Tuesday, December 16, 2008

Absolute urgency for an immediate devaluation before its really too late

I was absolutely appalled to see a respected economist in the form or Dr Saman Kelegama who heads the Institute of Policy Studies, defending the Government’s stance on keeping the rupee at this unreasonably high level despite all evidence to the contrary.

I have stated time and again that the traditional reasons for not devaluing, namely of the inflationary impact does not apply now as we are in a situation of a substantial (50%) drop in commodity prices and so will be able to prevent any net inflationary impact. Furthermore, as the Indian rupee has depreciated against the US$, we can suffer an equivalent depreciation without affecting our food imports and for that matter other imports from India. The oil import bill which should (but for the disastrous hedging contracts) fall by over US$2B if the price of US$50 a barrel stays throughout 2009 will effectively leave the country in a Balance of Payments surplus situation on the current account even taking into account the reduction in value of Tea and Garment exports.

One possible area where he did make some sense was in the issue of repayment of international debt and credibility with international investors. I don’t believe there will be any grain left in that truth now the world is in recession and they have lost more money on their other investments than in their investment in SL treasuries which as we speak still yield in excess of 20% on a stable exchange rate. The other fallacies of not being able to carry out the government’s infrastructural development plans is totally predicated on inflation, which I have proved is not an issue.

A famed economist should realize if he has ever been in business, which sadly many of our intellectuals have not, that it is the businessmen who are importing who are amassing fortunes both in foreign bank accounts and on local profits, by not passing the substantial price reductions from commodity prices to their consumers. The fortunes amassed overseas from over invoicing exceed the total foreign reserves of the country.

So please I beg of you the reader to alert the state to the reliance on outdated economic theory that does not hold water at present in Sri Lanka, and the hardworking population overseas have kept the economy functioning through their remittances. They who have saved this country deserve more from the extra money pumped in from devaluation too. Just do it!

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