Rapid rupee depreciation A test for Government’s liberal economic policies

27 September 2018 12:00 am - 0     - {{hitsCtrl.values.hits}}

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The Government is also trying to cash in on the fact that the rupee component of export revenue increases in the wake of currency devaluation (Photo Reuters)

The rapid depreciation of the rupee value against the US dollar is forcing the Government to have a relook at its economic model, at least for the time being. It sounded certain when Finance Minister Mangala Samaraweera requested people to stop luxury imports and to stick to locally manufactured products as much as possible as otherwise it would drain the country’s dollar reserves.   

The rupee value has dropped to more than Rs.170 against the US currency. The Government is solely attributing the phenomenon to external factors, but the opposition blames it mainly on the mismanagement of economy by the ruling coalition Government.   


  • The development of local industries with special emphasis took a backseat
  • Trade protectionism was something that did not gel with the Government
  • Government could have taken precautions to deal with the current predicament

Prime Minister Ranil Wickremesinghe, at a function on Monday, said the Government might have to curb imports by US $ 500 million –US $ 1 billion to tide over the crisis.   

According to the Government, three options are available in broad sense to deal with a situation of this nature. The fiscal and monetary policy changes are two options. The Government has the option to readjust its fiscal policy to reduce imports. Also, the Central Bank can increase interest rates for dollar investments. Alongside, it can also call for a change in the behavioural pattern of people.   

Since its inception in 2015, the current Government has made every possible effort to uphold liberal economic policies. In simple terms, the Government believed in the free flow of goods and services across the boundaries-tariff free trade. As such the development of local industries with special emphasis took a backseat in the government’s economic policy.   

On and off, the country witnessed protests and demonstrations by local manufacturers against such policies that have kept them in the lurch. Economic liberalisation was also the focal point in negotiating trade agreements with the countries such as India and Singapore. All in all, trade protectionism was something that did not gel with the Government.   

In fact, there were arguments in the closed quarters of the Government to suggest that it was cost effective to import rice from the countries such as Thailand rather than cultivate it.   

Such contemplations for market driven economic strategies under a liberal model were shattered by the global developments triggered by the Trump administration of the United States opting for trade protectionism. Given the latest policy adjustments by the United States as the world’s largest economy, the value of the US dollar strengthened against the currencies of many other countries including China’s Renminbi (RMB).   

The Government of Sri Lanka is now experiencing a crisis situation and has to protect its dollar reserves from being withdrawn by their investors to be invested in the United States for better economic yields.   

Dollar drain 

The Government has to stop the dollar drain when it, in fact, wants dollar gain.   

So, it is compelled to adopt protective measures although they are fundamentally opposed to the liberal economic model that it has espoused right from the beginning. Now, it seeks to curb imports. Besides, it stresses the need to develop the local industrial base and increase exports. The Government is also trying to cash in on the fact that the rupee component of export revenue increases in the wake of currency devaluation in this fashion. All in all, the Government is prevailed upon to adopt a different economic model under compelling developments on the world stage.   

The Government is attributing the current economic phenomenon to external factors. But, the Joint Opposition believes otherwise and blames it on the unpreparedness of the Government to deal with such an eventuality.   

Former Central Bank Governor Ajith Nivard Cabraal says the US was preparing to give incentives to its businessmen and levy tariff on imports for a long time, and therefore, the Government should have anticipated it. Then, he said the Government could have taken precautions to deal with the current predicament rather than blaming it solely on the external factors.   

JVP reaches out to political parties 

Developments related to the alleged assassination plot on President Maithripala Sirisena and the depreciation of rupee value dominated news during the past few days. Lesser known or buried among them all was the fact that Janatha Vimukthi Peramuna (JVP), which presented the 20th Amendment to the Constitution, initiated a dialogue with the political parties and civil society movements in canvassing their support to enact this in Parliament.   

A JVP delegation led by MP Vijith Herath who presented the bill in Parliament, held formal talks for the first time regarding this matter with National Movement for Social Justice on Monday evening in Rajagiriya, Colombo.   

The Movement, founded and spearheaded by late Ven. Maduluwave Sobitha Thera, pledged its support to the JVP’s move. The two sides discussed the modalities on how to make it a success. Abolition of the executive presidency, as envisaged in the 20th Amendment, was a prime target of Ven. Sobitha Thera when he was alive. He led the organisation creating awareness on the need to prune presidential powers to be vested with Parliament. The JVP appears to have taken the baton from him to accomplish the mission under the current circumstances. The JVP has taken a position to oppose executive presidency right from its inception. But, in recent years, it was brought to the political surface by the movement led by Ven. Sobitha Thera.   

The Government has to stop the dollar drain when it, in fact, wants dollar gain (Photo AFP)

Also, the JVP briefed the Mahanayake Theras of three chapters of their intention in this regard. In addition, a JVP delegation led by its leader MP Anura Kumara Dissanayake called on the Communist Party (CP). The CP is an ally of the Joint Opposition operating under former President Mahinda Rajapaksa. Nevertheless, its stalwart former Minister D.E.W. Gunasekara has differences of opinion with the Joint Opposition. It is a party believing in power devolution whereas the word ‘Federalism’ is anathema to the leaders of the Joint Opposition who view it as a threat to territorial integrity.   

The CP has one MP elected on the ticket of the United People’s Freedom Alliance (UPFA). Chandrasiri Gajadeera is the one who got elected. He is with the Joint Opposition of the Mahinda Rajapaksa faction of the UPFA. The CP endorsed the 20th Amendment. As such, Gajadeera is slated to raise his hand for it if it is put to vote in Parliament. It is seen as a blow to the Joint Opposition which is opposed to the 20th Amendment in general.   

It is learnt that Gajadeera was passionate about the move to abolish the executive presidency. He sounded as if it was his passion project. During a recent visit to Australia, he suffered a stroke.   

Referring to that moment when he fell ill, he said, “I was worried that I would not be able to vote for the 20th Amendment.”   

When the JVP is likely to gain one member from the Joint Opposition, it is likely to lose one from the Government. That is because Megapolis and Western Development Minister Patali Champika Ranawaka spoke against the 20th Amendment saying it would destabilise the country if enacted.

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