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Sunday April 14th, 2024

Sri Lanka central bank complied with govt directions as allowed by law: Deputy Governor

ECONOMYNEXT – Sri Lanka’s central bank had complied with government directions as permitted by available monetary law, central bank officials said, in the wake of a controversy caused by President Gotabaya Rajapaksa slamming the central bank after summoning the Governor to his office.

Sri Lanka’s central bank was ordered to engage in a series of ‘quasi-fiscal’ activities which should have been performed by the Treasury by printing large volumes of money, on top of direct finance of the budget which had led to currency pressure and difficulties in servicing foreign debt.

Sri Lanka is now in the grip of ‘Nixon shock’ style import controls not seen since the 1970s though the country is a global leader in the fight against Coronavirus, and is a little behind Vietnam due to a reluctance to test high risk groups.

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Cabinet Orders

The cabinet had originally ordered 50 billion rupees to be given from the central bank (printed money), for banks to give loans.

“The proposal came originally from the government to introduce a 50 billion rupee scheme,” Deputy Governor Nandalal Weerasinghe explained responding to queries from reporters in Sinhalese.

“But there was no money allocated from the government, the Treasury. We were asked to implement it.”

Under Section 88 of Sri Lanka’s Monetary Law Act there was a provision to set up a medium and long term credit fund based on the rupee reserves available on the balance sheet of the central bank.

“Based on the balance sheet of the central bank it was a maximum of 30 billion rupees,” Weerasinghe said.

“That is how we started by allocating 30 billion. That is why we had to limit it to each bank to a certain amount in the first stage thought larger number of applications came.”

About 57 billion rupees of applications had come to the bank under the first scheme. By limiting it to a share to each bank it totaled about 28 billion rupees.

“In the second instance after a cabinet decision were told to increase it to 150 billion rupees on June 03,” Weerasinghe said.

“Again there was no assistance from Treasury.”

Weerasinghe said under Section 83 of the MLA there was a way to give short term money to banks against collateral given by banks.

The balance from the 58 billion rupees of applications was given under the second provision.

The Best Option

In the third instance banks are being asked to give loans under a credit guarantee from the central bank, in a third quasi-fiscal activity using Section 108 of the Monetary Law Act.

“Under that the central bank can give credit guarantees of behalf of the government,” Weerasinghe said.

The balance of credit directed by the cabinet of ministers would be given under central bank guarantees using money already in banks.

“That is the best solution to my knowledge,” Weerasinghe said. “If there is money the central bank will not have to pump new money.”

The central bank had cut the reserve ratio twice releasing around 180 billion rupees to banks.

Over 200 billion rupees had been printed to finance the deficit.

When money is printed – unless domestic credit weakens – foreign exchange shortages occur.

Central Bank Governor W D Lakshman said President Rajapaksa had not sought an explanation from the central bank before blaming the institution.

He said now communications channel had been set up with the government.

Quasi-Fiscal

Quasi-fiscal activities including central bank re-finance (printing money for banks to give loans) as well as monetization of debt (printing money for the deficit) has led to the collapse of currencies, high inflation, high reserve ratios, which in turn leads to more re-finance and subsidized credit.

Sri Lanka’s central bank law was developed by John Exter an expert sent the US which gave Sri Lanka a highly discretionary central bank, which was supposed to ‘sterilize’ the balance of payments and escape the effects of commodity price fall (credit collapses of the anchor currency central bank) among others.

Though Sri Lanka’s economic troubles of foreign exchange shortages, exchange controls started less than two years of setting up the central bank other countries which used all such facilities available in the law had suffered more.

Exter also built the central bank for Philippines, which had chronic currency troubles went bankrupt partly due to quasi-fiscal activity including risks taken through forex swaps.

Eventually quasi-fiscal activities would land on the Treasury in the form of recapitalization of the central bank or reduced profits when credit guarantees materialize. However in the interim fiscal data would look better.

The central bank of Philippines had to be re-capitalized.

Classical Principles

Economic analysts say South Korea suffered similar troubles due to a central bank set up another Fed expert, Arthur Bloomfield.

Korea reformed its central bank several times and eventually got it right in the mid 1980s shortly before a massive national strike.

“Basically these banks were set up under New Dealer influenced thinking, led by the then chief of the Fed’s Latin America section Robert Triffin,” EN’s economic columnist Bellwether says.

“Interventionists generally lionize South Korea saying subsidized credit was given, but no one asks why subsidized credit had to be given in the first place.

“In countries like Singapore and Hong Kong, interest rates were low and exchange rates were stable because their monetary authorities operated on classical economic principles.”

Korean interest rates are also low after monetary reforms.

Singapore has announced a ‘stimulus’ using forex reserves in the first instance. When money is printed and domestic credit picks up forex, reserves are anyway lost.

Analysts had warned earlier not to print money and maintain monetary stability as it would lead to downgrades.

Related

Sri Lanka prints more money as rating downgraded to just above CCC

Sri Lanka needs monetary discipline to avoid further downgrades: Bellwether

When the currency comes under pressure, fears over debt repayments trigger credit downgrades. (Colombo/July10/2020 – Udate II)

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LGBTQIA+ Rights: Europe and South Asia See Similar Discriminatory Practices

ECONOMYNEXT – The rights and protections of the LGBTQIA+ community have been fraught with challenges and continue to be so, despite the many gains achieved in recent years.

Nor are those handful of rights universally applied, a recent discussion which looked at the European and South Asian perspectives on same-sex rights and unions revealed. Most developed nations have introduced protections for those identifying as LGBTQIA+, and a view from a distant lens paints a picture of tolerance. Yet, a closer look at the European arena throws up the many gaps that are evident in the application of the law.

In the so-called conservative South Asian nations, changes to legislation are slow to be implemented. That may come as a surprise, for, contrary to popular belief, same-sex relationships were culturally acceptable in the South Asian region and is not a Western concept points out Ruhaan Joshi, a Public Policy Practitioner from India.

Society’s view on same-sex relationships dimmed with the imposition of Western values and the criminalisation of such relationships with the advent of colonial rule.

While the LGBTQIA+ communities in South Asian countries currently battle to have same-sex relationships decriminalised and their unions legally accepted, the irony is that countries that first made such relationships punishable by law have moved on to be more welcoming, though some discriminatory practices continue.

Joshi was part of a discussion themed ‘On Being Queer and LGBTQIA+ in South Asia and Europe, held in Germany on April 9 this year. The discussion which included the release of two papers which examined the rights and protections of the LGBTQIA+ community in Europe and South Asia, respectively, was organised by the Friedrich Naumann Foundation for Freedom.

Joining Joshi in the discussion were lawyer and parliamentarian Premnath C Dolawatte from Sri Lanka, Milosz Hodun, President, Projekt Polska Foundation, Poland, Michael Kauch, a Member of the European Parliament and RENEW Europe Group and Inaya Zarakhel, a Dutch-Pakistani actress and an activist on Queer Rights, who moderated the discussion. The two papers were presented by Hodun and Joshi, respectively.

In his opening remarks, Kauch pointed out that while the view of the liberals is that the rights recognized in one member nation of the EU must be accepted by all member countries, that is not the ground reality, the issue of Rainbow families being a case in point.

In the context of the European Union, though the Court of Justice has ruled on the freedom of movement of those in same-sex partnerships and their families, the ruling is not universally applied by member nations.

In Italy, and some European nations, surrogacy which helps childless couples to become parents is illegal. In other situations where same-sex parents are of different nationalities a child in that union faces restriction of movement or the possibility of being stateless if one parent hails from a country where such parental rights are not recognised.

Hodun meanwhile stated that in Poland transgender persons must first sue their parents for the gender assigned to them at birth, to have their gender marker changed on documents.

Some countries such as Russia and Azerbaijan resort to State-sponsored homophobia, and in many instances politicians and political parties promote such biases to boost their voter base it was pointed out. Even where laws are in place for the protection of LGBTQIA+ rights, there is no political will to implement them.

In Europe where migrants arrive in droves seeking asylum, and are frowned upon by many of those countries, LGBTQIA+ members face even more discrimination Hodun says, both by other refugees and governments, where most often the state ignores the situation despite the guidelines issued by the UN and the European Court of Justice. Hate speech and hate crimes too are on the rise he adds stating that at least 80 per cent go unreported.

Increasingly the LGBTQIA+ community has experienced a diminishing of their safe spaces as right-wing and populist governments are elected across the globe. Taking a dig at feminism, meanwhile, Kauch states that though feminists uphold a woman’s right to opt for an abortion, they take a different approach on the topic of surrogacy.

Dolawatte who waded into unchartered waters when he presented a Private Member’s Bill to decriminalise same-sex relationships through an amendment to section 365 of the Penal Code and the repealing of section 365A in its totality, is hopeful that the Bill will pass its third reading. It’s been an uphill battle he says, referring to the case filed in the Supreme Court against the Bill. The court ruled in his favour.

He had little or no support from his own party members, but says the President of the country, and younger party members are with him on this issue. Apart from making Sri Lanka a safe space, it would encourage foreign nationals identifying as LGBTQIA+ to visit without fear, and thus boost tourism he opines.

As Joshi states society has come a long way from when LGBTQIA+ were made fun of and were subject to violence to the positive portrayal in movies. Such movies are also well-received by society. Transgender identity has a distinct recognition in South Asian religious beliefs. Hijra, Khwaja Sara or Kinnar are some names given to transgender folk and they have, since ancient times been an accepted group in society. On the one hand, there’s Afghanistan and the Maldives which make no allowances for the LGBTQIA+ community, while Nepal became the first South Asian nation in 2023, to register a same-sex marriage, Joshi states. In most South Asian nations, the courts have ruled in favour of relaxing the rules against this community, and, like in Europe, it is the governments that drag their feet.

For governments to change their stance, society must take the lead in fighting for the unconditional dignity of the individual, freedom of movement, and safeguarding the tenets of democracy, he says adding that it must also run parallel with the LGBTQIA+ community looking beyond themselves at issues that impact democratic values, and the societal restrictions non-LGBTIQIA+ groups face, such as opposition to inter-caste marriage and the right to adopt outside their caste systems and equal access to many other privileges.

While the panellists advocated working together across the global divide as a step towards achieving equal rights for all, Dolawatte also called for caution; too much pressure on such issues from Europe he said may not be welcome, and must be handled with care.

With right-wing and populist governments getting elected across the globe, Kauch claims the forthcoming EU elections will prove crucial in deciding how future and current governments ensure tolerance and diversity amongst their citizenry.

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Sri Lanka making new economic laws to embed structural reforms

ECONOMYNEXT – Sri Lanka is making new laws and also revising old legislation following a comprehensive review of past experience and lessons learned, Treasury Secretary Mahinda Siriwardana has said.

Most of these new laws focus on structural changes of the existing executive and administrative structures, Siriwardana was quoted as saying in a speech to ministry officials on April 08.

The laws related to public finance, procurement, public private partnerships, state enterprises and also a law on the offshore economy.

The following new laws are being made:

a. Public Financial Management Bill
b. Public Debt Management Bill
c. Economic Transformation Bill
d. Management of State Owned Enterprises Law
e. Public Private Partnership (PPP) Law
f. Investment Law
g. Public Procurement Bill
h. Unified Labor Law Bill
i. Food Security Bill
j. Public Asset Management Bill
k. Microfinance and Credit Regulatory Authority Bill
l. Secured Transaction Bill
m.Offshore Economic Management Bill
n. New law for facilitating proposed agricultural land lease programme
Public Service Employment Bill
o. Sri Lanka Accounting and Standard Monitoring Act

Changes are planned to the following laws

a. Amendments to Agrarian Development Act
b. Amendments to Excise Ordinance
c. Amendments to Customs Ordinance
d. Amendments to Finance Act
e. Amendments to Foreign Exchange Act. Colombo/Apr15/2024)

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After PM’s Chinese visit, US NSA talks to Sri Lanka President’s advisor on peace, security

ECONOMYNEXT – The United States National Security Advisor (NSA) Jake Sullivan held talks with Sri Lanka President’s Senior Advisor on National Security Sagala Ratnayaka focusing on regional security issues this week.

The conversation between the two comes days after Sri Lanka Prime Minister Dinesh Gunawardena ended an official visit to China in which he met President Xi Jinping and his counterpart Li Qiang in Beijing amid discussions over further investments in Sri Lanka and concerns over banning Chinese research ships.

The United States along with India is highly concerned over increasing Chinese influence in Sri Lanka, which is located in a strategic location in the Asia.

China already owns a port and a proclaimed land next to the main Colombo port in Sri Lanka and analysts say the Beijing’s ownership of assets has raised doubts if China is planning to use Sri Lanka as a military base. China has denied this and said its relationship with Sri Lanka is only based on commercial aspects.

The discussion between Sullivan and Ratnayaka focused on a range of crucial topics aimed at bolstering bilateral relations between the two nations, the President’s Media Division (PMD) said.

“Central to their discussion was the unwavering U.S. commitment to supporting Sri Lanka’s security and sovereignty,” the PMD said in a statement.

“Acknowledging Sri Lanka’s ongoing endeavours, Sullivan emphasized the importance of completing the fiscal, monetary, and governance aspects of the IMF program.”

The US along with India has raised possible threats of increasing Chinese influence in Sri Lanka, government officials have said. Both  countries see China as a security threat to the Indian Ocean region, they say.

“The conversation also delved into future prospects for collaboration between the two countries, exploring avenues for enhanced cooperation in various spheres,” the PMD said.

“Sullivan conveyed his keen interest in fostering continued engagement with Sri Lanka, underscoring the mutual objective of advancing peace and security in the region.”

“This dialogue marks a pivotal moment in U.S.-Sri Lanka relations, demonstrating a shared commitment to promoting stability and prosperity in the Indo-Pacific region.” (Colombo/April 13/2024)

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