Sri Lanka has no plans to expand Nixon-style shock

 ECONOMYNEXT- Sri Lanka has no plans to expand import controls which were slapped earlier this year as the rupee fell Finance Minister Mangala Samaraweera said amid fears that more Mercantilist restrictions will be slapped to make up for monetary policy errors.

"For the moment we have no other plans to control that," Finance Minister Mangala Samaraweera said on Tuesday.

He was responding to a question on whether a list of non-essential items to be slapped with further controls had been sent to the Finance Ministry.

President Sirisena on the previous Tuesday (October 16) had asked his National Economic Commission to prepare  and forward to the Finance Ministry a list of non-essential items which would be temporarily controlled to facilitate import substitution and defend the rupee against further slides.

While longtime watchers of the central have highlighted several liquidity management problems that could have contributed to the slide in the rupee.

But the trade controls, somewhat similar to the ones slapped by President Richard Nixon when the Bretton Woods system of soft-pegs failed in 1971, is visible proof that there were monetary policy errors that were being covered up with fiscal measures.

Samaraweera, a free trade advocate, said that the finance ministry limited interventions to the most popular import items which were costing the country most in ‘foreign exchange’.

"These controls are temporary," he said.

"The liberalization plan of the government will go ahead unabated."

Foreign exchange shortages are caused by excess printing on domestic money. In the absence of new money, one import will ‘crowd out’ the other. (Colombo/Oct23/2018)





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