News
Lanka busts US$664mn in ‘reserves for imports’ in two months
ECONOMYNEXT – Sri Lanka has spent 664 million US dollars in providing ‘reserves for imports’ in November and December 2021, as the central bank tried to implement a 200 to the US dollar peg while printing money to sterilize the same dollar sales at fixed interest rate of 6.0 percent.
The central bank bought 61.7 million US dollars from forex markets where compulsory surrender rules have been imposed, creating money, and spent 372.35 million US dollars for imports in November.
In December the central bank bought 71.16 million US dollars from banks and spent 424.7 million US dollars to enforce a peg at 200 and provide ‘reserves for imports’.
A pegged central bank which tries to implement a fixed interest rate has to print money to offset such interventions, injecting new rupee reserves to the banking system as dollar sales from reserves sucks out liquidity from the banking system reflecting the transfer of real wealth out of the country.
Such an ‘unsterilized sale’ will reduce the ability of banks to give new credit and shrink reserve money driving up rates and keeping the exchange rate fixed.
However a soft-pegged central bank re-injects the money into the banking system to ‘sterilize’ the intervention, perpetuating the currency crisis by keeping both interest rate and reserve money fixed.
Central bank data showed that 113 billion rupees had been printed in November.
Sri Lanka’s foreign reserves fell in November. In December reserves were boosted with a swap.
In a remarkable development, Mercantilists and some members of the business community last week called on the central bank to continue to sell reserves which will keep the exchange rate at 200 to the US dollar and default on debt.
The call for reserve sales to enforce the peg came after many businessmen had previously said the 200 to the US dollar peg was not realistic or not market determined.
Due to continued liquidity injections at 6.0 percent and earlier at around 5.2 percent by placing price controls on Treasury bill auctions the credibility of the 200 to the US dollar peg has been lost and people are willing to pay as much as 250 rupees to get the printed money out of the country leading to the emergency of parallel markets.
A float will end the ‘reserve sales’ for imports and consequently also end the need to sterilize the intervention, restore the interbank spot market and balance total inflows with outflows.
As long as reserve sales continue, the liquidity injections also continue (the central bank sells both dollars and rupees to the banking system simultaneously) preventing the credit system from adjusting to the reserve outflow.
However a float also leads to a fall of the currency to a lower level.
Analysts have said that the Mercantilist myth involving sterilized interventions were propagated by John Henry Williams an advocate of the the US dollars as ‘key currency’ in a post-World War II monetary system and others like Arthur Bloomfield, who found instances when gold standard central banks supposedly engaged in sterilized interventions and lived to tell the tale.
Such ideas were rejected in East Asian countries like Singapore, which do not have a fixed policy rate.
“..[W]e wanted to indicated to academics, both local and foreign; that what is fashionable in the West is not necessarily good for Singapore,” Singapore’s economic architect and former Finance Minister Goh Keng Swee said in a landmark speech.
“A perceptive mind is needed to distinguish the peripheral form the fundamental, transient fads from permanent values.”
The entire ‘Sterling Area’ of which Sri Lanka was a member until a US money doctor set up a sterilizing Latin America style central bank was based on this ‘permanent value’.
The US Fed in 1971 under then Chairman Arthur Burns broke a 300 year old gold standard, sterilizing interventions in 1971, after earlier printing money to target an output gap.
The Sri Lanka Navy successfully recovered its Fast Attack Craft P 4447 following a successful salvage operation, bringing a multi-stage emergency response to a close.
The craft, which ran into distress during a routine patrol on 15th August 2026 off Angulana, was brought to the surface on 11th September, from a depth of approximately 80 feet. It was
subsequently towed to the Colombo Dockyard premises.
The initial phase of the operation immediately following the incident focused on search and rescue. A joint effort involving the Navy, Air Force, Police, and local fishermen from Angulana
resulted in the rescue of 11 crew members. The search and rescue phase drew to a close with the recovery of the remains of the Second in Command of the craft, on 4th September.
Following the search and rescue phase, specialized Navy diving and salvage teams launched a dedicated recovery phase against rough sea conditions and underwater challenges, adhering to
strict safety protocols. The Navy’s marine, hull, electrical, and electronic engineering teams utilized specialized technical know-how and equipment to raise the vessel in stages.
Thus, the salvage operation marked an outstanding achievement attained through the professionalism, technical expertise of Navy divers, and coordinated contribution of all
engineering and technical branches of the Sri Lanka Navy. Technical support and specialized expertise were also extended by the Sri Lanka Ports Authority and Colombo Dockyard PLC.
By Shamindra Ferdinando
The Opposition should intensity its focus on the forthcoming selection of a member of the Commission to Investigate Allegations of Bribery or Corruption (CIABOC) and remain vigilant as Speaker Dr. Jagath Wickremaratne, MP, the head of the Constitutional Council (CC) tasked with making the relevant recommendation, is under investigation by the CIABOC, sources familiar with the ongoing inquiry told The Island.
Chethiya Goonasekara, PC, is expected to complete his three-year term on Dec 31, 2026. Sources pointed out that CIABOC Commissioners are appointed by the President on the recommendation made by the 10-member Constitutional Council.
The CIABOC initiated the investigation following a complaint lodged by suspended Chief of Staff and Deputy Secretary General of Parliament Chaminda Kularatne in early February this year. Sources said that as Goonasekera is scheduled to complete his term toward the end of 2026, the CC would have to call applications soon to choose the successor.
Goonasekara received his appointment from President Ranil Wickremesinghe in January 2024. A Justice W. M. N. P. Iddawala was appointed Chairman of the CIABOC. The other commissioner is K. Bernard Rajapakse.
Asked whether Iddawala and Rajapakse, too, would complete their terms soon, sources said that in terms of the Anti-Corruption Act No 09 of 2023, the Chairman of CIABOC would hold office for a period of five years, second commissioner (K. Bernard Rajapakse) for four years and the third commissioner (Chethiya Goonasekara) for a period of three years.
Sources said that the Opposition as well as civil society representatives in the CC should take up the issue of Speaker facing an investigation by the CIABOC taking part in the forthcoming selection process. Responding to queries, sources emphasized that the issue was whether in terms of Section 107 of the Anti-Corruption Act the participation of the Speaker in the selection process amounted to a violation of the Act itself.
The current members of the CC are Dr Jagath Wickramaratne, Speaker and Chairman of the Constitutional Council, Dr. Harini Amarasuriya, Prime Minister, Sajith Premadasa, Leader of the Opposition, Bimal Rathnayake, MP, Aboobucker Athambawa, MP, Ajith P. Perera, MP, Sivagnanam Shritharan, MP, Austin Fernando, Civil society representative, Prof. Wasantha Seneviratne, Civil society representative and Ranjith Ariyaratne, Civil society representative.
Sources pointed out that in spite of the sensitivity of the case, the CIABOC recorded Kularatne’s statement in the second week of August, six months after he lodged the complaint.
The CIABOC on 3, 8 and 10 Sept recorded the statements from the Transport Officer, Deputy Director, Administration and Assistant Director, Finance regarding the use of facilities by the Speaker, those assigned to his staff and other relevant matters.
The NPP named Dr. Wickramaratne as the Speaker after Asoka Ranwala resigned over controversy regarding his higher education qualifications.
SJB lawmaker Dayasiri Jayaskera has repeatedly raised the issues concerning the Speaker with the focus also on the Speaker using two government-managed residences, relevant staff in addition to expenditure on food, transport and fuel provided to the Speaker’s private secretary.
Political sources said that trouble erupted after the Parliamentary Staff Advisory Council in late January sacked Kularatne accusing him of providing false information to secure his appointment. Before being appointed as the Deputy Secretary-General of Parliament in 2023, Kularatne held several high-ranking positions, including Secretary to the Chief Government Whip, Additional Secretary to the President, Additional Secretary to the Prime Minister, and Additional Secretary to the Leader of the Opposition.
The SJB declared in Parliament that Ranwala should be brought back as the Speaker as they have no faith in Wickramaratne. MP Mujibur Rahuman jokingly told parliament that the Opposition wouldn’t raise Ranwala’s educational qualifications.
The Government Medical Officers’ Association (GMOA) has stressed the need to conduct a comprehensive countrywide cadre revision urgently.
GMOA spokesman Dr. Lasitha Dhammika told The Island that the failure on the part of successive governments to conduct cadre revision caused the deterioration of the public sector health services. Due to the absence of required statistics, they hadn’t been able to fully comprehend the situation on the ground and to ascertain the requirements of the public.
Dr. Dhammika pointed out the expansion of the services without supporting statistics and the need to initiate an immediate cadre revision. According to him, the GMOA had raised this issue with successive governments without success. The GMOA spokesman said that they also sought relevant information from the Health Ministry in terms of the Right to Information (RTI) Act two weeks ago but was yet to receive response.
(SF)
Fast Attack Craft P 4447 recovered in successful salvage operation
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