A word of caution for govt. handling the crisis

The essential food and commodities importers last week wrote to Prime Minister Ranil Wickremesinghe expressing their grievances in the aftermath of the Easter Sunday terrorist attacks and requested immediate assistance by way of rescheduling of loans, moratoriums on capital and interest payments and concessionary rates for working capital loans.

They sounded as if their businesses were on the verge of collapse in a day or two, unless the government intervenes. 

To find out how valid their grievances are, one does not have to look beyond his or her household staples basket if there was any shift in their consumption patterns following the ruthless terror attacks unleashed by a group of jihadists on Easter Sunday.

Even though people may not be flocking to fashion stores or consumer durable outlets due to fear and sporadic police curfew, it is difficult to believe that they may have cut down on the staples such as rice, dhal, sugar and so on. In fact, the sales of these items should have gone up during the last couple of weeks, given the people’s tendency to stock up due to the uncertain environment in the country. 

Ample empirical evidence is available to show that the demand for consumer staples holds steady, irrespective of economic cycles and disruptions and destructions such as wars and terrorism activities. 

When the country was even at the height of the three-decade-old war with the separatist LTTE, which ended in 2009 May, people went about their routine shopping and hardly cut down on their basket of staples, which kept essential food and commodities importers’ businesses humming.   

This was when the country’s inflation was running at double-digit levels and the interest rates were hovering over 20 percent levels.  

According to economic theory, higher inflation feeds into higher rates and together presents a toxic combination for the domestic currency to shed its value against the foreign currency, making the price of the import basket higher.   

Today, such pressure was very much taken care of as inflation remains at much benign levels with interest rates at acceptable levels. The rupee has in fact appreciated by 4.1 percent against the US dollar this year, as of May 10.

Why weren’t the essential food and commodities importers were silent when the rupee fell almost 20 percent against the US dollar, last year, as their bills would have reached overwhelming levels? 

It is common trade craft that neither the importers nor the traders absorb the losses stemming from higher exchange rates or cost of inputs as they find ways to pass them on to the customers. If the price controls imposed by the government on some of these essential food and commodities products are hindering this practice, the importers and traders should lobby the government to remove the price controls and not ask for moratoriums on their loans.  

Hence, much of the claims by the food and commodities importers in this instance are counter-intuitive, unfounded and lack evidence to justify their demands for a special concession package, similar to the one approved for the tourism sector last week. 

If at all there were any claim by the group, which might hold water, could be the disruption in  the supply chains and logistics, as people and business activities are yet to return to normalcy due to the prevailing anxiety and fear in the aftermath of the attacks unleashed. 

While we applaud all stakeholders for reaching consensus to offer a comprehensive relief package to the tourism sector, which became the most immediate casualty of the April 21 attack, we are also of the view that no concession must be blanket because there could be unscrupulous elements that have been waiting to take advantage of the situation. 

We also welcome the move by the Central Bank to have come forward to issue a clarification on how these concessions would be offered and to whom, in a comprehensive paper to be issued to all licensed banks shortly. 

There is no doubt that tourism is only one of many sectors that fell victim to the Easter carnage and the sporadic escalations at different places in the country, stirred up by groups with vested interests, are causing mayhem, disturbing and delaying the returning of normalcy.

Incidents of this nature surely take heavy toll on every aspect of the economy and real estate and construction are a few other cases in point. But, there could also be segments that would try to fish in the troubled waters. 

Hence, we urge the government to be cautious and not to fall prey to those who may find the prevailing situation a scapegoat to fatten their margins at the expense of the people and the banking sector, which is already grappling with multiple problems.

The banking sector, which stood strong across times, should not be a whipping boy for the sins of the State, any other industries or incidents beyond its control, as its resilience may be wearing thin as seen from its recent financial performances.

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