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Sunday January 29th, 2023

Sri Lanka acting president vows to restore 19th amendment, establish law & order

ECONOMYNEXT – Sri Lanka’s newly sworn in Acting President Ranil Wickremesinghe plans to facilitate a full restoration of the 19th amendment to the constitution and establish law and order in the face of what he calls an emerging fascist threat before parliament elects the next president.

In a recorded statement released shortly after his swearing in on Friday July 15, Wickremesinghe called for unity, consensus and prioritising the ongoing economic crisis over party politics.

“People expect a change in the political system. An important part of this change is restoring the 19th amendment fully. I have started the initial process of presenting a draft bill to parliament for this purpose.

“I will set the stage in this brief period for the new president elected next week to enact the 19th amendment,” he said.

Wickremesinghe did not indicate whether this meant the planned 22nd amendment will be amendment. The 19th amendment, originally enacted under his premiership in the Yahapalana government, somewhat significantly clipped the wings of Sri Lanka’s all-powerful executive presidency and strengthened parliament. The 20th amendment brought under former President Gotabaya Rajapaksa went beyond bringing back these powers, resulting in a weakened parliament.

The acting president said he will take immediate steps to establish law and order in the country. He had previously blamed “fascist” elements in Sri Lanka’s youth-led protest movement for inciting and causing violence. Protestors had been demanding the resignation of ex-President Rajapaksa since March, over his role in Sri Lanka’s worst economic crisis since Independence. Since some weeks into his appointment as prime minister, many of the protestor groups, collectively known as the aragalaya (or struggle), have been demanding Wickremesinghe’s resignation too. His private residence was burn down on July 09.

“I will take immediate steps to establish law and order in the country. I 100 percent accept the right to peaceful protest. But there are those trying to engage in sabotage. It has also been reported that some groups are trying to influence MPs in next week’s vote in parliament.

“We will create the space for MPs to independently express their views. They will be provided full security. We will not allow any group to destroy parliamentary democracy under any circumstance,” he said.

Sri Lanka’s parliament is expected to elect a new president from among its membership on July 20.

“There are groups that try to undermine democracy and set the country ablaze through fascist means. It’s groups like this that stole two weapons with ammunition from the army stationed near parliament. Twenty-four troops have been injured, two of them severely.

“I don’t believe real aragalya would do that. But there is a big difference between aragala protestors and rioters. Rioters will be dealt with under the law,” warned Wickremesinghe.

The acting president said those who have been with the argalaya from the start have also expressed their opposition to the violent elements.

“Together with them, we’re committed to upholding law and order and democracy. I’m committed to protecting the constitution, and I will never allow or abet anything that goes against the constitution. Nor will I work outside the constitution.

“A breakdown in law and order will impact the economy. Fuel, power and water supply and food supply can crumble,” he added.

Sri Lanka’s economic crisis is worsening, with shortages in fuel and other essentials as well as daily power outages have critically disrupted economic activity and heaped untold hardships on the public. Wickremesinghe made no mention of ongoing negotiations with the International Monetary Fund (IMF).

Meanwhile, protestors are threatening to up the ante in their demand for “Ranil go home”. Wickremesinghe believes that rogue elements within the aragalaya – whom he describes as fascists – are threatening to destabilise the country before the economy could recover. He has appointed a committee comprising military top brass to contain the situation.

“They have total freedom to take legal action with no political interference,” he said.

Wickremesinghe reiterated a call for an all-party government and urged all parties represented in parliament to arrive at a consensus on the matter as soon as possible.

“We must set aside party and political differences and unite for the country. So put your personal ambitions aside. Give priority to the needs of the country. Think more about protecting the country than about protecting individuals,” he said.

Who will be Sri Lanka’s ninth president is anybody’s guess. At this point, various contenders have expressed interest, opposition leader Sajith Premadasa among them. It may well end up being Wickremesinghe himself if the ruling Sri Lanka Podujana Peramuna (SLPP), which stall holds a majority in parliament, decides to vote for him come July 20.

“First we need a country to do politics. So I ask all political parties and groups to act with the country and the people in mind. First, let’s save the country and the people from this crisis situation. After that, we can get into party politics,” he said.

Wickremesinghe also announced two surprise decisions that have little to do with the present crisis: prohibiting the use of the words ‘his excellency’ when referring to the president and abolishing the presidential flag.

“A country only needs one flag; just the national flag. We must go forward under one flag,” he said.

He urged all parties and citizens to think deeply and impartially about the current crisis.

“The stage has been set for the country to embark on a new journey with a fresh approach. There is more space now for creating a society free of corruption and for uplifting our motherland. It is our duty to make the most of that,” he said.

“As citizens, let’s all be party to this,” he added. (Colombo/Jul15/2022)

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Sri Lanka operators seek higher renewable tariffs, amid exchange rate expectations

ECONOMYNEXT – Sri Lanka’s renewable companies say they need tariff of 40 to 45 rupees a unit to sell power to the Ceylon Electricity Board and the agency owes them tens of billions of rupees for power sold in the past.

The association has strong exchange rate expectations based on the country’s dual anchor conflicting monetary regimes involving flexible inflation targeting with a reserve collecting target.

“In the coming year of course because of the rupee devaluation, I think the solar energy sector might require tariffs closer to RS 40 or RS 45, hydropower will also require tariffs on that scale,” Prabath Wickremasinghe President of the Small hydropower Developers Association told reporters.

“I think right now what they pay us is averaging around RS 15 to RS 20.”

Some of the earlier plants are paid only 9 rupees a unit, he said. The association there is potential to develop around 200 Mega Watts of mini hydros, 700 to 1000MW of ground mounted soar and about 1,000 rooftop solar.

In addition to the rupee collapse, global renewable energy costs are also up, in the wake of higher oil prices in the recent past and energy disruption in Europe.

The US Fed and the ECB have tightened monetary policy and global energy and food commodity price are now easing.

However in a few years the 40 to 45 rupee tariffs will look cheap, Wickremesinghe pointed out, given the country’s monetary policy involving steep depreciation.

From 2012 to 2015 the rupee collapsed from 113 to 131 to the US dollar. From 2015 to 2019 the rupee collapsed from 131 to 182 under flexible inflation targeting cum exchange rate as the first line of defence where the currency is deprecated instead of hiking rates and halting liquidity injections.

From 2020 to 2022 the rupee collapsed from 182 to 360 under output gap targeting (over stimulus) and exchange rate as the first line of defence.

“The tariffs are paid in rupees,” Wickremasinghe said. With the rupee continuing to devalue in other 5 years 40 rupees will look like 20 rupees.”

Sri Lanka has the worst central bank in South Asia after Pakistan. Both central banks started with the rupee at 4.70 to the US dollars, derived from the Reserve Bank of India, which was set up as a private bank like the Bank of England.

India started to run into forex shortages after the RBI was nationalized and interventionist economic bureaucrats started to run the agency. Sri Lanka’s and Pakistan’s central bank were run on discretionary principles by economic bureaucrats from the beginning.

The Central Bank of Sri Lanka was set up with a peg with gold acting as the final restraint on economic bureaucrats, but it started to depreciated steeply from 1980 as the restraint was taken away.

Now under so-called ‘exchange rate as the first line of defence’ whenever the currency comes under pressure due to inflationary policy (liquidity injections to target an artificially low policy rate or Treasuries yields) the currency is depreciated instead of allowing rates to normalize.

Eventually rates also shoot up, as attempts are made to stabilize the currency which collapses from ‘first line of defence’ triggering downgrades along the way.

After the currency collapse, the Ceylon Electricity Board, finances are shattered and it is unable to pay renewable operators.

Unlike the petroleum, which has to stop delivery as it runs out of power, renewable operators continue to deliver as their domestic value added is higher.

However they also have expenses including salaries of staff to pay.

The CEB which is also running higher losses after the central bank printed money and triggered a currency collapse, has not settled renewable producers.

“In the meantime, we have financial issues with the investors and CEB owns more than 45 million rupees in the industry,” Warna Dahanayaka, Secretary of Mini Hydro Association, said at the conference.

“We can’t sustain because we can’t pay the salaries and we can’t sustain also because of the bank loans. Therefore, we are requesting the government to take the appropriate action for this matter.”

Sri Lanka and Pakistan have identical issues in the power sector including large losses, circular debt, subsidies due to depreciating currencies.

In Sri Lanka there is strong support from the economists outside government for inflationary policy and monetary instability.

The country’s exporters, expatriate workers, users of unofficial gross settlement systems, budget deficits and interbank forex dealers in previous crises have been blamed for monetary instability rather than the unworkable impossible trinity regime involving conflicting domestic (inflation target) and external targets (foreign reserves).

The country has no doctrinal foundation in sound money and there is both fear of floating and hard peg phobia among opinion leaders on both sides of the spectrum regardless of whether they are state or private sector like any Latin American country, critics say.

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South Asia, Sri Lanka currency crises; only 2-pct know monetary cause: World Bank survey

A World Bank survey last year found that only 2 percent of ‘experts’ surveyed by the agency knew that external monetary instability was generated by the central bank. Most blamed trade in severe knee jerk reaction. (Colombo/Jan29/2023)

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Sri Lanka top chamber less pessimistic on 2023 GDP contraction

ECONOMYNEXT – Sri Lanka’s top business chamber said it was expecting an economic contraction of up to 2 percent in 2023, which is much lower than projected by international agencies.

“The forecast of 2023 is quite negative in terms of the international forecasters,” Shiran Fernando Chief Economist of Ceylon Chamber of Commerce told a business forum in Colombo.

“Our view is that there will be some level of contraction, may be zero to two percent. But I think as the year progresses in particular the second half, we will see consumption picking up.”

The World Bank is projecting a 4.2 percent contraction in 2023.

In 2022 Sri Lanka’s economy is expected to contract around 8 to 9 percent with gross domestic product shrinking 7.1 percent up to September.

Most businesses have seen a consumption hit, but not as much as indicated, Fernando said.

“Consumption is not falling as much as GDP in sense and we are seeing much more resilient consumer,” he said.

Sri Lanka’s economy usually starts to recover around 15 to 20 months after each currency crisis triggered by the island’s soft-pegged central bank in its oft repeated action of mis-targeting rates through aggressive open market operation or rejecting real bids at Treasuries auctions. (Colombo/Jan28/2023)

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Acuity Knowledge Partners with Sri Lanka office to be bought by Permira

ECONOMYNEXT – Permira, an investment fund with operations in Europe, US and Asia is buying a majority stake in Acuity Knowledge Partners, which has a 500 seat center in Sri Lanka for a undisclosed sum.

Equistone Partners Europe, from which Permira is buying the stake will remain a minority investor, the statement said.

In 2019, Equistone backed a management buyout of Acuity from Moody’s Corporation.

Acuity Knowledge Partners says it serves a global client base of over 500 financial services firms, including banks, asset managers, advisory firms, private equity houses and consultants.

“Despite the current challenges for the financial services sector, we have experienced continued growth and a strong demand for our solutions and services,” Robert King, CEO of Acuity Knowledge Partners, said.

“Given the significant demand within the financial services sector for value-added research and analytics, and the need for operational efficiency, with Permira’s deep experience in tech-enabled services and its global network, I am confident the business will continue to flourish.”

London headquartered Acuity has offices in the UK, USA, India, Sri Lanka, Costa Rica, China and Dubai, UAE.

Equistone was advised on the transaction by Rothschild & Co and DC Advisory, and Latham & Watkins acted as legal counsel. Robert W. Baird Limited served as financial advisers to Permira, and Clifford Chance is acting as legal counsel.

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