ECONOMYNEXT – Sri Lanka’s latest currency collapse is driving girls in to the sex trade in a phenomenon which was difficult to imagine, given their family backgrounds, ex-President Maithripala Sirisena said as inflation topped 70 percent after two years of money printing to keep rates down.
Due to current economic conditions social problems were worsening, he said.
“Girl children (gahanu daruwan) from unimaginable (hithun-ner-wuth beri) families are turning to prostitution in a large scale according to what police officials tell us,” ex-President Sirisena was quoted as saying at his party headquarters by Sri Lanka’s Aruna newspaper.
Sri Lanka’s rupee collapsed from 182 to 360 to the US dollar after two years of money printing to suppress rates to stimulate the economy.
Out-migration as well as prostitution are routine trends seen in countries with Sri Lanka style central banks in Latin America whose currencies collapse steeply analysts have warned when the country started on a devaluationist path (Sri Lanka’s devaluationist REER targeting is a tiger’s tail).
“It is not necessary for central banks to create hyperinflation like in Zimbabwe or Venezuela and force mothers and sisters to sell their bodies to save children and little brothers and sisters from starvation to feel the bad effects of currency depreciation and inflation,” EN’s economic columnist warned at the time explaining how teachers and doctors crossed the border to Columbia to turn to the sex trade when the peso collapsed.
Classical economists and analysts have called for the central bank’s ability to manipulate rates through open market operations to be curbed by law, to prevent currency depreciation and forex shortages and institutionalize monetary stability to harden the exchange rate peg.
Many people are now rushing to get jobs in the Middle East with currency-board-like monetary regimes.
But the country’s bureaucrats and economists, backed by the International Monetary Fund have strongly resisted the idea of rules in favour of money printing through ‘flexible’ and discretionary policies.
Legislators however have the law making power to take away the money printing powers that were given to economists in 1950 through a Latin America style central bank law with unlimited sterilization powers and harden the peg any time they wish.
Sri Lanka’s politicians and economists frequently point to countries without flexible monetary policy or less flexible policies as examples to follow but take no action to follow their monetary policies, choosing flexible intermediate regimes instead.
Many stable pegs – which tend to have low inflation and low interest rates – hiked their policy rates last week despite having having low inflation. Hong Kong, GCC pegs, Vietnam hike rates after Fed as Sri Lanka eyes flexible policy
In Latin America collapses of so-called routinely drive populations to out-migration and prostitution analysts have warned.
In 2022 Sri Lanka is suffering from the worst currency crisis since the soft-peg was created in 1950. The soft-peg has driven the country into the IMF along with ‘stabilization policies’. Sri Lanka is now going to the IMF for the 17th time. (Colombo/Sept30/2022)