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Friday August 12th, 2022

Sri Lanka bank credit jump Rs1.2trn in March in soft-peg collapse

ECONOMYNEXT – Sri Lanka’s bank credit surged in March 2022 after a collapse of a soft-peg and the value dollar books of banks from inflated in domestic currency as an intermediate regime central bank attempted to regain control of reserve money through a float.

Intermediate regimes (central banks with foreign reserves that also engage in aggressive open market operations to print money and keep interest rates down) are the most dangerous monetary regime invented by mercantilists.

In March 2022 the rupee fell from 201 to the US dollar to 299 based on official data, inflating the rupee value of dollar loans, in the biggest economic crisis triggered by the Latin America style central bank in its 72 year history.

Inflation of Liability Dollarization

Total credit from the banking system to the government, state enterprises and private firm jumped 1.2 trillion rupees in March, up from 128 billion rupees a a month earlier as dollar books inflated.

Commercial bank credit to government grew 209 billion rupees with 137 billion rupees coming from dollar book inflation.

Credit to state enterprises also grew 310 billion rupees with 77 billion rupees coming from overseas banking units.

Private credit grew 694 billion rupees in rupee terms, with 221 billion rupees coming from overseas banking unit. It is not clear whether domestic units also have dollar borrowings.

Central bank credit also grew 240 billion rupees in March.

Sri Lanka runs from currency crisis to currency crisis due to the intermediate regime central bank which has anchor conflicts in line with the so-called ‘impossible trinity’ of monetary policy objectives triggering exchange and trade controls when money is printed suppress interest rates.

The country’s Latin America style central bank was set up in 1950 and it had gone to the International Monetary Fund 16 times with as the soft-peg came under pressure from low interest rates maintained by money printing.

The lack of any appreciation about the value of monetary stability (sound money) as a foundation for economic growth is found among both third world economists and also in Western prescriptions for the third world, who favour unstable intermediate regimes which place discretion above rules under the guise of central bank independence, critics say.

Sri Lanka itself was following flexible inflation targeting (discretionary domestic anchor) while operating a flexible exchange rate (discretionary external anchor) which led to three currency crises in 2015/16, 2018 and also 2020/2021/2022 which is still under way.

Both legislators and interventionist economists have opposed single anchor monetary regimes (currency board or a clean float), while paying lip service the impossible trinity of monetary policy objectives.

Inflating Credit

While dollar credit inflated in March, rupee borrowings of private firms also tend to rise as the currency collapse inflates prices and working capital needs grow, analysts have warned earlier when discretionary flexible inflation targeting and output gap targeting became official policy.

Distress borrowings also tend to grow in such countries unless the exchange rate is stabilized.

By end April 2022 consumer price inflation has hit 29.8 percent.

Analysts have faulted the International Monetary Fund for giving technical assistance to calculate an output gap, which was targeted with liquidity injections, ultimately de-stabilizing a country at peace through a series of currency crises.


How to fix Sri Lanka’s debt crisis, unstable peg, avoid sudden stop event: Bellwether

Sri Lanka is not Greece, it is a Latin America style soft-peg: Bellwether

“The days are gone in which most persons in authority considered stability of foreign exchange rates to be an advantage,” commented Ludwig von Mises, a classical economist.

“Devaluation of a country’s currency has now become a regular means of restricting imports and expropriating foreign capital.

“It is one of the methods of economic nationalism. Few people now wish stable foreign exchange rates for their own countries. their own country, as they see it, is fighting the trade barriers of other nations and the progressive devaluation of other nations’ currency systems.

“Stability of foreign exchange rates was in their eyes a mischief, not a blessing. Such is the essence of the monetary teachings of Lord Keynes. The Keynesian school passionately advocates instability of foreign exchange rates.”

Ironically, East Asia including China until 2005 had some of the strongest exchange rates in the world either orthodox nutral policy currency boards or regimes which are tighter than currency boards where foreign reserves exceed reserve money. (Colombo/May16/2022)

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Sri Lanka cancels visa of Scotswoman who documented anti-govt protests

ECONOMYNEXT – Sri Lanka’s Department of Immigration and Emigration has cancelled the visa of Kayleigh Fraser, a Scotswoman who had been documenting the country’s anti-government protests on social media.

Immigration officers had approached Fraser at her home on August 02 and confiscated her passport.

“This is what will happen if you raise your voice against state violence in Sri Lanka,” Fraser wrote on Wednesday August 10, posting a letter ordering her to leave the country by August 15.

“I am proud to have been a part of this. I am proud to have met so many of you. I have… so many social enterprises I want to work on here that I know will benefit so many,” Fraser said on Instagram.

“Deporting me is a massive, massive mistake for this country. The love I have for it and its people appears to be a threat to the current rulers. Does that sound right to you?”

Fraser posted that she was not prepared for the financial cost of flights and relocation, and that all her funds were in Sri Lankan currency, and that banks were not allowing foreign transactions.

Police spokesperson Nihal Thalduwa had told a privately owned news organisation that Fraser was sharing “negative content” about Sri Lanka via her social media.

“It is not right for a foreign national to be in our country and share such mass negative content. She is not a media personnel either, to cover the protests and GotaGoGama,” he has said.

Fraser has been vocal about state sanctioned violence against protestors.

News of Fraser’s deportation has caused a small riot on social media, with many protestors voicing out their support for the foreigner who documented and showed support next to them.

Seemingly indiscriminate arrests of protestors aided by an ongoing State of Emergency have both angered and frightened Sri Lankan protestors, and many active protestors have gone into hiding to evade arrest.

Some protestors said they were “taking a break” or “distancing themselves” due to continued harassment.

However, the authorities maintain that all arrests are in accordance with the law. The government has pointed to acts of retaliatory mob violence on May 09 and the forced occupation of government buildings by protestors on July 09.

“They are calling us terrorists for holding placards. This was such a peaceful protest, the only terrorism carried out was by the government against the people,” said an active protestor, who preferred not to be named.

Fraser wrote that Sri Lankans should not forget that they got to the streets for a system change.

“Live in such a way that your children will thank you for the world they inherit,” she said.

“It’s not over till it’s over. I have an unbelievable amount of high profile people fighting this order for me to leave.”(Colombo/Aug11/2022)



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Sri Lanka to acquire 35,000MT of petrol; unloading on Aug 12

ECONOMYNEXT-  Sri Lanka to receive a cargo of 35,000 metric tonns of petrol on Thursday August 11 with unloading scheduled for Friday, Minister of Power & Energy Kanchana Wijesekara said.

Wijesekara tweeted that the ship will arrive at the Colombo port Thursday night, and that the payment for the cargo had been completed with the support of the Central Bank by Wednesday.

The minister had said earlier on Wednesday that a separate cargo of crude oil is also expected on Saturday August 13, and from August 19 onwards, locally produced fuel is expected to be released to the market from the Sapugaskanda refinery.

Meanwhile, in an earlier report, Lanka IOC, a local unit of the Indian Oil Corporation (OIC), said a vessel carrying 30,000 metric tons of fuel for LIOC is scheduled to arrive between August 10 and 15.

Related: Three shipments of fuel to arrive in Sri Lanka by mid, end July, August: Lanka IOC

Meanwhile, Wijesekara said that 5.7 million people have signed up for the QR-code facilitated National Fuel Pass.

From July 21 up to now, Wijesekara said, a total of 54.9 million litres of fuel had been sold through 1,053 CPC fuel stations while 207 LIOC stations have sold 11.26 million litres of fuel. (Colombo/Aug11/2022)

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MPs nominated to Sri Lanka’s parliamentary committee on public finance

The sun sets over the Parliament at Shri Jayewardenepura

ECONOMYNEXT – Sri Lanka’s parliament has appointed members to its Committee on Public Finance, Speaker Mahinda Yapa Abeywardena said.

According to his announcement made in parliament on Wednesday August 10, in terms of the provisions of the Standing Order 121 of Parliament, MPs Bandula Gunawardana,  Vidura Wickramanayaka,  Nalin Fernando,  Anura Priyadharshana Yapa,  Vijitha Herath,  Duminda Dissanayake,  Shehan Semasinghe,  Premitha Bandara Tennakoon and Harsha de Silva have been appointed.

Indika Anuruddha Herath,  Siripala Gamalath, Seetha Arambepola, Suren Raghavan,  M A Sumanthiran,   Kavinda Heshan Jayawardhana,  Mujibur Rahuman,  Harshana Rajakaruna,  Chaminda Wijesiri,  Isuru Dodangoda,  Anupa Pasqual and  (Prof) Ranjith Bandara also have been appointed to serve as members in the Committee on Public Finance.

President Ranil Wickremesinghe tabled a proposed framework during his time as Prime Minister under President Gotabaya Rajapaksa for sectoral oversight committees in parliament with the objective of increased bipartisan parliamentary involvement in governance and policy-making.

Wickremesinghe told parliament on July 06 that under such a system, the entire parliament irrespective of party difference will participate in governance.

On July 06, he said he had approached former Speaker of Parliament Karu Jayauriya to formulate a proposal on activating the sectoral oversight committees.

Sectoral Oversight Committees shall function for the duration of Parliament and conduct its inquiries notwithstanding any adjournment or prorogation of Parliament, according to the parliament website.

The Committee of Selection shall determine the subjects and functions to be allocated to each Sectoral Oversight Committee.

The Sectoral Oversight Committees shall have the power to examine any Bill, any subsidiary legislation including Regulation, Resolution, Treaty, Report or any other matter relating to subjects and functions within their jurisdiction.

The Parliament, any Committee or a Minister may refer any matter to a Sectoral Oversight Committee having jurisdiction over the subject or function for its consideration and report. (Colombo/Aug11/2022)


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