13 June, 2021

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Vistas Of Bankruptcy & Misery

By Ameer Ali

Dr. Ameer Ali

At first, it was the IMF and World Bank that sent early warnings to Sri Lankan rulers that the economy was heading southward even before Covid-19 entered, and therefore requires serious but painful remedies to change direction. These warnings were ignored amidst the euphoria of landslide victory for Rajapaksas at the presidential and general elections. The President coined his fiction, “Vistas of Prosperity and Splendour” (VOPAS) his supporters were ebullient. His economic advisers were confident that the country does not need IMF’s advice or help to achieve economic growth, and through the President’s ad hoc measures of import controls, tax incentives and a Task Force for Economic Revival and Poverty Eradication headed by one of his siblings, VOPAS would be translated into reality.  Unfortunately, Covid-19 not only killed and debilitated the people but also derailed GR’s whatever plans he had to rehabilitate the sick economy.  Instead of VOPAS, vistas of bankruptcy and misery (VOPAM) appears to become the fact of life for most Sri Lankans.                     

International assessment of Sri Lanka’s economic status continued to shift from bad to worse. Moody, one of three international credit agencies, downgraded SL’s credit rating from B2 to Caa1. Central Bank Governor and his team called Moody’s action unfair and even malicious, and tried infusing confidence by promising to fulfil all its international debt obligations without fail. Past record became their evidence to the future by dismissing or undervaluing turbulence of the present. Soon, Moody was followed by the other two rating agencies, Fitch and Citi. They were followed by S&P, the global giant in finance. None of the signals coming from these agencies were taken seriously and their economic incompetence reached a climax when they rejected outright US’ Millennium Challenge Corporation investment worth $480 million. 

MCC withdrawal was more a strategic blunder committed by Sri Lankan negotiators than just a loss of much needed foreign investment. True, there were some negatives that would have proved harmful to SL’s sovereignty.  However, through patient negotiations and tactful compromise those negatives could have been minimized and positives maximized, which, above all, would have helped SL to offset the negative economic sentiments caused worldwide by the rating agencies. What those agencies did was to warn foreign lenders and investors that SL is not a secure destination for their money and investments. Acceptance of MCC would have dented that view by showing the world that the super power itself has no qualms in investing in the country. Once again, it was political arrogance and not economic rationality that won the day, and MCC has gone elsewhere.  

The cumulative effect of all the warnings, rulers’ indifference and blunder have created a new and dangerous reality in the world of business. A couple of weeks ago Letters of Credit (LoC) drawn by the Bank of Ceylon have been rejected in New Zealand, UK and Switzerland.  Never before this has happened. An LoC is a guarantee given by a local bank to the foreign exporter that the payment for export would be received at the due date. The rejection of this LoC is a blow to local importers. They are now forced to pay directly through foreign banks, which is going to be expensive, and as a result there will be serious shortages in local markets that are suffering already from supply constraints. More than anything else the rejection of LoCs is a virtual declaration by foreigners that Sri Lanka is financially bankrupt. This will have serious repercussion on the value of the rupee. It is destined to depreciate faster, and the Central Bank’s counter measure to sell dollars to rescue the rupee would ultimately reduce foreign reserves and make debt repayment even more difficult. In short, the country’s financial situation is perilously edging towards bankruptcy. 

In the meantime, according to a newspaper report, the President’s election manifesto and vision of VOPAS will be part of state employees’ oath to serve the nation when they begin work on January 1st 2021.  Even an oath is now becoming GR centred, another consequence of his autocratic empowerment through 20th Amendment. 

Economic revival no doubt requires capital, labour and advanced but appropriate technology. More than that however, it needs a political and social environment that will be conducive for those factors to work in harmony. Unfortunately, that environment is absent at the moment. The government seems to be intentionally wanting to maintain a turbulent environment for political reasons.

There is growing discontent at the failure of this regime partly because of mismanagement of the second wave of Covid, and partly because of increasing economic difficulties faced by ordinary households. Besides, the very militaristic approach by this regime to solve civil issues is adding to society’s distress. The regime is therefore desperately looking for an escape route to deflect that discontent, and the current controversy over Muslim burial issue has become handy to deflect the growing anti-regime anger. Saner minds from all communities are appealing to the President and his Prime Minister to give up their intransigence and listen to the voice of proven science. He has now appointed a committee of 30 experts, which is more an assembly than a committee, to come out with a report. Will these so-called experts think and act on their own or under pressure from the usual supremacist power cartel?

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Latest comments

  • 4
    1

    Agree with you Ali.

    But bankruptcy list has many others too.

    e.g. Yemen, Syria, Afghanistan, Pakistan, Libya, Iraq, Iran, Palestine, Chechnya, Kashmir, Xinjiang, Sudan, Kosovo, Albania, Somalia.

  • 5
    2

    As usual start with the economy and ending with Muslim burial issue.

    Loku Premayata Dasa Lebbe created one problem by reducing the cut off point from 12.5% to 5% to get Muslim votes that led to mushrooming of ethnic and religion based political parties.
    Podi Premayata Dasa Lebbe has created another problem by staging a protest against Government’s decision to cremate Muslims infected with COVID-19. After that protests in several places.

    Now Sinhala Buddhists regret for the decision taken by their kind hearted elders to save these guys.

  • 4
    4

    Dr. Ameer Ali,
    Please tell us where in Holy Quran it says that Muslim dead bodies ‘SHOULD’ be buried.

    I asked this before but instead of giving a direct answer your fellow Muslims beat around the bush.

    • 1
      0

      Eagle,
      Would you tell us where in the Tripitaka it says that people like you can’t be admitted to the Malwatta chapter?

  • 5
    1

    “He has now appointed a committee of 30 experts, which is more an assembly than a committee,”
    Are there any Muslims on this committee? I am sure it is as “expert” as the committee which cleared Pani Baas oil as a Covid cure.
    “A couple of weeks ago Letters of Credit (LoC) drawn by the Bank of Ceylon have been rejected in New Zealand, UK and Switzerland.”
    Very serious news. Some of these moves may be politically motivated, but as a small , poor country, it is the business of the rulers to make sure no offense is given to powerful capitals by word or deed. It is much better to be accommodative early than to be forced to grovel later. Especially as these same powers are the ones that take our exports. The extremist-inspired toying with the PC system may cause problems in India. By all means, get rid of the PC system outside the NE, which was never called for even by India.

  • 4
    1

    The Rajapaksa Brothers Inc. have failed this country any way you look at it. We have refused to cooperate with the many calls for accountability, we have been criticized from all parts of the world for our racist policies that target our minorities, and now we have to stretch out our hands to those very nations that we accuse of “interference”. The minority have become the scapegoats, and the distraction, the Rajapaksa’s need to distract the country from their failures, opening the doors to more ethnic strife, when at a time like this, we need UNITY.

    There is always China who owns parts of this country, and as we know their “kindness” towards us, has always come with strings attached. They give us loans, they insist their prisoners do the work, for which we pay them, and then WE HAVE TO PAY BACK THE LOANS. Win-Win for China. As for the Western nations that have helped us for years, sent us aid, trained our people, and who we accuse of “interfering” when they hold us accountable for war crimes, and discrimination of our minority, they are struggling too. The Rajapaksa’s have racially divided this country for political reasons, failed to control the COVID19 outbreak, and we are broke.

    • 2
      1

      Finally:

      Let’s see what the saviors who Sri Lankans voted for will do to save us, after all they are supposed to be more competent, and miracle workers, compared to all others.

  • 0
    0

    CBG called Moody’s downgrading unfair and malicious. It is not just CBG , Mr.Sircular and his advisory panel, supporters and “know it all ” calls this as bullying tactics. I have said enough about bankruptcy and there is no point in repeating anymore.

  • 1
    0

    LCs normally drawn are from bank to bank. When exporter submit the paperwork, his bank review if the papers are in order and signed and sealed by the requested trading organization like exporters country’s Chamber of Commerce. Then that bank will credit the export money to exporter’s account and send the papers to importer’s bank & debit that bank for remittances. Importers bank reviews the paper & credits the exporter bank with the price and debit the importer. Remember these all take time. Banks are prepaying the bills. So they charge fees & appropriate interest. That’s why it is called “credit”. The “letter” indicates the guarantee letter importer’s bank write to exporter’s bank. These days there is no letter, no mailing, everything is on line. The certifications and fright bills are generally faxed or PDFed, though originals may be still needed to finalize transaction. In my days they should be sent by mails in multiple copies to all concerned parties. Here I assumed everything went very smooth, but it need not be the case always. Freight bills, Invoices and Chamber of commerce certifications are must for the banks to release payment one after other. Importer’s bank shoulders most of the credit responsibility.

  • 1
    0

    Once the local inspection is over and goods accepted by importer, local bank will change the LC into a loan. Loan might be a better term for importer than LC. So importer will have time to sell the goods and remit the money for the loan. Exporter may take 6 months to process the goods like garments. Shipping might take three months if it is by sea. Suppose it is part for his work, and then he would take another 6 months to complete and deliver. When importer get his payments from his customer, it can easily go beyond 1 ½ years. Importer cannot pay 100% for that long. Then commercial banks going to lose their chance to sell services to importer and banks become redundant. An exporter’s bank refusing to open a letter of credit for the request is not strange. There are international banks specialize on those will help on it for a fee. Here it sound like the importer and BoC has been let down by their usual client banks. In UK I might think the exporter’s bank might have many facilities to manage this type of problem. When the UK bank, which was the usual client bank for BoC opening its hand, it could be a serious matter.

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