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Sunday May 19th, 2024

Sri Lanka EPF gets US$1.85bn in value back as central bank strengthens rupee

ECONOMYNEXT – Sri Lanka’s central bank has restored about 1.85 billion US dollars’ worth of lost value to the Employees Provident Fund in a currency collapse, as it appreciated the rupee from March 2022, an analysis of data shows.

Sri Lanka’s central bank engineered a balance of payments surplus from around September 2022, with deflationary monetary policy, and ended a surrender rule in March 2023, allowing the currency to appreciate.

The end-2022 value of the EPF fund which was 3,459 billion rupees (with interest earnings and net contributions) up from 3,166 billion in 2021.

As a result of the rupee collapsing from 200 to 363 after money printing and flawed exchange rate policy (a surrender rule with an attempted float) the dollar value of the fund fell to 9.53 billion US dollar equivalent by end 2022, from 15.80 billion in the previous year, despite the earnings and net contributions.

In March 2023, the surrender rule was lifted amid deflationary policy, allowing the exchange rate to appreciate.

When deflationary policy reduces outflows compared to imports in a pegged regime (reductions of domestic assets of a pegged bank against foreign assets), the exchange rate can be appreciated at will.

It is not transparent on what basis the exchange rate is appreciated but macro-economists have developed a number of statistical methodologies to arrive at what they claim to be an ‘equilibrium value’ for an exchange rate, as knowledge of operational frameworks and note-issue banking in general, deteriorated in the last century.

“The exchange rate is determined by monetary policy not the market, as claimed by post 1970s Mercantilists, and in the case of reserve collecting central banks, also by exchange rate policy,” says EN’s economic columnist Bellwether.

“Exchange rates did not move before before 1971 and especially before the 1930s, unless money was printed for war.

“One of the attributes of money is to be a stable store of value, not to fluctuate all over the place as started to happen after 1971, triggering uncertainty and social unrest or destroying lifetime savings and current salaries instantly.”

“After the Second Amendment to the IMF’s articles in 1978, money, especially in countries like Sri Lanka, also lost the attribute of being a unit of account.

“In times of printing it also lost the ability of being a medium of exchange, particularly across borders. That is why we have trouble with importing oil and have forex shortages.

“In the end the only use for money was for macro-economists to deploy macro-economic policy, to push exports or growth or employment and breaking up the economic and social fabrics of entire nations by denying stability and also driving countries into default.”

The central bank, which manages the EPF has drawn flack for interest rate hair-cuts imposed on pension funds in a debt restructuring by the government.

However, the rupee appreciation has reversed initial capital losses to the EPF in dollar terms. The EPF’s end 2022 value is now around 11.38 billion dollars at 304 rupees to the US dollar, up about 1.85 billion dollars.

A back of the envelop calculation of food prices also show that the central bank has reversed price rises of most foods from levels seen 2022, when an apparent slide towards hyperinflation was arrested by Governor Nandalal Weerasinghe by allowing suppressed interest rates to market-price and by ending central bank driven credit.

Since September 2022, when monetary stability was restored, price inflation measured by the official index had increased only by 5.9 percent as services in particular corrected for the currency collapse and earlier inflationist policy.

A quick re-appreciation of the currency can also slow the adjustment of services prices. However once salaries have fully adjusted to deprecation, exports firms in particular may have trouble with margins and may lose business, as productivity can only be boosted slowly. (Colombo/Mar26/2024)

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Sri Lanka seeks to draw youth into agri-entrepreneurship with 1.6bn funding

ECONOMYNEXT – Sri Lanka’s Ministry of Agriculture and Plantation Industries has earmarked 1.6 billion rupees for the establishment of 160 model farms across the island, that are to be owned and operated by youth agri-entrepreneurs.

“The Ministry of Agriculture and Plantation Industries has taken steps to allocate 1,600 million rupees to establish 160 villages in 25 districts with 6 youth agri entrepreneurship villages in each district,” Minister Mahinda Amaraweera was quoted in a statement.

“Arrangements have been made to provide an amount of one million rupees to each village under the first phase.”

The Minister said the aim of the program is to attract youth to agriculture and to introduce them to new agricultural technology, so they could target local markets and exports.

Under the initiative vegetables, fruits, plantation crops, and fish are to be harvested, and livestock products are to be produced in the villages. (Colombo/May18/2024)

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Sri Lanka Navy nabs fishermen engaged in illegal fishing

ECONOMYNEXT – Sri Lanka’s Navy apprehended eight persons engaged in illegal fishing in the seas off Ambalanpokkanei, Mullaitivu, Poduwakattu, and Trincomalee, this week.

“The operations also led to the seizure of 3 dinghies and unauthorized fishing gear employed for these illegal acts,” it said in a statement.

“The Sri Lanka Navy remains vigilant and conducts operations to combat illegal fishing in its sea and coastal areas, with a view to supporting legal fishing activities.”

The fishermen were engaging in light-coarse fishing and using unauthorized fishing nets.

They were intercepted by the SLNS Gotabaya and SLNS Walagamba of the Eastern Naval Command.

The individuals were identified as residents of Mullaitivu, Kuchchaveli and Poduwakattu, aged between 21 to 53 years.

The fishermen, dinghies and unauthorized fishing gear were handed over to the Assistant Directorate of Fisheries – Mullaitivu, and the Fisheries Inspector of Trincomalee for legal action, the Navy said. (Colombo/May18/2024)

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Fifteen years after the end of the war, victims still await justice at Mullivaikkal: Amnesty

ECONOMYNEXT – Speaking at a commemoration marking the 15th anniversary of the end of Sri Lanka’s internal armed conflict on 18 May 2009, which culminated in the brutal Mullivaikkal offensive where countless civilian lives were lost, Secretary General at Amnesty International Agnès Callamard said:

“Today’s anniversary is a grim reminder of the collective failure of the Sri Lankan authorities and the international community to deliver justice to the many victims of Sri Lanka’s three-decade-long internal armed conflict.

It is sobering to stand in the same place where, 15 years ago, countless civilian lives were lost during the last days of the war.

Ahead of this event, we have witnessed clampdown on the memory initiatives, including arrests, arbitrary detentions and deliberately skewed interpretations of the Tamil community’s attempts to remember their people lost to the war. Authorities must respect the space for victims to grieve, memorialise their loved ones and respect their right to freedom of expression and peaceful assembly.

UN investigations have found credible evidence of crimes under international law and other violations of international human rights and humanitarian law committed by those on both sides of the conflict, yet there has been little in the way of an independent or impartial national inquiry into such serious crimes.

Meanwhile, the families of those who were forcibly disappeared during the conflict have been left to search desperately for their loved ones. It is truly heartbreaking to hear from victims how long they have been demanding justice in vain.

The Sri Lankan government is best placed to provide answers to the victims, however numerous domestic mechanisms to establish accountability in the last 15 years have been mere window dressing.

The report by the UN Office of the High Commissioner for Human Rights released earlier this week too reiterates the gaping deficits in Sri Lanka’s accountability initiatives that has contributed to impunity remaining deeply entrenched.

Tens of thousands of victims and their families continue to suffer in anguish as they await truth, justice, and reparations. We stand in solidarity with them here in Mullivaikkal today.”

Background:

During the internal armed conflict from 1983 to 2009, Sri Lankan government forces and their armed political affiliates committed extrajudicial killings, enforced disappearances and acts of torture against Tamils suspected of links to the Liberation Tigers of Tamil Eelam (LTTE).

The LTTE also launched indiscriminate suicide attacks on civilian targets like buses and railway stations, assassinated politicians and critics, and forcibly recruited children as fighters.

Violations of international human rights and humanitarian law peaked in the final months of the conflict, most notably in May 2009 when some 300,000 displaced civilians were trapped between the warring parties.

It was at Mullivaikkal, a small village in Mullaitivu district in the Northern Province of Sri Lanka, where the final offensive between the Sri Lankan forces and the LTTE took place, killing at least 40,000 civilians according to UN estimates.

Each year, on 18 May, a memorial event at Mullivaikkal brings together thousands of war-affected Tamils to commemorate those lost to the war and demand justice and accountability.

The Office of the High Commissioner for Human Rights (OHCHR) this week released a report on accountability for enforced disappearances in Sri Lanka.
(Colombo/May18/2024)

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