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Tuesday July 23rd, 2024

Sri Lanka stockbrokers meet regulators after market fall; discuss credit data call

ECONOMYNEXT – Chief executives of Sri Lanka’s stock broking firms had met the Securities and Exchange Commission Thursday to discuss a request for credit information, which some had blamed for a recent correction in the market.

SEC in a statement said ‘candid views’ were expressed between the parties.

“The stockbrokers expressed the view that there had been some misconception that this information were to be gathered in order to curtail the credit that has been extended by the stockbroker firms,” the SEC said.

Credit Rules

Sri Lanka already has rules governing broker credit. Stock purchases are expected to be settled three days after the trade (T+3) and brokers also have to maintain net capital, which limits overdue accounts.

Brokers had to report client positions to regulators every two weeks earlier. Customers who had not settled (broker credit) is usually settled ahead of the reporting date.

The regulators had called for reports every week as the stocks shot up in January, amid unprecedented loose monetary policy which was discouraging bank deposits and was inserting rupee reserves in excess of the balance of payments to banks.

SEC said Viraj Dayaratne had told that such information was anyhow collected on a fortnightly and monthly basis.

Considering the “dynamic nature of the market some such information was required to be submitted on a weekly basis and that it was in no way meant to curtail credit granted by the stockbrokers,” he had said.

The CSE had also called for positions on some stocks, where a number were linked to businessman Ishara Nanayakkara were included but there were none on firms connected to Dhammika Perera, where frenzied activity was also seen, which according to some market participants was ad hominem.

Authorities later revised the request dropping the named firms.

There were several views expressed among market participants about the recent fall.

One seasoned analyst said it the fall was a long overdue correction and it was a sign of a well functioning market.

There were others who speculated that a group of market players and sold down in-play stocks to ‘teach a lesson’ to regulators who had dared to question credit, and the move had backfired panicking retailers and killing overall sentiment leading to a selling spree.

As a result the credit information requests were ‘made a scapegoat’.

Sri Lanka’s market rally in 2021, like in 2011 comes amid large liquidity injections made by the central bank, which ended in a currency crisis a few months later.

Mal-investments

When large fiat money injections are made, there is mal-investment which may lead to asset price inflation.

Securities watchdogs in general are helpless to contain such booms and penny stock frauds and other manipulation that takes place.

The world’s first Securities and Exchange Commission in the US was also set up through the Securities Act of 1933 and the Securities and Exchange Act of 1934 following a stock market bubble and collapse triggered by the Federal Reserve.

The Federal Reserve fired the bubble partly with the help of open market operations which it accidentally stumbled into in the 1920s under New York Fed Chief Benjamin Strong, who had a long association with Bank of England Governor Montagu Norman.

Former Fed chief Alan Greenspan had said the bubble and the depression was also contributed by the Fed running loose policy to help stop a gold flow from Britain, which was in turn caused by a too loose UK policy to maintain its gold peg.

“The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain’s gold loss and avoid the political embarrassment of having to raise interest rates,” Greenspan explained writing in the Objectivist newsletter, decades before he was hired into a state agency.

“The “Fed” succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process.

“The excess credit which the Fed pumped into the economy spilled over into the stock market, triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom.

“But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed.

“Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930’s.”

In Sri Lanka when stock markets crash and small investors suffer, the SEC is blamed.

Modern Monetary Theory

Sri Lanka is now printing money under so-called Modern Monetary Theory.

Federal Reserve’s current chief Jerome Powell has also denied responsibility for unusual stock movements and the speculative frenzy and penny stock bubbles in the US.

Related

Fed not responsible for surging US stock prices: Jerome Powell

Stocks Have Worst Daily Drop in Months

Powell has blamed fiscal policy and the Coronavirus vaccine rather than his policy.

Classical economists say this is the usual form in most countries.

Related

Central bankers trigger crises, don’t admit or learn from mistakes: economist at Sri Lanka forum

Blaming fiscal policy for monetary instability is the usual form also in Sri Lanka.

Budgets are easier for the public to understand than money printing, which is cloaked in econometrics and fancy language under the banner of ‘monetary policy’.

As a result central bankers generally get away scott-free and politicians are blamed.

But the then US President Herbert in his memoirs however refused to take the hit for central bank policy errors.

“This orgy [of speculation] was not a consequence of my administrative policies,” he wrote.

“In the main it was the result of the Federal Reserve Board’s pre-1928 enormous inflation of credit at the request of European bankers which, as this narrative shows, I persistently tried to stop, but I was overruled.” (Colombo/Feb11/2021)

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  1. Gamarala says:

    Wow, too much of speculation and conjecture in the article. No substance

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  1. Gamarala says:

    Wow, too much of speculation and conjecture in the article. No substance

Sri Lanka to introduce digital program for foreign workers facing problems

ECONOMYNEXT – Sri Lanka will introduce a digital program via smart phones for migrant workers to report any concerns while employed abroad, Minister of Labor and Foreign Employment Manusha Nanayakkara said.

“We will have a digital program that is accessible from their smart mobile phones where domestic workers can notify us if they have not got their salary or if they have fallen into some trouble,” Nanayakkara said in parliament on Tuesday.

Sri Lanka has sent 301,000 domestic workers and 360,000 skilled workers abroad, Nanayakkara said.

Several workers, especially domestic workers, face abuse at the hands of foreign employers.

Nanayakkara said that the government only receives 0.001 percent of complaints with regard to abuse.

“We can only act on complaints received from people who go through legal channels. We are educating those who go through the Foreign Employment Bureau on how to escalate complaints.” (Colombo/Jul23/2024)

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Sri Lanka cabinet approves apology from Muslims for COVID-19 cremation ahead of election

ECONOMYNEXT – Sri Lanka’s Cabinet of Ministers approved a proposal to tender apology for the grievance caused for ethnic minority Muslims due to the cremation of bodies during the Covid-19 pandemic, Foreign Minister Ali Sabry said.

The move comes ahead of the upcoming presidential poll in which Muslim votes are likely to become crucial for all candidates.

The government of former President Gotabaya Rajapaksa led by current ruling party Sri Lanka Podujana Peremuna (SLPP) forced Muslims and Christians to cremate the dead bodies of those who died of Covid-19 in 2020.

The   Organisation of Islamic Cooperation (OIC) which includes Islamic states globally raised the forced cremations issue at the 46th United Nations Human Rights Council (UNHRC) in February 2021 after the SLPP government rejected repeated requests by local and global Islamic bodies.

The policy was later reversed, but the move hit diplomatic ties with Middle Eastern and OIC nations which is the highest source of employment for Sri Lankan expatriates.

Former President Gotabaya Rajapaksa later said the decision was based on expert advice. Rajapaksa who was seen as an anti-Muslim leader was heavily criticized for his decision ahead of 2020 parliamentary polls while his elder brother and then Prime Minister Mahinda Rajapaksa declined to discuss the issue with Muslim parties which asked to reverse the decision.

Hundreds of Muslims were cremated during the Covid-19 period before Rajapaksa government allowed a separate burial ground for Muslim Covid-19 victims in the Eastern town of Oddamavadi.

“A joint Cabinet Paper presented by Ministers Ali Sabry, Wijeyadasa Rajapakshe & Jeevan Thondaman apologising for the grievance caused to the Sri Lankan Muslim community due to the cremation of bodies during the Covid-19 pandemic, approved by the Cabinet,” Minister Sabry  tweeted quoting Cabinet Spokesman.

Already President Ranil Wickremesinghe and Estate Infrastructure Minister Jeevan Thondaman had tendered an apology in the parliament. The latest cabinet move is a formal and official apology.

BURIAL OR CREMATION

Along with the apology, the Cabinet approved proposed law on burial or cremation of dead bodies on religious discretion.

“As stipulated in the guidelines published by the Ministry of Health on the Clinical Management of COVID19, cremation was made compulsory in removal of the dead bodies of the persons who died due to the COVID-19 virus. The decision created displeasure among the various religious groups and human right activists especially Muslim religious persons,” a government document on the cabinet decision showed.

“The studies made in this respect have been confirmed that the faeces and the urine are the primary source of transmission the virus but not with the safe burial. Therefore, in order to prevent arisen of such condition in future, attention has been drawn to introduce a law, a certain person or relations to be selected the burial or cremation of the dead person at their discretion.”

“Further, it has been seemed that introduction of new laws is appropriate to donate the dead bodies to the Medical Faculty, if necessary.”

“Accordingly, Cabinet of Ministers has approved the joint proposal presented by the Minister of Justice, Prison affairs and Constitution Reforms, Minister of Foreign affairs to instruct legal Draftsman in order to prepare a draft for the introduction of new law.”

Rajapaksa’s arrogant policy led the OIC and Middle East nations to reject Sri Lanka’s repeated requests for credit lines and loans to buy oil before the country collapsed following an unprecedented economic crisis in 2022.

Minister Sabry faced harsh criticism from human rights defenders and from members of the Muslim community for what they claimed was his silence in the face of the inhumane, unscientific decision by the Rajapaksa government.

The Rajapaksa government’s stubborn insistence on cremating Muslim and Christian victims of the Covid-19 virus was against the communities’ religious beliefs and drew widespread condemnation and concern of Muslim countries and leaders.

Rajapaksa, after the economic crisis hit the country, was forced to flee in the face of massive protests against him in July 2022. (Colombo/July 23/2024)

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Fireworks erupt in parliament over Sri Lanka’s VFS Global controversy

ECONOMYNEXT – Sri Lanka’s parliament erupted in heated debate after government legislators raised a privilege issue against Committee on Public Finance Chair Harsha de Silva, who last week tabled report on a controversial visa deal with the IVS-GBSVFS Global, consortium.

Justice Minister Wijedasa Rajapaksa questioned the propriety of raising a privilege issue against a Committee chairman, who was acting under powers derived from the Constitution, saying it amounted to challenging the Speaker himself.

Related Sri Lanka visa deal with IVS-VFS be cancelled or revised, forensic audited: COPF Chief

Sri Lanka’s Department of Immigration had awarded a visa issuing monopoly to IVS-GBS-VFS Global without tender which was charging 25 dollars per visa compared to an earlier 1 dollar by Mobitel, and it should be terminated or revised, de Silva said presenting a report earlier this month.

Privilege Over VFS Report

State Minister Shehan Semasinghe said de Silva had presented a defective and false report misleading parliament saying among other things that the report was unanimously approved by the COPF membership.

As a result, privileges of 16 members had been broken, and misleading a parliamentary committee was a punishable offence and de Silva should be referred to the privileges committee.

De Silva said he severally and individually rejected the charges and all views of the members were attached to the final report and he would stand down as COPF chair until the matter was decided.

“This was not done secretly. There were three weeks for members to respond,” de Silva said.

“There was a debate about the tourism arrival numbers, which was included. If I am to be imprisoned, do it. I am not afraid. Give me an opportunity and I will show how each word is true.

Semasinghe said there was no desire on the part of government members to remove de Silva from the COPF.

Government member Nimal Lanza said that he was under the impression that tourist arrivals had fallen due to the VFS deal but there was an increase this year. There was no desire to imprison de Silva, he said.

Verbal Exchange

Public Security Minister Tiran Alles said five years of data was given, and there was an increase in tourism arrivals. And after April there were 53,000 tourists under new categories, which brought revenues of 1.4 billion rupees.

The report was also attached as an addendum, de Silva said.

Minister Alles questioned why the Deputy Speaker was allowing a debate over the VFS deal which would now attract media headlines.

“If you are allowed, all our members must be allowed to speak,” he said.

Opposition leader Sajith Premadasa said if competitive tenders were called, there would not have been a charge of 25 dollars per visa as Mobitel was charging only one dollar.

Premadasa said he was responding due to charges made against de Silva and claims that he had committed a punishable offence. The opposition leader questioned how his microphone was muted.

Justice Minister Wijedasa Rajapaksa said while it was fair to allow de Silva to respond to the initial charge, a long debate should not have been allowed on the matter and also the contents of the report.

“The second bad precedent is this. It is not important whether it is Harsha de Silva or not. There are many committees. Can the Chairman of a Committee be called over a privileges issue?

“Under the Constitution there are powers to make standing orders. It is implemented through the 1953 Privileges Act. The Chairmen have certain powers. The Chairman has acted under the limits of his powers.

Parliament Undermined

Minister Rajapakshe said while there may be errors in a report, the Parliament’s powers were diminished if privilege questions were raised against Chairmen of a committee who carried out there duties.

“There may be errors in the report. We have seen that. But I am raising a question on the constitution.

“In this way, in whatever Committee, if he did his official duties, if he is made an accused in another committee of the same parliament and there is an investigation, it is the parliament’s power that is degraded.

“So it is the confidence people have in the parliament that is reduced. There is a legal question here. The Chair should consider whether it is possible to raise a question like this

“Ultimately the final responsibility of all these Committees rests with the Speaker. It is the Speaker’s powers that are delegated to the Chairman of a Committee.

“So, this challenge is made against the Speaker. How is the Speaker doing this?

“If the next day, the COPE, or COPA issues a report, someone asks to put him in the punishment log (dandu kanda) or to do whatever and calls him to the privileges committee.

“What are you going to ask at the Privileges committee? What punishment are you going to give? (Colombo/July23/2024)

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