24 September, 2020

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Collapse Of The Rupee & The Yahapālana Govt.’s Economic Mismanagement

By Mahinda Rajapaksa

Mahinda Rajapaksa

The Rupee has depreciated steadily against the US Dollar ever since the yahapalana government came into power – a trend which has now accelerated alarmingly. The value of the US Dollar which was Rs. 131 at the end of 2014 when I left office is now over Rs.170 and continuing to slide on a daily basis. Members of the government claim that the reason for the collapse in the value of the Rupee is the appreciation of the US Dollar against other currencies. During my Presidency, the currencies of many Asian countries such as South Korea, Indonesia, Thailand, and the Philippines declined sharply against the US Dollar due to the 2007-2008 global economic crisis. Sri Lanka was one of the few countries in Asia that emerged largely unscathed from that currency crisis. 

Very few Sri Lankans were even aware that there was a global economic crisis in 2007-2008. The Sri Lankan Rupee which averaged Rs.110.62 to the US Dollar in 2007 was still Rs.114.94 in 2009 after the crisis had run its course. My government fought and won the war against the LTTE which had been ranked by the FBI in 2008 as the deadliest terrorist organisation in the world, in the middle of what is considered to be the worst global economic crisis since the 1930s. The government’s task is to manage crises, not to complain about them. It took some quick thinking to keep out of the crisis that was sweeping the world in 2008. When one commercial bank showed signs of stress, we placed it under state bank supervision and averted a crisis which could have affected the entire banking sector. 

President Trump has strengthened the US economy through a policy of giving incentives to indigenous businesses and imposing tariffs on imports to encourage local production. My government also had a policy of producing whatever we could locally and reducing imports particularly of foodstuffs such as diary products, maize, soya, sugar, onion, potato, fruits, vegetables, poultry and certain industrial products. This government in contrast believes in limitless liberalization and free trade without a clear strategy to increase exports and reduce imports. The role of a government is to keep abreast of worldwide developments and to take steps to strengthen our economy instead of complaining that a foreign leader has strengthened his own economy and that our currency was collapsing on that account. 

If we have a government that requires foreign countries to underperform so as to enable us to maintain the value of our currency, then this country is in deep trouble. The public should be warned that an all-round increase in the cost of consumer goods and industrial inputs will not be the only consequence of the currency depreciation that we are experiencing now. Central Bank reports show that even with the less dramatic currency depreciation that took place in 2015, 2016 and 2017, Sri Lanka’s foreign debt burden has increased by a colossal Rs. 697 billion. The government needs to raise Rupee revenues to buy the Dollars to meet foreign debt payments. The increase in the foreign debt burden this year will be very high due to the free fall of the Rupee.

The reckless salary increases, fuel price reduction and tax reductions on certain imported food items given in 2015 to win the Parliamentary election of that year led to a sudden increase in  government expenditure, and resulted in increased imports of fuel, motor vehicles etc. This led to widening trade and fiscal deficits and heavy borrowing to meet the shortfall. My government was very careful in taking foreign currency commercial loans because even a slight increase in the exchange rate results in the debt burden going up due to the exchange rate difference. For example, my government issued Sri Lanka Development Bonds only twice a year and that too for amounts that averaged less than USD 350 million per year. 

The volume of foreign currency loans taken has to be carefully controlled to ensure that the economy is not overwhelmed by repayment commitments. However the present government has been completely reckless in its foreign commercial borrowings. From January 2015 to date, the total volume of foreign currency loans taken by the present government amounts to an unbelievable 20.7 billion USD, the breakdown of which is as follows – USD 8.2 billion through the issue of Sri Lanka Development Bonds from January 2015 to date, USD 6.1 billion through sovereign bonds issued in 2015, 2017 and 2018, USD 2.2 billion through currency swap arrangements with India in 2015 and 2016, USD 2.7 billion through syndicated loans arranged through international banks in 2016, 2017 and 2018 and USD 1.5 billion from the IMF Extended Fund Facility in 2016. 

So we now see the economy barreling downhill with the foreign debt burden contributing to the depreciation of the Rupee and that depreciation in turn ratcheting up the debt burden further. In the meantime, the rapid depreciation of the Rupee is depriving us of the benefit of declining international prices of commodities. Fuel prices were increased thrice this year. Petrol is now Rs. 149 and diesel Rs. 123 per litre in a situation where crude oil is available at less than USD 80 per barrel which is very low compared to the average of USD 109 per barrel that prevailed during the last four years of my government. In 2008, when Sri Lanka was buying crude oil at the much higher rate of USD 97 a barrel, we sold petrol at Rs. 120 and diesel at Rs 70 per litre. The present mismatch between the low price of crude oil and the high retail prices of fuel in Sri Lanka is due largely to the depreciation of the Rupee and the government tax on fuel. The reason why the government is keeping the fuel pricing formula a closely guarded secret is because it will reveal to the public both the incompetence of the government as well as the taxes they are charging on fuel.  

The government has been trying to downplay the depreciation of the Sri Lankan Rupee by claiming that the Indian Rupee has depreciated even more. The Indian economy however is growing at nearly twice that of Sri Lanka and they are better able to weather the shocks. We are paying a heavy price for shifting from an emerging production economy under my government to a trading economy under UNP policies. What we are faced with now is slow growth below 4%, increasing inflation, increasing imports even of items that can easily be produced locally, huge repayments of short and medium term foreign commercial consumption loans taken by this government and a Rupee that is depreciating by the day. The emerging economic crisis is the outcome of the ill-conceived economic policies of this government and the lack of a home grown economic management strategy.

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Latest comments

  • 14
    3

    Mahinda Rajapaksa

    The average value of Sri Lankan rupee in 2005 (the year in which you cheated election rules by bribing VP) was about Rs100 = $1.00. The value of currency in Jan 2015 (the year in which you and your clan were kicked out of the office by the people) Rs 130 = $1.00.

    How did you manage to depreciate Sri Lankan rupee value you by 30 or 31% over 10 years?

    Did this government cause currency depreciation in Vietnam, India, China ………………. and other Asian countries?
    Remember, now it seems this island is committed to repay loan and high interest which includes the commissions paid to you and your clan.

    Please go away, retire gracefully and reminisce the glory of (committing war crimes and) war victory and don’t forget to thank VP for your election and war victories, who made it possible for you.

    • 6
      1

      Mahinda Rajpakshe is well known to be a rabblerouser.

      If he really loves the very same nation , why not he cant come with HIS SUPER brain and help the ruling leaders in controlling lanken rupee ?

      He betrays the very same supporters by his last week’svisit paid to India.
      His nemesis in 2015 was a pre calculated plot by International community (America and India)- was their tales immeidiately after the he was goo defeated.

    • 3
      5

      31% percent over 10 years and 29% over 3 years and 9 months, which is the higher rate of depreciation? I am sure you don’t know, please go away Native Vedda you are in senile decay

  • 10
    2

    Mahinda,
    I don’t want to read about your utterances because you brought this country into a mess and no one else. You robbed this nation. Not only yourself but also your family, your associates and underworld criminals who worked for you. Can you and your family will release all the money you have robbed back to this nation?

    • 7
      1

      Ajith,

      you and me and the like ilk would see it that way, but very same folks constantly rally round to suppor the bugger et al even today.

      And as a JOKER would do – Rajapkashe addresses the same public, gallery is gawking as if they belong to a tribe in Africa.

  • 8
    0

    OH BOY
    LIKE RANIL ANOTHER LAWYER CLAIMING TO BE AN ECONOMIST
    NO WONDER THERE IS NO LIGHT AT THE END OF THE TUNNEL FOR SRI LANKA

    • 6
      1

      nalmen – This buffoon and his Mongol son Namal Rajafucksha are not lawyers. They are both synthetic “lowyers” of the lowest calibre and I don’t think Meeharaka can understand what has been written by G. L, Pe is on his behalf!

      • 5
        0

        Mike,
        this revealed also during the visit Meeharaka and his son paid to India lately.
        There sometimes, ballige putha was not aware of what was being discussed.

        As Mr Nagananda Kodithuwakku the brave Lawyer of the nation once said, Mahinda Rajaksahe is a good actor whose acting is not yet clear to the many in this country.

        My anger is towards the behaviours of Oxford qualified GLP the most abusive man among the educated community. He behaves as if his penis was stolen by join opportion crooks.

  • 4
    1

    Nalmen you are right. This is mother of all comedies. The guy who not only ran the country into bankruptcy and helped his clan to loot what ever left is now reappearing as Buffett .When retards are your audience any thing is possible for a ZERO casualty author. This is where Lanka stands out from the rest.For a moment I thought Madoff has returned to Whartons school to take a class on economy and financial management.

  • 8
    1

    Mahinda, I know that you do not have the brains to argue what you have attempted in this essay. I agree with the Editor of the Sunday Leader of 10.05.2009 when it was said that “WHEN YOU HAVE A FOOL AS CENTRAL BANK GOVERNOR- DISASTERS KEEP HAPPENING. Cabral was not suitable to be even a peon in the CBSL. His or your proposal to invest in Greek Bonds at a time when that country was declared bankrupt by the European Union and was offering to help, you invested Euros 30 million. and say you lost over Euros 8 million., mind you without Cabinet or Monetary Board approval. The actual fact is that money never reached Greece. You concocted a story about losing 8 million Euros and pocketed it. You and your son’s failed attempt to bid for Commonwealth Games of 2018 cost the country US$ 8 million. Moreover if by chance all the African delegates you bribed and supplied women voted then in would have been disastrous for Yala wild life. Then your billion rupee travel bills on UN trips, millions wasted to watch porn movies in NewYork and about 3 trillion rupees spirited out of the country during the 10 years from 2004 to 2014 would have made the difference in keeping the rupee stable. .

    • 4
      0

      DPJ,

      I think The current govt should come with the bills of former Presidents entourages let alone today.
      Not just few dozens but over 200 were sometimes brought to the US for his entouarges.
      My colleagues from the US asked me why the bugger is allowed to do so by the people in our poor country. THere i was speechless.
      Just he comes to advise the current govt today about depreciation of the rupee ?
      Mafia Mahinda and his cronies looted the state as nothing could help any successor to do the job. At the time, bugger was defeated, he had abused billions of funds from the states not having proper knowledge on the management.
      None of those show offs have been done by the current govt. Neverthelss they are being blamed for one single issue – BOND scam.
      I think it is high time Ballgie putha Rajapakshe to be blamed by brining facts before the nation.
      Sure pay hikes as promised costed state billions but thelosses that the previous govt had made were not to be ironed out.

  • 2
    3

    Yes MR has come out with some facts; to show what’s to be done.

    The ball is in your court now, political opponents of MR & JO.

    GG has taken more than three & half years but failed to prosecute anybody, means logically that their hands are clean.

    So the word “hora” (thief) is invalid now.

  • 4
    2

    Oh my God!
    This former library assistant at Vidyodaya and the man who could not get through even his GCE (OL) is now talking about economics?

    MaRa like his idiotic brother GoTa is now talking nonsense. Can you at least understand the basic economic implications of the numbers and words written in this article. By the way, how much you paid for the coolie who wrote this article?

  • 4
    7

    Thank you Mahinda, keep pushing these fools to the edge, so they fall before the country does

    • 2
      0

      wannihami

      “Thank you Mahinda, keep pushing these fools to the edge, so they fall before the country does”

      Mahinda
      When no one is watching you, could you loot whatever is left in the coffer and do not forget to share it with your loyal b***s carrier wannihami who has recently become an expert monetarist, theoretically beating Milton Friedman in his analysis of exchange rate volatility.

      He is yet to explain many things. I am still awaiting for him to explain us as to what factors determinant/effect exchange rate of a small country in the short as well as in the long run.

      wannihami please ignore foreign exchange if you haven’t got a clue. Its okay even if you take cover behind Mahinda or take refuge in sangha (Sangham saranam gachhami).

  • 0
    0

    All the world currencies are depreciating RELATIVE to the dominant currency US$. (GBP was the dominant currency at one stage). US$ is depreciating too. This scenario is part of the capitalist currency system. This occurs regularly but nobody knows why. If you have the answer it has got to be wrong.
    .
    MR: Do you not think that it will be prudent to plan our future taking into account this aspect?
    Please do not dodge.

  • 0
    0

    MR: The depreciation of the currency is due to the floating exchange rate.
    Will you go back to fixed exchange rates? How will you avoid devaluations?
    Please do not tell us about increasing exports and so on.
    Zimbabwe tried a mix of floating and fixed and ended up with hyper-hyper inflation.

  • 0
    0

    I have been commenting here for about four or five years. As a freedom loving man, all my memorable life I have been for Market Economy and Democracy. I never have been an advocate of on anything “one lower life for you, but a better life for me”. Recently I have been thinking that 1931 Universal Franchise is curse for Lankawe and Lankaweyans should not be having democracy because it is a sure disadvantage for them. Now I am thinking that the same with the market economy too. As Buddhism about .5 Billion and as embedded in Hinduism another 1 Billion are coming in contact with Buddhist Philosophy on their daily life. This is preaching of giving up ones’ greed and becoming Sanyasis. Only in Lankawe the rape, loot, arson, murder go escaped with full impunity of Sinhala Buddhist Jury only verdict.

    This essay was written, with the confidence that it is going to read by the Modayas and accepted, for a A man, who is accused of war crime and have stolen $18B. The truth is not coming out even through the International agencies like ICC. In Afghanistan a hospital was bombed by American planes. American Air force was investigated and censured, though the army accepted the fault as an accident. The entire hospital was rebuilt with American money. There is one judge is missing in the 9 Justice panel of American Supreme Court. An eminent justice is with excellent record is recommended. The confirmation hearing on hold because a lady accused him at their high school time he misbehaved with her before 40 years ago. What will happen if Lankaweyans want to clean up their land and go back to 40 years of daily life of rape and the hooliganism Lankawe politicians practicing on their political life?

    This man mumbled in the Interview. Now he is using a PhD imbecile stenographer to load rubbish in CT. Is these guys Pants and Dhotis are woven with cling wrap or what?

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