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Sri Lanka exporters should convert, rupee worth 185 to dollar: Minister Cabraal



by Imesh Ranasinghe

Sri Lanka’s rupee should be around 185 to the US dollar, State Minister for Money and Capital Markets Nivard Cabraal has said urging exporters to convert dollar inflows without holding them back.

“I think the rupee should be around 185 to the US dollar depending on the macroeconomic factors,” Minister Cabraal said at a conference last week.

Cabraal a former central bank Governor kept the rupee stable for several years, though after a fall in 2012, it was not allowed to appreciate when credit fell in 2013 and the central bank bought billions of dollars for its reserves, for reasons that are not clear.

Sri Lanka’s rupee fell sharply in over January 2021 after the central bank printed money and brought rupee interest rates below local dollar yields over the past year amid a credit downgrade which drove up dollar bond yields, making forward premiums negative and incentivizing importers to cover forward.

As exporters also unwilling to sell forward at a discount, banks bought dollars in the spot and near term market, using the printed money from the central which are sloshing around as excess liquidity to provide forward cover to importers, putting pressure on exchange rate.

Some exporters loaned dollars and were borrowing rupees due to the inverted interest rates.

Due to unprecedented levels of excess liquidity in the overnight market interest rates did not move up in a correction – which would have raised the forward premium – despite interventions by the central bank which reduced some excess liquidity.

Excess liquidity fell from 266 billion rupees at the beginning of the year to around 120 billion rupees amid dollar losses to interventions and debt repayments.

The central bank then closed the forward market, preventing banks from giving forward cover.

“So the central bank took necessary actions about that,” Cabraal said. “And because of those actions taken by the central bank in the past few days, we once again saw the rupee being appreciated.”

Minister Cabraal asked exporters to convert their dollars as soon they receive them, as they may face losses by listening to fear mongers.

“We should keep in mind that it is a tough period for the world, so in such a tough period when we are going forward we all should go forward together,” he said.

“It’s like going in a boat, when that boat is going in a rough sea we should not shake the boat, If one or two tries to shake the boat everyone in the boat will have to face the consequences.”

Cabraal said if some are shaking the boat in that manner will, they will have to take necessary steps in order to stop them from shaking and making the boat unstable,

“It is what the central bank has done now,” he said. “There are other things the central bank can do but our opinion is that it is not necessary to do them now.”

Analysts have blamed a so-called ‘flexible exchange rate’ where a pegged exchange rate is suddenly turned into a floating exchange rate as money printing puts pressure triggering panic and uncertainty forcing importers settle bills immediately taking more credit and exporters to watch and wait.

There have been calls for central bank reform to stop the instability.

The rupee has appreciated in recent days from around 196 to 191 to the US dollar.

Meanwhile Cabraal said in 2014, when Mahinda Rajapaksa administration had left office, the US dollar was 131.5 rupees to the dollar.

At the time the only accusations from the economic experts in the opposition at that time were that the Central Bank is controlling the rupee as it was stable for years and the rupee should be allowed to float.

“But after they came into power the rupee depreciated for 5 years like never before with an annual average depreciation of 6.7 percent,” he said.

There were no global crisis or any other problem during those five years but the rupee depreciated to 181.63 against the US dollar.

“The rupee only depreciated by 2.6 percent in 2020, it is a big achievement when considering the tough period we are going through, meanwhile, the central bank was able to collect 282 million dollar to buttress its reserves,” Cabraal.

Other analysts had also blamed the last administration for giving the central bank independence to target a real effective exchange rate on contested claims that the rupee was more ‘overvalued’ than East Asia while printing money.

The resulting currency crisis then created consumption shocks that lowered growth.

More money was then printed on the basis that there was an output gap, triggering another currency crisis and destroying the economic credential of the United National Party, which was the largest partner of the then ruling coalition.

Analysts had warned of the outcome earlier.

Analysts and economists are now warning that the current monetary framework involving so-called modern monetary theory, with high levels of excess liquidity would also have dangerous consequences as soon as economic activity picks up.

While tourism receipts fell, with no dollar income for tourist sector workers and hotel owners to spend, imports will fall by the same amount, unless money was printed, and credit picked up.

There have been steady losses in foreign reserves, mostly from the financial account despite weak credit lowering imports. (ECONOMYNEXT)

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Lord Naseby asks why Adele not prosecuted in UK for child recruitment



Lord Naseby President of the UK all party British-Sri Lanka Parliamentary group has questioned the failure on the part of the UK to prosecute senior LTTE leader Adela Balasingham, wife of the outfit’s late theoretician Anton Balasingham. Lord Naseby said that Adele, who had been involved with the LTTE for several decades, was responsible for recruitment and deployment of child soldiers.

The following is the text of the statement issued by Lord Naseby in response to the UK statement at the Human Rights Council by Lord Tariq Ahmad on Feb 25:

“I am astounded how the UK or any other Member of the Core Group can possibly welcome the High Commissioner’s so called ‘detailed and most comprehensive report on Sri Lanka’ when it is riddled with totally unsubstantiated allegations and statements completely ignoring the huge effort to restore infrastructure and rehouse displaced Tamils and Muslims, who lost their homes due to the Tamil Tigers.

“Furthermore, I question how the UK Government knowingly and apparently consciously withheld vital evidence from the despatches of the UK military attaché Col. Gash. Evidence I obtained from a Freedom of Information request, resisted by the Foreign Office at every stage for over 2 years. These dispatches from an experienced and dedicated senior British officer in the field makes it clear that the Sri Lankan armed forces at every level acted and behaved appropriately, trying hard not to harm any Tamil civilians who were held by the Tamil Tigers as hostages in a human shield.

“This conscious decision totally undermines the UK‘s standing as an objective Leader of the Core Group; made even worse by the impunity for not prosecuting the LTTE leader living in the UK, largely responsible for recruiting, training and deploying over 5,000 Child Soldiers – a real War Crime. It is time that the UK Government acknowledges and respects the recommendations of the Paranagama Commission, which involved several international expert advisers, including from the UK – Sir Desmond de Silva QC, Sir Geoffrey Nice QC, Rodney Dixon QC and Major General John Holmes. Sri Lanka and the UK should be honouring the recommendations of the Paranagama Commission, which provides real evidence over all the years of the conflict, rather than just focussing on uncorroborated claims during a few months in 2009, only when the war concluded.

“Furthermore, the criticism of the way Covid has been handled with no burials for anyone based entirely on scientific advice at a time when there was no advice from WHO shows no understanding. Following the scientific advice from WHO and Sri Lanka’s scientists, burials are now permitted. The UN ignores the fact that only about 400 people on a population of 22m have sadly died in Sri Lanka, whereas no less than 120,000+ have died in the UK with a population of 66 million. By any yardstick Sri Lanka has been more successful at saving lives than any member of the Core Group.

“It seems to me that the Core Group needs to have more faith in the reconciliation structures already on the ground such as the Office of Missing Persons and the Office of Reparations. If the UN Core Group really wants to help, then why cannot the UK, Canada and Germany release to Sri Lanka the names of all asylum seekers since the war so that they can be checked against the list of Missing Persons and be removed from the master list?

“During the period of the Sirisena/Wickremesinghe government, draft legislation for a Truth & Reconciliation Commission was prepared and the current government should be given the time and space, whilst also handling the pandemic, to introduce its own TRC mechanism. Britain should stand in solidarity with the people of Sri Lanka as a unique TRC is developed and is implemented. Reconciliation cannot be externally forced on to the people of Sri Lanka. It must come from within and I would also urge the diaspora communities living in the Core Group countries to also trust, engage with and contribute towards Sri Lanka’s reconciliation processes.

It is for Sri Lanka to decide how much help they seek from outside but for me I doubt the need or the efficacy of the UNHRC being able to help in an enhanced monitoring role as proposed.”

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SJB finds fault with recommendations of political victimisation PCoI



By Saman Indrajith

The SJB yesterday found fault with the Presidential Commission of Inquiry that investigated incidents of political victimization for arrogating to itself the powers of the judiciary.

Addressing the media at the Opposition Leader’s office, Chief Opposition Whip and Kandy District SJB MP Lakshman Kiriella said: “The Presidential Commission of Inquiry (PCoI) probing the incidents of political victimisation has usurped the powers of courts.

MP Kiriella said that PCoI or any one including the Executive should not encroach on the powers of the judiciary. The MPs had a right to stand against it. “We have a constitutional right to prevent this. As per the provisions of the Article 4 of the Constitution people have given their sovereign powers of exercising judicial power to Parliament. It is by parliament through the courts or any other tribunal accepted by the law the judicial powers are exercised. A presidential commission of inquiry has not been given powers of courts. The PCoI headed by retired Justice Upali Abeyratne arrogated to itself the powers of courts as per the recommendations the commission made in its report,” Kiriella said.

He said that the PCoI had recommended that cases pending before in the Magistrate and High Courts be stopped. “Victims have been turned into complainants and complainants into offenders. The PCoI has made recommendations to acquit those implicated in numerous offences. The commission has recommended that some of those who violated the laws be acquitted and compensated. A PCoI has no such powers. We have expressed our opposition to this. We actually have submitted a petition to the Chief Justice on Tuesday against the PCoI hijacking the powers of the court.”

The MP said that PCoI’s usurping of court powers was a serious matter that should be rectified immediately. “We have utmost faith in the judiciary of this country. Courts have maintained their independence very bravely in the face of many challenges. You may recall that when there was a constitutional coup in 2018 October, the court did not succumb to political pressure

and declared the ouster of our government unconstitutional. If the PCoIs are allowed to usurp the powers of judiciary then the public would lose their faith in courts.”

SJB MPs J.C. Alawathuwala and Harin Fernando also addressed the press.

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Explosion of credit to private sector this year at low interest to ensure economic recovery – CB



A record Rs. 850 billion worth of credit would be given to the private sector by the Banks in 2021, CBSL’s Director of Economic Research Dr. Chandranath Amarasekera told the media yesterday.

The increase in the Private sector credit growth would be due to low interest rates, introduction of loan targets for selected segments of the SME sector and the increase in demand for credit as investor confidence booms, Dr. Amarasekera said.

CBSL had already commenced a dialogue with banks to iron out issues that might arise, he said.

Dr. Amarasekera said that the Standing Deposit Facility Rate will remain at 4.5% and the Standing Lending Facility Rate will remain at 5.5%. The Monetary Board decided to keep the policy interest rates unchanged considering the global and local situation, he said.

The Board also decided to keep interest rates low until the economy showed a sustainable recovery, Dr. Amarasekera said.

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