ECONOMYNEXT – Venezuela printed money like Sri Lanka under populist policies of Hugo Chavez and the country’s women turned to prostitution and millions fled the country, opposition legislator Kabir Hashim said.
“Sri Lanka is now in the position of where Venezuela was several years ago,” Hashim told parliament.
“Hugo Chavez did populist politics and bankrupted the country. Experts have pointed out that printing money and spending beyond income and the loss of reserves.
“Venezuela did everything that Sri Lanka did. As a result 6 million became refugees. They went to other countries like people take passports and go abroad.
“These fleeing women turned to prostitution to feed their families. I am telling the government Sri Lanka is at a dangerous position.”
Latin America has among the world’s worst central bank’s build by US money doctors from the Federal Reserve modeelled Argentina’s central bank.
“Starting in the mid-1940s, the Treasury and subsequently the United States Federal Reserve organized a series of missions (to Paraguay (1943-44), Dominican Republic (1945) and Venezuela (1948)), headed for the most part by Robert Triffin (1911-1993),” according writes Esteban Pérez Caldentey and Matías Vernengo in The central banking system and monetary policy in the centre and the periphery: Prebisch as a central banker and ‘money doctor’.
“Triffin invited Raúl Prebisch to collaborate on these missions and highlighted his influence on proposals for reform of the banking system in those countries.”
Sri Lanka’s central bank was also set up by a Fed expert on the model of Argentina’s central bank with extensive sterilization powers (to use foreign reserves for imports and print money to keep rates down effectively re-financing the private sector) triggering currency crises easily as domestic private or state credit picked up.
“This law (Monetary Law Act) has been drawn up under American tutelage and along the lines of lines that have been the subject of experiment in some Latin American countries some eight years past,” a classical economist wrote in The Banker magazine of August 1950, adding prophetically.
“The step from an ‘automatic’ currency system (such as that which Ceylon inherited with its old Colonial Currency Board) to an ultra-modern currency system is necessarily fraught great dangers and there may be some who will regret that Ceylon has decided to run such risks at this time.”
Sri Lanka is now planning to enact and even more discretionary law incorporating flexible inflation targeting perhaps the most deadly impossible trinity monetary regime peddled to hapless third world nations with reserve collecting central banks but without a doctrinal foundation in sound money, critics say.
Argentina’s last default took place while ‘flexible’ inflation targeting.
Collapsing currencies and high nominal interest rates that come from countries with frequent currency crisis makes budgets unmanageable while growth falls and out-migration is triggered. The currency collapses makes it difficult for people to live and they ask for subsidies.
Countries that went in the opposite direction in East Asia and in the Gulf and maintained currency stability and made it impossible for economists to print money have instead prospered and attracted foreign guest workers. Iran, another country ‘helped’ by US money doctors collapsed.
Sri Lanka also attracted large scale foreign investment (into plantations, finance, energy among other areas) during its currency board era and drawing in-migration. Many of the FDI was later expropriated (like in Venezuela) as leftist leaders like Chavez was elected along with their advisors.
One of the problems in Venezuela was a surrender rule that forced its (repeatedly expropriated) state oil corporation PDVSA to sell dollars to the central bank creating money, and pushing the currency down.
Sri Lanka also imposed a surrender rule in the 2020/22 crisis, leading to a swift collapse of the currency as a float was attempted. (Sri Lanka bank dollar surrender rule hiked to 25-pct).
Like in Sri Lanka’s Ceylon Petroleum Corporation, PDVSA firm was forced to borrow dollars, as forex shortages came. It defaulted about 25 billion dollars to bondholders in the last currency collapse.
Venezuela however survived until the mid 1980s when it was encouraged to depreciate (flexible exchange rate or BBC policy) leaving the country without an effective anchor for monetary policy.
Several of the countries with Prebisch-Triffin central banks have now become dollarized, including El Salvador and Ecuador.
Sri Lanka’s main opposition Samagi Jana Balawegaya was against the budget 2023 because the government was setting a bad example with a 37 ministers and no action against corruption, Hashim said.
“Reform must begin at the top. The government should be shrunk” Hashim said.
“We are not against reforms. However the pain must be shared. The first reform must starte from the government, if you want people to accept the pain it must be shared equally.
“Otherwise it will create social upheaval. Thirty seven ministers is a bad example.”
There were also problems with politicization of welfare spending he said.
The budget also had not put forward measures on battling corruption.
“The issue of corruption has not been addressed,” he said. “That is a very important matter.” (Colombo/Nov22/2022)
Neither Venezuela nor Sri Lanka is socialist. Sri Lanka is a pseudo democratic. Dictatorship