{"id":110274,"date":"2020-12-31T17:55:48","date_gmt":"2021-01-01T00:55:48","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=110274"},"modified":"2020-12-31T17:55:48","modified_gmt":"2021-01-01T00:55:48","slug":"the-economic-policymakers-must-aim-to-build-a-high-volume-of-foreign-reserves-part-one-2","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2020\/12\/31\/the-economic-policymakers-must-aim-to-build-a-high-volume-of-foreign-reserves-part-one-2\/","title":{"rendered":"THE ECONOMIC POLICYMAKERS MUST AIM TO BUILD A HIGH VOLUME OF FOREIGN RESERVES- PART ONE"},"content":{"rendered":"

BY EDWARD THEOPHILUS<\/em><\/span><\/h2>\n\n\n

A major reason for the economic\ndownturn of Sri Lanka could be considered as the variation of foreign exchange\nreserves, and no government since 1948 has been explained the issue to the\npublic, despite the policymakers widely talking about foreign exchange earnings\nand shortages. The public in Sri Lanka has no understanding of why the country\nneeds a stable volume of foreign reserves, and what are issues associated with\nthe up and down variation of foreign reserves of the country. The public needs\nto educate and motivate to encourage to make a voice to increase foreign\nreserves. No government or opposition politicians in the country have talked\nabout this issue during the election campaign and motivated the public to\nmonitor the level of foreign reserves and pressure politicians to stress on\nmaintaining the required level of reserves, and implement related policy\nactions.<\/p>\n\n\n\n

People have no idea what is the\nvolume of foreign reserves in the country and what level of reserves need to\nmaintain, and the nature and causes of variation of the volume compared to many\ncountries. Sri Lanka needs to maintain a minimum of US dollar 25 billion of stable\nreserves, and after the independence in 1948, no government\u2019s economic policy\nhas been able to achieve required the level. It is regret to note that since\n1948, during the 73 years, Sri Lanka could not build $25 billion foreign\nreserves, and why such a regrettable economic policy has been allowed to\nwork.  Since the early 1990s, many\ncountries like India. China, Australia have massively built a high volume of\nforeign reserves, and the economic policy of those countries focused on\nbuilding and maintaining the level of foreign reserves in the dynamic economic\nenvironment. What were the contributing factors for the up and down variation\nof foreign reserves in Sri Lanka? The bottom line was the government did not\nget firm economic advice on this matter, and many economic advisors attempted\nto gain advantages for self-benefits than providing clear advice to improve the\nvolume of foreign reserves. The behavior and the nature of economic advisors\nwere to praise politicians and not to advise what really should do to achieve\nthe target of foreign reserves.   <\/p>\n\n\n\n

The direct impact of changing foreign\nreserve level has been the decline of the value of Sri Lanka rupee (foreign and\ndomestic value) that has been the major effectuate of problems. When\nestablished the Central Bank of Sri Lanka, two majors were set to stabilize\ndomestic and foreign values of the monetary unit, and the aims have been\neducating university students, and practically governments did not specifically\ndirect policy to achieve the aim. Many textbook authors attempted to show that\nachieving the objective has been a compact task, like going to heaven. The\ngovernment had no plan to strictly monitor the usage of foreign exchange with\nconcrete economic activities with a plan to maintain reserve level and it\nseemed that the government irrationally allowed to use foreign exchange for\neconomically disadvantaged activities rather than promoting the saving of\nforeign exchange. <\/p>\n\n\n\n

The borrowings must have focused to\nachieve and maintain the reserve base and explain to the lenders the government\nobjectives as the debt service activities concussion with all economic\nactivities. The nature of borrowing has been based on the ability to repayment\nand although it has been a good focus, the borrowing should have not been affected\nby the foreign reserves level in the debt service process.  Since the 1950s, economic policymakers have\nnot been concerned on this point, and if they have considered while protecting\nthe level of reserves and borrowing managed to protect and increase the level\nof reserves Sri Lanka could have faced economic down downturns with a higher\nvalue of the monetary unit.  <\/p>\n\n\n\n

China has US $3 trillion foreign\nreserves that are the highest in the world, despite becoming an enemy country\nwith China, Taiwan has more foreign reserves than the USA, UK, Canada, Germany,\nand other developed countries. The size and the population of Taiwan are\ncongruous to Sri Lanka.  Why did Sri\nLanka cannot achieve a minimum required level of US $25 Billion reserves during\nthe past seventy years? Politicians in the country have no understanding of the\nproblem, and they don\u2019t motivate people to work achieving the basic target of\nUS$25 billion.  Under the financial\nadministration of the Currency Board System in Sri Lanka had been accomplished\na stable foreign reserve level. If the government ruled the requirement, people\nwould have a concern on the matter of variance, and politicians in the country\nwould have educated people without party politics in any government would have\nmonitored the requirement, and politicians scared to educate people with a fear\nthat the public will judge the government’s performance using the benchmark of\nforeign reserves. <\/p>\n\n\n\n

The lower foreign reserve has been a\nroot cause for economic problems such as lower foreign value for Sri Lanka\nrupee, high cost of imports, an increase in debt service, slower growth of\nforeign investment, and many other issues. The balance of foreign reserves\ndepends on the demand and supply of foreign exchange. When there is a trend of\na strong inward volume of foreign exchange and a lessor trend of an outgoing\ngoing foreign exchange volume, it will be a positive trend for an increase in\nforeign reserves, and in such a situation the government can allow liberal\nimport policy. When it critically tests the trend of foreign reserve variation,\neconomic policymakers have not maintained an essential reserve level as a\nbenchmark, and the quantum of foreign exchange reserves would be helpful to\ncounter the adverse impact of many economic problems. <\/p>\n\n\n\n

Many economists regard that the\nliberal economic policy introduced in 1978  \nhas been a contributory factor for the adverse variation of foreign\nreserve level. During this period, the import of war-related weapons and other\nmaterials and import policy of the country attempted to liberally allow\nincoming goods and services without discipline. Although Sri Lanka\u2019s trade\npolicy should be managed to consist of WTO agreement Sri Lanka would have\nconsidered that the country shouldn\u2019t be allowed to unnecessary imports\nbetraying the import substitution and building a production economy.  <\/p>\n\n\n\n

International Monetary Fund was\nestablished by Briton Wood Agreement purposed to support member countries to\nmaintain the required level of foreign reserves and the fund has implemented a\nrange of credit schemes such as Standby Credits, Special Drawing Rights and\nproviding supports for economic downturns such as the COVID-19 crisis. If it\ndeeply analyses the IMF credit policy encouraged developing countries to import\nfrom developed countries rather than helping to build foreign exchange reserves\nin developing countries.  The operational\npattern of IMF regarding Sri Lanka best speaks that IMF either played politics\nor disregarded the extending supports to Sri Lanka to increase and maintain a\ngood foreign reserve level. There was evidence that the IMF helped for foreign\nreserves, despite many supports the IMF indirectly encouraged imports from\ndeveloped countries.<\/p>\n\n\n\n

After the presidential election in\n2015, the government of Sri Lanka desired massive supports to build the foreign\nreserves of the country, however, practically IMF did not consider the required\nlevel of supports, and this reason was the root cause of the unpopularity of\nthe Yahapalana regime. However, the IMF policy towards China and India was\ncontrasting, and Sri Lanka was not supported as the way expected, and some\nconditions imposed when granting supports to Sri Lanka were a consolation to\ndecline the level of foreign reserves and did the responsible policymakers\nexplain the truth to the IMF authority is unknown and the government did not\nmake any statement.<\/p>\n","protected":false},"excerpt":{"rendered":"

BY EDWARD THEOPHILUS A major reason for the economic downturn of Sri Lanka could be considered as the variation of foreign exchange reserves, and no government since 1948 has been explained the issue to the public, despite the policymakers widely talking about foreign exchange earnings and shortages. The public in Sri Lanka has no understanding […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[124],"tags":[],"class_list":["post-110274","post","type-post","status-publish","format-standard","hentry","category-edward-theophilus"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/110274","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/comments?post=110274"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/110274\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=110274"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=110274"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=110274"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}