Liberal capitalism and currency depreciation
Posted on October 8th, 2018

JANAKI CHANDRARATNA

It is heartening to note that the government is paying serious attention to the rapid depreciation of the rupee and the deterioration of the economy. We are being told that the import of luxury cars and other luxury items will be suspended for a short period of six months to improve foreign exchange reserves. Financial analysts have already questioned the success of this strategy as they claim the current foreign exchange reserve amounting to USD 8000 million, including Chinese loans to the tune of USD 1000 million will not be sufficient to meet the outstanding payment commitments. The loan repayment for 2019 is estimated to be USD 4000 million and the import expenditure for the first six months of 2018 alone was at USD 11,400 million. Needless to say the free trade agreements with Singapore and India are likely to further exacerbate the situation.

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The yahapalana government is responsible for the country’s current predicament. The liberal capitalist economy was in full force for politicians and the rich to get richer for about three years. The government went all out to import the best vehicles and enabled its leaders and their kith and kin to go on foreign junkets. Even those in the Provincial Councils followed suit. They have been doing so at the expense of the country’s foreign exchange reserves, which are replenished for the most part by the Sri Lankan workers in West Asia.

The government appeared to be unaware of the disadvantages of liberal capitalism for a country like ours. No country in the world that cares for its future generations would adopt unrestricted liberal capitalism. One of the most damaging outcomes of the market economy in recent times, in Sri Lanka, is the impact it has had on the agricultural sector, in general and on food production in particular. In fact, the production of rice, our staple food, has been neglected. Farmers are not provided with the required fertilizer in a timely manner. Instead, they are asked to diversify crops and grow potatoes..

Food security is of paramount importance to most of the developed nations in the world, and they are focused on safeguarding the agriculture sector. Generally, farmers are subsidized and encouraged to increase production for local and export markets. Australia and the US are good examples. The agriculture sector in these countries not only adds to foreign exchange reserves, but also assures a steady food supply in times of world recessions. Our yahapalana leaders ruined our paddy stocks by storing it in unsuitable environments such as at the Mattala airport.

The yahapalana government is lucky that the previous regime developed infrastructure. But the country has not progressed on the intended path of development. The increase in foreign reserves was mainly through added loans. The government was imprudent in halting investment projects of the previous regime without assessing the future consequences. The cancellation of the Sri Lankan Airlines aircraft purchases incurred a significant foreign exchange loss to the already down trodden economy.

The government keeps blaiming the previous regime for the borrowings for infrastructure development. It now holds American President Donald Trump responsible for the depreciation of the rupee. It is true the surge in the American dollar affected a number of countries, but most of them have sufficient reserves to address currency fluctuations. What we have in Sri Lanka, in part, are the evils of an unbalanced market economy under the yahapalana regime. It is well known that unrestricted market economies can lead to an increase in the gap between the rich and the poor, unbalanced economies, lack of investments, sale of assets, depreciation of currencies, increased taxes, and increased loans to sustain imports.

Stressed economies also are often pressured to create tax havens and encourage money laundering activities. Without investors to boost export earnings, the government may have to take further restrictive measures for much longer period than mere six months.

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