Forex crisis, many platforms and solutions
The debate on economic recovery centered on the Foreign Reserves of the country is heavily patronised by business magnates and economists. Politicos of all sorts too are offering their expedients and fantasias as they please to come into the fray with others to portray their identity.
In the meantime a few astute people with a history of talent and experience are expressing their views unbiasedly adding their share to the blah-blah. We the onlookers behold the ongoing play on stage,with new scenes unfolding each time the curtain rises,filled with anxiety.
The solutions offered by some make us recall the time of ‘Dhammika Peniyas’ ,‘charmed pot throwers’ and those advocating myth and fancy as panaceas, during the height of Covid-19 pandemic.
The WHO and the medical experts were seriously engaged in inventing a vaccine while recommending measures painful but necessary to prevent the spread. Today,fortunately,we have a sigh of relief amidst several conjectures still running riot against, about the achievements gained delivering solace and consolation to the human race eventually. All this indicates the value of invaluable patience and the endurance displayed by the people in facing the events surrounded by the highly ill-conceived advice and opinions of quacks. People appear to be well tuned now to face the calamities now before them in the same spirit despite the storms in tea cups and the crocodiles in the kitchen clay pots often shown by those with ulterior motives.
I went through some of the views expressed,about the current economic situation of the country, which received the highest publicity in the economic circles and the media recently. Astonishing, how strange some of these sound, nevertheless, tend to make many believe that “defaulting’’ the loan repayments instead of settling the dues are the only steps we can now take under these desperate circumstances as made out by them.
Some of the experts have gone to the extent of even listing out examples of countries refusing to pay the debts (in this instance, sovereign obligations). We cannot deny these happenings but should we also jump into a well where many were forced to jump in, due to situations of illiquidity, insolvency and other uncontrollable situations such as social uprisings. We have to look at this more carefully without getting carried by emotional factors.
What is Sovereign Default?
Sovereign default refers to the failure of the government of a sovereign entity to pay back principal and interest payments when they are due. The failure to repay debts owed to creditors may be accompanied by a government’s formal declaration that it will not pay owed debts, or it may sometimes occur without any formal declaration.
In this setup let us now take a look at what the “top economists” have to say – “repaying the full value of the bond would provide a windfall gain to those currently holding these bonds”
We are at a loss to understand why the investors, whoever they are, should not benefit from their investments. As long as the government does not incur any payments beyond the contracted values promised to the investors such a step cannot be justifiably considered as a case of favouring or privileging a party discriminately.
This exercise of repaying the bond value to the holders of course is in extreme contrast to what happened in the CBSL bond scam involving the ex-Governor Mahendran, now in exile, diligently and strenuously defended by the then Prime Minister.
We did not, however, see many of those current day critics coming forward to denounce that despicable act then, despite the fact that the serious adverse repercussions were to run into several decades.
Instead we saw how some of these critics argued and attempted to sabotage the proceedings to defend the scandalous operation during the COPE investigation stage.
The top notch guys appear to have forgotten the possibility of some original purchasers of the ISBs still holding on to their investments awaiting normal maturity payments.
If we pay these without a default the very same investors may be influenced to re-invest in the future programs more confidently to benefit by their own speculatory activities which is their business. On the other hand if we default what will be the possible consequences? None of the economic advisers advocating a default of payments have addressed this issue.
“…at a great cost to the people who will face shortages of their essentials like food, medicine and fuel”
A highly humanitarian consideration more than the economics involved in it. It is the primary duty of the government subject to limitations, to ensure an uninterrupted supply of the essentials to the public. We are not, according to our belief, that badly deprived of humanitarian support forthcoming from the rest of the world if a need arises to seek even in SOS for such help. Such a move for humanitarian assistance in the most unlikely event such a need arises, will be much better morally and ethically than to default on a promise.
Talking about food riots and social eruptions cannot be considered as healthy contributions. We can only presume that it is an unwarranted fear expressed by sectors normally not so interested in such areas, presented to rationalise their stand. Sometimes creditable motives are attributed to uncredible ones. But such statements could very well help to instigate civil unrest and commotions.
Therefore, within the realm of a demanding responsibility to be responsible and focused on the right issues specially during a critical period, such statements and actions could be construed as veiled attempts to indoctrinate eruptions.
How realistic it is to say, “No forex to import basic foods. No funds for essential drugs and medicines. Power cuts are imminent with the CEB facing fuel shortages. Airlines and shipping lines will bypass Sri Lanka because of forex issues…..”.
We all know these same things can be presented in more hard hitting terms provoking the minds of people specially the worst affected masses. The solution offered by such soothsayers is “not to pay USD 500 m. debt maturing next week or USD bond due in June 2022.”
Monthly import bill
According to normal requirements as assessed we need a minimum of approximately 1.5 bn USD to meet our normal monthly import bill for our essential needs. This immediately poses a big question as to how we are going to sustain such a requirement. We cannot forget the ongoing discussions the government has initiated with other countries to solicit assistance towards such needs.
The real economic crisis we are facing is centered around factors very much beyond our control.The immediate necessity of supplying essentials to a “starving population” as is made out is an exaggeration in callous disregard of reality.
If we can take adequate measures to improve our foreign remittances and supplement our income from sources such as services and tourism, we can…
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