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Sunday May 19th, 2024

Sri Lanka unveils draft monetary law for flexible policy

ECONOMYNEXT – Sri Lanka has unveiled a draft for a new Monetary Law Act which will give independence for the central bank to operate flexible policy and implement both monetary and exchange rate policy.

The central bank will have two primary objectives under clause 06.

(1) The primary object of the Central Bank shall be to achieve and maintain domestic price stability.

(2) The other object of the Central Bank shall be to secure the financial system stability.

It is also seeking from legislators powers to support government policy and target an output gaps (growth).

Subject to the two objectives the central bank “shall” support the general economic policy framework of the Government provided for in any law.

In seeking price stability, the central bank “shall take into account, inter alia, the stabilization of output towards its potential level.

In the existing law there was no specific legal authority for the central bank to print money to boost growth, ex-Deputy Central Bank Governor W A Wijewardene had said. The stimulus or output gap targeting which led to currency crises was probably illegal.

Related: Sri Lanka has a corrupted inflation targeting, output gap targeting not in line with monetary law: Wijewardena

The central bank would implement both money and exchange policies under the new law.

According to the new Section 20:

(1) Subject to the provisions of this Act, the powers, duties and functions of the Central Bank shall be to –
(a) determine and implement monetary policy; (b) determine and implement the exchange rate policy;
(c) hold and ensure the prudent and effective
management of the official international reserves of Sri Lanka.

According to Section 11 of the new law:

“(1) There shall be a Monetary Policy Board of the Central Bank (in this Act referred to as the “Monetary Policy Board”), which is charged with the formulation of monetary policy of the Central Bank and implementation of a flexible exchange rate regime in line with the flexible inflation targeting framework in order to achieve and maintain domestic price stability.:

In the previous law, under primary objectives, then Central Bank Governor A J Jayewardene removed a responsibility for exchange rate policy (stabilizing the external value do the rupee), after more active open market operations was developed as a pre-cursor to moving towards inflation targeting with a floating rate.

However, in practice the central bank continued to intervene in forex markets, collect reserves and sell, operating a so-called impossible trinity policy regime, triggering a series of currency crises especially from 2012 amid more aggressive open market operations, eventually leading to external default, according to critics.

Critics have called for tight laws to block the central bank from operating conflicting money and exchange rate policies and either confine it to operating monetary policy (low inflation targeting with a controlled interest rates), abandoning exchange rate policy or operate a hard peg and abandon money printing to suppress rates.

Sri Lanka’s legislators have in the past uncritically passed exchange and import controls law robbing the liberties of citizens, instead of blocking conflicting money and exchange policies of the central bank.

The new law however will not have provisional advances, a method that limited money printing above the 1950 anchor to 10 percent of expected revenues.

Legislator Kabir Hashim, an economist, has already fired a warning shot, pointing out that the country’s economic bureuacrats have ignored top classical economists who advised Sri Lanka including Singapore economic architect Goh Ken Swee (who called for a hard peg) and B R Shenoy who called for a clean float.

Related

Sri Lanka ignored Singapore’s Goh, flexible CB law not a change: Kabir

Sri Lanka’s central bank needs accountability and restraint, not independence: Bellwether

Tight non-conflicting rules, removing discretion will help end 70 years of exchange and import controls and allow the country to have free trade once again and grow according to critics.

Sri Lanka is expected to print money target a high inflation of around 5 percent, about two and a half times the rate of countries with monetary stability. Ghana was targeting around 7 percent inflation when it defaulted. (Colombo/Feb24/2023)

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  1. Riyad Riffai says:

    Flexible exchange rate will never fix this problem. We are doomed for ever.

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  1. Riyad Riffai says:

    Flexible exchange rate will never fix this problem. We are doomed for ever.

Sri Lanka seeks to draw youth into agri-entrepreneurship with 1.6bn funding

ECONOMYNEXT – Sri Lanka’s Ministry of Agriculture and Plantation Industries has earmarked 1.6 billion rupees for the establishment of 160 model farms across the island, that are to be owned and operated by youth agri-entrepreneurs.

“The Ministry of Agriculture and Plantation Industries has taken steps to allocate 1,600 million rupees to establish 160 villages in 25 districts with 6 youth agri entrepreneurship villages in each district,” Minister Mahinda Amaraweera was quoted in a statement.

“Arrangements have been made to provide an amount of one million rupees to each village under the first phase.”

The Minister said the aim of the program is to attract youth to agriculture and to introduce them to new agricultural technology, so they could target local markets and exports.

Under the initiative vegetables, fruits, plantation crops, and fish are to be harvested, and livestock products are to be produced in the villages. (Colombo/May18/2024)

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Sri Lanka Navy nabs fishermen engaged in illegal fishing

ECONOMYNEXT – Sri Lanka’s Navy apprehended eight persons engaged in illegal fishing in the seas off Ambalanpokkanei, Mullaitivu, Poduwakattu, and Trincomalee, this week.

“The operations also led to the seizure of 3 dinghies and unauthorized fishing gear employed for these illegal acts,” it said in a statement.

“The Sri Lanka Navy remains vigilant and conducts operations to combat illegal fishing in its sea and coastal areas, with a view to supporting legal fishing activities.”

The fishermen were engaging in light-coarse fishing and using unauthorized fishing nets.

They were intercepted by the SLNS Gotabaya and SLNS Walagamba of the Eastern Naval Command.

The individuals were identified as residents of Mullaitivu, Kuchchaveli and Poduwakattu, aged between 21 to 53 years.

The fishermen, dinghies and unauthorized fishing gear were handed over to the Assistant Directorate of Fisheries – Mullaitivu, and the Fisheries Inspector of Trincomalee for legal action, the Navy said. (Colombo/May18/2024)

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Fifteen years after the end of the war, victims still await justice at Mullivaikkal: Amnesty

ECONOMYNEXT – Speaking at a commemoration marking the 15th anniversary of the end of Sri Lanka’s internal armed conflict on 18 May 2009, which culminated in the brutal Mullivaikkal offensive where countless civilian lives were lost, Secretary General at Amnesty International Agnès Callamard said:

“Today’s anniversary is a grim reminder of the collective failure of the Sri Lankan authorities and the international community to deliver justice to the many victims of Sri Lanka’s three-decade-long internal armed conflict.

It is sobering to stand in the same place where, 15 years ago, countless civilian lives were lost during the last days of the war.

Ahead of this event, we have witnessed clampdown on the memory initiatives, including arrests, arbitrary detentions and deliberately skewed interpretations of the Tamil community’s attempts to remember their people lost to the war. Authorities must respect the space for victims to grieve, memorialise their loved ones and respect their right to freedom of expression and peaceful assembly.

UN investigations have found credible evidence of crimes under international law and other violations of international human rights and humanitarian law committed by those on both sides of the conflict, yet there has been little in the way of an independent or impartial national inquiry into such serious crimes.

Meanwhile, the families of those who were forcibly disappeared during the conflict have been left to search desperately for their loved ones. It is truly heartbreaking to hear from victims how long they have been demanding justice in vain.

The Sri Lankan government is best placed to provide answers to the victims, however numerous domestic mechanisms to establish accountability in the last 15 years have been mere window dressing.

The report by the UN Office of the High Commissioner for Human Rights released earlier this week too reiterates the gaping deficits in Sri Lanka’s accountability initiatives that has contributed to impunity remaining deeply entrenched.

Tens of thousands of victims and their families continue to suffer in anguish as they await truth, justice, and reparations. We stand in solidarity with them here in Mullivaikkal today.”

Background:

During the internal armed conflict from 1983 to 2009, Sri Lankan government forces and their armed political affiliates committed extrajudicial killings, enforced disappearances and acts of torture against Tamils suspected of links to the Liberation Tigers of Tamil Eelam (LTTE).

The LTTE also launched indiscriminate suicide attacks on civilian targets like buses and railway stations, assassinated politicians and critics, and forcibly recruited children as fighters.

Violations of international human rights and humanitarian law peaked in the final months of the conflict, most notably in May 2009 when some 300,000 displaced civilians were trapped between the warring parties.

It was at Mullivaikkal, a small village in Mullaitivu district in the Northern Province of Sri Lanka, where the final offensive between the Sri Lankan forces and the LTTE took place, killing at least 40,000 civilians according to UN estimates.

Each year, on 18 May, a memorial event at Mullivaikkal brings together thousands of war-affected Tamils to commemorate those lost to the war and demand justice and accountability.

The Office of the High Commissioner for Human Rights (OHCHR) this week released a report on accountability for enforced disappearances in Sri Lanka.
(Colombo/May18/2024)

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