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Monday March 4th, 2024

Sri Lanka’s ulundu corruption driven by nationalist autarky mafia under fire

ECONOMYNEXT – Sri Lanka’s smuggling of ulundu (vigna mungu) triggered by import controls and high taxes apparently initiated in a nationalist autarky drive came under fire from an opposition legislator representing the minority community.

Protectionist taxes to give unfair profits to import substituting domestic producers have tended to drive smuggling, under in-voicing and corruption of customs authorities.

Export Non-Competitive Domestic Production

“There is no permission to import ulundu or greengram,” opposition Chanakyan Rasamanikkam told parliament.

“The reason given is that to increase domestic production imports are restricted. We do not see an increase in domestic production. What has increased is the price.

“Today a kilogram of ulundu is about 1,500 rupees. Ulundu can be bought from India for the equivalent of 200 Sri Lanka rupees. When you tax it can be sold for 400 to 450 rupees. Freight cost is about 10 rupees.

“So for 600 or 650 rupees or even less. Due to the 1,500 price there is a large mafia.

“If you look at people who eat ulundu it is in the North and East and Tamil people estate areas. All over the country there are people who eat ulundu and green gram. By blocking the import of these cereals a mafia has arisen.”

“Like the rice mafia, today the ulundu mafia is also a result of controlling imports.”

RELATED Sri Lanka sees food grain smuggling amid high ‘thosai-vadai’ border tax

However Rasamanikkam also spoke against a planned import of rice by the trade minister, claiming harvests of Batticaloa farmers would be hit.

Due to years of protection, Sri Lanka does not produce export competitive, globally traded grades of rice like in East Asia.

As a result a bumper harvest does not lead to increased foreign exchange earnings and lower prices for the poor, but calls for the continuation of higher-than-world prices.

The Nazi Autarky

Countries that pursue economic nationalism through protectionism, characterised by Hitler’s Nazi Autarky, automatically create cronies or mercantilist oligarchs who profit from taxes diverted to their pockets (tax arbitrage), commonly known as ‘mafia’ in Sri Lanka, while triggering bad foreign relations.

Autarky (self-sufficiency) itself is driven by foreign exchange shortages in many countries.

Hitler called on the country to ‘export or die’ as the Reichsbank printed money in complicated ways (through Mefo bills) making it difficult to import industrial raw materials and oil driving the Nazi state to strike barter deals and invent substitutes. ( )


Life in Nazi-occupied Europe

Autarky: Fantasy or Reality?

Protectionism in Germany dates back to German Historical Economics, with advocates like Friedrich List who introduced the idea to Europe (National System of Political Economy), laying the groundwork for a slippery slope of nationalism and minority oppression.

German nationalists then extended an idea originally devised by Alexander Hamilton for short term protectionism to relatively newly invented industrial goods to foods grown for thousands of years, allowing the farming lobby and collectors to profit from hunger and malnutrition.

The economic nationalism spread by the urban intelligentsia and university dons, eventually provided a fertile foundation for Nazism to grow, philosophers who tracked how targeting foreigners naturally turned to targeting domestic minorities in Austria and Germany found.

“In a world in which people have grasped the meaning of a market society, and therefore advocate a consumer’s policy, there is no legal discrimination against Jews,” explains economists and philosopher Ludwig von Mises.

“Whoever dislikes the Jews may in such a world avoid patronizing Jewish shopkeepers, doctors, and lawyers.

“On the other hand, in a world of interventionism only a miracle can in the long run hinder legal discrimination against Jews.

“The policy of protecting the less efficient domestic producer against the more efficient foreign producer, the artisan against the manufacturer, and the small shop against the department store and the chain stores would be incomplete if it did not protect the “Aryan” against the Jew.”

State Intervention

Rasamanikkan revealed Sri Lanka’s price control office was raiding supporters of his party and harassing them, while others were left alone.

Mises has pointed out that the ideology of state interventionism, regulations and the apparatus of economic nationalism set the groundwork and legal tools enabling minority oppression in Europe and it did not happen because everyone was naturally racist.

“The members of the linguistic minority are treated like foes or like outlaws,” Mises explains. “They apply in vain for licenses, for foreign exchange under a system of foreign exchange control, or for import licenses under a quota system.

“Their shops and plants, their clubhouses, school buildings, and assembly halls are closed by the police because they allegedly do not comply with the rules of the building code or with the regulations for preventing fires. Their sons somehow fail to pass the examinations for civil service jobs.

“Protection is denied to their property, persons, and lives when they are attacked by armed gangs of zealous members of the ruling linguistic group. They cannot even undertake to defend themselves: the licenses required for the possession of arms are denied to them.

“The tax collectors always find that they owe the treasury much more than the amount shown on the returns they have filed.”

Meanwhile Sri Lanka’s Trade Minister Nalin Fernando said the restrictions on the import of Ulundu was not not his idea and he will try to remove them as soon as possible.

“Because this is smuggled through the port, neither does the state get taxes, nor is the farmer protected,” Fernando said.

“Actually we should admit that. The decision to control imports was taken in 2020. But we have not decided to free the trade still. From my side I have told to allow the import with some taxes, of green gram, cowpea.

“There is a big problem with ulundu, which is a big part of the food required by the Tamil people. I promise that within a week we will somehow take a decision. The Finance Ministry had taken this decision. I will talk to them and the agriculture ministry and take a take a decision in a week.”

Sri Lanka’s food nationalism comes in a time of poverty and a rise in child malnutrition after the central bank printed money to cut rates and triggered a collapse of the rupee and sovereign default.

The main characteristics of nationalism is not only the lack of reason and logic but also the lack of compassion, critics say. (Colombo/Dec02/2023)

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Sri Lanka’s CEB reports Rs61bn profit for 2023 with Dec quarter gains

ECONOMYNEXT – Sri Lanka’s state-run Ceylon Electricity Bord has reported a profit of 61.2 billion rupees for the year to December 2023, turning around from a loss of 298 billion last year, with all the profits coming in the last year amid heavy rain and price hike, interim accounts show.

The CEB reported profits of 77.9 billion rupees for the December quarter, compared to a loss of 182 billion rupees last year.

About 94 billion rupees in losses were forex losses, coming from the central bank, which printed money to suppress rates and triggered a steep currency collapse in a failed float with a surrender rule.

CEB revenues rose 55 percent to 156 billion rupees in the December quarter, cost of sales fell 45 percent to 78 billion rupees amid heavy rains, giving a gross profit of 78.2 billion rupees for the quarter.

In the year to December, CEB revenues were 606.6 billion rupees, up 96 percent from 308 billion rupees, while cost of sales rose from 444 billion rupees to 506 billion rupees. Gross profits were 99.6 billion rupees.

At group level, which includes LTL Holdings, profits were 75 billion rupees for the year, with income taxes of 6.3 billion rupees, provided.

CEB consolidated profits were 68.4 billion rupees, with other shareholders of subsidiaries accounting for 7.2 billion rupees.

Equity was 498 billion rupees at company level by December 31, with 126 billion rupee capital contribution as well as profits earned in the last quarter. (Colombo/Mar05/2024)

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Sri Lanka rupee opens at 308.20/50 to the US dollar

Sri Lanka stocks reversed its falling trend and gained for the first time in six sessions on Tuesday closed stronger on Tuesday (21).

ECONOMYNEXT – Sri Lanka’s rupee opened at 308.20/50 to the US dollar Monday, from 308.80/90 on Friday, dealers said.

Bond yields were broadly steady.

A bond maturing on 01.08.2026 was quoted stable at 10.90/11.00 percent.

A bond maturing on 15.09.2027 was quoted at 11.90/12.00 percent from 11.90/12.05 percent.

A bond maturing on 01.07.2028 was quoted at 12.20/30 percent from 12.15/35 percent.

The Colombo Stock Exchange opened up; The All Share was up 0.60 percent at 10,755, and the S&P SL20 was up 1.24 percent at 3,077. (Colombo/Mar4/2024)

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Sri Lanka central bank swaps top $3.2bn by December

ECONOMYNEXT – Sri Lanka’s central bank borrowed US dollars from various counterparties through swap transactions, which had topped 3.2 billion US dollars by December 2024, official data show.

The net short position, including swaps disclosed by the central bank, grew by over almost 1.28 billion US dollars from December 2022 to 3,280 million dollars.

The gross position grew from 2,263 million dollars to 3,280 million US dollars over the year.

The central bank supported some state banks with dollars to cover their dollar exposures, which had since been paid back.

By December reported gross reserves of the central bank was 4,491 million US dollars, against swaps of 3,280 billion US dollars.

Swaps of around 1500 related to the People Bank of China.

Swaps allow a central bank to increase gross reserves, without raising domestic interest rates.

Swaps with domestic counterparties lead to liquidity being injected into money markets, which can be mopped if domestic credit growth is moderate.

At the moment many private banks have large dollar positions invested outside the country, which cannot be used for transactions domestically because of a money monopoly given to macro-economists. (Sri Lanka repays debt or collects reserves of U$5bn via banking system since rate correction)

However unwinding swaps after private credit has picked, or engaging in swaps after private credit has picked up, may lead to money being injected to maintain the policy rate, leading to excess credit by banks and balance of payments deficits and or currency collapses, analysts say.

Central bank swaps in the third quarter of 2018 led to a collapse of the currency under the ‘exchange rate as the first line of defence’ policy peddled to Sri Lanka, critics have said earlier.

Domestic currency proceeds of swaps were the primary ammunition to bust East Asian currencies in 1997-98.

Any depreciation after the swap proceeds have been used for imports (effectively mis-targeting rates) a central bank will run a forex loss.

The PBOC however had put a rule, preventing the use of the swap after gross reserves fell below 3 – months of imports, preventing Sri Lanka from getting into further trouble through the use of official reserves for private imports.

Sri Lanka’s central bank also used borrowings from the Reserve Bank of India, via the Asian Clearing Union to run BOP deficits.

Losses from exposed dollar positions of central banks which have gained ‘independence’ from fiscal rules and parliaments and engaged in macro-economic policy, including the Fed, have led to taxpayers bearing the losses in the end.

Swaps were invented by the Fed in the early 1960s, as it deployed macro-economic policy (printed money for growth) threatening its gold reserves and the Bretton Woods system.

Sri Lanka has other borrowings also, including from the IMF, which has made net foreign assets of the central bank negative. (Colombo/Mar05/2024)

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