Economic Crisis: Sri Lanka Is Not Immune!
By Hema Senanayake –October 9, 2015
Hema Senanayake
Economies collapse suddenly amidst apparent economic growth if monetary disorder takes place. In fact I have never seen or observed or studied an economic crisis occurred in any country in the recent past which did not trigger from a financial crisis. Such crises happen quickly. Such crises do happen even under the close watch of International Monetary Fund. The classic example is the Argentinian crisis which occurred in December 2001, because until the crisis was erupted Argentina was hailed as a good country that even could set an example for other Latin American neighbors. It was a total collapse with unemployment shot up over 30%. The IMF itself explained it as follows:
“Until shortly before the crisis, the country had been widely praised for its achievements in stabilization, economic growth and market-oriented reforms under IMF supported programs,” (The Role of the IMF in Argentina, 1991-2002, IMF Report). The IMF further observes that the events of the crisis, “have raised questions regarding the country’s relationship with the IMF because they happened while its economic policies were under the close scrutiny of an IMF-supported program.”
Many countries faced economic crises in the recent past. Chinese economy is in a crisis right now. Sri Lanka is not immune for economic crises too. Sri Lanka could face an economic crisis under the watch of IMF. I am not going to alarm the new government about it. But when the Sri Lankan rupee depreciated suddenly even after the Central Bank of Sri Lanka (CBSL) borrowed dollars 1.1 billion over a currency SWAP agreement signed by and between India and Sri Lanka, I feel things are not normal. The reason is that currency SWAP agreements are signed not to borrow by one signatory country or the other. Usually currency SWAP agreements are signed to promote trade between two signatory countries without using reserve currencies such as U.S. dollar or euro –And definitely it is not a financial arrangement to borrow. But Sri Lanka did it. This cannot be defined as a prudent or calculated move of CBSL but rather it must be a decision, at least, made with certain desperation.