By Shivanthi Ranasinghe Courtesy Ceylon Today

President Gotabaya Rajapaksa’s special address to the Nation on 16 March lacked luster, character and much needed answers. This is a curiosity in itself as he is an articulate man with the unique knack of explaining complex issues in simple terms that makes logical sense to the intellectual, the not so educated and all in-between. Both President and his advisors must make note of this speech that could not uphold the President’s image. Instead, this directly fed into the narrative propagated by the Vasu-Udaya-Wimal led rebel team that President is now a hostage of an ugly American. 

President’s speech writers would have had at least three days to work on this speech. It was a crucial speech, considering the country’s prevailing situation. Without understanding this responsibility, the speech was a sloppy piece with the extracts of previous speeches cut and pasted onto it. 

Who is responsible for our economic crisis?

In previous speeches, too, President had noted that the country’s economic crisis was not of his creation. At that time, all could agree with this assertion. No one can ignore the deliberate attempts of economic sabotage by the Yahapalana Government. 

It was during the Yahapalana Government’s tenure that the Central Bank bond scams took place. This immediately shot up the interest rates from single digits to double digits. By politicising foreign direct investments, especially the Chinese projects, we failed to attract any significant investment into the country. This directly affected the construction industry. 

Instead of turning strategic assets into profitable ventures, the Yahapalana Government sought to privatise it to foreign agents in the guise of debt to equity swap. This is how we lost the control of the Hambantota Port. 

When it became obvious the Yahapalana Government’s days were numbered, a binge on foreign loans took place. In the five years the Yahapalana Government was in power international sovereign bonds to the value of USD 12 billion were released. When the Yahapalana Government left office, nearly half a million lost their livelihoods and the growth rate fell from a robust 7.4 per cent to 2.1 per cent. 

However, after nearly two and half years of governing the country, this statement that this crisis was not created by President Gotabaya is neither relevant nor acceptable. A year ago, almost all of our few revenue avenues for FOREX were at a standstill. The country was virtually without an income. Our expenses to face the pandemic in the form of quarantine centres, medicines, testing kits, vaccines, relief packages and etcetera increased. Still, this Government faced this challenge with fortitude and success. Today, however, our traditional forex revenues are slowly but surely reviving. That credit of normalising life amidst a pandemic that had other countries locked up must go to the Gotabaya Administration. 

Yet, the burning question is not the amount of dollars we are earning or spending. Throughout the pandemic, despite the loss of our income but increase in expenses to face the pandemics, we continued to enjoy imported luxuries as the full range of food products and an endless list of other items. A number of new enterprises also popped up with only imported chocolates and confectioneries. 

Exporters exploitation

At the same time, however, we were struggling to raise funds for essential items as gas and fuel. Even secondary school term exams are currently affected for want of paper to print question papers. The real problem is not with the US dollars (USD) coming into the country, but lack of circulation charges the business community. It has been alleged that when the Government was fiercely protecting the Sri Lankan rupee (LKR), without letting it exceed beyond Rs 200-203 per USD, certain exporters began to hoard the USD. 

The usual practice of these exporters was to bring their earnings directly into the country. They would retain only the USD portion needed to import raw materials and convert the balance into LKR, which would be used to pay their salaries and other expenses. When the country entered this crisis of losing its income due to the pandemic, the present Government was faced with the enormous challenge of maintaining cost of living at reasonable levels whilst still serving the foreign debts that were maturing in quick succession. This compelled the administration to stabilise the LKR artificially. 

It appears that some of our exporters chose to shamelessly exploit this situation. Hence, instead of bringing in their income as they did, they began to do so at staggered stages with just enough to open Letters of Credit (LoC) for imports. Consequently, banks began to run out of their USD reserves. This severely affected all manufacturers who rely on imported raw materials. The banks did not have sufficient funds to open LoC for them. 

To sustain production lines, these entrepreneurs were forced to turn to those opportunistic exporters. They began to open LoCs for these hapless factory owners, but at exorbitant exchange rates, which sometimes exceeded Rs 270/USD, states the business community. This is of course paid in LKR. Even after paying their salaries and other expenses that are met in LKR, these selfish entrepreneurs thereby earn huge profit margins. 

According to the subject experts, this blooming black market could be easily stopped with two simple regulations. 

1. A company should be restricted to opening LoC that meets the objectives in their company Memorandum of Articles. 

2. All exporters should be compelled to show records of their earnings against the LoCs opened on behalf of them during the past 12 months. 

This would force those exploiters to bring in their earnings into the system as they always did, which then would circulate within the country. Then, the Government would have enough USD to prioritise imports into the country. 

Without these two regulations, the affected business community is not confident that just floating the LKR to the mercy of market currents alone would resolve the current crisis. They fear that by allowing the black market to thrive unabated, the USD still would not come into circulation within the country. Instead they worry that the USD rate they are now forced to pay off the grid in the black market would increase exponentially. 

Go-between bankers 

Corruption is breeding corruption observes the business community. Certain bank managers in both the private and State sector are now acting as go-betweens, finding the best prices the dollars are trading offline and offering it to desperate entrepreneurs at a fee of around Rs 3/USD. For them, this is fast becoming a very lucrative side income, allege the victimised business community. 

The recent report that the Government is unable to find USD 42 million to release a vessel docked in Colombo Port for the past six days justifies this claim by the business community. It carries 20,000 metric tons of diesel and jet fuel respectively. For each day, we delay releasing the vessel we must pay USD 19,000 as demurrage. Even though the Central Bank instructed the Ministry of Energy to obtain the necessary money from private banks, the banks too are without sufficient funds to give the Ministry. This further justified the business community’s assertion that floating the LKR alone would not resolve the issue. 

They are truly stumped as to the reluctance on the part of the Government to bring in these two regulations. Many suspect that some of the highest officials in the finance ministry must be also benefitting from this under the table transactions – just as those bank managers, alleged for taking a cut” for their ‘services’.  

Those with a political eye may interpret this reluctance as a deliberate attempt to sabotage the economy. After all, this phenomenon does nicely fit into the Vasu-Udaya-Wimal led rebel team’s accusations against the incumbent Finance Minister Basil Rajapaksa. 

The fact is that the Government is unable to raise this USD 42 million even after the LKR was allowed to float on its own accord. This move to allow the LKR to float is also highly questionable. Just two days before at a press conference held at the Central Bank, it was communicated to the media that the Central Bank’s view was that the LKR would continue to be protected. President Gotabaya, in his speech, should have explained the reasons that compelled the Government to change the Central Bank’s stance within just two days. 

False report

Failing to do so had already led to some unsavory speculations. This included the absolute false report the Central Bank Governor had been asked to step down. Finally, the Presidential Secretariat issued a statement denying such a pronouncement. 

This alone is insufficient when there is a graver charge that the Finance Minister is acting willfully against the interest of the country. According to an interview given by former Cabinet Minister Wimal Weerawansa, Governor Cabraal is in Basil Rajapaksa’s ‘negative’ list, meaning the Governor Cabraal is not working in the same ‘ugly American” agenda that is allegedly spearheaded by the Finance Minister. 

The manner and timing of the LKR’s floating too has been subjected to much criticism. As soon as the controls were taken off, the LKR almost spiraled out of control. It is currently at Rs 277/USD, but is feared to fall much more. It is speculated that the fall of the LKR might exceed even Rs 300/USD. 

One financial analyst equated the sudden release of the LKR to a rubber ball that has been forcefully held underwater. When the ball is released, it would shoot straight up, noted the analyst. That is exactly what is happening right now, he observes.  Instead, he feels the Government should have allowed the LKR to float much earlier, but in a more controlled fashion. 

Former Central Bank deputy Governor Dr WA Wijewardena too alleged that the timing of the LKR was unnecessarily delayed. He of course advocates that we seek the IMF’s assistance immediately. This was not Governor Cabraal’s stance. 

Speaking of the USD crisis in July 2021, Governor Cabraal (who was the then State Minister of Finance, Capital Markets and State Reforms) stated his reservations regarding the IMF assistance. We will find other alternatives rather than going to the IMF because the IMF requires us to follow conditions that are more related to our sovereignty than the economic conditions of the country.”

The whole objective of the President’s speech was to announce to the country his decision to work with the IMF. Again, the lack of explanations as to the change in stance feeds the Vasu-Udaya-Wimal led rebel team’s narration. 

Either way, the current economic woes can no longer be put only into the account of the Yahapalana Government or its predecessors. It is a moot point at this stage as to who created this mess. The more pressing question is how is this being managed. The present administration’s management is under fire. President’s failure to explain the real situation, including the 360 degree turn on decisions taken almost overnight, was a huge lacuna in his speech. 

Skirting around issues is not the President’s style. Therefore, it is a matter of intense curiosity that a man as meticulous and particular as President Gotabaya should have consented to deliver this speech that does not reflect his character. Without addressing these key issues that has directly led to the public’s harassment in the form of shortages of essentials, long queues and uncontrolled rising cost of living, simply noting that the President is aware and sensitive to the people’s suffering comes across as mere perfunctory statements.