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‘Flexible exchange rate’ negates vehicle import relaxation
ECONOMYNEXT –Sri Lanka cannot relax an import ban on vehicles, State Minister of Finance Ranjith Siyambalapitiya said, after the rupee fell steeply from around 191 to 220 level due to the operation of an inconsistent peg with one sided buying.
The flexible exchange rate, concocted by Western mercantilists and peddled to countries without a doctrinal foundation in sound money, which is neither a clean float nor hard peg, critics have said.Under IMF programs in particular, central banks which had busted up reserves by mis-targeting rates are encouraged to buy dollars (creating new money) but not to sell.
As a result, there is no mechanism to match timing differences between inflows and domestic credit, other than the net open position of banks.Third world monetarily unstable central banks also limit NOPs.In this instance the rupee was appreciating steeply in the days before, amid generally good monetary policy by the central bank in the past two months, which discourages plus positions.
If the central bank does not sell back some of the dollars it bought, liquidity is not tightened; there could be a short-term mismatch, or an exchange policy error. In May the central bank had bought 662.5 million US dollars.Under the flexible exchange rate, interventions are delayed, triggering a sudden shift from a peg to a floating regime until the market is in full panic mode with importers scrambling to cover, which is defined as ‘excessive volatility’.
There was a 70 to 80 million US dollar oil bill and the central bank had bought dollars, Siyambalapitiya said.As the rupee weakened other parties had also bought dollars, fearing a further weakening. This is normal, he claimed.
“If an allocation for oil for 70-80 million dollars created affected the value of the rupee in this manner, items like vehicles, which require more dollars, have to be considered very carefully,” Siyambalapitya said in the statement.
“Therefore, we cannot give permission to import cars now.”
The central bank eventually intervened in the market and several banks gave the dollars to the bank concerned to cover the import bill.Critics say the ad hoc flexible exchange rate, coupled with flexible inflation targeting is perhaps one of the deadliest monetary regimes ever devised.
Under the regime, interest rates are cut as soon as inflation comes down from the previous crises.Inflation nears zero about 12 to 18 months after rates are hiked to correct reserve losses, just as domestic credit starts to pick up.
Analysts have warned that an IMF, net international reserve target (requiring pegging and exchange policy) and a monetary policy consultation clause (which require floating and monetary policy only) are in fundamental conflict.
When rates are cut, and if they are enforced with overnight or term reverse repo injections, the currency slides again, and monetary policy errors are compensated with depreciation, resulting in public discontent, mass rejection of free markets, a failed reform agenda, and the ouster of (usually) reformist leaders.
While short term exchange policy errors can be corrected with interventions, monetary policy errors cannot be corrected by interventions which are sterilized with new money to maintain the fixed policy rate, analysts say.In the case of a country that restructured debt, the money and exchange policy conflicts may lead to a second default.
A ‘flexible exchange rate episode in March 2020 led to a loss of market access, earlier they have led to downgrades.In order to continue mis-targeting rates and avoid correcting them, economic bureaucrats persuade politicians to impose exchange and import controls, analysts say. The current Import and Export Control Law was brought in 1969 in the wake of two back to back IMF programs.
Executive Director of People’s Action for Free and Fair Elections (PAFFREL) Rohana Hettiarachchi yesterday (28) said that there were three major concerns regarding the Anti-Corruption (Amendment) Bill 2026. Acknowledging the recent Supreme Court determination, in respect of the above-mentioned Bill, that three of the provisions were not consistent with the Constitution, requiring a special majority in Parliament, with one clause requiring approval by the people at a Referendum, Hettiarachchi said nonetheless PAFFREL had decided to bring their concerns to the notice of President Anura Kumara Dissanayake.
Responding to The Island queries, Hettiarachchci said that PAFFREL sent a letter, dated 24 Sept., to President Dissanayake, regarding the issue at hand.
Petitions against the Bill was heard before a three-judge Bench of the Supreme Court, comprising Justices Shiran Gooneratne, Mahinda Samayawardena and Sampath Wijeratne.
PAFFREL and Transparency International Sri Lanka (TISL) were among the petitioners who challenged the proposed amendments to the Anti-Corruption Act No. 9 of 2023. “We did so in public interest,” Hettiarachchchi said, adding that three major concerns were (i) the breadth of the proposed redaction power and the proposed criminalisation of certain uses of publicly accessible redacted asset declarations, particularly in relation to freedom of expression, and the public’s right to meaningfully receive and impart information (ii) raising of the State or public-corporation shareholding threshold for certain asset declaration obligations from 25% to 50%, as this could exclude officers of State-linked entities in which the State holds less than 50%, in spite of such entities exercising public functions and managing public resources and (iii)role of the Director General Ranga Dissanayake.
Hettiarachchchi emphasised that though the PARREL appreciated the way CIABOC DG handled his responsibilities, centreing of power on one person was not acceptable.
Hettiarachchi urged President Dissanayake and the 159-member government parliamentary group to pay attention to concerns raised by those who moved court against the controversial Bill and address their concerns though the Parliament received the SC determination.
An International Monetary Fund mission that visited Colombo recently warned that the proposed amendments could weaken the country’s anti-corruption framework.
The mission, led by Evan Papageorgiou, was in the country from 10 to 23 September for discussions on the seventh review of the Extended Fund Facility and the 2026 Article IV consultation. (SF)
The Supreme Court yesterday (28) dismissed two petitions filed by retired Flight Lieutenant Shantha Jayathilake against Deputy Inspector General of Police of the Criminal Investigation Department (CID) Shani Abeysekara and Secretary to the Ministry of Public Security Ravi Seneviratne, and Rev. Father Cyril Gamini, alleging them of committing contempt of court.
They were the first cases dealt by the Supreme Court after the enactment of the 22nd Amendment to the Constitution.
The recipient of gallantry medal alleged that contempt of court had been committed through an affidavit previously submitted to the Supreme Court by Shani Abeysekara and Ravi Seneviratne.
The other petition alleged that contempt of court had been committed through the contents of a complaint submitted to the Criminal Investigation Department by Rev. Father Cyril Gamini.
The Supreme Court ordered that both petitions be dismissed without being taken up for hearing.
The Commission to Investigate Allegations of Bribery or Corruption (CIABOC) yesterday (28) named former Minister and leader of the SLPP parliamentary group Namal Rajapaksa as the fourth suspect in the Krrish case before the Colombo Chief Magistrate’s Court.
The MP was named as the fourth suspect in the wake of the arrest and remanding of former Executive Officer and Director of the Krrish Group, Janaki Siriwardena, regarding the payment of Rs. 70 mn to Namal Rajapaksa to facilitate the land transaction. Police arrested Ms. Siriwardena on 24 September and she was remanded till 6 Oct. pending investigations.
The investigation focuses on 4.3 acre land development in the Fort area that began in the 2013-2014 period. Investigations were launched in 2016 by the Yahapalana government, following a complaint lodged by Wasantha Samarasinghe, now a Minister in the current Cabinet.
The Indian company in this controversy is Krrish Transworks Colombo (Pvt.) Ltd .
The CIABOC named Namal Rajapaksa as a suspect in the Krrish case while he was remanded over two cases in respect of Airbus bribery probe. (SF)
Showers above 50 mm expected in Uva, Eastern and Central provinces and in Polonnaruwa and Mullaittivu districts after 2.00 p.m.
PAFFREL raises concerns over Anti-Corruption (Amendment) Bill
First cases taken up by SC after enactment of 22A dismissed
Now NR named 4th suspect in Krrish case
Sri Lanka Red Cross Society honoured with Friend of Singapore Red Cross Award
Eastern University and the making of a culture of peace
‘Dates have the highest sugar content to fight Coronavirus’
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