Ranil says only alternative for SL is to go to IMF

Sri Lanka
By Editor_1
0

COLOMBO – Sri Lanka’s ex-prime minister Ranil Wickremesinghe who entered Parliament on Wednesday (23) as a National List MP, after his party was reduced to a single seat in the last elections said the government should go to the International Monetary Fund (IMF) or come up with an alternative plan.

“I do not know about other people but I feel the only alternative is to go to the IMF,” Wickremesinghe said in his first speech after his party stayed out of Parliament for months after the elections,  and he entered the assembly despite losing his seat in the Colombo district.

“If you are not agreeable, tell us what the alternative is. Without an alternative there is no point in sprouting statistics,” he said

His speech came shortly after Trade Minister Bandula Gunewardene brought a Rs 200 billion supplementary estimate that will increase state spending by 1.2% and the deficit by a similar amount unless asset sales bring revenues.

He said farmers were in a crisis in fertilizer and there was also a fuel crisis.

Sri Lanka’s soft or impossible peg had depreciated to 200 to the US dollar since Wickremesinghe left office with the peg at 182.50 levels under the fiscal and monetary stimulus.

During Wickremesinghe’s tenure, the currency collapsed from Rs 131 to Rs 182 to the US dollar in two separate currency crises as money was printed in a Keynesian stimulus despite having a pegged exchange rate regime.

“In 2015, when we built the government, there was a collapse in aggregate demand,” he claimed in March 2016, though private credit was rocketing in 2015.

“In that situation in April we raised (State worker) pensioners’ payments by Rs 1000, we raised State workers’ salaries and private sector salaries were raised.

“In this way, we put more money in the hands of consumers to increase aggregate demand,” he said adding, “But I would like to say we would not go to a situation where aggregate demand will collapse again.”

Aggregate demand however collapsed twice during his time as rate cuts and liquidity injections to target an output gap (so-called ‘go’ policies) pushed the rupee over the edge and corrective policies were made (stop policies).

State Minister for Money and Capital Markets Nivard Cabraal said the opposition wanted the government to go to IMF so that it could score political points.

Wickremesinghe entered into a US$ 1.5 billion IMF program, which was aborted after US$ 1.3 billion was disbursed, as program targets fell short and the government also changed.

When Cabraal was Governor of Central Bank, the agency went to the IMF, though money printing mid-way pushed the currency down to Rs 131 to the US dollar. However, the program was concluded, in a rare occurrence for Sri Lanka.

In 2015 he collapsed the currency as domestic credit recovered fast from an earlier impossible peg crisis in 2012/2013 when the rupee fell from around 113 to 131 to the US dollar.

The IMF program itself had contradictory anchors including a ‘flexible exchange rate’ or discretionary external anchor and a flexible inflation targeting, which is a discretionary domestic anchor.

Sri Lanka’s Central Bank, a top client of the IMF, has failed to end contradictory policies involving the impossible or non-credible peg. Such central banks become recidivists or repeat clients of the IMF.

Analysts have called for reform of the open market operations of the Central Bank to prevent frequent trips to the IMF.

However, Sri Lanka is now in deeper trouble as the country has been locked out of capital markets, and the crisis cannot be solved with a rate hike.

-economynext.com

 

Editor_1
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