumbure Wimaladhamma Thero said that this was a time to deal with the health crisis and not waste public funds on elections. “The people are in need of relief,” he said.

The Registrar of the Asgiriya Chapter Dr Medagama Dhammananda agreed, saying that all efforts should be made to repair the damage done to society by the pandemic.

Both prelates signed off on the letter brought by the collective carrying their demands which was then handed over to the government.

However, the government of India which considers the PCs a lasting development that it gave the minority Tamils as part of efforts to stop the separatist war has constantly urged successive Sri Lankan governments not to abolish the devolved Councils.

State Minister Dayasiri Jayasekara warned the country that it should not abolish the PCs without “consulting India. Otherwise we may face problems internationally,” he told reporters today, December 30.

“I agree that there should be changes in the way we hold the elections, but we must hold them,” the General Secretary of the Sri Lanka Freedom Party (SLFP) the second biggest party in the alliance said.

This development comes a day after the National Peace Council announced that in a series of consultations it did on Constitutional Reform, Civil Society representatives had agreed that the PC system be “enhanced and strengthened.”

The PC elections cannot anyway be held in a hurry as an essential delimitation Bill awaits Parliamentary ratification. Currently, there is no law available to hold the elections.

The original law enacted as part of the Indo-Lanka Accord of 1987 was formulated in 1988 but due to issues that arose from it, the last government prosed changes.

These changes were included in a new PC Elections Bill No 17 of 2017 but Parliamentarians on both sides disagreed with the provisions.

Today, Wednesday 30, State Minister Susil Premjayantha told reporters that the elections were held up by the pandemic as well as legal issues.

He told a press conference at the SLPP headquarters in Battaramulla that as the last government had brought in amendments to the PC laws through a two-thirds majority in Parliament any changes to the law also needed that number of votes.

At the time a committee presided over by Prime Minister Ranil Wickremesinghe was appointed to look into the issues but no solution was reached until his government was booted out earlier this year.

Although the then National Elections Commission continued to urge the government to hold the PC elections the administration waffled and failed to go to the polls.

At the time the SLPP which was in opposition said that the government was avoiding the poll as it knew it would lose.

Elections to the Northern and Eastern PCs were held during the last Rajapaksa administration for the first time since they were established. (Colombo, December 30, 2020)

Reported by Arjuna Ranawana

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Sri Lanka rupee at 296.75/297.25 to dollar at open, bond yields steady

ECONOMYNEXT – Sri Lanka’s rupee opened at 297 /297.50 against the US dollar in the spot market on Monday, while bond yields were steady, dealers said.

The rupee closed at 296.75 /297.25 to the US dollar on Monday after opening around 296.50 /297.50 rupees.

A bond maturing on 01.09.2027 was quoted at 26.50/75 percent steady from Friday’s close at 26.50/65 percent.

Sri Lanka’s rupee is appreciating amid negative private credit which has reduced outflows after the central bank hiked rates and stopped printing money. (Colombo/ May 29/2023)

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Sri Lanka rupee appreciation squeezes exporters

ECONOMYNEXT – Sri Lanka’s recent appreciation is starting to squeeze apparel exporters as their domestic costs including wages and energy, were hiked over recent months, when the rupee fell steeply, an industry official said.

Companies had raised salaries and emoluments at rates averaging 25 percent for workers while transport costs have also gone up but not has come down, Yohan Lawrence Director General of the Join Apparel Association Forum said.

Apparel factories in particular also provide transport and some meals for workers.

Electricity prices have also been hiked, based on the rupee which was weaker. A tariff cut is expected from June after the rupee appreciated and imported fuel prices fell.

Sri Lanka’s rupee collapsed in 2022 from 200 to 360 to the US dollar as interest rates were suppressed with liquidity injections and a failed attempt was made to float the rupee with surrender requirement in place.

From the second half of 2022, with higher interest rates and negative private credit, the central bank has avoided printing money under conditions which are generally accepted to be difficult, and is broadly running deflationary open market operations, triggering a balance of payments surplus and putting the rupee under upward pressure.

Central bank net credit to government which was 3,302 billion rupees in September in 2022, was down to 3,209 billion rupees by March 2023, part of which was due to rollovers, analysts say.

Market pricing of fuel and electricity by the Ministry of Energy and also spending controls and tax hikes buy have also helped contain domestic credit.

Sri Lanka also has mandatory conversion rules, imposed on exporters, which is a concern for exporters.

“We believe rupee should be at its natural level, but with forced conversions you won’t get the correct picture,” Lawrence said.

Sri Lanka has to release a plan to remove import controls, exchange controls and other restrictions imposed in the period where policy rates were suppressed with liquidity injections (so-called multiple currency practices and capital flow measures) by June under the IMF program.

Apparel exporters have also seen orders fall amid tighter conditions in Western markets.

The central bank has to peg (intervene actively in forex markets and create money) to meet reserve targets under an IMF program and cannot free float (avoid creating money through international operations) the rupee.

The newly created money has generally been absorbed in an overnight liquidity shortage.

There have also been foreign purchases of rupee Treasuries. Amid a contraction in credit, the inflows also do not turn into imports fast as the money if the money is spent.

By making purchases a little below what is allowed by the contraction in domestic credit, the rupee can be allowed to appreciate, analysts say.

The central bank has so far allowed the rupee to appreciate to around 300 to the US dollar from 360 levels under a transparent guidance peg up to February.

Except after the 2008/2009 currency crisis, Sri Lanka’s central bank has not previously allowed to the rupee to appreciate under IMF programs where the first year in particular sees balance of payments surpluses, before private credit and domestic investments picks up again.

One of the considerations used by third world central banks are Real Effective Exchange Rate indices.

The REER of the Sri Lanka rupee based on a basket of currencies calculated by the central bank was 61.12 points in February before the rupee was allowed to appreciate by lifting a surrender rule.

In March the index went up to 69.55 points, but remained steeply below 100. Real effective exchange rates are calculated also taking into account inflation in counterpart trading nations.

Sri Lanka’s inflation index had hardly risen since September amid rupee gains. Falling food prices can help contain pressure for further wage hikes, analysts say. (Colombo/May30/2023)

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Sri Lanka forum to discuss central bank independence vs sound money

ECONOMYNEXT – Central bank independence and sound money will be under discussion at a public event organized by the Sri Lanka chapter of the Bastiat Society today, May 30, as island is recovering from the worst episode of monetary instability since independence.

The forum will feature Lawrence H White, Professor of Economics at George Mason University in the US, and W A Wijewardene, former Deputy Central Bank Governor, of the Central Bank of Sri Lanka.

“The discussion will compare the current system against alternative systems and explore the relationship between such banking systems and sound money,” the organizers said.

White specializes in the theory and history of banking and money. He is the author of “The Clash of Economic Ideas” (2012), “The Theory of Monetary Institutions” (1999), “Free Banking in Britain” (2nd ed., 1995), and “Competition and Currency” (1989).

Wijewardene has been speaking on central bank independence in Sri Lanka long before it became a topic of wider discussion, but also on accountability.

In April, a Central Bank Independence and Other Matters, which includes a collection of his orations on the subject over the years as well a recent development was published.

The discussion comes as independent central banks in the West have created the worst inflation since the 1970s and early 1980s and are apparently unaccountable to parliaments and the public.

The early 1980s also saw the first wave of external debt crises in so-called soft-pegged countries in Latin America and Eastern Europe in particular as the US and UK tightened policy to end the Great Inflation.

The discussion will be held at 7.00 pm at the Lakmahal Community Library and those interested can register online, the organizers said. (Colombo/May30/2023)

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