By Nishthar Idroos –
To what extent can the government of Sri Lanka, its Central Bank and experts deliberate and work towards supporting the stabilizing process of the rupee? Given the myriad of realities that impinge the local currency both inherently and externally can the rupee actually be defended without adverse consequences? By that I mean can the downward spiral be reversed in any strategic, meaningful way and arrest its decline with the least damage? Or is this just typical Sri Lankan style politicking and bureaucratic conspiratorial grind to arrogate and advertise vain, vacuous deliberation to prolong the inevitable.
The Governor of the Central Bank of Sri Lanka Indrajit Coomaraswamy, competent, articulate and erudite. Unfortunately his eloquence will not assuage people experiencing issues pertaining to the stability of the rupee and ramifications thereof. The Governor’s strong will to act decisively, discipline, atleast caution vain spending and assert his independence could produce results hopefully in the longer term.
At a time when there is so much hue and cry about independent commissions why wouldn’t the governor assert his independence strongly and stridently for the sake of the people and the country to introduce prudence and regulation to steer away permanently from turbulence?
We are yet to have a Central Bank Governor for that matter any top notch bureaucrat who was asked to leave or demoted because he opposed a government policy which had deleterious consequences to the people or himself was opposed due to a people friendly policy initiated by him. It is these kinds of principled positions that sets precedents and builds character in a system whose overhaul health doesn’t appear to look good.
A successful central bank doubtless has to be independent from politics and everything associated with it. This is of paramount importance. Credibility, trust, integrity, accountability, and transparency is about everything. It’s not just financial markets that a Central Bank should be preoccupied with. Defending the rupee is a moral obligation. I simply do not know how to over-emphasize this. This is too important a domain to be left exclusively with the politicians.
The great fall. From the year 2009 to 2019 the Sri Lankan rupee plummeted approximately 40%. This is quite seismic. Under-currents still agitating with a roar. The precipitous nature of the local rupee continues and rings alarm bells. It doesn’t appear that politicians and bureaucrats are extending the required importance. They appear before cameras resorting to esoteric jargon beyond the comprehension of the average Joe. Rhetoric never placed food on the table nor did it save an ailing child. What common folks are most anxious about is the aggressive fall of the local rupee and how fast it could be rectified.
Whatever direction the rupee has currently taken, it’s abysmally southern bound, that too on the express lane. It doesn’t take much intelligence to prognosticate the imminent wave of the chequered flag. That’s when she crosses the Rs 200 mark. What will that mean to the cost of living, wages, fiscal pressures, new investments, debt repayment and employment creation?
What will that mean to ordinary Appuhamy, Perumal and Cader Nana, the blue-collar workers of Sri Lanka whose woefully fixed incomes and grievously losing purchasing power will push them to even greater economic hardship? What will this emerging reality mean to crime in the country?
These ordinary blue-collar folks bereft of knowledge in currency de-valuation, re-valuation, inflation, exchange fluctuations, quantitative easing and many more could only become more innocent in their response as they are wholly ignorant of the process. They could only complain within unsuspecting circles and languish in pain until they pass away inconspicuously from this world and become dust and enrich mother earth. This is what happens to most, the voiceless, the marginalized. Mortality due to economic hardship is far worse than terrorism, if only you would know.
Sincerely wish though it’s just wishful thinking that sweat of labor was rewarded with gold as the case was centuries ago. If human labor is decisive, genuine, real and palpable its wage cannot be fake. Not alluding that currency is fake but many things meted out to fiat money by remote control deracinates its true value. Some economists have even alluded to this phenomenon as unintended corollaries while some have called it theft.
This is not something local but woefully global. It’s bound to stay and will continue for the good or worse of mankind. Actual knowledge of currency abrasion, misappropriation and manipulation seldom percolates to people. No MBA program in the world has ever included this specific dynamic of Economics to a module. Appuhamy, Perumal and Cader Nana are lost and they are livid too.
Though visible economic activity and expansion is taking place in Sri Lanka, political and economic uncertainties linger. A volatile currency is one such economic factor. Also Sri Lanka’s external debt and current and fiscal account deficits another macroeconomic fundamental of concern. The paradox of achieving growth and servicing high levels of US dollar debt on inflated rupee in a milieu of regressive tax collection underlines quite a dilemma. At the same time capital spending to facilitate intended growth cannot be stopped either. These extremely important issues unfortunately are never spoken in the parliament.
Misdirected, ill-conceived and unproductive spending is a huge deterrent against attracting investment. Huge national debt and perpetual deficit spending can also cause huge concerns even within the local corporate sector. The local corporate sector has its priorities vis a vis its profits and exposing more taxes would be anathema for the private sector.
Governments long ceased to be the engines of growth and the catalyst of employment creation. When they falter in policy and implementation too its double jeopardy or should I say double tragedy.
Foreign investors are not champions for charity and philanthropy. They salivate for returns and that too for quick returns. They understand numbers and key indicators. A stable currency is definitely integral to the sum.
Among other indicators in the economic fundamentals list are foreign indebtedness, growth levels, political stability, level of foreign reserves, exchange rate volatility etc. In contrast to Sri Lanka, Vietnam was attracting huge investments from China. The biggest hurdle emerging economies countenance is debt and that too ill-planned and badly negotiated debt.