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Sri Lanka wouldn’t have been in crisis if CBSL had floated rupee in April last year –Dr. Wijewardena

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By Shamindra Ferdinando

Former Deputy Governor of the Central Bank, Dr. W. A. Wijewardena says the country wouldn’t have been in the current predicament had the Monetary Board floated the Rupee in April 2021, six months before Ajith Nivard Cabraal succeeded Prof. W.D. Lakshman.

Consultant on banking, finance and economics, Dr. Wijewardena said so when The Island sought clarification regarding declaration on ‘Hiru’ on Sunday (13) that the incumbent government since Dec 2019 squandered as much as USD 5,500 mn trying to prevent the depreciation of Rupee. Dr. Wijewardena explained how the failure on the part of the Monetary Board to take remedial measures at the required time caused a catastrophe.

Dr. Wijewardena pointed out that Cabraal, who succeeded Prof. Lakshman, too, failed to address the issue. Cabraal quit his SLPP National List seat to receive the Governor’s post on Sept 15, 2021. Cabraal served as State Minister of Money and Capital Market and State Enterprise Reforms at the time of his resignation.

The retired CB Deputy Governor emphasised that the much touted ‘road map for economic recovery’ that had been announced on Oct. 1, 2021, didn’t recommend depreciation of the Rupee. The outspoken former CBSL official said that the depreciation of the Rupee/floating of the Rupee hadn’t been among the remedial measures announced by the incumbent governor.

The much-delayed decision to float the Rupee in the second week of March this year should be examined against the backdrop of the overall failure of the so-called ‘road map for economic recovery’ to achieve its targets within six months, Dr. Wijewardena told The Island.

Responding to Hiru interviewer, Dr. Wijewardena said that though CBSL expected the country to receive as much as the USD 10.5 mn during Oct-Dec, 2021 period, it didn’t materialise. Alleging that the timing of the floating of the Rupee had been unnecessarily delayed, Dr. Wijewardena asserted that the consequences could be quite devastating. The veteran banker compared the cash-strapped Sri Lanka economy with an uncontrolled kite.

Dr. Wijewardena cited the pathetic failure on the part of the entire banking system to meet USD 16 mn requirement to pay for a crude oil carrier underscored the crisis the country faced. Responding to The Island queries, Dr. Wijewardena questioned the culpability of the Monetary Board as regards the handling of the economy.

The current five-member Monetary Board consists of the Governor Cabraal (ex-officio), Treasury Secretary S.R. Attygalle (ex-officio), Sanjeewa Jayawardena, PC, Dr. Mrs. Ranee Jayamaha and Samantha Kumarasinghe. Mrs. Jayamaha, an ex-Deputy Governor, CBSL and Multichemi International Ltd Chairman Kumarasinghe joined the Monetary Board in late June 2020 whereas Jayawardena received his appointment in Feb 2020.

 The Monetary Board couldn’t absolve itself of the responsibility for the current crisis, Dr. Wijewardena said, urging the government to review the entire situation without further delay.

Basil Rajapaksa replaced Mahinda Rajapaksa as the Finance Minister in July last year.

According to Dr. Wijewardena, the banking system experienced a critical shortage of Rupees in addition to the foreign currency crisis. Dr. Wijewardena estimated that the current Rupee shortage at Rs 700 bn.

Dr. Wijewardena urged the CBSL to immediately increase bank interest rates from 7.5 percent to at least 15 as an initial measure to address the crisis. Dr. Wijewardena, who had served the CBSL for over 40 years emphasized that the recent decision to increase interest rates from 6.5 % to 7.5% was not adequate at all.

Sri Lanka couldn’t address the developing crisis by securing limited funds from India, China and Bangladesh. Instead, the assistance of the International Monetary Fund (IMF) should be secured, the veteran banker pointed out, adding that those who dismissed repeated calls to seek IMF help to restructure Sri Lanka’s debt should accept responsibility for the pathetic state of affairs today.

He compared a country’s foreign reserves with that of savings of an individual. “Savings are utilized in an emergency,” Dr. Wijewardena said, pointing out the absurdity in using foreign reserves to protect/prop up local currency. The ex-banker recalled how the Thai government moved court against the Governor of its Central bank Rerngchai Marakanond for spending USD 4.6 bn or 2.5 bn Pounds to prop up Baht during 1990s financial crisis. The Bangkok Civil Court in May 2005 directed Marakanond to reimburse the Bank of Thailand within a month, Dr. Wijewardena said. Although, the Supreme Court cleared him a decade later, the case established culpability of a decision maker/ decision makers in such a situation.

As the Parliament is accountable for public finance and enactment of laws, the responsibility of the House, too, should be examined, Dr. Wijewardena said.



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Weerawansa’s wife sentenced to RI

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Lawyers appearing for Shashi Weerawansa, MP Wimal Weerawansa’s wife, yesterday (27) appealed against a Colombo Magistrate’s Court decision to sentence their client to two years rigorous imprisonment.Colombo Chief Magistrate, Buddhika Sri Ragala found her guilty of submitting forged documents to obtain a diplomatic passport circa 2010. The Colombo Magistrate’s Court also imposed a fine of Rs. 100,000 on Mrs. Weerawansa. If the fine is not paid she will have to serve an extra six months.

Additional Magistrate Harshana Kekunawala announced that the appeal would be called for consideration on 30 May.The case against Mrs. Weerawansa was filed by the CID after a complaint was lodged on 23 January 2015 by Chaminda Perera, a resident of Battaramulla.

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Unions predict end of energy sovereignty

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By Rathindra Kuruwita

A government decision to allow all privately-owned bunker fuel operators to import and distribute diesel and fuel oil to various industries was a rollback of the nationalisation of the country’s petroleum industry and another severe blow to energy sovereignty of the country, trade union activist of the SJB Ananda Palitha said yesterday.Earlier, Minister of Power and Energy, Kanchana Wijesekera Tweeted that ‘approval was given to all the Private Bunker Fuel Operators to Import and provide Diesel and Fuel Oil requirements of Industries to function their Generators and Machinery. This will ease the burden on CPC and Fuel Stations provided in bulk’.Commenting on the decision, Palitha said that according to the existing law those companies only had the power to import, store and distribute fuel for ships. Those companies did not have the authority to distribute fuel inside the country, Palitha said.

“Only the Ceylon Petroleum Corporation (CPC) and Lanka Indian Oil Corporation (LIOC) can distribute fuel inside the country. There is a controversy about the licence given to the LIOC as well. If the government wants other companies to import fuel, it needs to change the laws. The Minister does not have the power to make these decisions. A few months ago the Gotabaya Rajapaksa administration used to rush Bills that adversely affected the country through Parliament. Now, since they don’t have a majority in parliament, they are using the Cabinet to make decisions that are detrimental to the country’s interests.”

Palitha said that the controversial government move would further weaken the CPC, and that the ultimate aim of the Rajapaksa-Wickremesinghe government was to make the Ceylon Electricity Board (CEB) purchase fuel from private distributors. With a weakened CPC and a CEB under the mercy of private companies, the Sri Lankan state would have little control over the country’s energy sector, he warned.

“The CEB already can’t pay the CPC, and therefore how can it pay private companies? It will have to sell its assets. This is another step in the road to fully privatise the energy sector. When this happens no government will be able to control inflation or strategically drive production through fuel and energy tariffs. The people will be at the mercy of businessmen and the government will only be a bystander,” he said.

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Modi government moves to ‘solve’ Katchatheevu issue

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The Narendra Modi government is mulling restoring the traditional rights of Tamil Nadu fishermen in Katchatheevu, an uninhabited island of 285 acres, sandwiched between India and Sri Lanka in the Palk Bay, with the BJP hoping the move could lift its political fortunes in the southern state.The government will push Sri Lanka to implement “in letter and spirit” the 1974 agreement reached between Indira Gandhi and Sirimavo Bandaranaike, then prime ministers of India and Sri Lanka, on the island.This will have to be done by withdrawing the “Executive Instructions” issued in 1976 without questioning Sri Lanka’s “sovereignty” over Katchatheevu, sources aware of the internal discussions in the BJP told the Indian newspaper, Deccan Herald.

Sources added that the discussions were “ongoing” at “various levels” including reaching out to Tamil political parties in Sri Lanka. The recent visit of TN BJP chief K Annamalai to Sri Lanka is also part of the outreach. Many feel the instructions issued in 1976 “superseded the provisions of the legally valid” pact between India and Sri Lanka, thus making Katchatheevu a subject of dispute in the Palk Bay.While the 1974 agreement gave away Katchatheevu, which was part of the territory ruled by the Rajah of Ramanathapuram, to Sri Lanka, the 1976 pact drew the maritime boundary between India and Sri Lanka in the Gulf of Mannar and Bay of Bengal.

“We cannot disturb the agreement signed in 1974. We are now finding ways and means to implement the agreement in letter and spirit. All we plan is to ask Sri Lanka to invoke Article 6 of the Katchatheevu pact. If Sri Lanka agrees, the issue can be sorted through Exchange of Letters between foreign secretaries of both countries,” a source in the know said.Another source said the time is “ripe” to push forward on the issue. “With fast-changing geopolitical situation in the region, we believe Sri Lanka will slowly come around and accept the rights of our fishermen,” the source said.

“The opinion within the party is that time is ripe to push this cause, with Sri Lanka beginning to realise that India can always be relied upon, given PM Ranil (Wickremesinghe) is pro-India.”

Articles 5 and 6 of the 1974 agreement categorically assert the right to access of the Indian fishermen and pilgrims to Katchatheevu and state that the “vessels of Sri Lanka and India will enjoy in each other’s waters such rights as they have traditionally enjoyed therein”.

However, fishermen from India were prohibited from fishing in the Sri Lankan territorial waters around Katchatheevu in 1976 following the signing of an agreement on the maritime boundary. The battle for fish in the Palk Bay has often ended in Indian fishermen being attacked by Sri Lankan Navy for “transgressing” into their waters.The BJP, which is yet to make major inroads in Tamil Nadu, feels a “solution” to the long-standing issue will give the party the much-needed momentum ahead of the 2024 Lok Sabha polls and provide a chance to get into the Tamil psyche. Political analysts feel that it might also allow the BJP to needle the DMK and the Congress by pointing out that it has restored the rights “surrendered by them,” to Tamil fishermen

Senior journalist and Lanka expert R Bhagwan Singh said: “If BJP succeeds in its efforts, it will certainly help the saffron party in the coming elections.”

But a source said the move will “take time”. “We don’t want to rush and create an impression we are forcing Sri Lanka. We will take it slow. We will take every stakeholder into confidence and reach an amicable settlement with Sri Lanka. All we want to do is restore traditional rights of our fishermen,” the source said.CM Stalin also raised the issue at an event on Thursday, telling Modi that this is the “right time” to retrieve Katchatheevu.

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