The media and politicians in the opposition are making a big fuss over the depreciation of the Sri Lankan rupee against the US dollar these days. Almost every day we read news items headlined “Rupee hits all-time low” or “Rupee hits record low.” Now the rate against the dollar is almost Rs.160.
Although this is not an exaggeration or distortion of facts, and also points to the gravity of the economic situation in the country, it is never an unprecedented situation as the politicians in the opposition attempt to portray. The rupee has been depreciating continually and almost regularly since it was allowed to float against the US dollar some 40 years ago. Previously, we had the exchange rate control system which did not show the real depreciation of the rupee on a regular basis. On the eve of the rupee being allowed to float by President J.R. Jayewardene’s government in 1980 with the introduction of the open economy, the rupee stood at Rs.8 against the dollar and with the decision to allow the Sri Lankan currency to float, the dollar right away shot up steeply to Rs.16.
Since then, irrespective of which political party governed the country, the rupee had depreciated reaching the current rate. There had been slight fluctuations in some years during these nearly 40 years, but they did not disturb the general trend of depreciation. Therefore, with increase of the price of the dollar by each rupee, it was a situation where “Rupee hits all-time low” or “Rupee hits record low” and the opposition of the day made a big hue and cry as if it had never happened.
The depreciation had been a huge issue among the opposition ranks when the rate hit Rs.50, Rs.100 and Rs.150. Again, they would make an uproar in the near future when it reaches Rs.200. One can recall when the dollar rose to Rs.100 in 2004 (during President Chandrika Kumaratunga’s tenure), the United National Party (UNP), the then main opposition party making a similar outcry.
Whenever depreciation of the local currency came to the fore, governments of the day had been used to say it would help exports or tourism, which has been historically disproved. In fact, it is the exports that can stop or slow down the depreciation of the local currency, leave alone seeing an appreciation of it and not the other way around. Because exports rely on so many other important factors such as tax concessions and room for expansion of production. On the other hand, every time the rate goes up, politicians in the opposition accuse the government of increasing import expenditure. These arguments are, in a way, dogmatic and unrealistic. Neither group wants to see the issue in its real context and find solutions to it; rather than politicizing the rupee depreciation.
For more than one and a half centuries before 1978, Sri Lanka has been maintaining a plantation-based economy which in its initial decades grew rapidly and later remained stagnant. Accordingly, the development which in its real sense is generation of employment and income too remained stagnant. The economy somewhat diversified with the Mahaweli Development Projects and the open economy which was kicked off with the establishment of free trade zones during J.R. Jayewardene regime. They were indeed positive steps in terms of income generation and employment generation.
Henceforth, we did not see any factories coming up or any other development projects that can considerably generate employment and income materializing. Occasionally, we hear experts pointing out that only an export-driven economy can stabilize the rupee, but it always fell on deaf ears of those concerned.
The Yahapalanaya Government boasted it would attract foreign investments and increase exports which would be facilitated by the free trade agreements with various countries and ultimately create one million job opportunities in five years. The government’s failure in seeing the realization of that scheme resulted in its humiliating defeat at the February 10 local government elections. Yet, the government has to look at the issue afresh and find ways to minimize the effects of the rupee depreciation since it is solely the responsibility of the government.