Last Tango in Colombo!

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In 1972 the award winning MGM block buster Last Tango in Paris premiered, the year we broke away from the Westminster Parliamentary system. The way the economy is managed in Sri Lanka we wonder whether this is going to be a Sri Lankan version titled Last Tango in Colombo.

How could anyone forget the most unfortunate decision made by the governing authorities to convert the agriculture sector to a 100% organic fertiliser-based venture. The resultant scenario unfolding at present is absolutely scary and the ultimate could be a recast of the dreaded Baminitiya Seya. Wikipedia relates to the tragic famine as, Beminitiya Seya, also known as the Great Famine, (103-89 BC), during the reign of King Vattagamini Abhaya, known as Valagambahu was a period of over a decade where ancient Sri Lanka’s irrigation systems failed as a result of invasion, corruption and neglect.

We have to wonder how future chronicles would relate to the impending calamity in the future and what such a calamity would be named unless otherwise corrective action is initiated. The question asked will be ‘What is the reason for the failure?’. Your guess is as good as mine!

Our thoughts go back to the most serious financial crisis the world had faced. Compared to the ‘Great Depression of 1929-1939, the OPEC oil shock of 1973, the Asian Crisis of 1997 and the most recent 2007-2008 Financial crisis’.Is the Sri Lankan crisis too complex to manage?

When the Monetary Board had a divided opinion on floating the dollar as per evidence provided at the recent COPE meeting the decision hinged on a 3 to 2 vote.

The question is whether or not this irrational action of the Monetary Board pushed Sri Lanka into the wilderness of bankruptcy? Let us look at the core functions of the Central Bank of Sri Lanka and what the country expects from such an important institution.

Central Bank Vision relates to “A credible and dynamic Central Bank contributing to the prosperity of Sri Lanka” with the mission statement “Maintaining economic and price stability and financial system stability to support sustainable growth through policy stimulus, advice, commitment and excellence.”

The core objectives are:

  “Maintaining economic and price stability”

  “Maintaining financial system stability”

The above mentioned objectives which came into existence in 2000 are somewhat different to the original objectives at the point of formulation as per the Monetary Act of 1949. The objectives were wider ranging and far reaching benefitting the country and as such should we not go back and revisit the present objectives objectively. The original objectives are as follows:

(a)  Stabilisation of domestic monetary values (maintenance of price stability).

(b)  Preservation of the par value or the stability of the exchange rate of the Sri Lankan Rupee (maintenance of exchange rate stability).

(c)  Promotion and maintenance of a high level of production, employment and real income in Sri Lanka.

(d)  Encouragement and promotion of the full development of the productive resources of Sri Lanka.

Covid 19 issues ensured that the country would lose foreign currency inflows from tourism to a pittance but from December 2021 we were witnessing a steady increase of tourists. In multiples of thousands the numbers increased from 69 in December to 82 in January 2022, 96 in February, 106 in March moving down to 62 due to unrest based on oil and gas and the aragalaya. It was a steady rise to reach the previously achieved level of approximately 200,000 per month. If the usual numbers visit Sri Lanka the monthly currency inflow is around USD 300 million per month.

What of the remittance flow which deteriorated by around 50% from September 2021 onwards due to the disparity of the open market and controlled rate of the Central Bank. The decision not to float the Dollar created the unsavory situation where in some months the Undial system managing more than 50% of the movement of foreign remittances.

Let us look at the current scenario where the monthly trade deficit is around 1,000 million US Dollars which is countered by a subdued inflow of around US Dollars 300 million in foreign remittances.

As such the Balance of Payments deficit of around US Dollars 700 million per month which had pushed the exchange rate to around Rupees 365. The debt servicing is not factored in for this exercise.

THINK RATIONALLY, the easiest option is to bring back tourists by easing out oil and gas-related issues and also seek the previous status quo of foreign remittances by granting whatever possible concessions and incentives to those employed in foreign climes.

Easing out the dearth of foreign currency should be the first, second and third priorities of the country to overcome the economic quagmire.

To do this we need country-based new thinking may be side-stepping from the many classical economic theories established by Adan Smith, John Stuart Mill and others, John Maynard Keynes originated Keynesian theory, Thomas Robert Malthus originated Malthusian theory, Marxism, Laisse Faire capitalism, market socialism, Monetarism etc. which are some of the various options introduced over the years.

IF NOT, IT COULD BE A COLOMBO VERSION OF THE ‘LAST TANGO IN PARIS’.

The writer is a management consultant

By G. Ruwan