Colombo Telegraph JANUARY 27
IN JOURNALISM TRUTH IS A PROCESS
Sri Lanka’s aggregate economic data is somewhat misleading.
Dr. Arujuna Sivananthan -
Fast eroding foreign exchange (forex) reserves and a ballooning trade deficit has led to internecine warfare between Sri Lanka’s two economic policy setting organs; i.e. its Treasury and Central Bank (CB) such that the latter was kept in the dark when President Rajapakse announced the unanticipated 3 percent devaluation in the rupee-US dollar (USD) exchange rate to 113.89/90 during his budget speech. Rupee trading had to be halted and several hastily arranged conference calls were held with foreign investors, who fund Sri Lanka’s rupee denominated debt, to assuage their concerns that further devaluations were not imminent.
The International Monetary Fund (IMF) believes that the rupee is not less than 20% over-valued. However the CB has resisted calls by the Treasury and IMF to freely float it. Such an action would result in Sri Lankan expatriates –a large source of forex- who park their money in high interest rate domestic deposit accounts suffering capital losses in excess of any income they generate through interest. Foreign investors who bought rupee bonds issued by the government would also suffer deterring further investment in rupee denominated assets. As a result the final two tranches of the USD 2.5 billion facility negotiated with the IMF have not been disbursed.
