Ceylon Today Editorial

‘Demise’ of the rupee

21 December 2016

The exchange rate (ER) fell to its lowest ever value in its history yesterday, declining by six cents to Rs 151.30 to the US dollar according to Central Bank of Sri Lanka (CBSL) data, as foreign investors, mainly US based, continued to pull out their money from the government securities market (GSM), to re-park the same in US based assets, on expectations of rising interest rates in the world's largest economy.

As a result, the ER, in the three consecutive market days to yesterday, has, historically, registered its lowest ever values, with no end in sight to this carnage.

On Friday, 16 December 2016, the ER registered its third lowest value ever, a figure of Rs 151.23 to the dollar, on the following market day Monday (19 December), it fell by a further one cent to Rs 151.24 to the dollar and yesterday, by another six cents to Rs 151.30 to the dollar.

Pressure on the rupee to fall further has been exacerbated by panicky importers making premature bookings of dollars, thereby exerting additional downward pressure on the local currency.
The rupee's 'demise' this year may be divided into three stages.

The first, its natural depreciation caused by Sri Lanka's 'historical' negative trade balance which has been the case since 1978, that year being the first full year since the government opened up the economy in July 1977 due to the political changes that took place on the island's landscape, then, where it also embraced an open economy.

The second was the expectation that the Federal Reserve System (Fed) would raise its key policy rate, the Fed Funds Rate (FFR) this month after a year's hiatus due to the recovery of the world's largest economy, which effect also impacted on the rupee in the period 12 October to 8 November 2016, a short period of a total of 28 days.

This expectation became a reality when the Fed, after the conclusion of its open market committee (OMC) meeting on 14 December 2016, raised the FFR by 25 basis points (bps), for it to be between 50 bps to 75 bps, currently. This has resulted in foreign fund exits led by the financial market (GSM), to US based assets for 'better' returns.

And, lastly, the surprise polls victory of Donald Trump at the US Presidential Election of 8 November 2016. His pre-polls promises of protectionism, tax cuts and infrastructure spending are expected to cause further inflationary pressure on the world's largest economy, speeding up such exits, led by the GSM.

Rise in inflation is a further boost to the raising of rates. This expectation of rate hikes was complemented by the Fed, which after the end of its OMC meeting on 14 December also announced the possibility of a further three rate hikes, next year. That, on top of the rupee's natural depreciation, is causing additional downward pressure on the ER.

Meanwhile, the natural depreciation of the rupee in the current year took place from 1 January, 2016 to 12 October 2016, covering a period of 286 days (inclusive of weekends and other bank holidays), where the ER fell by a modest 1.8% (Rs 2.63) to Rs 148.81 to the dollar.

On top of its natural depreciation, the acceleration of its fall took place in the 28 days from 12 October to 8 November, 2016, due to expectations of the Fed's rate hike this month. In that brief period (i.e. comprising a tenth of the period that fell between 1 January 2016 to 12 October 2016), the ER sharply depreciated by 0.68% (Rs1.01) to Rs 149.82 to the dollar in that short time. Meanwhile, 8 November 2016 was the day of the advent of Trumpism, after the surprise triumph of Donald Trump, at the US Presidential Election, who trumped the more favoured Ms. Hillary Clinton by his 'racist' policies.

Trumpism coupled with the rupee's natural depreciation plus expectations of Fed's upward rate moves saw the ER in the 42-day period from 8 November to yesterday, falling steeply by 0.99% (Rs 1.48) to Rs 151.30 to the dollar. The culmination of all of these external actions in the calendar year to date has had resulted the ER depreciating by a massive Rs 5.12 (3.5%) to Rs 151.30 to the dollar.

As Sri Lanka is an import dependent economy, such sharp depreciations cause inflationary pressure on the economy. Further, as Sri Lanka's foreign debt servicing bill is generally met from CBSL's foreign reserves (after buying those necessary dollars by paying the equivalent in rupees), a depreciated ER increases the Government of Sri Lanka's rupee borrowing costs, while at the same time causing upward pressure on interest rates.

What, therefore, needs to be done to boost the ER is by making the economic, political and social climate suitable to boost exports and the export of a higher level of skilled labour, coupled with the establishment of good governance, justice and fairplay.

The values of the respective ERs are, as per their average selling prices in dollar terms among commercial banks in Colombo for telegraphic transfer as at 9:30 a.m. on those particular days in question, which are in effect the average selling price of the dollar to the consumer (real economy).

Daily News Editorial

Chamal’s mea culpa

20 December 2016

Former Speaker Chamal Rajapaksa made a sort of mea culpa on behalf of his brother Mahinda to the public the other day. Speaking at a meeting in Hambantota, the Rajapaksa home turf, Chamal, the more temperate of the Rajapaksa siblings in politics said his Presidential brother courted his own downfall by not taking action against those in his inner circle, whose doings turned the public against the government and particularly the President.

There was enough and more, not only attributable to MR’s inner circle, but also the lesser mortals in the former President’s good books, that would have caused the ex Speaker to raise more than a casual eyebrow.

Surely, as a former police officer, Chamal would not have condoned certain actions of his younger sibling that went against the grain of the law. He certainly would have baulked at the move by his brother to order the Attorney General to let cases against certain UNP politicians, one of whom charged for rape, withdrawn, in order to win over their support. By the same token the former Speaker would certainly have not condoned his brother’s decision to order the outstanding loans of the self same UNP politicians written off or rescheduled, for the same purpose. He certainly would not have gone along with his brother’s indulgence of his progeny to the extent that one of them gave direct orders to the Heads of State Banks to grant loans to his friends outside the laid down procedure, nor the free run he had with regard to the National Carrier, being the sole authority on recruitment.

The policeman in Chamal Rajapaksa would have rebelled, within, against the inaction by his Presidential brother to allow the kind of unlawful acts committed by maverick politician Mervyn Silva to go unpunished. There were many of the latter’s deeds that would have evoked the wrath of the law abiding citizens of the country, such as the storming of the state owned Rupavahini Corporation, accompanied by goons, to manhandle the programmes’ manager for failing to air a speech of his (Mervyn’s) that personally vilified a prominent Opposition politician. (Not stopping at that Mervyn also got his goons to razor slash certain SLRC employees while they were travelling in buses, as revenge for meting out the treatment he was subjected to at the hands of the employees). Chamal would also have been a mere bystander when the self same Mervyn Silva got a Samurdhi official tied to a tree and made the latter to confess that the deed was carried out on his own volition.

Mervyn, as Chamal was well aware then, was a protected species, owing his rise in politics, and also station in life, to the Rajapaksas. But the biggest blot on Chamal’s conscience, as a former police officer, no doubt would have been his brother’s unforgivable act of granting a pardon to the female spouse of a minister, who was on death row, for the murder of the mistress of her husband. It was ironic indeed that this minister was the first among the Blues to dump Rajapaksa and pledge his loyalties to the Yahapalanaya camp, with the former President’s defeat on January 8.

Chamal’s reasons for coming out with his mea culpa no doubt would have also been prompted by the long line of members of the inner circle of Mahinda Rajapaksa who are today being paraded, almost on a daily basis, before the numerous anti graft commissions. It is gratifying, nevertheless, to note that it took a Rajapaksa, no less, to put his finger at one of the chief spots where the former President erred and erred fatally.

GR follows MR

It was former President Mahinda Rajapaksa who began it all in Malaysia. Addressing a group of Sri Lankans there, at an event that resembled a public rally, Rajapaksa went onto bad mouth the Yahapalanaya government. On that occasion this column raised the question if the Sri Lanka government would permit Sonia Gandhi to come to Sri Lanka erect a stage in the Capital and lambaste Narendra Modi. We also questioned why the Sri Lankan authorities had permitted such a breach of protocol to be allowed by a friendly government.

Now we have former Defence Secretary Gotabhaya Rajapaksa addressing so called Rajapaksa supporters in Japan, and true to form, taking to task the Sri Lankan government for a multitude of ills to beset the country. What is the status of Gotabhaya to make such remarks against the legally elected government of this country. True, we have had Opposition Leaders of the Maldives coming to Sri Lanka to hold press conferences against their governments. But what we have here is election style rallies in friendly countries of Sri Lanka. And to add insult to injury there was also a famous Buddhist monk based in Japan, well known for receiving the patronage of governments of all hues, doing the honours by hoisting the National Flag at the event in Japan. What action will the authorities take in putting a halt to these stunts that harm the government’s image abroad?

Daily News Editorial

National Policy on three wheelers

21 December 2016

Nearly 40 years after three wheelers were allowed into the country in a monumentally wrong decision, Sri Lanka is finally getting a National Policy to regulate the tuk-tuk service. One just has to compare the traffic situations of countries that did not allow three wheelers to come in (Singapore, Malaysia) and countries that did allow them (Sri Lanka, India and Thailand) to comprehend the adverse effect of three wheelers on the traffic and road users.

With more than 1.2 million three wheelers in regular service around the island, this was a long overdue measure. Transport Minister Nimal Siripala de Silva and the main three wheeler associations must be commended for this initiative. As accidents involving three wheelers have reached an all-time high, the three wheeler community itself has been shocked to the core. In fact, they were the first to demand that three wheeler licenses should be issued only to those above 35. This proposal has been taken into consideration for the new National Policy.

This is commendable from several angles. Most accidents involve three wheelers driven by those aged 18-30, many of them unlicensed. This is generally an age range where the youth are lured by speed, at the risk to their lives. But there is an even more important reason. Today, anyone can walk into a bank and get a three wheeler lease with hardly any documentation. Most post O/L and A/L youth have bought three wheelers as an “easy way out” of higher education and unemployment. They then ride the three wheeler on hire for a few hours each day, earn a few thousand rupees and lie idle. This is admittedly not a very good form of self-employment. Worse, they can easily get addicted to a life of drugs and crime. This is the cream of our youth who do not make any positive contribution to national development. It is a criminal waste of our youth resource. Another noteworthy fact is that three wheeler passengers are rarely insured and may not receive any form of compensation if an accident occurs.

Any national policy on three wheelers must necessarily include plans to limit and ultimately stop three wheeler imports. The three wheeler market is already saturated – go to any junction and see how many three wheelers are lying idle – and imports should be cut gradually. As for the argument that the three wheeler is used as a family vehicle and for good transport in many remote areas, which is true enough, the authorities must focus on alternative measures.

One very effective measure is to implement a bigger tax cut on sub 1,000 CC cars. The Government should also consider the motorised quadricycles manufactured by three wheeler makers themselves as a four-wheeled alternative to three wheelers. If these vehicles are cheap enough and the gap in pricing is only around say, Rs.300,000, they have the potential to knock three wheelers off their perch. Why not make cars of the Nano/Alto class cheaper and give the people a much more comfortable and safer alternative?

Let’s face it, three wheelers are dangerous contraptions and a menace to other road users. Nano and Alto taxis already offer almost the same rates in a vehicle that has four proper doors, complete weather proofing, air-conditioning and much better safety features. Do we still want to see three wheelers on our roads by say, 2035? A car-based taxi system is a must if we are to realize our development ambitions. People in rural areas will also be able to buy the cheaper cars.

It won’t be easy to discipline the there-wheeler drivers but the recent fine increase has had the desired effect even before being properly introduced. It will take another column to describe the offences regularly committed by the three-wheeler drivers, but here are a few: Overloading, speeding, making abrupt U-turns (having removed the anti-U turn device in the front tyre), cutting in and out of traffic, sudden braking for picking up passengers, rude behaviour and flouting road rules and road signs. There are even instances of the driver sharing his seat with a passenger, because the rear seat is fully packed. There are of course, instances of three wheeler drivers riding high on drugs and alcohol.

Most three wheelers also come with a door guard on the right side to prevent passengers from alighting from that side instead of from the left. However, there are many instances of three wheeler operators removing this guard so that passengers can enter and exit from the right side as well. The passengers who do so face the risk of being exposed to the fast flowing traffic. The Police must keep a strict check on this safety feature.

The Western Province Megapolis plan calls for certain three wheeler free areas, but if you want to experience right now how easy it is to drive without the presence of two wheelers, head to an expressway. We hope that a few decades from now, this is how all roads in Sri Lanka will look like.

The Island Editorial

Lies, damned lies and govt. claims

21 December 2016

 

The problem with lies is that they have a very short lifespan. It was only the other day that the Finance Ministry sought to justify its unconscionable traffic fine increases by claiming that the mere announcement thereof had led to a drastic drop in road accidents. It used police and hospital statistics in support of its argument. We pointed out in this space the absurdity of its claim.

The last couple of weeks have seen several tragic accidents in various places such as Jaffna, Mihintale, Polonnaruwa, Peliyagoda, Wadduwa, Malabe, Kataragama and Minneriya. These mishaps have snuffed out about 25 lives and left about 100 others injured. In Jaffna alone 11 persons were killed in a bus-van collision last Saturday.

The number of persons killed on roads continues to average six or seven per day. How would the Finance Ministry worthies and other government pundits explain the occurrence of these disasters within days of the announcement of massive increases in fines for traffic offences? They will have to concoct another absurd theory. Will they claim that the fines have to be further increased?

A minister’s son has also been arraigned on a charge of driving an SUV without a valid licence and knocking down a motorcyclist. This alone is proof that the fine hike hasn’t had any effect on even the progeny of government ministers who are flaunting it as a deterrent to errant drivers and riders.

The government should admit that it has jacked up fines not out of any love for the public; it has done so because it is desperate to raise its revenue substantially to qualify for the next tranche of the IMF loan. It had to review the unconscionable VAT increases under duress and, therefore, chose to make up for the losses by increasing traffic fines. Successive governments have pressured the police to boost their income by way of fines on motorists and the present administration has gone a few steps further.

If higher fines help bring down the number of road accidents then, as we have argued in this space previously, the government should be able to make roads totally safe for one and all by legislating for heftier fines to the tune of, say, Rs. 1,000,000 to be imposed on errant drivers. Fines must not be ridiculously low. They must not be unconscionably high either. For, punitive action alone does not help make roads safe. Besides recklessness and lapses on the part of drivers/riders and defects in their vehicles, the inefficiency of police and bad road conditions contribute to road accidents.

Vehicle imports increase at an alarming rate without roads being widened to accommodate them. Leaders of the present government specialise in only two things––talking hind legs off a donkey and finding scapegoats. They unveil many plaques with much fanfare but only a handful of projects get off the ground. It is hoped that they will not sell the existing expressways to foreigners instead of building new ones.

Police patiently wait behind wayside walls and trees till traffic offences are committed so as to fine offenders or have their palms greased instead of trying to prevent infractions fraught with the danger of causing accidents. It looks as if the police expected, if not allowed, motorists to violate the Highway Code. The presence of a single traffic policeman in an accident prone area will be a more effective deterrent to reckless drivers than a heavy fine. The need for roads to be better policed and developed cannot be overemphasised.

The government should stop bandying about statistics in support of its bogus claims as regards traffic fine increases and road accidents. It should properly assess the situation and adopt remedial measures without believing in its own lies.