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‘Flexible exchange rate’ negates vehicle import relaxation

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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.



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Thambuttegama Water Supply Project Commissioned by the President

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The Thambuttegama Water Supply Project, which will benefit 91,810 people in the Thambuttegama, Thalawa and Galnewa Divisional Secretariat divisions, was officially commissioned by President Anura Kumara Dissanayake on Friday (10) afternoon .

The project, which was launched under a concessional loan from the China Development Bank (CDB), was suspended between May 2022 and May 2024 due to the country’s debt restructuring process. However, recognising its national importance, the current Government allocated additional funding from the Government of Sri Lanka to successfully complete the project.

Constructed as a long-term solution to the chronic kidney disease that has spread rapidly across the region, the water supply project is also expected to improve the social and economic well-being of local communities.

The project aims to provide 25,000 new household with water connections.

Built at a cost of Rs. 32 billion, the project comprises a water treatment plant with a daily capacity of 18,000 cubic metres, three water towers with a capacity of 1,500 cubic metres each, a 12.75-kilometre water transmission pipeline and a 158-kilometre water distribution network.

Speaking at the event, Minister of Housing, Construction and Water Supply Susil Ranasinghe said:

“The Thambuttegama Water Supply Project, which was declared open today by the President, has the capacity to provide safe drinking water to 25,000 families. The project has been completed at a cost of Rs. 32 billion. It was implemented with the assistance of the China Development Bank, but construction came to a standstill due to the economic crisis experienced in recent years. Over the past two years, we allocated funds through the national budget and have now successfully completed the project.

At the initial stage of the project, concerns were raised over drawing water from the Rajanganaya Reservoir. Farmers protested against the proposal. However, today this project is being commissioned with the blessing and support of the Rajanganaya farmer leaders, who are present here. They presented their concerns to us and we are committed to addressing them.

Their foremost concern was to ensure that no farmer in Rajanganaya would face a shortage of irrigation water as a result of water being diverted for this project. I can assure you without hesitation that there is absolutely no reason for concern. Not even a single drop of water required for agriculture will be denied in order to supply drinking water. This project is, after all, intended to provide clean drinking water to farming families themselves.

They also requested that compensation be paid if cultivation is affected due to any water-related issue. I assure you that there is no cause for concern on that front either. This Government has consistently compensated farmers affected by disasters. We paid Rs. 1.2 billion in compensation for losses suffered by farmers over the past seven cultivation seasons due to the Nilwala saltwater barrier. We also resolved long-standing issues relating to land acquisition under the Yan Oya Project and allocated Rs. 180 million to the District Secretary to compensate the affected landowners. In addition, Rs. 12 billion has been paid in compensation to around 200,000 farmers whose farmlands were damaged by Cyclone Ditwah. Therefore, if farmers suffer any losses or damage to their lands in the future, this Government stands ready to provide compensation.

Another request made by the farming community was the construction of the Ginipetti Bridge if water is to be drawn for this project. We have already allocated Rs. 240 million to build a new bridge capable of accommodating vehicular traffic and foundation work will commence shortly. At the same time, a team of experts has been appointed to determine whether the existing Ginipetti Bridge can be rehabilitated or whether an entirely new bridge is required. Therefore, I assure the farming community once again that we will not allow them to suffer any hardship or loss as a result of this project.”

Minister of Trade, Commerce, Food Security and Cooperative Development Wasantha Samarasinghe, Governor of the North Central Province Wasantha Jinadasa, public representatives of the province, Chinese Ambassador Qi Zhenhong, officials of the Ministry of Housing, Construction and Water Supply and the National Water Supply and Drainage Board, together with a large number of local residents, were also present at the event.

[PMD]

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New Chairman and members appointed to the Public Service Commission

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President Anura Kumara Dissanayake has appointed S. A. Nimal Saranatissa as the new Chairman of the Public Service Commission.

The other members appointed to the Commission are B. Sanath Poojitha, E. R. Weerakoon, R. Ketheeswaran, J. M. R. Jayasundara, E. A. P. N. Edirisinghe, Dr S. A. A. N. Jayasekara and M. H. Mohammed Sameel.

The letters of appointment were presented to the newly appointed Chairman and members by Secretary to the President Dr Nandika Sanath Kumanayake at the Presidential Secretariat Thursday (09) afternoon .

The appointments have been made to fill the vacancies that arose following the expiry of the previous term of office of the Public Service Commission

[PMD]

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Negombo Prison bloodbath: Autopsies reveal brutal assaults

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Post-mortem examinations conducted on prison officers killed during the violent unrest at Negombo Prison have revealed that the victims were subjected to severe and brutal assaults, according to preliminary findings of the ongoing investigation.

A five-member team of Judicial Medical Officers carried out the examinations at the Negombo Hospital, uncovering evidence of extensive injuries caused by the violence.

Investigators have so far determined that the clash erupted after a group allegedly led by Suresh Pushpakumara, also known as “Katuwellegama Suresh”, who is suspected of links to narcotics trafficking and organised crime, attacked another group of inmates inside the prison.

Preliminary inquiries indicate that the victims of the assault were inmates suspected of providing information to prison authorities regarding illegal activities, including the smuggling of prohibited items into the facility.

One of the first victims of the violence was inmate Ganegoda Arachchilage Gayan Sampath, who died after being attacked during the initial stages of the confrontation.

The 31-year-old resident of Ashokapura, Naththandiya, had been remanded for about three and a half months over drug-related allegations. His elder brother is also currently in custody at Negombo Prison.

Relatives claimed that Gayan had provided information to prison officials about narcotics and other contraband allegedly being brought into the prison following his admission.

His mother alleged that her son had been subjected to a savage attack, claiming that he suffered severe head injuries and fractures to his limbs after being assaulted with iron rods by a group of inmates.

She said a senior police officer had informed her that her son had assisted prison authorities by providing information about illegal activities within the facility and that his actions may have made him a target.

According to her, authorities had identified around 15 suspects in connection with the attack and assured her that legal action would be taken.Meanwhile, prison authorities have decided not to house inmates at the Negombo Prison premises as the facility remains an active crime scene.

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