by Dr C. A. Saliya
The behaviour of market forces in macroeconomics is not instantaneous. We cannot experience the impact of these forces, immediately, like fire or wind. We would feel the behaviour of market forces such as inflation, unemployment, stock markets, interest rates and exchange rates, only with a time lag. Then it may be too late. We can now feel their impact because neither the political authority nor the officialdom made a serious attempt to manage them even though many economists and others had warned well in advance that our country was heading for bankruptcy.
There are three main reasons for raising interest rates. That is to control inflation, stabilise the exchange rate and maintain real interest rates. To understand this dynamic process that is taking place, basic interest rates (policy rates) need to be identified.
Policy interest rates are the interest rates at which the Central Bank deals with other banks.
According to monetary policy (as prescribed by the Treasury and the Central Bank), commercial banks must, at the end of each day, maintain sufficient funds for statutory reserves and liquidity. Therefore, some banks may have a cash surplus while other banks may face a cash deficit or shortage.
Banks with surplus money would deposit them with the Central Bank and earn interest. The interest rate applicable to those deposits made by commercial banks with the Central Bank is called the Standing Deposit Facility Rate (SDFR). That is the minimum (floor) interest rate that the Central Bank pays to other banks for their deposits.
Similarly, at the end of the day, the Central Bank will provide credit facilities to banks facing shortages of statutory reserves and liquid assets to be maintained by commercial banks. The Standing Lending Facility Rate (SLFR) is the maximum (ceiling) interest rate charged for advances taken by commercial banks from the Central Bank.
The bank rate is the interest rate charged by the Central Bank on advances extended to meet the temporary liquidity requirements of commercial banks. This means that the Central Bank will act as the lender of the last resort. These loans require a certain amount of assets to be mortgaged and this higher interest rate is considered as a penalty rate.
Let us now look at the three main objectives of raising interest rates.
Inflation is simply defined as continuous rise in price levels. The annualised inflation, as announced by the Central Bank of Sri Lanka, was 14.2% in January 2022 and 16% in March and the forecast for April is 25-26%, could be over 30% if the current situation prevailed.
(See figure 1)
Inflation for food items was as high as 24% in January, according to the inflation rates published by the Central Bank of Sri Lanka. This can be 35% -40% today, compared to January prices.
As a traditionally accepted remedy, the Central Bank raised policy interest rates by 7%, recently. The 7% increase is a historic one. Policy interest rates are now 13.5% and 14.5%.
(See figure 2)
As interest rates rise, people are reluctant to invest money in businesses and take risks and waste time; instead, they would conveniently choose interest-bearing bank deposits to stay relaxed. This would lead to less investment, causing a decrease in economic activities while leading to an increase in bank deposits (savings), which means a decrease in the circulation of money. Then demand would fall and price levels would stabilise if all other factors remain static.
Rising interest rates would discourage borrowings and slow down investments and reduce economic activities further.
However, there are countries with high economic growth rates, such as China and India, where inflation would not increase proportionately to the increase in economic growth.
One reason for this may be that as economic activity increases, production increases and supply increases in line with demand, while price levels are controlled by supplier competition. Therefore, traditional theories should not be accepted as universal rules.
Positive real interest rates
The real interest rate is the difference between bank interest rates and inflation. If bank interest rates are lower than inflation, people will not be motivated to save. It is profitable to stockpile as many items as possible with the rising prices of commodities.
This could lead to a vicious cycle of increased demand and a tendency for hyper-inflation.
That is, the vicious cycle of rising interest rates and inflation continuously, reinforcing each other.
(See figure 3)
When the above data is examined, it appears that the real interest rate in Sri Lanka today is negative with a large gap. This means that the interest rates that banks pay on public deposits are much lower than the rate of inflation. If so, these interest rates are likely to rise further in the future.
Stabilising exchange rate
The other factor that led to the rise in interest rates was the stabilisation of the exchange rate. People are reluctant to keep dollars if they have higher interest rates on rupee deposits relative to the appreciation of the dollar.
It is more profitable to convert dollars into rupees and invest them in rupee deposits at higher interest rates. The interest rates on dollar deposits are as low as 2% -3%, but rupee deposits with an annual interest rate of 14.5% could double the money in five years.
As interest rates rise, demand increases for the rupee and demand for the dollar falls. As a result, the rupee would appreciate against the dollar. To achieve this, other factors that contribute to the appreciation of the dollar must be controlled. That is controlling imports which intensify demand for the dollar.
Import controls should also be carefully considered on experts’ advice and implemented slowly and carefully so as not to shock the farmers and burden the people. Otherwise, it would be too late when it is realised that arbitrary decisions such as the banning of agrochemical imports are wrong.
Lives of journalists increasingly on the firing line
Since the year 2000 some 45 journalists have been killed in the conflict-ridden regions of Palestine and senior Al Jazeera journalist Shireen Abu Akleh was the latest such victim. She was killed recently in a hail of bullets during an Israeli military raid in the contested West Bank. She was killed in cold blood even as she donned her jacket with the word ‘PRESS’ emblazoned on it.
While claims and counter-claims are being made on the Akleh killing among some of the main parties to the Middle East conflict, the Israeli police did not do their state any good by brutally assaulting scores of funeral mourners who were carrying the body of Akleh from the hospital where she was being treated to the location where her last rites were to be conducted in East Jerusalem.
The impartial observer could agree with the assessment that ‘disproportionate force’ was used on the mourning civilians. If the Israeli government’s position is that strong-arm tactics are not usually favoured by it in the resolution conflictual situations, the attack on the mourners tended to strongly belie such claims. TV footage of the incident made it plain that brazen, unprovoked force was used on the mourners. Such use of force is decried by the impartial commentator.
As for the killing of Akleh, the position taken by the UN Security Council could be accepted that “an immediate, thorough, transparent and impartial investigation” must be conducted on it. Hopefully, an international body acceptable to the Palestinian side and other relevant stakeholders would be entrusted this responsibility and the wrong-doers swiftly brought to justice.
Among other things, the relevant institution, may be the International Criminal Court, should aim at taking urgent steps to end the culture of impunity that has grown around the unleashing of state terror over the years. Journalists around the world are chief among those who have been killed in cold blood by state terrorists and other criminal elements who fear the truth.
The more a journalist is committed to revealing the truth on matters of crucial importance to publics, the more is she or he feared by those sections that have a vested interest in concealing such vital disclosures. This accounts for the killing of Shireen Abu Akleh, for instance.
Such killings are of course not unfamiliar to us in Sri Lanka. Over the decades quite a few local journalists have been killed or been caused to disappear by criminal elements usually acting in league with governments. The whole truth behind these killings is yet to be brought to light while the killers have been allowed to go scot-free and roam at large. These killings are further proof that Sri Lanka is at best a façade democracy.
It is doubtful whether the true value of a committed journalist has been fully realized by states and publics the world over. It cannot be stressed enough that the journalist on the spot, and she alone, writes ‘the first draft of history’. Commentaries that follow from other quarters on a crisis situation, for example, are usually elaborations that build on the foundational factual information revealed by the journalist. Minus the principal facts reported by the journalist no formal history-writing is ever possible.
Over the decades the journalists’ death toll has been increasingly staggering. Over the last 30 years, 2150 journalists and media workers have been killed in the world’s conflict and war zones. International media reports indicate that this figure includes the killing of 23 journalists in Ukraine, since the Russian invasion began, and the slaying of 11 journalists, reporting on the doings of drug cartels in Mexico.
Unfortunately, there has been no notable international public outcry against these killings of journalists. It is little realized that the world is the poorer for the killing of these truth-seekers who are putting their lives on the firing line for the greater good of peoples everywhere. It is inadequately realized that the public-spirited journalist too helps in saving lives; inasmuch as a duty-conscious physician does.
For example, when a journalist blows the lid off corrupt deals in public institutions, she contributes immeasurably towards the general good by helping to rid the public sector of irregularities, since the latter sector, when effectively operational, has a huge bearing on the wellbeing of the people. Accordingly, a public would be disempowering itself by turning a blind eye on the killing of journalists. Essentially, journalists everywhere need to be increasingly empowered and the world community is conscience-bound to consider ways of achieving this. Bringing offending states to justice is a pressing need that could no longer be neglected.
The Akleh killing cannot be focused on in isolation from the wasting Middle East conflict. The latter has grown in brutality and inhumanity over the years and the cold-blooded slaying of the journalist needs to be seen as a disquieting by-product of this larger conflict. The need to turn Spears into Ploughshares in the Middle East is long overdue and unless and until ways are worked out by the principal antagonists to the conflict and the international community to better manage the conflict, the bloodletting in the region is unlikely to abate any time soon.
The perspective to be placed on the conflict is to view the principal parties to the problem, the Palestinians and the Israelis, as both having been wronged in the course of history. The Palestinians are a dispossessed and displaced community and so are the Israelis. The need is considerable to fine-hone the two-state solution. There is need for a new round of serious negotiations and the UN is duty-bound to initiate this process.
Meanwhile, Israel is doing well to normalize relations with some states of the Arab world and this is the way to go. Ostracization of Israel by Arab states and their backers has clearly failed to produce any positive results on the ground and the players concerned will be helping to ease the conflict by placing their relations on a pragmatic footing.
The US is duty-bound to enter into a closer rapport with Israel on the need for the latter to act with greater restraint in its treatment of the Palestinian community. A tough law and order approach by Israel, for instance, to issues in the Palestinian territories is clearly proving counter-productive. The central problem in the Middle East is political in nature and it calls for a negotiated political solution. This, Israel and the US would need to bear in mind.
Doing it differently, as a dancer
Dancing is an art, they say, and this could be developed further, only by an artist with a real artistic mind-set. He must be of an innovative mind – find new ways of doing things, and doing it differently
According to Stephanie Kothalawala – an extremely talented dancer herself – Haski Iddagoda, who has won the hearts of dance enthusiasts, could be introduced as a dancer right on top of this field.
had a chat with Haski, last week, and sent us the following interview:
* How did you start your dancing career?
Believe me, it was a girl, working with me, at office, who persuaded me to take to dancing, in a big way, and got me involved in events, connected with dancing. At the beginning, I never had an idea of what dancing, on stage, is all about. I was a bit shy, but I decided to take up the challenge, and I made my debut at an event, held at Bishop’s College.
* Did you attend dancing classes in order to fine-tune your movements?
Yes, of course, and the start was in 2010 – at dancing classes held at the Colombo Aesthetic Resort.
* What made you chose dancing as a career?
It all came to mind when I checked out the dancing programmes, on TV. After my first dancing programme, on a TV reality show, dancing became my passion. It gave me happiness, and freedom. Also, I got to know so many important people, around the country, via dancing.
* How is your dancing schedule progressing these days?
Due to the current situation, in the country, everything has been curtailed. However, we do a few programmes, and when the scene is back to normal, I’m sure there will be lots of dance happenings.
* What are your achievements, in the dancing scene, so far?
I have won a Sarasavi Award. I believe my top achievement is the repertoire of movements I have as a dancer. To be a top class dancer is not easy…it’s hard work. Let’s say my best achievement is that I’ve have made a name, for myself, as a dancer.
* What is your opinion about reality programmes?
Well, reality programmes give you the opportunity to showcase your talents – as a dancer, singer, etc. It’s an opportunity for you to hit the big time, but you’ve got to be talented, to be recognised. I danced with actress Chatu Rajapaksa at the Hiru Mega Star Season 3, on TV.
* Do you have your own dancing team?
Not yet, but I have performed with many dance troupes.
* What is your favourite dancing style?
I like the style of my first trainer, Sanjeewa Sampath, who was seen in Derana City of Dance. His style is called lyrical hip-hop. You need body flexibility for that type of dance.
* Why do you like this type of dancing?
I like to present a nice dancing act, something different, after studying it.
* How would you describe dancing?
To me, dancing is a valuable exercise for the body, and for giving happiness to your mind. I’m not referring to the kind of dance one does at a wedding, or party, but if you properly learn the art of dancing, it will certainly bring you lots of fun and excitement, and happiness, as well. I love dancing.
* Have you taught your dancing skills to others?
Yes, I have given my expertise to others and they have benefited a great deal. However, some of them seem to have forgotten my contribution towards their success.
* As a dancer, what has been your biggest weakness?
Let’s say, trusting people too much. In the end, I’m faced with obstacles and I cannot fulfill the end product.
* Are you a professional dancer?
Yes, I work as a professional dancer, but due to the current situation in the country, I want to now concentrate on my own fashion design and costume business.
* If you had not taken to dancing, what would have been your career now?
I followed a hotel management course, so, probably, I would have been involved in the hotel trade.
* What are your future plans where dancing is concerned?
To be Sri Lanka’s No.1 dancer, and to share my experience with the young generation.
Responding to our energy addiction
by Ranil Senanayake
Sri Lanka today is in the throes of addiction withdrawal. Reliant on fossil fuels to maintain the economy and basic living comforts, the sudden withdrawal of oil, coal and gas deliveries has exposed the weakness and the danger of this path of ‘development’ driven by fossil energy. This was a result of some poorly educated aspirants to political power who became dazzled by the advancement of western industrial technology and equated it with ‘Development’. They continue with this blind faith even today.
Thus, on December 20th 1979, an official communiqué was issued by the Government and displayed in the nation’s newspapers stating, “No oil means no development, and less oil, less development. It is oil that keeps the wheels of development moving”. This defined with clarity what was to be considered development by the policy-makers of that time. This fateful decision cast a deadly policy framework for the nation. The energy source that was to drive the national economy would be fossil-based. Even today, that same policy framework and its adherents continue. Everything, from electricity to cooking fuel, was based on fossil energy.
The economics of development, allows externalizing all the negative effects of ‘development’ into the environment, this being justified because, “industrialisation alleviates poverty”. The argument, is that economies need to industrialise in order to reduce poverty; but industrialisation leads to ‘unavoidable emissions. Statements like, ‘reduction in poverty leads to an increase in emissions’ is often trotted out as dogma. Tragically, these views preclude a vision of development based on high tech, non-fossil fuel driven, low consumptive lifestyles. Indeed, one indicator of current ‘development’ is the per capita consumption of power, without addressing the source of that power.
A nation dependent on fossil fuel is very much like an addict dependent on drugs. The demand is small, at first, but grows swiftly, until all available resources are given. In the end, when there is nothing else left to pawn, even the future of their children will be pawned and finally the children themselves! Today, with power cuts and fuel shortages, the pain of addiction begins to manifest.
The creation of desire
This perspective of ‘development’, the extension of so-called ‘civilised living’ is not new to us in Sri Lanka, Farrer, writing in 1920, had this to say when visiting Colombo:
“Modern, indeed, is all this, civilised and refined to a notable degree. All the resources of modern culture are thick about you, and you feel that the world was only born yesterday, so far as right-thinking people are concerned.
And, up and down in the shade of glare, runs furiously the unresting tide of life. The main street is walled in by high, barrack like structures, fiercely western in the heart of the holy East, and the big hotels upon its frontage extend their uncompromising European facades. Within them there is a perpetual twilight, and meek puss-faced Sinhalese take perpetually the drink orders of prosperous planters and white-whiskered old fat gentlemen in sun hats lined with green. At night these places are visible realisation of earthly pleasure to the poor toiling souls from the farthest lonely heights of the mountains and the jungle.” The process goes on still …
Develop we must, but cautiously – with the full awareness of the long-term consequences of each process. Development must be determined by empowering the fundamental rights of the people and of the future generations. Clean air, clean water, access to food and freedom from intoxication, are some of these fundamental rights. Any process that claims to be part of a development process must address these, among other social and legal fundamental rights.
One problem has been that, the movement of a country with traditional non-consumptive values, into a consumerist society based on fossil energy tends to erode these values rapidly. Often, we are told that this is a necessary prerequisite to become a ‘developed country’, but this need not be so. We need to address that fundamental flaw stated in 1979. We need to wean ourselves away from the hydrocarbon-based economy to a carbohydrate-based economy. Which means moving from a fossil fuel-based economy to a renewable energy-based economy.
Fossil Fuels or fossil hydrocarbons are the repository of excess carbon dioxide that is constantly being injected into the atmosphere by volcanic action for over the last 200 million years. Hydrocarbons are substances that were created to lock up that excess Carbon Dioxide, sustaining the stable, Oxygen rich atmosphere we enjoy today. Burning this fossil stock of hydrocarbons is the principal driver of modern society as well as climate change. It is now very clear that the stability of planetary climate cycles is in jeopardy and a very large contributory factor to this crisis are the profligate activities of modern human society.
As a response to the growing public concern that fossil fuels are destroying our future, the fossil industry developed a ‘placating’ strategy. Plant a tree, they say, the tree will absorb the carbon we emit and take it out of the atmosphere, through this action we become Carbon neutral. When one considers that the Carbon which lay dormant for 200 million years was put into the atmosphere today, can never be locked up for an equal amount of time by planting a tree. A tree can hold the Carbon for 500 years at best and when it dies its Carbon will be released into the atmosphere again as Carbon Dioxide.
Carbon Dioxide is extracted from the atmosphere by plants and converted into a solid form through the action of photosynthesis. Photosynthetic biomass performs the act of primary production, the initial step in the manifestation of life. This material has the ability to increase in mass by the absorption of solar or other electromagnetic radiation, while releasing oxygen and water vapor into the atmosphere. It is only photosynthetic biomass that powers carbon sequestration, carbohydrate production, oxygen generation and water transformation, i.e., all actions essential for the sustainability of the life support system of the planet.
Yet currently, it is only one product of this photosynthetic biomass, sequestered carbon, usually represented by wood/timber, that is recognized as having commercial value in the market for mitigating climate change. The ephemeral part, the leaves, are generally ignored, yet the photosynthetic biomass in terrestrial ecosystems are largely composed of leaves, this component needs a value placed on it for its critical ‘environmental services’
With growth in photosynthetic biomass, we will see more Oxygen, Carbon sequestering and water cleansing, throughout the planet. As much of the biomass to be gained is in degraded ecosystems around the planet and as these areas are also home to the world’s rural poor, these degraded ecosystems have great growth potential for generating photosynthetic biomass of high value. If the restoration of these degraded ecosystems to achieve optimal photosynthetic biomass cover becomes a global goal, the amazing magic of photosynthesis could indeed help change our current dire course, create a new paradigm of growth and make the planet more benign for our children.
Instead of flogging the dead horse of fossil energy-based growth as ‘Economic Development’, instead of getting the population addicted to fossil energy, will we have the commonsense to appreciate the value of photosynthetic biomass and encourage businesses that obtain value for the nations Primary Ecosystem Services (PES)? The realization of which, will enrich not only our rural population but rural people the world over!
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