Sri lanka Scrambling for Dollars!
Posted on January 27th, 2023

By Garvin Karunaratne

We are begging everyone for dollars today. Even the power cuts may be increased if we do not find dollars. We may even not have dollars to get our food supplies and medicines!

It may surprise many to know how we are somehow not collecting the dollars we can legitimately collect without having to beg from outside sources.

For some years now in my Papers and books I have been quoting how we do not collect the dollars we are entitled to.

Let my quote from my book: How the IMF’s Structural Adjustment Destroyed Sri Lanka (Godages:2022):

It is absolutely necessary that we collect every dollar that comes in. Sadly now we do not control the dollars that come in. The foreign exchange that comes in is in charge of the banks and the private money changers to make a profit. They fix the exchange rates. This has been happening since 1978.

What did really happen in January 2001, reveals the stark fact that our country is not in charge of the dollars that come in. What did happen was as follows:

On 25-1-2001 when the two State banks- the Bank of Ceylon and the Peoples Bank did not have sufficient funds to pay a large oil bill and approached a private bank in Sri Lanka that had collected the incoming foreign exchange, that private commercial bank increased the price of a dollar to Rs 106 per $, when the current rate was $85. Our two banks were forced to buy the dollars at the higher rate

and this effectively devalued our rupee by over 15% immediately. Our Central Bank admitted that it controlled only the Rupee and not the incoming foreign currency”(The Island: 17/2/2001)

It is important to note that this is the situation even today, two decades later. The fact is that the banks and private money changers collect foreign currency that comes in and fix their own exchange rates. This has been happening even earlier as did happen to me when I ordered pounds from my account at Bank of Scotland in Edinburgh before 2001, to my NRFC at the Bank of Ceylon, to my amazement the dollars came to my NRFC account in rupees. The Bank of Ceylon said that that was how many foreign banks credited money. I had to have a bitter fight with the Standard Chartered Bank to get the money in dollars. The details are narrated in my book: How the IMF Ruined Sri Lanka & Alternative Programmes of Success at pages 98-100.

It is important to note that the Government can claim only the foreign exchange that is collected by the Bank of Ceylon and the Peoples Bank. When Cabral was the Governor of the Central Bank the Banks had to cede to the Government Central Bank 50% of their collection of foreign funds. When Nandalal Weerasinge took charge as the Governor he reduced this 50% to 25%, which means that the banks had 75% of their collection to be sold to the public. Go to any Super market and there are many food items which are not essential but have somehow been imported and we go begging for dollars. Before 1977, the Government through the Central Bank collected almost 100% of the collection of foreign exchange.

Once Mahatir Muhammed, the Prime Minister of Malaysia said that:

Any country at all which says it cannot control its banks and its banking system… they are not fit to be Governments and should either resign or be overthrown.”(Daily News: 1/2/1999)

In view of the present situation it may be necessary for the total collection of foreign exchange by banks as well as foreign money changers to be collected by the Government Central Bank. Before 1978 we had no private currency dealers.

One can also look into what happens when foreign investors come in. All foreign investors do bring in some foreign money at the initial stage but what is important is to look at the activities of the foreign investors and what benefit accrues to Sri Lanka.

Take a foreign investor who comes in to develop a hydro electicity scheme. He spends to build the scheme, and sells the electricity to people who will pay in the local currency but when the investor sends off his profits in dollars from our reserves the country is the net loser.

Take Macdonalds, Pizza Hut etc. They will bring some foreign funds at the initial stage but will use our reserves to import cartons etc, sell goods in local rupees but draw from our foreign reserves to repatriate their profit. Sri Lanka is the net loser.

Take tourism, we talk great about tourists increasing in numbers and their bringing in money. Most tourists come in after making hotel reservations via foreign booking agencies, where the booking agency inform the tourist to pay local Rupees to the hotel. However the booking agency sends an invoice of 15% to the hotelier who has to take it to a bank and it gets paid from Sri Lanka’s reserves. We are the net loser.

In own experience in my foreign travel in India, Thailand, Vietnam and every foreign country I have had to pay my hotel accomodation in dollars. We talk much about the influx of tourists, but I have seen with my own eyes foreign tourists who rent out a room in a home and cook for themselves, which means that they do not spend dollars.

We have to think and follow Myanmar. I went there twice. On both occasions we were admitted to the country only after we deposited dollars sufficient for the stay. The Myanmar officials did a calculation taking into account the days we stayed and the number of persons entering and insisted that we change the dollars we had in order to enter the country. We were issued with Chards and I could not spend all the Chards, even spending lavishly.

Take foreign companies that come in here to trade in the local Rupee. The country is the net loser in foreign exchange as they trade in rupees, calculate their profit in rupees but repatriate their profits in dollars from our reserves. We are the net loser.

Long ago- before Sri Lanka came under the rule of the IMF in 1978, when the USA sold flour to our countries under the PL 480 Law, we paid them in Rupees and not in dollars. It was upto the USA to find methods of using the Rupees.

Time for deep thinking.

Garvin Karunaratne, former SLAS, G.A.Matara. 25/01/2023

Author of:

Microenterprise Development:a Strategy for Poverty Alleviation & Employment Creation in the Third

World: The Way out of the World Bank & IMF Stranglehold, Sarasavi, 1997

How the IMF Ruined Sri Lanka and Alternative Programmes of Success, Godages, 2006

How the IMF Sabotaged Third World Development, Godages,2017

How the IMF’s Structural Adjustment Destroyed Sri Lanka, Godages, 2022

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