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Friday February 23rd, 2024

Sri Lanka to monetize billions of rupees of contractor bills

PAPER: Instead of keeping a piece of paper, it can be turned into money Information Minister Bandula Gunewardene said.

ECONOMYNEXT – Sri Lanka will turn billions of rupees worth contractors bills due from government into money at 4 percent, by re-financing them though the central bank, Information Minister Bandula Gunewardene has said.

There were 240 billion rupees of arrears due to contractors for work carried out for the government in the past, Minister Gunewardene said.

The contractors were ‘completely stuck’ due to payment delays he said.

Turning Paper into Money

“If the government has approved work done by your company – lets say for 50 billion rupees – for that a bill is given,” Minister Gunewardene explained.

“A bill that has to be settled (nirawul kala yuthu bill pathak). Against this concessionary credit is given.

“Until the government settles those bills in a future budget, instead of keeping a paper, the opportunity to turn the paper into money has been given (kadadasiya deelar mudal tikker ganna).

“Then they can start their business again.”

It is not clear how much of the bills would be discounted at the central bank.

Sri Lanka’s central bank said on June 16 that a total of 150 billion rupees of re-finance (printed money) would be provided to banks at 01 percent to on-lend to Coronavirus affected businesses at 4 percent raising an original 50 billion rupee facility.

“In addition, the construction sector enterprises will be provided with a facility to borrow from LCBs, using guarantees issued by the government equivalent to the amount due on account of contracts carried out in the past, under a new dedicated credit scheme funded by the Central Bank and made available at the aforementioned concessionary rates,” the central bank said.

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Sri Lanka central bank not yet trippled Zimbabwe style quasi-fiscal facility

Earlier in June the monetary authority came under fire from President Gotabaya Rajapaksa for not increasing the 50 billion rupee facility to 150 billion rupees when it was first ordered to do so.

The central bank then tripp;ed the facility and said also cut the reserve ratio by another 2 percent releasing another 115 billion rupees in to money markets.

Similar schemes to finance state enterprises, local authorities and also private firms were started by the Reserve Bank of Zimbabwe contributing to severe monetary instability.

Auction yields of Sri Lanka rupee bonds have fallen below that of dollar bonds since then.

Budget Constraints

Minister Gunewardene said the scheme to re-finance bills into money was made due to the inability to immediately pay contractors through the budet.

“The government once tried to increase the vote-on-account to pay for the contractors and that was not allowed,” Minister Gunewardene said.

“So we have started a new system.”

He said the new re-finance schemes would increase money circulation and give new life to the economy.

Soon after the then-parliament which was controlled by the opposition refused to expand the limits of the vote-on-account, it was dissolved for elections. Since then spending has been allocated by a budget using a constitutional provision.

A similar scheme of discounting bills through the central bank was started in 1932 by the then Reichsbank President Hans Luther for public works called OFFA bills, economic analysts say.

To circumvent budget rules bills were issued through a company called Deutsche Gesellschaft für öffentliche Arbeiten AG, (OFFA) which were to be re-financed by discounting with the central bank.

In 1933, when the Reichsbank was pressed to increase OFFA bill operations to finance arms production, Luther refused.

He was replaced by Hjalmar Schacht as the President of Reichsbank. Schacht issued bills through another company called MEFO to defence contractors. MEFO bills carried an interest rate of 4 percent.

“MEFO led to monetary instability and foreign exchange problems for Germany and Schacht tried to reduce the impact by trying to extend the maturity up to five years,” says ENs economic columnist Bellwether says.

“Due to foreign exchange problems Germany then struck deals with various countries including later Axis powers like Romania to import raw materials.”

By re-financing bills from a different company, Schacht also circumvented Reichsbank rules against printing money for the budget.

Sri Lanka’s central bank, like several central banks promoted by US New Dealers after the end of World War II, has no such strict limitations and has regularly monetized government debt leading to high inflation and currency depreciation.

Mercantilism

The rupee has fallen from 4.70 to 186 to the US dollar since the creation of the central bank in 1950, abolishing a currency board which was in operation until then.

Due to classical economic illiteracy and strong beliefs in Mercantilism many in Sri Lanka believe that monetary instability in the form of currency depreciation and balance of payments troubles are due to trade and not money and credit.

Data released by the central bank this week showed that about 203 billion rupees had been printed in March and April, not counting about another 175 billion rupees released to the banking system though reserve ratio cuts.

Up to June 28 billion had been given through 1-percent re-finance, at time when the reverse repo rate is 6.5 percent.

About 1.3 billion dollars in reserves had been lost to mop up the liqudity. Another 200 billion rupees of excess liquidity (about 1.1 billion US dollars) is sloshing about in the banking system.

The excess money (until they are mopped up through currency defence) is parked at the central bank at 5.5 percent, which analysts say may help avert some mal-investments. However stock prices are rising.

Sri Lanka has been undner strict import controls and exchange controls from April. Private credit had begun to fall in April after the economy was locked down to fight Coronavirus data showed, easing pressure on the currency.

Minister Gunewardene said the exchange controls would be extended for another 6 months from July. (Colombo/June27/2020)

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Sri Lanka’s Grisly Recent History Goes Unpunished

ECONOMYNEXT – They lie buried in numerous mass graves, all evidence of Sri Lanka’s murderous recent past which has been punctuated by multiple civil conflicts.

Whatever remains is evidence of Sri Lanka’s grisly history of the extrajudicial executions of rebels in both Northern and Southern insurrections.

Most of the bodies remain in mass graves that stretch from Chemmani and Duraiappah Stadium in  Jaffna to burial sites in the Colombo and Matale Districts and the Southern and Central Provinces.

The dead could be anyone; captured rebels, those caught in crossfires and others who were deemed to be “inconvenient,” according to a report titled ‘Gotabaya Rajapaksa’s War Time Role’ released by the International Truth and Justice Project (ITJP) on 17 January 2024.

A horrific record

Sri Lanka’s recent blood-soaked history is replete with mass killings and many “disappearances” from the various incidents during the insurgencies of the JVP as well as the Tamil separatist war.

The activist group Journalists for Democracy and affiliated organisations claim that at least 32 mass graves have been identified across the island. A report published in Groundviews in January said these graves “dotted across the country that hold the remains of not just the casualties of the civil war but also those who disappeared during the two JVP uprisings in 1971 and from 1988 to 1989.”

A 1999 United Nations study noted that Sri Lanka has the second-highest number of enforced disappearances in the world with around 12,000 people missing after being detained by government Security Forces. Figures vary with Amnesty International reporting that the number of disappeared persons could be as high as 60,000.

There is no official government figure.

Evidence against GR

Now, fifteen years after the separatist war in Sri Lanka ended, mounting evidence has emerged against former President, Gotabaya Rajapaksa, for his pivotal role in the commission of war crimes and crimes against humanity during the civil war, say Human Rights lawyers in this new report.

Rajapaksa figures in two serious passages of time where suspected cadres of the Janatha Vimukthi Peramuna were killed at Matale in the 1988-89 period and LTTE cadres and civilians on the frontlines of Nandikadal which proved to be the final battle of the Eelam War.

The ITJP report quotes its Executive Director Yasmin Sooka as saying if Sri Lanka “is serious about dealing with its violent past, the litmus test is to hold (former President) Gotabaya Rajapaksa criminally accountable for war crimes and crimes against humanity.”

The report presents detailed evidence connecting the former President when he was Secretary to the Ministry of Defence to numerous massacres of civilians. Although not the army commander, nor Chairman of Joint Chiefs of Staff, Gotabaya had command and effective control of the security forces during the Civil War as the Defence Secretary and the younger brother of then President Mahinda Rajapaksa.

The ITJP report says the then Defence Secretary Rajapaksa had “contemporaneous knowledge of the violations of international humanitarian law and international criminal law being committed, and failed to take any steps to prevent them, or to hold those under his command accountable. He and successive Sri Lankan governments have had countless opportunities since the war ended to initiate credible investigations into allegations of gross human rights violations and to establish prosecutions. Instead of allowing the truth to come to light, Gotabaya and his successors have perpetuated denial of the complicity of the security forces in these violations, rewarding and protecting the alleged perpetrators.”

The 104-page document examines evidence of Rajapaksa’s involvement in and knowledge of attacks on the No Fire Zones set up to protect civilians, his failure to prevent and investigate summary executions, enforced disappearances, torture, rape and sexual violence, arbitrary detention and the denial of humanitarian aid to civilians.

Individual stories that were leaked at the time gave credence to these incidents.

One was the evidence of the killing of LTTE Leader Velupillai Prabhakaran’s younger son Balachandran. The boy, according to some reports, had been escorted to the Sri Lanka Army lines by an LTTE bodyguard at Mullivaikkal. Photos purported to have been taken at that stage show the boy wrapped in a Sri Lanka Army issue sarong eating a biscuit behind the Sri Lanka Army lines. A second photo shows him dead at the same location, his body riddled with bullets.

Another set of pictures was that of the LTTE’s TV icon Issapriya whose image was widely circulated. There were unconfirmed reports that she had been sexually assaulted along with other young women who had been captured as the LTTE unravelled. That is followed by another picture of her corpse shot at close range.

Eventually, the Sri Lankan government during President Maithripala Sirisena’s tenure acknowledged that some 65,000 persons were missing and granted close surviving relatives rights to manage their properties, the ITJP report states.

Matale Mass Grave

Rajapaksa was the military Coordinating Officer for the Matale District in 1989 when the area was rocked by the so-called Deshapremi Janatha Vyaparaya a JVP offshoot. He was a Lt. Colonel at the time.

In December 2012, reports emerged that a mass grave had been found in the grounds of the Matale Hospital.

Accusations were made at the time that the remains unearthed were that of JVP cadres who had been captured and allegedly killed during the insurrection, a claim the party repeatedly made.

No government however pursued an investigation into the discovery because politics got in the way; after all the UNP was in power when the killings were supposedly carried out and the officer responsible, Gotabaya, was the brother of Mahinda Rajapaksa at the time, a prominent leader in the SLFP.

The government of the day meanwhile claimed the bodies were of victims of a landslide in the 1950s.

However, there was no proper investigation to prove which theory was factual.

The ITJP report also contains the names of former Army Commander, Lt Gen Shavendra Silva and others who are seen as Gotabaya loyalists in the Army.  The report also claims that Army top brass, other than Field Marshall Sarath Fonseka, who was Commander of the Army at the time the civil war ended, had close personal connections to Rajapaksa.

These incidents, however, are not the only horrific events of our island nation’s history; abductions and disappearances of young men, allegedly by members of the armed forces, the massacre of a group of Buddhist monks at Aranthalawa, the killing of pilgrims at Anuradhapura, the latter two by the LTTE, random killings of public servants and others by rebel groups, and more recently the Easter Sunday bombings, the list goes on. And the powers that be, govern with impunity.

So, it is unlikely that the relatives of the victims will find closure until justice is served and those whose hands are bloodstained are held accountable for their actions.

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India has given “lot of offers” for Ramayana Trail, Sri Lanka state minister says

ECONOMYNEXT – India has given a lot of offers to establish Ramayana Trails in Sri Lanka, State Tourism Minister Diana Gamage said, as the island nation is focusing more on Indian tourists to boost the hospitality industry.

Historians say, according to Hindu mythology, Sri Lanka was the kingdom of Ravana, the ten-headed demon king who abducted Sita, the wife of Rama, the hero of the Ramayana, a smriti text from ancient India, one of the two important epics of Hinduism known as the Itihasas, the other being the Mahabharata.

The epic narrates the life of Rama, a prince of Ayodhya in the kingdom of Kosala.

With the opening of Ram Mandhir in Ayodhya, Sri Lanka has renewed the establishment of Ramayana Trails, which includes all the places believed to be associated with Ramayana.

The places include Sigiriya, Ashok Vatika, a garden in the city of Nuwara Eliya, which is believed to be the place where Ravana kept Sita captive, Ravana Ella Falls, Koneswaram Temple in Trincomalee and Divurumpola Temple in Bandarawela which is believed to be the place where Sita underwent a trial by fire to prove her purity among many other places.

“I think India is even willing to invest in it. They have given proposals that they are willing to invest in it. They will build hotels even around where they can have accommodation for the people who are visiting these areas,” Diana Gamage told reporters in Colombo.

“They (Indians) have given a lot of offers. If we do this in the right way, we can bring 5 million tourists from India alone.”

Indians topped the list of tourists to Sri Lanka last year with over 300,000 visitors.

“At the moment I am having discussions with some of them, and they are in touch with me,” Gamage said.

“If you look at Seetha Eliya, Seetha Temple is one of the main areas in this Trail. So that area also will be developed, specially.”

“I don’t know if you have seen how many millions visited the Ayodhya temple. There are so many millions from around the world. So, there is an interest in this and we have to grab that opportunity being in the country that it actually has taken place.”

“It is so unfortunate that why it has not been done so far. This should have been done a long long time ago. So now I am thinking that we should do it at least now.” (Colombo/Feb 22/2024)

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Sri Lanka offers fresh debt plan to bondholders amid Hamilton case extension hopes: Sources

ECONOMYNEXT – Sri Lanka offered a revised restructuring proposal to sovereign bond holders sources said, as the country tries to wrap up debt restructuring by the middle of the year and a holdout investor sues to force payment on one series of bonds.

A US court had stayed proceedings of case by holdout investor Hamilton Reserve for six months, which has the required volumes of bond with a ‘single series’ collective action clause to file action following request which was supported by the US, UK and France.

The deadline runs out on February 29.

An extension of at least three months may be sought to help wrap up the debt restructuring, sources said.

Sri Lanka is expecting to sign memoranda of understanding with Paris Club, within weeks, according to official sources.

Courts had earlier granted the stay saying Hamilton had the option of renewing case for summary judgement once it is lifted.

Sri Lanka rejected a proposal by bondholders to exchange a ‘downside’ bond linked to gross domestic product which will have a 20 percent hair cut with additional haircuts if GDP growth is low as forecasted by the International Monetary Fund.

Bondholders believe that the growth projections in an IMF debt sustainable analysis is too pessimistic

However bondholders are very keen on the structure, and it may be tough to convince them to accept a ‘plain vanilla’ type of solution, according to sources familiar with their thinking.

Bondholders also do not want a value recovery instrument detached from the underlying bond which is not ‘index eligible’. Earlier VRI’s used in debt re-structures have been upside instruments.

Bondholders had earlier expressed their unhappiness at what they said was “no progress” in negotiations.

Some bondholders were also of the view that the first ask by Sri Lanka from bondholders was deeper than the in-principle re-structure given by bilateral creditors. (Colombo/Feb22/2024)

A US court had stayed proceedings of case by holdout investor Hamilton Reserve for six months, which has the required volumes of bond with a ‘single series’ collective action clause to file action following a request from the US government among others.

The deadline runs out at the end of the month.

An extension of at least three months may be sought to help wrap up the bond restructuring, sources said. It is not clear whether courts will grant the extension.

Sri Lanka rejected a proposal by bondholders to exchange a ‘downside’ bond linked to gross domestic product which will have a 20 percent hair cut with additional haircuts if GDP growth is low as forecasted by the International Monetary Fund.

Bondholders believe that the growth projections in an IMF debt sustainable analysis is too pessimistic

However bondholders are very keen on the structure, and it may be tough to convince them to accept a ‘plain vanilla’ type of solution, according to sources familiar with their thinking.

Bondholders also do not want a value recovery instrument detached from the underlying bond which is not ‘index eligible’. Earlier VRI’s used in debt re-structures have been upside instruments.

Bondholders had earlier expressed their unhappiness at what they said was “no progress” in negotiations.

Some bondholders were also of the view that the first ask by Sri Lanka from bondholders was deeper than the in-principle re-structure given by bilateral creditors. (Colombo/Feb22/2024)

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