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Thursday August 18th, 2022

South Asia’s insiders benefit from crony capitalism: economist

ECONOMYNEXT- South Asia is practicing insider-outsider economics, where a small group benefits from the economy while excluding the majority, but technology could end the status-quo World Bank’s Chief Economist for South Asia said.

“South Asian economies are based on insider-outsider policies. Another name for this is crony capitalism,” Hans Timmer said at public lecture organized by the Central Bank of Sri Lanka.

“What you see in most countries is that a relatively small group of the society has created a preferential system,” he said.

“This is true for state sector workers as well as companies which have created a shielded position.”

Central Bank Governor Indrajit Coomaraswamy said insider-outsider policies were active in Sri Lanka.

In Sri Lanka, state-sector workers get duty free cars, state-sponsored pensions and raises without a link to productive work.

Companies use political patronage to create protection from international competition through high import tariffs and local competition through licensing systems.

Insider-outsider economics has led to a large informal sector across South Asia which has no social safety net, Timmer said.

“The problem is so big in South Asia, that more than 80 percent is in the informal sector. It’s not realistic to think that this is the way to go.”

“The formal sector has created a set of benefits which cannot be extended to the rest of the economy due to resource constraints, and this will ultimately be detrimental for the entire economy.”

He said the insiders get the benefits because the group is small, and everyone outside wants to enjoy similar benefits.

“When I went to a university classroom in Colombo, I asked the students what they want to do in the future, and they all said they want a job in the state sector,” he said.

Low female labour force participation too is another policy along similar veins, he said.

“Those on the inside don’t see the need to involve women in this respect.”

Timmer said the outsiders need to be plugged into the economy better, as they have potential to deliver higher growth.

“There is so much potential among the outsiders if they are involved in the economy.”

“But no one sees this as a primary problem on their list.”

“People are being pushed to the informal sector and underperforming in international markets, maybe because of how the formal sector is performing.”

He said South Asia exports just one third of its potential, because the informal sector is not able to access the tools and support needed to develop and trade.

Many others point to problems along borders, paratariffs and geopolitical situations instead, Timmer said.

However, he said technology is able to narrow the gap in benefits enjoyed by the insiders and outsiders.

“Tech is changing markets. It’s flexible. There’s no need for economies of scale anymore. It’s about plugging into value chains.”

“So then, the informal sector might be able to advance, because they are people who are used to flexible working conditions.”

“So, the tuk tuks in Colombo is an example of tech enabling the informal sector, not an exception.”

Timmer said policy makers must think of how technology can help bring greater economic activity to the informal sector, thereby providing them with a social safety net.

Even in agriculture, he said politicians should look at how technology could enable productivity gains and help farmers find clients in foreign markets. (Colombo/Dec06/2019)

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Sri Lanka rupee, yields in govt securities slightly changed

ECONOMYNEXT – Sri Lanka Central Bank’s guidance peg for interbank transactions weakened on Thursday (18) and yields in Treasury bonds picked up slightly while in T-bill edged down in dull trade after the central bank kept key monetary policy rates steady, dealers said.

On Thursday, before the market opened, the central bank held its key policy rates steady at 15.50 percent, while data showed market interest rates are close to twice the rate of them while private credit and imports falling as a consequence.

The central bank is injecting 740 billion rupees of overnight money to banks at 15.50 percent, which were originally injected mostly after reserves were sold for imports (or debt repayments) to artificially keep down rates (sterilized interventions), effectively engaging in monetary financing of imports.

The injections (sterilizing outflows) prevent the credit system from adjusting to the outflows and encourage unsustainable credit without deposits, which is the core problem with soft-pegged central banks, triggering a high rate and an economic slowdown later.

A bond maturing on 01. 06. 2025 closed at 27.90/28.00 percent, slightly up from 27.75/90 percent on Wednesday.

The three-months bill closed at 28.30/29.25 percent, down from 29.25/30 percent on Wednesday.

Sri Lanka’s central bank announced a guidance peg for interbank transactions weakened by one cent to 360.97 rupees against the US dollar on Thursday from 360.96 rupees.

Data showed that commercial banks offered dollars for telegraphic transfers between 367.97 and 370.00 for small transactions.  (Colombo/ Aug 18/2022)

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Japan grants medical equipment worth 500-mn yen to Sri Lanka govt hospital

ECONOMYNEXT –  The  Japanese government has granted medical equipment worth 500 million Japanese yen to the Sri Jayawardenepura government hospital to improve the hospital’s treatment facilities under Japan’s Non-Project Grant Aid Programme.

A statement by the Department of External Resources said the grant was given in response to a request by Sri Lanka’s government.

Under the 500 million Japanese yen (approximately 1,265 million rupees) grant assistance, angio-CT machine, other radiology equipment, ophthalmic instruments, surgical instrument sets (stainless steel with satin finish), 15 dental units with accessories, liver transplant instrument sets, and a cardiac catheterization laboratory will be provided, a statement said on Thursday August 18.

Sri Lanka due to its worst economic crisis in its post-independence history is currently facing shortages of essential medicine, non-essential and lifesaving medicines pressuring the health sector to only attend to emergency cases to preserve available limited medicine stocks.

On Thursday at the policy rate announcement media briefing by the Central Bank of Sri Lanka (CBSL), Governor Nandalal Weerasinghe said, with the strict measures taken in the recent past, Sri Lanka is currently managing the limited forex income coming into the country to purchase essential goods such as fuel and medicine.

Sri Lanka has received various grants from several countries including China and India which gave a 200 million US dollar credit line to purchase medicine from India.

In June, Minister of Health Keheliya Rambukwella said there is no shortage of vital medicines in the country and all medicines will be restocked by August 2022. However, shortages of medicine aer still being reported in various hospitals islandwide.

“This improvement at the hospital will facilitate the enhancement of the quality of the care provided especially to the patients with non-communicable diseases while enabling high quality medical professional training to medical undergraduates and postgraduates from the National School of Nursing at the aculty of Medical Sciences of the University of Sri Jayawardenepura,” the External Resources Department statement said.

“This project will eventually assist the development of human resources of the health sector in Sri Lanka,” it said. (Colombo/Aug18/2022)

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Sri Lanka immigration on the hunt for Scotswoman who documented protests

Kayleigh Fraser via @kayzfraser Instagram

ECONOMYNEXT – Sri Lanka’s Immigration and Emigration Department is attempting to track down Kayleigh Fraser, the Scotswoman who documented the country’s anti government protests.

Fraser was ordered to leave the island on or before Monday August 15 after officials cancelled her visa. She and her lawyer had filed a writ petition against her deportation with the Supreme Court, which was dismissed on the grounds that she was not being deported deported, only had her visa cancelled.

“The learned State Council submits that the impugned document ‘X4’ is not a deportation order as claimed by the petitioner and she confirmed that no deportation order has been made up to date by the authorities against the petitioner,” a court document shared by Fraser said.

Immigration officials stated that the police and SSD were on the lookout for Fraser.

“Her visa was cancelled on August 15, so we are looking to put her in a detention camp until she can get a ticket to leave the country,” the official told EconomyNext, confirming that Fraser was not getting deported but that her visa was cancelled.

“Legally we cannot give her a grace period, but on a humanitarian basis, we can give her the time to get a ticket,” the official said.

Fraser had used her social media to share pictures and videos of the anti-government protests in front of the Presidential Secretariat, and has been vocal against state sanctioned violence against protestors.

“Given what I have witnessed here in Colombo – the chemical weapons attacks on protestors, the government instructing the military to beat and torture protestors, the arbitrary arrests and blackmailing of prominent faces from the protests, intimidation tactics and threats etc – I should not be surprised at what has happened today,” she said, speaking to the Daily Record, a Scottish tabloid.

There were no reports of chemical weapons being used against any protestors in Sri Lanka, and it is unclear whether Fraser was erroneously referring to tear gas which was used to disperse crowds.

Fraser also called out media channels who she claimed had attempted to misrepresent peaceful protests as violent.

“It became very clear to me early on that this was not being reported. There was no international coverage on what was happening, and the media here were very much trying to say that it was violent, but that is the absolute opposite of what I saw,” she said over social media.

“What I saw was a beautiful union [of people] coming together in absolute unity. It was a beautiful movement and I’ve never seen anything like that in my life and that kept me coming back.”

However, Sri Lanka’s authorities maintain that the arrests so far have been legal and that violence did occur on the part of some protestors, though activists and some civil society groups disagree. On May 09, after supporters of then Prime Minister Mahinda Rajapaksa launched an unprovoked attack on peaceful protestors in Colombo, a wave of retaliatory mob-violence erupted across the country which saw the residences of some parliamentarians torched to the ground. One government MP was killed.

Authorities say many of the arrests so far have been of protestors who had violated court orders or had illegally occupied government buildings.

Fraser continues to post on her social media. (Colombo/Aug18/2022)


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