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Friday August 12th, 2022

Sri Lanka central bank threatens ‘stern action’ on victims after creating BOP trouble

HIGH HOPES: Sri Lanka’s politicians created the soft-peg misled by neo-Mercantilists of the day. But they were unable to control the agency, which became a typical third rate ‘flexible exchange rate’ not a hard peg or a free float like Canada, Australia or New Zealand.

ECONOMYNEXT – Sri Lanka’s intermediate central bank, after triggering the worst currency crisis in its history and deploying a wide range of controls to undermine the economic freedoms in the country has threatened stern action to anyone violating its rules.

As the money printing central bank triggered forex shortages the country’s legislature granted it wide powers to control what was previously completely legitimate activity under the currency board and still is in countries with single anchor consistent money regimes.

The legislature, misled by Mercantilist fallacies, also enacted an import control law instead of taming the central bank and its open market operations with strict rules or punitive action on those who try to control interest rates and trigger monetary instability.

The central bank admitted without apology that it had take away the economic freedoms of the populace and imposed draconian controls after printing money to create excess rupees leading to forex shortages.

The central bank also imposed a surrender requirement on banks to force-sell dollars to the central bank on peg that was severely under pressure and engaged in a failed attempt to float the currency leading to the worst currency collapse in its history.

“To ensure adequate foreign exchange liquidity in the banking system, the CBSL had to impose surrender requirements on export earnings,” the Monetary Authority said.

“Further, measures were taken by the Government and the CBSL to discourage foreign exchange outflows, such as imposing restrictions on certain imports and payment terms and introducing margin requirements, while encouraging foreign inflows through the banking system, rather than those being channelled through the grey market.”

The central bank threatened action against those who do not follow its orders.

“Against this backdrop, and in the best interest of the nation, the CBSL wishes to reiterate to all stakeholders of the economy, that, going forward, all efforts would be taken to strictly monitor and ensure compliance with all regulations on foreign exchange transactions, including repatriation requirements of export proceeds, conversions, and mandatory sales to the CBSL etc,” the statement said.

“Any instances of non-compliance will be dealt with stern action within the provisions of all applicable laws.”

If exporters keep money outside the country as claimed, it is a private foreign reserve which is not spent or invested domestically and do not generate imports, similar to the central bank meeting a net international reserve target under an IMF deal after killing domestic credit and there are no forex shortages.

Meanwhile data showed that exporters were repaying dollar debt and the government dollar debt to banks were also going down. Banks are also facing outflows after the low rating which they have to finance with domestic dollar borrowings.

Such actions (outflows through the financial account) tend to reduce the current account deficit by reducing the money available for domestic spending.

If, on the other had exporters take domestic credit – which is re-financed though the central bank either through sterilized interventions or other means – there is a forex shortage.

Unlike countries like Singapore, Sri Lanka set up a Latin America style central bank in 1950 abolishing a currency board that had kept the country stable and trigger-happy potential soft-peggers in check before that.

How Sri Lanka lost the knowledge that money printing is the cause of forex shortages and reserve losses is not clear. In Sri Lanka it is now widely believed that a fixed exchange rate cause reserve losses, not liquidity injections that makes it impossible to maintain the external anchor.

However the knowledge had existed at one time even among politicians.

Prime Minister D S Senanayake opening the central bank had said many had warned against the setting up of a central bank, though most warnings came from outside Ceylon not inside.

“We were fully aware that Central banking had been abused in many countries in the past,” according to the publication ‘Central bank in Retrospect’ which reproduced a report on Prime Minister Senanayake’s speech at the inauguration of the soft-peg.

“We need only remind ourselves of how excessive use of central bank credit reduced the real value of the currency and resulted in the dissipation of foreign exchange reserves in countries like China and Greece after the war,” he warned the agency.

He said central banks in Canada, New Zealand and Australia were operating well. However the banks were set up by mainly British experts not US experts who used Agentina’s BCRA as a model.

New Zealand later systematized inflation targeting after the US Fed destroyed the centuries old gold standard in 1971 under Fed Chief Arthur Burns. Inflation targeting had first been proposed by Henry Thornton during the UK bullionist debates in the early 1800s, analysts say.

How classical economic knowledge disappeared in Sri Lanka and the outright rejection of monetary phenomena clearly explained by the likes of David Ricardo, David Hume, Adam Smith or Henry Thornton, took place in the decades following, with legislators giving more power to the central bank to control the people and punish them instead of taming the agency and its liquidity injections, is part of the island’s sad post-independent history.

By 1969, during the tenure of Senanayake’s son Dudley forex reserves fell to 40 million dollars, a fraction of the 190 million official reserves in 1950 (over nine months of imports) when the soft-peg was created with currency board assets.

In 1969 legislators enacted an import an control law, instead of curbing the ability of development economists and other interventionists to re-finance agriculture, rural credit and other activities with printed money.

The law has since been used to control imports and help the central bank continue policy errors in suppressing rates with liquidity injections, worsening monetary imbalances which then lead to economic crises.

Since ending the currency board, the rupee had been busted from 4.70 to the US dollar to 360.

The central bank however had now sharply raised rates to smash private credit – and the economy along with it – to restore the credibility of its anchor-conflicting soft-peg, now called a ‘flexible exchange rate’.

Sri Lanka goes through repeated cycles of money printing to suppress rates, breaking the peg, smashing credit and economic activity to stabilize it, going to the IMF along with it, re-building reserves and busting them in a new rate suppression cycle.

Inflation is now at 50 percent and expected to rise to 75 percent, interest rates are around 30 percent, and people are in the streets. The police are now rounding up protestors.

The Fed had also printed money and has now belatedly raised rates as food prices soared leaving the poor hungry, and the International Monetary Fund had warned that unemployment would rise.

The full statement is reproduced below:

Importance of ‘fair play’ by all stakeholders of the economy in countering the current unprecedented economic crisis

The Government and the Central Bank of Sri Lanka (CBSL) have been implementing several measures to ease the burden of the current economic hardships on the people. One major factor that is contributing to the current crisis and the resultant hardships is the lack of foreign exchange liquidity in the banking system.

Such shortage of forex liquidity has affected the provision of essential imports, including fuel. To ensure adequate foreign exchange liquidity in the banking system, the CBSL had to impose surrender requirements on export earnings.

Further, measures were taken by the Government and the CBSL to discourage foreign exchange outflows, such as imposing restrictions on certain imports and payment terms and introducing margin requirements, while encouraging foreign inflows through the banking system, rather than those being channelled through the grey market.

The success of these regulatory measures and the ability to achieve the intended outcomes depend on the support and cooperation from the trading community and the banking system. However, it has been brought to the notice of the CBSL that certain market players are not being fully compliant with these regulations. Such practice, if continued, would deprive the people of the support expected from the Government in difficult times, while undermining the moral obligation of ‘equal burden sharing’ that is expected of all stakeholders under difficult and extraordinary circumstances.

Against this backdrop, and in the best interest of the nation, the CBSL wishes to reiterate to all stakeholders of the economy, that, going forward, all efforts would be taken to strictly monitor and ensure compliance with all regulations on foreign exchange transactions, including repatriation requirements of export proceeds, conversions, and mandatory sales to the CBSL etc. Any instances of non-compliance will be dealt with stern action within the provisions of all applicable laws.
Communications Department

It is noteworthy that the CBSL has strengthened its capacity in relation to monitoring of foreign exchange transactions through the implementation of the Export Proceeds Monitoring System (EPMS) and the International Transactions Reporting System (ITRS), which is a comprehensive monitoring system of cross-border transactions and domestic foreign currency transactions.

These systems facilitate regular monitoring of foreign exchange inflows and outflows. Further, assistance from independent professional bodies, including audit firms, is also being sought for the timely identification of any malpractices.

Hence, Licensed Banks and the trading community are urged to comply with the existing regulations and complement the efforts of the Government and the CBSL to provide much-needed assistance to all stakeholders of the economy under these extremely challenging circumstances. The export trading community is urged to continue to repatriate all export proceeds within the stipulated timeframe and surrender the residual earnings in accordance with the regulations. The banking community is requested to ensure strict adherence to all regulations in relation to foreign exchange transactions.

The Government and the CBSL are relentlessly pursuing efforts to secure bridging finance to reduce and alleviate economic stresses in the near term. A notable progress has been made in the ongoing negotiations for an economic adjustment programme with the International Monetary Fund. The debt restructuring process is also underway, capably assisted with the Legal and Financial Advisers. The Government and the CBSL remain committed to implementing much-needed reforms to overcome long-standing structural issues in the economy.

The Central Bank wishes to reiterate that overcoming current economic woes and distresses requires substantial and concerted efforts from all stakeholders of the economy. Foul play on the part of any group of stakeholders would inevitably result in the worsening of the crisis, thereby having widespread detrimental effects. It is the duty of everybody to act conscientiously and responsibly, and extend their unhindered support during this hour of need, for the nation to recover rapidly and emerge stronger from this crisis.

Comments (1)

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  1. sacre blieu says:

    Whatever the argument or reports, we have been screwed and will be continued to be screwed due to the macabre minds that are in the rulers brains, and the same members will be in the national government.

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Comments (1)

Your email address will not be published.

  1. sacre blieu says:

    Whatever the argument or reports, we have been screwed and will be continued to be screwed due to the macabre minds that are in the rulers brains, and the same members will be in the national government.

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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