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Wednesday December 7th, 2022

Sri Lanka auto garages lobby regulations for domestic protection

ECONOMYNEXT – Sri Lanka should bring regulations to control the fixing of cars with spares and body parts by dealers instead of repairing and repainting, which results in job losses to service workers, an industry official has said.

“Car dealers doesn’t provide the tinkering or other repair services because even for a small repair what they do is replacing the parts,” Sri Lanka Automobile Services Providers Association President, Amal Piyatilake said at group’s annual general meeting.

“The tinkering craft is no longer there in foreign countries. That is why they sell their vehicles if they get damaged after using it for several years. It is much cheaper than repairing it.”

“This has affected the livelihood of the laborers that are working in this industry.

“Sri Lanka is still a developing country and we still need this craft, there are still people who are depending on it.”

Piyatilake claimed that parts imports were depreciating the rupee.

However economists and analysts have called for central bank reforms to stop rapid depreciation which began in 1951 with the setting up of a so-called soft-peg where the exchange rate and interest rate is simultaneously targeted.

Changing World

In the last two decades, small garages started to fix cars using second hand parts brought from Japan, instead of using brand new parts saving time but reducing the time spent on repairing individual parts by mechanics.

In Sri Lanka especially during import controls of the 1970s, it was the practice to turn out parts at lathe machines which take time, leaving cars idle at garages for long periods.

A car owner whose bumper had been damaged in a mishap with a three wheeler said he had no problems with parts being replaced instead of repainted.

“The insurance company was willing to pay for it,” he said. “It looks completely new, so I have no problem with it.

Auto repairers say they are losing business to the main agents and wants regulations to maintain their position.

Another official said from the total accident cases of private vehicles, 80 to 88 percent come to the individual garages and workshops but from the total insurance claim value 60 percent will be acquired by the car agents in Sri Lanka.

Regulations to save tinkers

Meanwhile Piyatilake said the SLASPA will discuss with the state Motor Traffic Department to bring new regulations.

“There are 17 different industries related to the automobile services. We are planning to get every sector under one regulated industry,” he said.

Sri Lanka Motor Traffic Department, Assistant Commissioner, J.A.S. Jayaweera said the regulating of the industry will be done in the near future as soon as the new laws pass.

“There was no regulation for this industry from 1951,” Jayaweera said. “There for we decided to do that now. The rules and regulations were too narrow to do that earlier.”

Many people are leaving the mechanic and tinker business. Jayaweera blamed this on lack of regulations.

“Because there is no job recognition in the industry,” he claimed. “To get that recognition we should regulate under someone.”

Jayaweera said within the next two month the industry will be regulated under the Motor Traffic Department.

It is not known whether an opinion survey had been done to find why people are leaving the industry, whether it is due to lack of regulation or there are also other reasons, which cannot be solved by regulations.

In Sri Lanka many sectors including construction and factories are finding it hard to find workers, with young people no longer wanting to engage in blue collar jobs, either due to pay, working conditions, or different aspirations.

It is not clear whether regulations will change the outlook of job seekers.

Regulatory Capture

It is also not clear whether the regulations, lobbied for by a section of the regulated will benefit the consumer or whether it will simply benefit a section of the auto industry by reducing competition.

Due to lack of a permanent and independent public service, many agencies in Sri Lanka have been subject to regulatory capture – serving special interests – and had ended up backfiring on consumers, critics have said.

Similar situations have occurred in other countries, requiring de-regulation to promote change, innovation, lower costs, and efficiency.

“The regulatory capture means that the regulations imposed by governments for the benefit of the public are being captured by those who are to be regulated or by others who stand to gain out of regulatory mechanisms,” economist W A Wijewardene explains.

“Since the regulations now serve not the public but those who are supposed to be regulated, the whole regulatory mechanism has been captured by them and that process is termed regulatory capture.

“Hence, by allowing these groups to run an economy, societies lose on two counts. Count number one is that the objectives of the regulatory mechanism are not realized and they simply become a waste of public funds.

“Count number two is the more stressful development: It says that the regulatory mechanisms, however much they are well-intentioned, create a class of people who prey as predators on the honest work of the members of the society.

“This class consists of politicians who are paid for by groups intending to capture the regulators, people on the regulatory agencies themselves and businesses and people who capture the regulators. (Colombo/ Mar01/2020)

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Crisis-hit Sri Lanka sees recovery in cruise ship tourism from zero

ECONOMYNEXT – Seventeen cruise ships are scheduled to arrive in Sri Lanka next year with
Queen Mary 2, one of the largest and popular ships, Colombo’s harbor master said, as the island nation is looking for alternative avenues to boost its faltered tourism sector.

The rise is expected to bring thousands of high end tourists with higher spending capacity after two years. The island nation saw a record high 54 ships in 2019, rising from the previous year’s 42, Nimal Silva, Colombo Port Harbor Master said.

“The 2019 was one of the best years and in 2020 there were more than 60 scheduled vessels to
call but with COVID pandemic all hell broke loose,” Silva told EconomyNext.

Fourteen cruise ships are scheduled to call from January-May next year and another three are scheduled to arrive in Colombo in November, when the peak tourism season begins.

Cruise tourism cycle begins in Sri Lanka from October to May with a dip during the monsoon
seasons.

Sri Lanka welcomed two cruise ships in November after almost two years.

Three ships are scheduled to arrive in December and Azamara Quest, carrying at least 722 tourists, arrived in Colombo on December 3 and is now heading to Hambantota.

On December 18, Le Champion carrying 264 will arrive in Colombo and depart to Mumbai and the third vessel, Silver Spirit will arrive in Colombo on December 23 carrying up to 648 passengers.

There are two scheduled in January, one in February, and four in March next year, according to the harbormaster.

“Next year more ships could schedule, so far these are the confirmed ones now,” he said.

This also generates income for the port and the prices are charged according to the size of the
vessel.

Silva said the first medium sized-cruise vessel, 229 meters long, generated about 14,000 dollars
for docking in the port for a day.

He said Queen Mary 2, a 325 meter long ship and one of the largest cruise ships in the world, is also
scheduled to call at Colombo in February. It can carry up to 3200 passengers.

Silva said almost all the ships that were scheduled have arrived on the island and therefore, he is
confident all the ships including Queen Mary 2 will arrive in Sri Lanka.

“Only one ship has been canceled thus far. There are no last minute cancellations if there were some they would have informed us by now,” Silva said. (Colombo/Dec07/2022)

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Sri Lanka President says 2015-2019 policy struggle was ‘warfare’

ECONOMYNEXT – Sri Lanka President Ranil Wickremesinghe said his attempts to reverse the inward-looking protectionist policies and fix state finances during his last term as Prime Minister was opposed both by politicians and business interests.

“In the 4.5 years as prime minister it was an effort to take this economy out in a different direction,” President Wickremesinghe told an economic forum organized by Sri Lanka’s Ceylon Chamber of Commerce.

“We were able to get a surplus in the primary budget. But it was warfare.

“Politicians wanted to protect their power, businessmen wanted to protect their profits and many others wanted to see what the country would provide them free of charge.”

Wickremesinghe was unable to bring private investment to the port under apparent internal political opposition. Relations with President Maithripala Sirisena also soured and he appointed his own economic advisors.

Meanwhile Wickremesinghe’s free trade agenda was hit by monetary instability as the central bank printed money under flexible inflation targeting and triggered forex shortages which were followed by trade controls.

Related

Sri Lanka controls imports in ‘Nixon-shock’ move to protect soft-pegged rupee

Sri Lanka President calls to expand Nixon shock as rupee falls

Wickremesinghe’s ‘Yahapalana’ administration also went on a spending spree called ‘100-day program’ in 2015 triggering a currency crisis in 2015/2016 as the central bank printed money to suppress rates.

The central bank however had already started injecting liquidity and losing reserves (by terminating term repo deals) from the fourth quarter of 2014 as domestic credit recovered from a 2012 currency crisis before his administration came to power.

The rupee fell from 131 to 152 and stabilization policies led to an output shock. The International Monetary Fund then taught the agency which had already depreciated the currency from 4.70 to 152 to the dollars seeking bailouts 16 times, how to calculate an output target.

Under Finance Minister Mangala Samaraweera taxes were raised and budget were fixed in 2018 to bring deficits back to pre-2015 levels, though state spending went up from 17 to around 20 percent of GDP under the spendthrift ‘revenue based fiscal consolidation’ where cost cutting was dropped.

The central bank then printed money by purchasing bonds from banks to target the yield curve, jettisoning a bills only policy established by ex-Central Bank Governor A S Jayewardena, through term reverse repo and overnight injections taking the rupee from 151 to 162 to the US dollar.

The central bank also created money by entering into a swap with the Treasury in 2018, a type of strategy used by speculators to bring down East Asian pegs putting, further pressure on the currency from around July 2018 onwards.

Related

What went wrong; Sri Lanka’s illiberal economics and unsound money : Bellwether

Stabilization policies then led to another output shock. As forex shortages came Sri Lanka resorted to heavy external borrowing as it was unable to settle maturing loans with domestic borrowings.

After two currency crises and output shocks, macro-economists of the new administration cut taxes saying there was a ‘persistent output gap’ and printed even more money for stimulus (close the output gap). (Colombo/Dec07/2022)

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China calls for joint effort to ease Sri Lanka’s debt burden, no mention of restructure

ECONOMYNEXT — A top Chinese official has expressed hope that countries and multilaterals like the International Monetary Fund (IMF) work with Beijing to play a constructive role in easing Sri Lanka’s debt burden, stopping short of an assurance on debt restructuring.

Chinese Foreign Ministry spokesperson Mao Ning was quoted by international media as saying on Monday December 05 that China attaches high importance to Sri Lanka’s difficulties and challenges.

She was responding to a question on media reports that an IMF team will be in China this week to discuss faster progress on debt restructuring for countries including Sri Lanka, which is negotiating for an IMF bailout.

“On Sri Lanka’s debt issue, I’d like to stress that we support the financial institutions in working out ways with Sri Lanka to properly solve the issue,” said Ning.

“We also hope relevant countries and international financial institutions will work with China and continue to play a constructive role in helping Sri Lanka overcome the current difficulties, ease its debt burden and realise sustainable development,” she added.

She said China has long-standing sound cooperation with the IMF and other international economic and financial institutions.

The spokesperson avoided any mention of debt restructuring, a prerequisite for the IMF extended fund facility (EFF).

Nearly a fifth of Sri Lanka’s public external debt is held by China, according to one calculation. The emerging superpower has been generous in Sri Lanka’s time of need, extending much needed assistance in the form of rice, medicine and other commodities.

The latest arrival in the Colombo port from China was 2 billion Sri Lankan rupees worth of essential medicines and medical supplies, delivered on Tuesday.

However, critics say China is doing everything but what Sri Lanka really needs: agreeing to restructure its outstanding debt.

At least one Sri Lankan opposition MP has demanded that China agree to a restructure.

Related:

Sri Lanka debt restructuring: opposition MP warns of “China go home” protests

Tamil National Alliance (TNA) legislator Shanakiyan Rasamanickam, who had been on the warpath with Beijing over an apparent lethargy in helping the crisis-hit island nation restructure its debt, recently warned of a “China, go home” protest campaign similar to the “Gota, go home” protests that unseated the country’s powerful former president in July.

The MP told parliament last Friday December 02 that Sri Lanka owes 7.4 billion dollars to China, a nearly 20-trillion dollar economy, and if the latter was was a true friend, it would agree to either write off this debt or at least help restructure it.

Colombo has been vague at best on the status of ongoing restructure talks with Sri Lanka’s creditors, and opposition lawmakers and others have expressed concern over what seems to be a worrying delay. Rasamanickam and others have claimed that China, Sri Lanka’s largest bilateral creditor, is the reason for the apparent standstill. (Colombo/Dec06/2022)

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