ECONOMYNEXT – Sri Lanka going though a critical time as the 75th anniversary of independence from British rule is being marked on February 04, President Ranil Wickremesinghe has said.
“Our 75th Anniversary of Independence from colonial rule is being observed during an extremely critical and challenging time in the country,” he said in an independence day message.
“It is, indeed, a decisive moment. However it presents an opportunity for us not only to review our strengths and gains as a nation but also to rectify our errors and failures.”
Sri Lanka is now in the grip of the worst currency crisis in the history of its intermediate regime, central bank with the rupee falling from 182 to 360 to the US dollar in the current credit cycle.
President Wickremesinghe, is taking unpopular political decisions to stablize the country under a program with the International Monetary Fund, as his predecessors had done before him.
Sri Lanka got independence from the British on February 04, 1948.
At the time economic bureaucrats did not have the power to depreciated the currency by printing money to manipulate interest rates down, but were strictly rule bound and no IMF programs were necessary.
In August 28, 1950, a group of economic bureaucrats were given ‘monetary policy independence’ to print money undermining a peg with gold (1.99 grains of gold) and the US dollar – which was also on a gold standard at 22 units an ounce.
At the time the rupee was only 4.76 to the US dollar.
Sri Lanka joined the IMF the next day, on August 29. Economic bureucrats who mis-targeted rates have since take the country to the IMF 16 times.
As money was printed and forex shortages emerged the population rapidly lost their economic freedoms. First first exchange controls, then trade controls were brought to enable the central bank to continue printing money for extended periods, and avoid prudent monetary policy.
In 2005 Sri Lanka got market access. In 2022 the country defaulted as other market access countries with monetary instability had done in the 1980s and 1990s. Market access countries in the 1980s and 1990s were mainly in the Latin America.
“There is a new economic and social reform agenda before the country with the objectives focusing first on recovery and then on renewed development,” President Wickremesinghe said.
“It is imperative for us to unite in its implementation so that we can emerge with a high level of economic prosperity.”
However there is no attempt to change the flexible inflation targeting under the IMF program, giving monetary policy independence to economic bureaucrats.
Highly discretionary flexible policies where money is printed to reach a 5 percent inflation target is to be legalized as part of the program, just as similar regime was set up in 1950 the day before IMF membership was obtained.
The full statement is reproduced below:
President’s Independence Day Message
Our 75th Anniversary of Independence from colonial rule is being observed during an extremely critical and challenging time in the country.
It is, indeed, a decisive moment. However it presents an opportunity for us not only to review our strengths and gains as a nation but also to rectify our errors and failures.
Since 1948, we have, as a nation, undergone many tests and travails – from riots, insurgencies and war to natural disasters.
These experiences have left us with a sense of inculcated resilience that has made us revive better when faced with adversity. Therefore, I am confident that even at this juncture we will pool our energies as the daughters and sons of one mother to rise up from the current economic abyss and build back stronger.
There is a new economic and social reform agenda before the country with the objectives focusing first on recovery and then on renewed development. It is imperative for us to unite in its implementation so that we can emerge with a high level of economic prosperity.
I pledge today to make the extremely difficult though vital decisions to achieve this goal with courage and determination. I anticipate the confidence and support of you, the people of our country, in this endeavour.
I also take the opportunity to thank you, the Sri Lankan expatriate community, for your contribution towards the development of our motherland despite your distance. I would like to invite you to join us in securing a bright future for the younger generation of Sri Lankans who are at the vanguard of economic and social development.
Your faith and investment in the unique and creative ideas of our talented youth who lack capital could give considerable hope and be of immense benefit to our country in this crisis.
On this historic anniversary, let us all resolve to meet the challenges of this year with further patience and fortitude.
I extend warm felicitations to you, Sri Lankans, here and aboard.