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ECONOMYNEXT – Sri Lanka is now suffering the worst currency crisis in history of the island’s soft-pegged central bank which was set up in 1950 abolishing a currency board, dooming the country into exchange and trade controls as well as trade and exchange controls.

Emerging market central banks are notorious for the economic instability they frequently cause. For instance, Sri Lanka has had 16 IMF programmes and is discussing the next one. Only Pakistan has gone to the Fund more times in this region. In the past decade, the incidence of balance of payments crises in Sri Lanka has accelerated. Activist monetary policy or governments that spend beyond their means are often the reason for monetary instability in emerging markets.

Steve H. Hanke, Professor of Applied Economics at Johns Hopkins University, Baltimore, is a proponent of currency boards as a way to reign in irresponsible sovereigns. He is responsible for designing and implementing them in Estonia (1992), Lithuania (1994), Bulgaria (1997), and Bosnia and Herzegovina (1997).

He is also proponent of a close cousin to currency boards, “dollarization.” He is responsible for designing and implementing dollarization in Montenegro (1999) and Ecuador (2000). Hanke is also a senior fellow and Director of the Troubled Currencies Project at the Cato Institute in Washington, DC. Professor Hanke is known for his work as a currency reformer in emerging-market countries. In addition, he’s known as a currency and commodity trader. In 1995, when he was President of Toronto Trust Argentina in Buenos Aires, that fund was the world’s best performer.

He was a senior economist with President Ronald Reagan’s Council of Economic Advisers from 1981 to 1982 and has advised heads of state and governments in Asia, South America, Europe, and the Middle East.

In an interview with Echelon, Prof Hanke discussed why emerging economies often get into currency crises, how a currency board addresses the fundamental issues and if such reform is suitable in the midst of a balance of payments crisis.

There’s a lot of confusion whenever the word currency board is mentioned. Most people living in this century believe that currency depreciation is inevitable because, in their lifetimes, they have not seen fixed exchange rates. Can you explain to us what a currency board is and what a floating exchange rate is and why they are both consistent regimes that do not collapse suddenly?

There are two types of exchange rates that are consistent with free-market principles. One is the floating exchange rate. In that case, the central bank has a monetary policy, but it does not have an exchange rate policy, the exchange rate moves around freely, and that’s why it’s called “floating”.

In that case, you don’t experience a balance of payments problem, because there’s no conflict between monetary policy and exchange rate policy as the currency is floating. You have a monetary policy, but don’t have an exchange rate policy so there can’t be a conflict.

The big problem with a floating exchange rate is that you have no imposition of a hard budget constraint on the fiscal authorities. In other words, the central bank has its monetary policy and one thing it can do is loan money to the fiscal authorities by printing money and creating credit.

What would happen if you had a floating exchange rate in Sri Lanka? The rupee wouldn’t float on a sea of tranquility, it would sink like a stone. That’s the big problem.

Now, let us move to the fixed exchange rate. The typical monetary institution that imposes a fixed exchange rate is what is called the currency board system. Ceylon, as your country was once known, actually had a currency board for about 70 years from 1884 until 1950. The Ceylon rupee was fixed to the Indian silver rupee at a fixed exchange rate.

Fast forward.What would happen to the rupee if it was issued by a currency board? It would become a clone of whatever the anchor currency happens to be. For example, the U.S. dollar.

If you had a currency board, and you had a fixed exchange rate for the Sri Lankan rupee with the US dollar, and it was backed 100% with US dollar reserves, the rupee would be the same thing as the U.S dollar. If you didn’t like the rupee, you’d take it into the currency board and exchange it at the fixed exchange rate and receive your U.S dollars at that fixed exchange rate. That would be the end of it. In effect you would be indifferent to the Sri Lankan rupee or the U.S dollar; they would be the same thing. In fact, it would technically be the equivalent of dollarizing and getting rid of the rupee. But if you want the rupee, you have a fixed exchange rate with a currency board. That’s what happens.

Now, a currency board is another free-market mechanism for the balance of payments. With a currency board, you have no monetary policy, but you do have an exchange rate policy. So, you can’t have a conflict between the two, you never get your feet tangled up, you never have a balance of payments eruption or anything like that. You don’t have the kind of problem that you have right now in Sri Lanka.

The exchange rate system that you have in Sri Lanka is what’s called a pegged exchange rate system.These systems actually contain a number of types, including “managed floating,” “pegged but adjustable,” “crawling pegs,” and so on.In a pegged system the central bank has a monetary policy, but it also has an exchange rate policy and those two invariably end up in conflict and a balance of payments crisis erupts as a result of that.Most developing countries have pegged exchange rate systems, and that is precisely why they invariably end up with a balance of payments crisis on their hands.

The beauty of the fixed exchange rate system, or a currency board,is that it provides discipline to the fiscal authorities because the currency board cannot extend credit to the fiscal authorities. So, there’s a hard budget constraint. And the reason they can’t, is that if the fiscal authorities wanted to receive more rupees, they would have to go to the currency board and give the currency board U.S dollars in exchange. So, there’s no creation of credit under that system.

What you find in currency board countries is that you not only have the advantage of this smooth, free-market mechanism for adjusting the balance of payments, but you also have a hard budget constraint put into the system. It’s like a straitjacket around the fiscal authority. So what you’ve witnessed – the wild spending and so forth in Sri Lanka – that couldn’t happen with a currency board, because the fiscal authorities would be in a straitjacket and so would the monetary authorities, because remember I said that with a currency board you have no monetary policy. No discretionary monetary policy.

Is there a connection between dollarization and currency boards? Are we talking about the same thing here?

A currency board is exactly the same as dollarization in the sense that the adjustment process is the same and stability is the same because you have no conflict between monetary policy and exchange rate policy. With dollarization, you have no monetary policy and no exchange rate policy because you have no local currency. And you have no exchange rate policy because you don’t even have a local currency. So, the dynamics of currency boards and dollarization are actually the same.

The only difference is with a currency board you have a local currency point number one, and point number two, you earn seigniorage or a profit off that because you’re issuing the currency from the currency board, that’s a liability, that pays no interest and the reserves that you’re backing that currency with 100%, are invested and earning interest. So you always have a profit being generated by the currency board.

Most people here believe trade deficits drive the value of the currency. But we know that some countries, for instance, the US have chronic trade deficits, but have strong currencies?

First of all, there is a great deal of misunderstanding and ignorance about what causes a trade deficit. Trade deficits are not caused by exchange rates, they are not caused by nefarious activities by foreign countries, unfair trade, and that kind of thing. Trade deficits are homegrown. The trade deficit in Sri Lanka is caused by the fact that savings are deficient relative to investment. This is what’s called an accounting identity, savings must equal investment, and if savings are less than the investment, that difference is made up by the trade deficit.

In Japan, for example, you have a trade surplus, because it has huge excess savings in the economy, relative to investment in Japan, and you have a huge trade surplus and an export of capital. They’re not borrowing from anyone, they’re lendingtheir surplus savings to foreigners. You have the same thing going on in China. Just like Japan, China saves much more than it invests, and it exports this excess savings. And also associated with that savings surplus, relative to investment, it has a trade surplus. Most people just don’t understand the dynamics associated with the savings-investment identity and the fact that trade deficits and surpluses are all homegrown.

Let’s talk about the experience of some countries with currency boards. Argentina is pointed out sometimes. A lot of people claim that Argentina had a currency board. What are your thoughts on that? What actually happened there?

Well, you’re talking about a country that I know a lot about because I was President [Carlos] Menem’s advisor. He was elected in 1989, and when I first met President Menem, Argentina had triple-digit inflation and had just come out of hyperinflation. He was trying to liberalize the economy and more or less follow the same kind of model that the Chicago Boys had introduced in Chile a few years before. He wasn’t getting anywhere with the reform and he asked me what the problem was. He couldn’t privatize anything and couldn’t liberalize anything. Nothing was happening.

And I said, unless he killed inflation, he would not have any credibility, and he would not be able to do anything. And he asked, ‘How do you do that? How do you kill inflation?’

I said, ‘What you want to do is do what you did in the 19th century, in Argentina, when you put in a currency board and backed it with the anchor currency, like the US dollar. So the peso would become a clone of the dollar because the peso would trade at a fixed exchange rate with the dollar and be backed 100% with dollar reserves, and everything would be fixed.

He asked me whether I could write that up.So, Dr. Kurt Schuler and I wrote a monograph, titled Banco Central o Caja de Conversión?, that was published in Buenos Aires.It laid out the architecture for an Argentinec urrency board. Menem liked it. But when they got into structuring the law, in April of 1991, they introduced something they called “Convertibility”. As it turns out, the Convertibility System looked somewhat like a currency board, because it required a fixed exchange rate and high levels of foreign exchange reserves. But, the Convertibility Law contained many loopholes which allowed for discretion on the part of the monetary authorities. In short, it allowed the monetary authorities to engage in a monetary policy and simultaneously an exchange rate policy. That’s a “no-no” with a currency board.

Convertibility did kill inflation immediately and the economy started booming. And Menem got tremendous credibility and started engaging in a lot of other successful free-market reforms. So that was the initial impact.

But also, September or October 1991, I wrote an article published in the Wall Street Journal, titled Argentina Should Abolish Its Central Bank. I said Argentina should transform Convertibility into a currency board system. I said, if they don’t, eventually this thing will blow up and they’ll have problems. The reason I said that is that the Convertibility System actually allowed for the two things that I told you are associated with a pegged exchange rate system.

That is, the central bank could have a monetary policy, a discretionary monetary policy, and at the same time, have an exchange rate policy. Eventually, you can get yourself into trouble due to conflicts between a monetary and exchange rate policy.

It happened in 2001, 10 years after the introduction of Convertibility. Convertibility did blow up. The system operated very well for 10 years. Inflation was almost the same as in the United States, the economy boomed and contrary to what most people think, the economy remained competitive, and the export sector remained robust throughout that period.

But if you look at 1999-2001, during that period, when they were deviating from currency board rules, because they were a Convertibility System, there was a lot of debating about the system itself.
And Kurt Schuler did a survey at that time to see how the top 100 economists in the world were referring to the Convertibility System. 93 out of the 100 were incorrectly referring to Convertibility as a currency board.

And this is a very technical thing. If you look at the balance sheet of a real currency board, there’s only one thing on the asset side of the balance sheet that moves around and that’s the foreign exchange reserves. You have no domestic assets. And if you do, they’re frozen and not moving around.

In Argentina, they had the foreign reserves on the asset side of the balance sheet, but they also had net domestic assets. Those net domestic assets were moving all over the place. They were buying, selling and sterilizing the inflows of foreign exchange coming in and neutralizing the outflows. The foreign exchange component was moving around, but also the net domestic assets were moving around. And you can’t have this with a currency board.

It’s a technical thing, most economists don’t understand it. Convertibility was, in fact, a pegged exchange rate system with a very high level of reserves. So, it had a lot more credibility than most pegged systems because, for most of its life, it had big reserves over 100% of the pesos outstanding.

Let’s talk about Sri Lanka’s circumstances and perhaps draw some parallels with the work you’ve done in Eastern Europe. Sri Lanka is in a crisis. You have set up currency boards in countries in crises. What can we learn from that experience? Is a currency board something you can set up during a crisis?

I’ve set up four currency boards during crises of one sort or another. The first one was in Estonia in 1992. Estonia had just gained its independence from the Soviet Union. At that time, they didn’t even have a post-Soviet constitution. And in June of 1992, we set up a currency board and we got rid of the Ruble. The Russian Ruble was the currency. We got rid of that and introduced the Estonian Kroon, and it worked perfectly. And by the way, the important thing there was that we set that up in less than 30 days. From the time I introduced the idea, until the time it was implemented it was less than 30 days. It worked perfectly. It smashed inflation right away, Estonia got a local currency and stability was established.

And while stability might not be everything; everything is nothing without stability. So that was Estonia. The IMF, by the way, gave it rave reviews. All of the IMF’s Article IV reports that came after June of 1992 were very positive.The currency board was very successful.

Then, in 1994, PM Slezevicius brought me into Lithuania and I became part of the government, where I operated as a state councilor. We put in a currency board in 1994, mainly because PM Slezevicius wanted a hard budget constraint in the system. He wanted to put the central bank into a straitjacket so that it couldn’t extend credit to the fiscal authorities. He wanted to discipline the system.

The main purpose when it came to Estonia was to get rid of the Russian Ruble and establish its own currency. In Lithuania, the main purpose was to impose a hard budget constraint on the fiscal authorities.

Then in Bulgaria, I was President Petar Stoyanov’s’ chief advisor in 1997 and they had hyperinflation at that time. The inflation rate peaked at 242% per month.

We implemented the currency board in July of 1997. It then smashed the hyperinflation and put discipline into the system. The banking system had been insolvent before that. By the end of 1998, it was all solvent. And, by the end of 1998, money market rates had plunged to 2.4% per year.

Back then, the Deutsche Mark was the anchor currency for the Bulgarian Lev. And the Bulgarian Lev was trading at a fixed exchange rate with the Deutsche Mark with reserves of 100% of the Lev being emitted.

Bulgaria still has a currency board. It has the second-lowest debt to GDP ratio of any country in the European Union. And that’s because of the hard budget constraint. The central bank that operates as a currency board cannot extend credit to the fiscal authority. So, no matter what government is in power, the budgets are more or less balanced in Bulgaria.

The last currency boardI was involved in establishing was in Bosnia and Herzegovina in1997. It was put in right after the civil wars in Yugoslavia and it was mandated by the Dayton Peace Accords. Those accords mandated that Bosnia and Herzegovina must install a currency board.

So, all four of these, with perhaps the exception of Lithuania, were installed during hot crises, and all worked extremely well. Indeed,they have all consistently received rave reviews by the IMF over the years. And in Bosnia, the situation was very tense, because you were right in the middle of a civil war situation.

How do you go around finding the capital for a currency board? I’m curious how these four European countries that you refer to did it also. And what will happen to the existing reserve money and the bank deposits in the banking system? Can they exist in parallel? What happens?

These countries didn’t have problems with reserves, because the real inflation-adjusted value for their local currencies that were inflating at the time was very small. So, the reserve requirements, given the fixed exchange rate, determine the fair value of the currency, and you fix the exchange rate. Then you determine how many reserves you need. They needed very small reserves in these cases because the real value of the money supply was small. So, the reserves were not a problem whatsoever. They had plenty of reserves, in all cases.

Even Estonia, right after they left the Soviet Union, had gold reserves that had been shipped during World War Two. They had sent their gold reserves to London. So, they actually had gold reserves, waiting in London, that were used to back up the new currency that was started.

You can obtain the reserves in several ways. Number one, you can borrow the money.

Let’s say you had zero reserves to set up a currency board. You could borrow those reserves from the government and if your currency is backed 100% the currency board could easily pay off the borrowings because they would be making a profit every year. That would be one way.

Or there have been currency boards that have started with less than 100% reserve cover for the total emission that is outstanding. But, the marginal or incremental issue of currency could not be made unless it was backed 100%. The infra-marginal could be conceivably less than 100%. But the marginal would always be 100%. These are technical things, but they haven’t posed a problem.

You asked, how have these performed? There have been over 70 currency boards in existence and none have ever failed. There’s never been a failure. And the ones that I gave you are the four new ones, Estonia, Lithuania, Bulgaria and Bosnia and Herzegovina. If you look at the IMF reports after we installed them, they are glowing. The IMF can’t say enough good things about the stability and the discipline that was put into the economy with a currency board.

Are there any preconditions in your view, to setting up a currency board?

This is another stupidity economists talk about. Many economists claim that there are all sorts of preconditions that must exist before a currency board can be installed. In short, they stupidly assert that a state of bliss must occur before you install a currency board.

In fact, there are no preconditions for the installation of a currency board.That’s not the point. You want to put in a currency board when everything is bad. Look at Estonia and Bulgaria, were there any preconditions? There were zero preconditions. Look at Bosnia, in the middle of a civil war, with no preconditions, none whatsoever. Everything was a complete disaster until a currency board was established, rapidly, in all cases.

And the solution to the major problem of inflation and the balance of payments problem was fixed immediately.

Look at it this way. Why do you have a balance of payments problem? What’s one of the biggest causes of the problem in Sri Lanka? It’s the fiscal deficit. That’s where it comes from.

When the new government came in, the Central Bank of Sri Lanka was the first in the world to adopt what is called Modern Monetary Theory. The government said, well, where are you going to get the money? And the central bank said it’s not a problem, we’ll print it. It’s an almost delusional statement of complete incompetence. But there you go, that was the road that was taken in Sri Lanka and it was the road to hell.

And the question is, how do you redeem yourself and remove yourself from hell. There is only one way and that’s a currency board. This idea that some of the IMF people are suggesting about a floating exchange rate is wrong. The rupee will not float on a sea of tranquility; it will sink like a stone.

And what the IMF foolishly says is you’ll have discipline because the IMF will manage things from Washington DC. No. You manage things in Sri Lanka with a currency board, you fix the problem yourself. This is a local problem and it can only be fixed by locals. And the only way to fix it is to put the government in a straitjacket with a currency board.

This happened in Bulgaria. It’s fixed. They have the second-lowest debt to GDP ratio of any country in the European Union. Before the currency board, they had defaulted on their foreign debt twice since they were independent, in the post-communist era. They even defaulted on their domestic debt as well.

Literally within days, the inflation was smashed, and within months, Bulgaria’s bank solvency problem was fixed, and the sovereign debt problem was fixed within months also.

How does a country default on its domestic debt? You can always print the money?

What if they don’t? It is unusual to have domestic debt default rather than a sovereign foreign debt default. But it does happen sometimes. The government just didn’t pay the bondholders.

There are regimes which seem to have stable exchange rates for decades. For instance, GCC countries have fixed exchange rates. China has had a fixed exchange rate for decades. And it appreciated as soon as it broke it. How do you explain this?

The Gulf countries do not have currency boards. Their monetary systems aren’t orthodox currency boards, in any case, but kind of quasi-currency boards.But their systems have been very reliable fixed exchange rate regimes because they operate them in a de-facto currency board manner. But, unlike currency boards,these systems are vulnerable and can blow up.

In 1986 when I was doing a lot of foreign exchange trading at that time, and trading oil at the Friedberg Mercantile Group in Toronto, where I was the chief economist at the time – now I’m the Chairman Emeritus of the Friedberg Mercantile Group – we detected that OPEC was going to collapse in early 1986 and we predicted precisely that the price of oil would go below $10 a barrel. And we also anticipated that this would cause big problems in the Gulf and with the pegs that they had; we predicted that their pegged exchange rates would blow up.

We shorted oil with huge positions.Indeed, we had 70% of all the short interest in London. We also were shortthe Kuwait Dinar and the Saudi Riyal and, sure enough, both of those were devalued in 1986. Since then, they’ve been fixed.

Unless you have a major collapse in oil prices, for example, those quasi-currency boards and pegs that they have are pegged systems. They do have a monetary policy and an exchange rate policy. The exchange rate is fixed, but they have some monetary policy.

In Sri Lanka the central bank’s net foreign assets are negative, and the monetary base is about 1.3 trillion, which is about $5 billion. But the central bank has dollar-denominated debts of about $5 billion. So, in that case what do we do? Do we need a new currency board?

What we did with Estonia, Lithuania, Bulgaria, Bosnia and Herzegovina, is we retained the central bank. But we changed the central bank law to make what they call the issue department, a currency board. So, you have a currency board inside the central banks in those countries.

Now, what you could do is set up a new monetary authority, a new currency board from scratch, and that would be esy to do, because currency boards only require a handful of people to run them. You’d probably only need a staff of about six to ten at most to run a currency board.

So, one thing you’re suggesting is that the central bank is in such a financial mess in Sri Lanka, that maybe it would be a cleaner operation, instead of changing the central bank law and transforming the central bank into a currency board, to actually set up a new entity.

Your question suggests that there might be a cleaner way, andthat way to fix this mess up with a currency board organized as a new, separate entity.

Then what happens to the reserve money and what happens to the bank deposits and the banks that are linked to the old money? Do you have two currencies operating?

No, you would have only one currency, which is the new one that would trade at a fixed exchange rate with the anchor currency and be backed 100% with anchor currency reserves. That would be the way I would do it. In currency and monetary affairs, you keep things as simple as you possibly can.

There have been countries where there have been parallel currencies, but I would avoid those kinds of complications. I like to keep things simple. If you keep things simple, they usually don’t break.

What happens to deposits. The banks are in trouble now?

Well,the banks were in trouble in Bulgaria. They were insolvent. The banks will get out of trouble if you get the economy going. Then if the economy grows the debtors can pay off the creditors. In one year in Bulgaria, we made an insolvent banking system solvent and the level of foreign exchange reserves tripled. The reservestripled in 12 months.

The reason for that is that there is a huge arbitrage profit to be had once you put in a currency board. Because if you did, the Sri Lankan rupee interest rates would be higher when you first started than interest rates in the United States. So, it would pay me to borrow money or take my dollars and exchange them for Sri Lankan rupees because I could earn a profit, a risk-free profit. And that’s exactly what happened in Bulgaria and that’s what happened in every one of the newcurrency boards that I established.You have huge arbitrage going on initially so you get a big capital flow coming into the currency board. With a currency board in Sri Lanka, the foreign exchange reserves would go up very fast because of the increased demand for the new solid rupee, which would be a clone of the US dollar. Indeed, the demand for those rupees would be very high.

And the reason that they’re high is that the interest rate, initially, will be higher in the rupee than in the US dollar. Now, that’ll arbitrage down and the interest rates will equilibrate. They’ll be identical on a risk-adjusted basis.

You’ve been an associate of Milton Friedman and have called him your mentor. What was his opinion about currency boards?

Milton Friedman is mainly known for being an advocate of flexible or floating exchange rates. That’s what most people think.

Friedman was for free market mechanisms to adjust the balance of payments, and there are two ways to do that. You either have a floating exchange rate, or you have a fixed exchange rate with a currency board. In Hong Kong in 1983, when they put the currency board back in, John Greenwood was the architect of that and Milton Friedman was 100% behind it, he endorsed the thing.

In Estonia, Lars Jonung, Kurt Schuler and myself wrote a book titled Monetary Reform for A Free Estonia: A Currency Board Solution. It was published in Estonian and English. Who endorsed that book on its dust jacket? Milton Friedman. So, Friedman has always been for currency boards in developing countries and countries with weak institutions and unstable governments.

He knows that the hard budget constraint gets put into the system and the straitjacket gets put on the politicians, forcing them to more or less balance the budget if you have a currency board system.

So that’s where Professor Friedman was on that. It looks like a contradiction, but it’s perfectly consistent. Pure floating exchange rates and a fixed exchange rate with a currency board are identical in the sense that they are free-market mechanisms for adjustments in the balance of payments.

The floating exchange rate has a monetary policy but no exchange rate policy. The fixed rate delivered via a currency board has an exchange rate policy but no monetary policy.

You brought up John Greenwood. Last year you wrote an op-ed with John Greenwood in the Wall Street Journal about US inflation, which was spot on. Can you explain your association with John Greenwood?

John Greenwood and I go back quite a few years. Not quite as far back as 1983, when he designed the currency boardfor Hong Kong. There were three key people involved in that; we had Greenwood, the man on the ground, we had Milton Friedman, and also Sir Alan Walters. Now, Sir Alan Walters was Maggie Thatcher’s economic guru at 10 Downing Street, but he was also a professor at Johns Hopkins University where I’m a professor.

We were very close colleagues. We edited two books together. We wrote the entry for the currency boards in the New Palgrave Dictionary of Economics. So, Hong Kong’s 1983 experiment was via Alan Walters. Because remember, Thatcher was the one that put the green light on the thing. Hong Kong was a colony. So, the PM at 10 Downing Street was the one who had to say yes. And Thatcher did on the advice of Sir Alan Walters. And Sir Alan, who was a close friend of mine, was keeping me informed. That’s where I was introduced to currency boards.

Subsequently, Greenwood has had a number of my students as interns of his in Hong Kong.For example, Dr. Kurt Schuler was an intern of John Greenwood’s. And Dr. Kurt Schuler was a postdoctoral fellow of mine, a student of mine.

Dr. Chris Culp was also an intern there, he was a student of mine. Then Greenwood and I were personally introduced when we were part of Robert Mundell’s, the Nobel Laureate, inner circle,where we would meet every year in Tuscany, at the Mundell Palazzo. One thing led to another, and Greenwood is now actually a fellow at the Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise. So, he lives in London, but he’s a fellow at my Institute at Johns Hopkins.

How did you get on with Robert Mundell?

Mundell was a big backer of currency boards and fixed exchange rates. We served on the financial advisory board together in the United Arab Emirates for several years. So, we actually had an official position together. In addition to being quite good personal friends, and professional colleagues, we were literally working together in the United Arab Emirates.

I could remember the first meeting we had at the financial advisory council was the week after Lehman Brothers went bankrupt, in the great financial crisis of 2008.We were in Dubai at the time. We had a lot on our plate immediately. The first meeting was very intense.

And the one thing about the UAE is they can act very fast. So, we made big recommendations to the Minister of Finance. And that was the last day of our meeting when we made our recommendations. We flew out that night and when I landed in Washington D.C., they’d already implemented all the policy changes that we’d recommended. They don’t waste time.

ECONOMYNEXT – Sri Lanka stocks closed higher for a third straight session on Thursday (23), led by Expolanka shares and new buying interest in some banking shares, but witnessed the worst foreign outflow in three weeks.

Foreign investors sold a net of 163 million rupees worth of shares on Thursday, its worst since June 2. The market has witnessed a total foreign outflow of more than 1.2 billion rupees so far this year.

The main All Share Price Index (ASPI) closed 0.58 or 43.94 points higher at 7,556.09. It has gained 1.8 percent in the last three sessions.

“The market mainly moved on Expolanka’s cash dividend announcement. However, there was buying interest coming in to the banking sector as those shares have bottomed out a lot,” a market analyst said.

The turnover was 1.1 billion rupees, highest since June 17, but still less than a third of this year’s daily average turnover of 3.53 billion rupees.

Analyst previously said theres a lot of selling pressure in the market because the investors do not see an ideal market at least for the next 9-months due to high interest rates and taxes.

A 10-member IMF team arrived in Sri Lanka and began discussions on policy corrections with Prime Minister Ranil Wickremesinghe on Monday and the talks have been seen as positive for the investor sentiment. However, Sri Lanka must show progress on debt restructuring before IMF lends any money.

Market analysts have said investors were heavily feeling the pinch of economic crisis as the country’s fuel bunkers have dried out the island nation was frantically looking for dollars to purchase fuel.

The public sector and the schools have moved online for two weeks on the government’s advice to reduce transport and save fuel.

Though a new prime minister and a new cabinet have been appointed, analysts see little progress on both the economical and political fronts. The country is struggling to ensure a continuous supply of fuel due to a shortage of US dollars.

The more liquid S&P SL20 index gained 0.9% or 21.63 points to 2,431.44

The market has so far lost 6.7% in June after gaining 6% in May. It lost 23% in April followed by a 14.5% fall in March.

The market has lost 38.1% so far this year after being one of the world’s best stock markets with an 80% return last year when large volumes of money were printed.

Sri Lanka’s sovereign debt default has already led the country to be rated with restricted/selective default rating by rating agencies, which has weighed on investor sentiment.

Investors are also concerned over the steep fall of the rupee from 203 to 370 levels so far in 2022.

Expolanka Holdings gained 7.8% to 185.75 rupees a share, a day after it announced a 8 rupees cash dividend.

Browns Investment was up 5% to 8.4 rupees a share, while Hatton National Bank gained 3% to 80 rupees a share. (Colombo/June 23/2022)

ECONOMYNEXT – A high-level Indian delegation led by Foreign Secretary Vinay Kwatra met Sri Lanka President Gotabaya Rajapaksa and Prime Minister Ranil Wickremasinghe for discussions kn promoting bilateral investment in the fields of infrastructure, connectivity, renewable energy and deepening economic linkages, the Indian High Commission said.

Sri Lanka has sought more loans from its neighbour to manage the island nation’s ongoing economic crisis which has led to the shortage of essentials like fuel, medicines, and cooking gas amid lengthy power cuts due to lack of US dollars.

The South Asian country already declared sovereign debt default on April 12.

The Indian delegation also included Shri Ajay Seth, Secretary, Department of Economic Affairs, V Anantha Nageswaran, Chief Economic Advisor and Kartik Pande, Joint Secretary, Indian Ocean Region at the Indian Ministry of External Affairs.

“Both sides had a productive exchange of views on the current economic situation in Sri Lanka as well as India’s ongoing support,” the Indian High Commission said referring to the delegation’s meeting with the president.

“In the meeting with Prime Minister Ranil Wickremansinghe, the two sides had an in-depth discussion on the Sri Lankan economy and efforts undertaken by the government of Sri Lanka towards achieving economic recovery.

“In this context, both sides highlighted the importance of promoting India-Sri Lanka investment partnership including in the fields of infrastructure, connectivity, renewable energy and deepening economic linkages between the two countries.”

Many Sri Lankans have welcomed Indian support cautiously due to past experiences.

Political analysts told EconomyNext the Indian rush for help has come at a time India and the West led by the United States are concerned about China’s strong presence in Sri Lanka.

China has become the top bilateral commercial lender to the island nation since the end of a 26-year war in 2009.

India has raised concerns over Chinese activity in Sri Lanka claiming that it could compromise the Indian Ocean’s security.

Sri Lanka had to cancel a renewable energy project given to a Chinese company in the northern islands due to Indian pressure citing security concerns, government officials have said.

A majority of Sri Lankans are still vary of Indian assistance because of its role in creating, backing and training the Liberation Tigers of Tamil Eelam (LTTE), a rebel group who fought for a separate state in Sri Lanka’s North and East for nearly 30 years.

However, later, India along with many other international partners helped Sri Lanka to wipe out the LTTE, which had killed Indian Prime Minister Rajiv Gandhi in 1991. (Colombo/Jun23/2022)

ECONOMYNEXT – Hundreds of Sri Lankans, battered by the country’s worst ever forex crisis, took to Twitter to vent their frustration at President Gotabaya Rajapaksa this week when he tweeted a congratulatory message to the national cricket team which won a five-match cricket series against Australia.

A young Sri Lankan cricket team won the fourth game held in Colombo by just four runs to secure a series win after conquering the five-time world champions.

“Congratulations to Sri Lanka cricket team on the win against Australia in the one day series. The sportsmanship shown by the Sri Lankan team has been remarkable. People of Sri Lanka are also grateful for the support given by Cricket Australia to overcome the economic challenges in Sri Lanka,” Rajapaksa tweeted. 

Congratulations to #lka cricket team on the win against #Australia in the one day series. The sportsmanship shown by the #SriLankan team has been remarkable. People of #lka are also grateful for the support given by @CricketAus to overcome the economic challenges in . #AUSvsSL

— Gotabaya Rajapaksa (@GotabayaR) June 21, 2022

Sri Lankans, who have been going pillar to post to feed their families and ensure essentials like fuel, cooking gas, medicines, food, and milk powder amid lengthy power cuts, took their frustration out on the president who had just turned 73 a few days prior.

It was the first time Sri Lanka had won a series against mighty Australia in 30 years.

Many Sri Lankans see Rajapaksa and his family as responsible for the current economic crisis. Thousands of young, nonpartisan protesters have been demanding Rajapaksa’s resignation for 76 days as of Thursday July 23 near the presidential secretariat in Colombo. Over this period, Sri Lanka saw a change in prime ministers as well as the resignation of the entire cabinet twice over.

However, Rajapaksa has said he cannot leave as a “failed president” and has vowed see his term to its completion in November 2025.

“You obviously never played any sport. That is why you do not know how to accept defeat. You are a failed President. Please GO,” responded one Twitter user.

You obviously never played any sport. That is why you do not know how to accept defeat.
You are a failed President. Please GO

— Shiran de Soysa (@deSoysaShiran) June 21, 2022

“At least learn from cricket how to make way for someone more capable than you,” another tweep said.

තමාට හැකියාව නැති උනාම සුදුසු කෙනෙක්ට අවස්ථාව දෙන එක ක්‍රිකට් වලින්වත් ඉගන ගන්න මහත්තයා!

— Dil Sudarshana (@DileeSudarshana) June 22, 2022

“Please resign and make this moment even better to give some relief to the grievances of the nation,” said another.

Please resign and make this moment even better to give some relief to the grievances of the nation. #EconomicCrisisLK #Lka

— Nuzrad Mohamed (@BeingNuzrad) June 21, 2022

Some of the tweeps used abusive language in response to the president’s congratulatory tweet, and many demanded that he step down due what they called his abject failure.

“No. This is victory for the cricket team. Your dismissal is the real victory for all Sri Lankans,” said one tweet.

“Please Mr President keep out of this. The SL cricket team is the only entertainment and [source of] pride we are left with,” said another.

“How can the Australian cricket team help to overcome economic challenges? Did they bring dollars in the plane? Pls don’t take credit for our team’s win,” another tweeted.

Some more tweets are reproduced below:

“Dont think people will be delusional with this win and forget to remind you about the most important message…..” GOTAGOHOME”

“Namal went, Cricket prospered You go, Watch how the country will prosper.”

“A young team of cricketers put us back on the winning streak. Please handover the reigns to a team that can win – we as a country need to rejoice and winning back our lives we had.”

“Please don’t try to get involved in this [and] screw this one up too. Just let it be the way it is. You are NOT needed.”

One Twitter user had used crossed out images of President Rajapaksa, current Prime Minister Ranil Wickremesinghe, former prime minister Mahinda Rajapaksa and former finance minister Basil Rajapaksa with the line: “There is no point of cultivating without removing weeds”.

pic.twitter.com/6MKs9Y4ylO

— jrod (@jrodbremen) June 22, 2022

Thousands of Sri Lankans started spontaneous protests over the looming economic crisis early in March when Rajapaksa’s government started to impose power cuts and struggled to import fuel and cooking gas due to a crippling dollar shortage – a shortage that experts have blamed directly on ill-advised policies of the government.

Rajapaksa is also blamed for his disastrous ban on chemical (inorganic) fertilizer without providing any alternative to farmers. As a results, the country has seen record high food prices due to a shortfall in farmland produce and lack of fuel to transport agricultural commodities.

The president also appointed himself as the Defence and Digital Technology Minister and appointed his elder brother Mahinda as Prime Minister. His oldest brother Chamal was made Minister of Irrigation while younger brother Basil became Finance Minister. His nephew and Mahinda’s son Namal, meanwhile, was appointed Youth and Sports Minister, while another nephew Shasheendra Rajapaksa, son of Chamal, was named deputy agriculture minister.

The powerful political dynasty controlled the country through the ruling Sri Lanka Podujana Peramuna (SLPP) even as the economic crisis turned into a full blown political crisis by early April. Since then, Rajapaksa was forced to remove his family members from key position due to strong protests by the public.

Prime Minister Mahinda Rajapaksa resigned after his supporters brutally attacked unarmed and peaceful protesters in Colombo on May 9. A court has ordered that he surrender his passport and police has questioned him over a meeting with his supporters held just before the attack. May 09 saw violent clashes, with over 70 ruling party members’ houses and assets either damaged or burnt.

The president later appointed Ranil Wickremesinghe as prime minister, but analysts say nothing has been done to supply essentials to the public with the crisis now getting worse.

Sri Lankan Twitter users had some choice words for their head of state.

“It’s time to go home”, “What do you know about sportsmanship”, “Devil, we are at fuel queues. It’s better if you go even now”, “Don’t screw up the little happiness the fans enjoy, pls leave”, and “OK, now you resign. Then it’ll be the perfect day” were among the responses that saw much engagement. (Colombo/Jun22/2022)

ECONOMYNEXT – Sri Lanka’s petrol distribution is to be delayed by another day as a fuel ship carrying petrol has not reached the island’s shores, the power and Energy Minister said.

“Fuel cargo-carrying 40,000 MT of Petrol 92 scheduled to arrive early this morning has been delayed by 1 day,” Minister Kanchana Wijesekera said in a Tweet.

“Limited amount of Petrol to be distributed today (23) and tomorrow (24) islandwide.”

Therefore Petrol and Super Diesel to be in limited distribution while auto Diesel will be in full capacity island-wide, he said.

Fuel cargo carrying 40,000 MT of Petrol 92 scheduled to arrive early this monring has been delayed by 1 day. Limited amount of Petrol to be distributed today and Tomorrow islandwide. Auto Diesel distributed at full capacity islandwide. Limited distribution of Super Diesel.

— Kanchana Wijesekera (@kanchana_wij) June 23, 2022

Sri Lanka is going through the worst economic crisis in its 72-year history.

The country is struggling to find dollars to pay for its fuel supply in June while fuel queues tripled.

June fuel queues were seen to be worse than what it was in March when the forex crisis spilt over initially.
(Colombo/June23/2022)

ECONOMYNEXT – A top finance team led by India’s Foreign Secretary Vinay Kwatra has arrived in Colombo to discuss support as Sri Lanka reels from the worst currency crisis in the history of the island’s soft-pegged central bank.

“During the visit, the Indian delegation will call on the President and Prime Minister of Sri Lanka,” the Foreign Ministry said.

“The delegation will also hold discussions with senior officials on the economic situation in the country and the short-term and long-term assistance.

Ajay Seth, Secretary of the Department of Economic Affairs of India’s Ministry of Finance, Chief Economic Advisor to the Government of India, V. Anantha Nageswaran are accompanying the Foreign Secretary.

Also in Sri Lanka is the Joint Secretary of the Indian Ocean Region Kartik Pande of the Ministry of External Affairs.

India has given over 4.0 billion US dollars to Sri Lanka to import oil and other materials as the country suffers forex shortages.

The central bank has hiked rates but with monetary stability is yet to be restored money with money still bring printed from time to time. (Colombo/June24/2022)

ECONOMYNEXT – Sri Lanka aims to reach a staff-level agreement with the International Monetary Fund (IMF) and also have a framework in place for debt restructuring by the end of July, Prime Minister Ranil Wickremesinghe said.

Representatives of the financial and legal advisory firms Lazard and Clifford Chance are now in Sri Lanka to assist with the debt restructuring framework, he said, while talks will continue over the next few days with an IMF delegation already in the island nation. In addition to this, a team from the US Department of the Treasury is set to arrive in Colombo on June 27, preceded by a top-level Indian delegation on Thursday, June 23.

Related:

High-level Indian delegation due in Sri Lanka for talks on assistance: PM

“We have concluded the initial discussions [with the main IMF team] and we have exchanged ideas on various sectors such as public finance, finance, debt sustainability, stability of the banking sector and social security,” Wickremesinghe said in a speech delivered to parliament on Wednesday, June 22.

Sri Lanka is going through its worst ever forex crisis, resulting in miles-long queues for fuel and ever-lengthening lines for cooking gas and other essentials as the cost of living skyrockets. The economic crisis has precipitated a political crisis, with widespread protests demanding the resignation of President Gotabaya Rajapaksa whose policies opposition parties and experts alike blame for triggering the crisis.

Wickremesinghe, whose surprise appointment as Prime Minister has not been uncontroversial, told parliament that the IMF was the only feasible way out and that, once a staff-level agreement has been reached and a debt restructuring framework was in place, the IMF’s executive board will arrive at its final decision.

“The only option before us now is to hold discussions with the IMF.

“We have to take this path. We aim to hold discussions with the IMF and arrive at an agreement to obtain an additional credit facility. As the next step, we hope to form a foundation to stabilise the economy and implement an immediate programme to increase our export revenue,” he said.

Wickremesinghe claimed that this plan has already been formulated following discussions with the Central Bank, Treasury, relevant government officials, professionals and experts.

As part of the government’s efforts to get Sri Lanka back on track, Wickremesinghe said, it has already reverted to the tax system that was in place in 2019.

Sweeping tax cuts by President Rajapaksa, purportedly on the advice of Keynesian economists, soon after his election in November 2019 has been blamed for an erosion of revenue, which led to a runaway budget deficit.  The government raised value-added tax (VAT) to 12 per cent from 8 per cent with effect from June 01 2022 to contain this.

Related:

Sri Lanka issues gazette hiking value added tax from June 01

Wickremesinghe said the government has decided to ensure a primary surplus in the national budget by 2025.

“Next, an IMF team on revenue and taxation visited Sri Lanka for discussions. They presented us with the relevant report.

“Meanwhile, next Monday (June 27), a team of representatives from the US Department of the Treasury will also arrive in Sri Lanka,” he said.

“We have ensured that we created the background necessary for the immediate arrival of these three teams in Sri Lanka. We will conduct lengthy discussions with them. Their presence in the country will now allow us to hold meetings together with all three teams. It will only further assist us in expediting our programme,” said the prime minister.

Parallel to these discussions said Wickremesinghe, the government will organise a foreign credit aid consortium led by India, Japan and China, the country’s main bilateral lending partners.

“However, there have been some conflicts and disagreements between us in the recent past. We are working towards resolving these and fostering friendly relations once again. Each country has different processes for granting loans. Through the credit aid conference, we hope to arrive at a consensus on the lending processes,” he said.

“If we receive the IMF seal of approval, the world will once again trust us. It will help us to secure loan assistance as well as low-interest loans from other countries in the world,” he added.

According to Wickremesinghe, Sri Lanka is also currently holding discussions with the World Bank, the Asian Development Bank, the United States, other friendly nations and heads of state to secure interim short-term loans until IMF support is finalised.

“We will be able to lay the foundation to ensure economic stability following the successful completion of these tasks. But this by no means will be the end. It will be the beginning of our journey: a new journey toward a stronger economy,” he said.

“We will then have to forge ahead with our plans to strengthen and create a new Sri Lankan economy,” he added.

An interim budget will be presented to parliament in August to lay this foundation, the prime minister said, to be followed by the budget for 2023 which will be presented in November this year. New legislation aimed at strengthening the economy is also on the cards and discussions on such legislation have already been held with all parties represented in parliament, he said.

Food security is also on the agenda, said Wickremesinghe, referring to his own earlier warnings of an impending food shortage.

Related:

Sri Lanka Prime Minister briefs FAO, UNDP on looming food shortage 

“Already a plan has been formulated to provide farmers with the necessary fertiliser for the next cultivation season.  We will also take steps to import rice under an Indian credit line and issue stocks to the Sri Lankan market to ensure price controls. This will provide some relief to the Sri Lankan consumers,” he said.

With regard to political reforms, Wickremesinghe said the 21st amendment to the Constitution has already been approved by the cabinet of ministers but it was unfortunate that opposition parties had chosen this week to boycott parliament.

“We must now agree on the proposals put forward and present the final draft bill to parliament. However, it is unfortunate that the process will be delayed due to the boycott of parliament by the [main opposition] Samagi Jana Balawegaya (SJB) and the [opposition] National People’s Power Party (NPP),” he said.

Related:

Sri Lanka PM wants opposition to call off boycott to proceed with reforms

“I have requested former speaker Karu Jayasuriya to present a complete plan and report on the newly proposed parliamentary committee system. He handed over his report on Monday (June 20),” he added.

Since his appointment as prime minister – for a record sixth time – Wickremesinghe has been spelling out the gravity of Sri Lanka’s unprecedented crisis in regular televised addresses to the nation. This has won the praise of some quarters and the scorn of others who claim that Wickremesinghe is stating the obvious and playing the role of a spokesman.

In his speech on Wednesday, Wickremesinghe drew attention to the feedback.

“Every two weeks since taking the reins of this government, I have taken steps to inform you of the real situation faced by the country and the measures we are taking to address it. Some have ridiculed this.

“However, many others are also grateful that we are telling them the whole truth and they have come forward to present various proposals that would perhaps help us overcome these issues.

“No matter which of these two groups you belong to, I call on you to come together as one country and join in the nation’s rebuilding process to see it through these dark times. Let us all embark on this journey together. Only by doing this will we be able to ensure the country’s recovery,” he said.

The country is on the verge of collapse, he warned.

“We are now facing a far more serious situation beyond the mere shortages of fuel, gas, electricity and food. Our economy has faced a complete collapse. That is the most serious issue before us today. These issues can only be resolved through the reviving of the Sri Lankan economy. In order to do this, we must first resolve the foreign reserves crisis,” he said.

It is no easy task to revive a country with a completely collapsed economy, especially one that is dangerously low on foreign reserves, a situation that could’ve been avoided, he said.

“We are now seeing signs of a possible fall into the very bottom. However, we must come out of this situation. If not, we will be unable to seek solutions to any other issue in the country,” he said.

Even India, which has helped Sri Lanka with assistance of up to 4 billion US dollars on a credit line cannot keep giving Sri Lanka loans, said Wickremesinghe, which is why going to the IMF is a must.

“As I have mentioned before, the situation we face today is in no way normal. I have repeatedly stated that Sri Lanka has not faced a crisis of this magnitude in its recent past.

“Once we have established a firm economic foundation you can hand over power to any political party as per your wish at an election and elect 225 suitable representatives to parliament. The responsibility and power to do so lie with you, the citizens of this country. You will be then given the opportunity to reject those you believe were responsible for the predicament Sri Lanka is facing today. In turn, the new government will be given the mandate to bring those responsible before justice. But all this can only be achieved following the revival of the country,” he said.

The Prime Minister also warned of further difficulties ahead, asking the hapless public to brace themselves.

“I call on the country’s citizens to contribute to the efforts to rebuild the country from the abyss it has fallen into today.

“So let us all first work together to come out of this situation. There will be difficulties. There will be hardships. But even while facing these difficulties and hardships each of us has things, however small, that we can do to contribute to this effort. I call on all Sri Lankans to bear these difficulties and hardships for a short period of time and contribute to the nation-building effort,” he said.

However, people will experience a gradual decrease in hardships, said Wickremesinghe. Power cut hours have been reduced, and 100,,000 metric tons of LP gas are to be imported with a 70 million US dollar loan from the World Bank and 20 million US dollars of Sri Lanka’s own reserves.

Currently, Sri Lanka is in need of 550 million US dollars to meet its monthly fuel needs but securing this has been hard, so the government will try and import the maximum fuel stocks possible based on the country’s dollar income, he said, warning that resolving the fuel shortages will take more time. Wickremesinghe asked that the people economise their usage of fuel.

Regarding school education, which has all but fallen by the wayside due to the fuel crisis and due to the COVID-19 pandemic prior to that, Wickremesinghe said authorities are formulating a plan to give priority to school buses and school vans when providing fuel.

“We will ensure that a conducive environment for the continuous study is created for the children of this country,” he said.

Sri Lanka needs to go forward step by step, said Wickremesinghe.

“The world will only assist us if they sense a strong urge and dedication on our part to come out of this crisis. Therefore we can either show them our aspiration as a nation to rebuild our country. If not we can display our indifference and disinterest, by committing various acts of sabotage. Your struggle must be one for rebuilding and uplifting our country. It should not be to destroy our country. Therefore I urge you to carefully consider and be vigilant in your actions at all times,” he said.

Wickremesinghe also urged political parties to set aside traditional party politics in the face of the worst economic crisis the country has faced since Independence.

“Today there is a collective protest by citizens against the whole parliament. At such a time a host of economic and political reforms affecting the country’s future have been proposed in parliament. If one has a true love for one’s country, what must be done now is to extend one’s support to introduce these reforms and to point out any shortcomings.

“Therefore I call on everyone to step away from traditional politics and to think afresh for the sake of our country. I also invite them to join the parliamentary meetings being held to expedite these necessary economic and political reforms,” he said.

It is the aspiration of the people that these reforms are expedited and implemented, said Wickremesinghe.

“If we can set aside our differences for a short while and only think of our country at this juncture I believe we will be able to safeguard our motherland from this impending disaster,” he said. (Colombo/Jun22/2022)

ECONOMYNEXT – A high-level government delegation from India is set to visit Sri Lanka for a discussion on possible further loan assistance, Prime Minister Ranil Wickremesinghe said.

Three officials from the Indian government will arrive in Colombo on Thursday, June 23 for this meeting, Wickremesinghe told parliament on Wednesday, June 22.

“We have received up to four billion US dollars under the Indian credit line so far. More credit has been requested. But India can’t keep giving us loans. Even their assistance has a limit.

“We also need to have a plan in place to repay these loans. They’re not donations,” he said, noting that India too is dealing with its own crisis in the country’s banking sector.

Former Sri Lanka Central Bank Governor Indrajit Coomaraswamy said earlier in June that Sri Lanka could get as much as 6.0 billion dollars in “bridge financing” from India.

“India has agreed to give 4.5 billion dollars,” Coomaraswamy told an online forum organized by the central bank on June 02.

“There may be 1.5 forthcoming.”

Related:

Sri Lanka could get up to US$6bn from India, talks with Japan: Coomaraswamy

(Colombo/Jun22/2022)

ECONOMYNEXT – John Keells Holdings (JKH), one of Sri Lanka’s top conglomerates will borrow 75 million US dollars (27.1 billion rupees) from a Canadian financial institution through privately placed debentures to fund dollar based investments such as West Container Terminal in Colombo, the firm said in a disclosure to the stock market.

Canada-based Fairfax Financial Holdings Limited will lend the required dollar amid the crisis-hit and sovereign debt defaulted economy is desperately looking for dollars to fund its essentials including fuel and cooking gas.

John Keells will issue 208.2 million debentures, each at 130 rupees to Fairfax Financial Holdings Limited.

The convertible debentures will accrue interest at a rate of 3% per annum.

“The proceeds from the issue will be used to support the Company’s investment and financing obligations, particularly in terms of managing the foreign currency linked funding requirements in investments such the West Container Terminal (WCT) in the Port of Colombo,” JKH said in a stock filing on June 21.

JKH will invest 70 million US dollars in 3.2 million twenty-foot equivalent container terminal in the WCT joint venture in the Colombo Port, taking a 34% stake with the majority is being held by India’s Adani group.

The 650 million US dollar Colombo West International Container Terminal (Pvt) Ltd, will be 70/30 debt to equity funded.

India’s Adani will hold a 51 per cent stake and Sri Lanka Ports Authority the landlord will hold a 15 per cent stake.

The conversion of the debentures to newly listed ordinary shares will take place within 18-36 months from the date of issue of the instrument by the company to the investor.

JKH said the funding will strengthen its financial position amid a worsening dollar crisis worsens and higher interest rates.

“The Proposed Private Placement will enable the Group to support this investment pipeline and match its foreign currency linked project costs whilst reducing the need to fund some of its requirements through the local banking sector given the stresses on capital and interest rates.”

The debenture will mature in 3 years. (Colombo/June 21/2022)