ECONOMYNEXT – Sri Lanka’s Prime Minister Mahinda Rajapaksa asked people to be patient as forex shortages from un-anchored monetary policy (flexible inflation targeting) wracked the island, pushing up prices and the value of the rupee down.
“We ask all to be patient and be determined,” Rajapaksa said in a national broadcast.
“Dear sons and daughters all of us love this country,” he said speaking directly to the mostly young protestors who were asking President Gotabaya Rajapaksa and the family to go home.
However in the same breath, Rajapaksa tried to draw parallels with the young protestors and armed militants who emerged from around 1970 in both the North and South and worsened during 1980s. Protestors had blamed the Rajapaksa family and also the other 225 legislators who had played politics.
“If it means rejecting democracy, history shows the danger,” Rajapaksa said in a warning to the protestors. “When parliament was bombed and parliament was rejected, we saw young people’s blood on the streets.”
Prime Minister Rajapaksa also tried to put the blame on protestors for forex shortages saying that they were hindering tourists.
“Every second that you protest on the streets, the chances our country has to earn dollars is lost,” Rajapaksa said.
Sri Lanka’s politicians as well as economists have a habit of blaming the lack of inflows (tourism now, exports earlier) for creating external trouble, after pushing up government spending and printing money to keep rates down using a soft-pegged central bank.
Sri Lanka has had foreign exchange shortages from around 1950, shortly after an unstable intermediate regime central bank with money printing powers were set up by a US money doctor amid machinations of the State Department to break a very stable sterling area, according to critics.
Sri Lanka’s economists have been practicing inflationist-devaluationism in a single minded Mercantilist zero-sum goal of picking the pockets of the working class to fatten export companies for 72 years, by denying monetary stability (low inflation) to a nation and fomenting social unrest.
After the end of a 30-year civil war monetary policy turned viciously loose and three currency crises were triggered over the past 7 years under flexible inflation targeting (running a domestic anchor with a reserve collecting peg).
Flexible inflation targeting had made it impossible for two administrations to govern the country or have free trade.
Sri Lanka printed about two trillion rupees under flexible inflation targeting over the past two years tearing the balance of payments apart, creating power cuts, energy and medicine shortages and bringing the country to the brink of default.
“Even though we got over the Coronavirus pandemic the country is falling into a deep trench,” Rajapaksa said as protest continued in the capital and elsewhere
“We did not make highways for your to wait in queues,” he said. “We did not make port for yor to pay demurrage. We did not do corona three vaccines for you to get tear gassed. We will make all efforts to get over the crisis.”
Sri Lanka’s newly appointed central bank Governor Nandalal Weerasinghe had taken decisive steps to reduce monetary printing by raising rates, though a surrender rule that slams the rupee down is still in place.
Shortly before Rajapaksa began his speech, Sri Lanka’s one year Treasuries yield hit 23.6 percent, above the 12 month inflation of 18.7 percent. (Colombo/Apr11/2022)
