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Wednesday October 20th, 2021
Economy

Sri Lanka Minister apologizes for creating shortages, gives up on price controls

ECONOMYNEXT – Sri Lanka has decided to abandon price controls which were creating shortages of essential goods amid rising global prices and a weakening of the rupee against the dollar, Consumer Minister Lasantha Alagiywanna said.

“We admit that the price controls created shortages,” Minister Alagiywanna told reporters on Friday.

“We apologize for the inconvenience caused to consumers. But the government did this with the best intentions. We will talk with the suppliers today and decide on a plan.”

Framework Instead of Prices

He said the Consumer Affairs Authority will discuss with suppliers on guidelines on pricing goods at a meeting later today.

The goods whose price controls will be removed includes wheat, LP Gas, cement, wheat and milk. Bakery owners had said they will not increase bread prices if the price increase is 10 rupees or below a kilogram, he said.

“People will say “What is the use of a government which cannot provide stable prices?” he said. “That is true from today, but until now we have done many things.

“The CAA imposed price controls, the Treasury gave tax relief. No government wants to good prices go up. But when global prices go up, companies close down.”

Price of chicken had also gone up in recent weeks.

Minister Alagiyawanna said chicken farmers had a problem with prices and access to feed. The trade ministry was trying to find a solution.

Cement he said only consisted of 10 percent of the total construction costs and is unlikely to raise construction costs a lot.

A state imposed price control creates a shortage and a black market.

Monetary Instability

A government which wants to keep inflation down has to have a strong central bank which is not run by Keyensians who believe growth can be boosted by printing money.

Some of the earliest know price controls were imposed by Roman Emperor Diocletian who ‘printed’ what was earlier gold and silver coins in copper and decreed death penalty for those who broke the the controls.

Minister Alagiyawanna also raised the penalties for breaking price controls in Parliament but stopped short of the death penalty.

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Global commodity prices are also rising due to the so-called Powell Bubble fired by the US Federal Reserve which is printing 140 billion dollars a month in monetary policy which was the preserve of ‘cranks’ but has become respectable, according to

However the central bank has also been printing money and has been unable to provide convertibility for its money at 200 to the US dollars, as they were not created against foreign reserves but against Treasury bills.

As more and more Treasury bills were bought by the central bank creating money, more and more reserves have been lost. The central bank then borrowed dollars to give for debt repayments and is now has reserve liabilities.

Price Controls on Treasury Bills

There had also been price controls at Treasuries auctions which prevented them being bought by investors and savers.

Central Bank Governor Nivard Cabraal has removed price controls on bonds allowing rates to go up.

This week there was secondary market trading in three month bills after an absence of many months. However most bond maturities, are still not actively traded.

Minister Alagiyawanna said there was a problem in foreign exchange availability.

“We will be talking to the milk companies to see whether they can get foreign exchange from their parent companies,” he said.

However it is not clear who will bear the foreign exchange risk.

Import Control backed oligopoly

Sri Lanka’s rice prices are also going up because imports have been banned.

Sri Lanka’s domestic rice prices however are somewhat higher than global prices due to import controls which have allowed an oligopoly of milers who have grain silos to set prices.

“That is why the Sathosa (a state trading corporation) is going to import rice,” he said. “The necessary work is ongoing.”

He said farmers have also not been selling to government stores at current prices.

Sathosa is due to import about 100,000 metric tonnes of rice, which is about a months consumption.

Sri Lanka still has the National Medical Regulatory Authority which is creating shortages of some drugs and medical items and has pushed some brands off the shelves with price controls.

At the height of the pandemic NMRA created shortages of masks. The NMRA can also limit import licenses and reduce supplies and create monopolies in certain products.

There are no laws to compel the agency to license more than one product within a reasonable time.

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