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Tuesday May 30th, 2023

Sri Lanka’s arrested uni student protestors will not be detained under PTA: PM

ECONOMYNEXT – Twenty-five university students who were arrested at a protest in Colombo, Sri Lanka, on Tuesday August 30, will not be detained under the controversial Prevention of Terrorism Act (PTA), according to Prime Minister Dinesh Gunawardena.

Responding to a question by Opposition Leader Sajith Premadasa, Gunawardena told parliament on Wednesday August 31 that the government had been informed by police that the students were arrested under the country’s normal law and detention orders (DOs) will not be issued.

The students were arrested at a protest organised by the Inter-University Student Federation (IUSF) Tuesday afternoon. The prime minister said that the organisers’ had only notified the police of the location the protestors would be convening at and not where they would be headed. A protest march ensued and the students were met with police tear gas and water cannon fire.

Raising the matter in parliament the following morning, Opposition Leader Premadasa said the student body was exercising its freedom of expression and its right to protest.

“IUSF members were brutally attacked and tear gassed, and 25 of them were arrested for no reason. I wish to ask the prime minister if there are no fundamental rights in this country anymore? Is it against the law to protest on the streets?” said Premadasa.

The opposition leader said the government was calling for an all-party government, all the while engaging in “state terrorism”.

“We’re ready to join an all-party mechanism, but not to take up cabinet positions,” he added.

He asked Gunawardena for an assurance that the arrested university students would not be detained under the PTA.

The controversial anti-terror law, which temporarily cost Sri Lanka the EU’s GSP Plus trade concession in 2010, is once again under scrutiny after it was enforced to arrest and detain protestors involved in the Aragalaya (Struggle) protest movement that caused a sitting president to resign. Three other activists including IUSF Convenor Wasantha Mudalige are already in detention under provisions of the PTA – a move widely criticised by human rights activists, opposition lawmakers and foreign governments.


Sri Lanka’s anti-terror law under scrutiny again as protestor detention continues


Premadasa said no private or public property was damaged during Tuesday’s IUSF protest.

“We saw that it was in fact the police that were affected by their own tear gas,” he added.

With the United Nations Human Rights Council (UNHCR) sessions coming up in Geneva, where Sri Lanka’s human rights record will once again go under the microscope, analysts say the government’s recent alleged crackdown on protestors will be a focal point in the discussions.

“Geneva session begins this September. Have you forgotten about the UNHRC session coming up? We don’t want the country to be at risk. We want to help the country and the people and the government with regard to the Geneva question. But how can we help when there is such barbarism?” said Premadasa.

“We’re not in the habit of going to other countries and complaining about Sri Lanka. But what are supposed to do when there is such savagery and state terrorism?

“Don’t do this. This is called ‘illan kanawa’ (asking for it),” he said.

Responding to Premadasa, Prime Minister Gunawardena said police had not been notified by the IUSF about their planned movements.

“It’s not just about the fundamental rights of one person, but about the rights of everyone else [that may be infringed]. We’re committed to an environment in which no one is [disturbed or harassed],” said Gunawardena.

The police has an obligation to investigate disturbances to the public, he added.

However, anyone arrested on Tuesday will be treated under the country’s standard laws and will not be detained under the PTA, the prime minister said.

“It is good that this question was asked.

“We will work with the country’s normal law and not the PTA,” he said.

On August 23, the government  announced the introduction of a new ‘national security act’ with more “relaxed” provisions to replace the PTA.


Sri Lanka to replace controversial anti-terror law with new ‘National Security Act’


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Sri Lanka rupee at 296.75/297.25 to dollar at open, bond yields steady

ECONOMYNEXT – Sri Lanka’s rupee opened at 297 /297.50 against the US dollar in the spot market on Monday, while bond yields were steady, dealers said.

The rupee closed at 296.75 /297.25 to the US dollar on Monday after opening around 296.50 /297.50 rupees.

A bond maturing on 01.09.2027 was quoted at 26.50/75 percent steady from Friday’s close at 26.50/65 percent.

Sri Lanka’s rupee is appreciating amid negative private credit which has reduced outflows after the central bank hiked rates and stopped printing money. (Colombo/ May 29/2023)

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Sri Lanka rupee appreciation squeezes exporters

ECONOMYNEXT – Sri Lanka’s recent appreciation is starting to squeeze apparel exporters as their domestic costs including wages and energy, were hiked over recent months, when the rupee fell steeply, an industry official said.

Companies had raised salaries and emoluments at rates averaging 25 percent for workers while transport costs have also gone up but not has come down, Yohan Lawrence Director General of the Join Apparel Association Forum said.

Apparel factories in particular also provide transport and some meals for workers.

Electricity prices have also been hiked, based on the rupee which was weaker. A tariff cut is expected from June after the rupee appreciated and imported fuel prices fell.

Sri Lanka’s rupee collapsed in 2022 from 200 to 360 to the US dollar as interest rates were suppressed with liquidity injections and a failed attempt was made to float the rupee with surrender requirement in place.

From the second half of 2022, with higher interest rates and negative private credit, the central bank has avoided printing money under conditions which are generally accepted to be difficult, and is broadly running deflationary open market operations, triggering a balance of payments surplus and putting the rupee under upward pressure.

Central bank net credit to government which was 3,302 billion rupees in September in 2022, was down to 3,209 billion rupees by March 2023, part of which was due to rollovers, analysts say.

Market pricing of fuel and electricity by the Ministry of Energy and also spending controls and tax hikes buy have also helped contain domestic credit.

Sri Lanka also has mandatory conversion rules, imposed on exporters, which is a concern for exporters.

“We believe rupee should be at its natural level, but with forced conversions you won’t get the correct picture,” Lawrence said.

Sri Lanka has to release a plan to remove import controls, exchange controls and other restrictions imposed in the period where policy rates were suppressed with liquidity injections (so-called multiple currency practices and capital flow measures) by June under the IMF program.

Apparel exporters have also seen orders fall amid tighter conditions in Western markets.

The central bank has to peg (intervene actively in forex markets and create money) to meet reserve targets under an IMF program and cannot free float (avoid creating money through international operations) the rupee.

The newly created money has generally been absorbed in an overnight liquidity shortage.

There have also been foreign purchases of rupee Treasuries. Amid a contraction in credit, the inflows also do not turn into imports fast as the money if the money is spent.

By making purchases a little below what is allowed by the contraction in domestic credit, the rupee can be allowed to appreciate, analysts say.

The central bank has so far allowed the rupee to appreciate to around 300 to the US dollar from 360 levels under a transparent guidance peg up to February.

Except after the 2008/2009 currency crisis, Sri Lanka’s central bank has not previously allowed to the rupee to appreciate under IMF programs where the first year in particular sees balance of payments surpluses, before private credit and domestic investments picks up again.

One of the considerations used by third world central banks are Real Effective Exchange Rate indices.

The REER of the Sri Lanka rupee based on a basket of currencies calculated by the central bank was 61.12 points in February before the rupee was allowed to appreciate by lifting a surrender rule.

In March the index went up to 69.55 points, but remained steeply below 100. Real effective exchange rates are calculated also taking into account inflation in counterpart trading nations.

Sri Lanka’s inflation index had hardly risen since September amid rupee gains. Falling food prices can help contain pressure for further wage hikes, analysts say. (Colombo/May30/2023)

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Sri Lanka forum to discuss central bank independence vs sound money

ECONOMYNEXT – Central bank independence and sound money will be under discussion at a public event organized by the Sri Lanka chapter of the Bastiat Society today, May 30, as island is recovering from the worst episode of monetary instability since independence.

The forum will feature Lawrence H White, Professor of Economics at George Mason University in the US, and W A Wijewardene, former Deputy Central Bank Governor, of the Central Bank of Sri Lanka.

“The discussion will compare the current system against alternative systems and explore the relationship between such banking systems and sound money,” the organizers said.

White specializes in the theory and history of banking and money. He is the author of “The Clash of Economic Ideas” (2012), “The Theory of Monetary Institutions” (1999), “Free Banking in Britain” (2nd ed., 1995), and “Competition and Currency” (1989).

Wijewardene has been speaking on central bank independence in Sri Lanka long before it became a topic of wider discussion, but also on accountability.

In April, a Central Bank Independence and Other Matters, which includes a collection of his orations on the subject over the years as well a recent development was published.

The discussion comes as independent central banks in the West have created the worst inflation since the 1970s and early 1980s and are apparently unaccountable to parliaments and the public.

The early 1980s also saw the first wave of external debt crises in so-called soft-pegged countries in Latin America and Eastern Europe in particular as the US and UK tightened policy to end the Great Inflation.

The discussion will be held at 7.00 pm at the Lakmahal Community Library and those interested can register online, the organizers said. (Colombo/May30/2023)

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