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Sri Lanka’s Cinnamon Life building costs hedged against rupee fall

ECONOMYNEXT – Cinnamon Life, Sri Lanka’s largest private sector property project valued up to 800 million US dollars is hedged against falls in the currency, a top official said.

John Keells Holdings Deputy Chairman Ajit Gunewardene said its main civil works contract has been given on a fixed price US dollar deal which is financed by dollar financing.

Global commodity prices including steel, a key construction material and energy, which is used to fabricate many construction material has been falling after the US Fed ended quantity easing (money printing).

Gunewardene said commodity price fluctuations if any would be within the price of the main contractor.

But some material cost benefits may accrue on ancillary work.

The project is set to make Sri Lanka’s capital Colombo catch up with facilities in the region like Singapore or Dubai.

Sri Lanka’s rupee has fallen sharply over the past year against the US dollar with steep falls coming this months as interventions were reduced. Even if Sri Lanka was an indepedently floating currency, it would have fallen against the US dollar this year.

But analysts say Sri Lanka’s monetary regime, incorporating a soft-pegged central bank, is inherently unstable and prone to uni-directional currency collapse as it is used to print money to finance budget deficits of the ruling class or to promote ‘growth’ with liquidity creation.

Unlike Singapore which has a modified currency board critics say Sri Lanka’s central bank has de-stabilized the currency since independence from British rule, impoverished the people, destroyed real wages making low wage industries viable and helped drive mothers of little kids to the Middle East as housemaids.

Meanwhile state deficit spending policies, trade restrictions, undermining of rule of law, violating property rights and arbitrary taxation has discouraged job creating real investment. (Colombo/Sept24/2015)

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