Current exchange rate gives real value of LKR

- Malik Samarawickrama

• There are policy differences between UNP and SLFP
• We have to come to some middle ground, but not at the expense of reforms
• There is a dearth of labourers in industrial sectors
• Need to look at bringing workers from Nepal, Myanmar
• If rupee value stabilizes at 170, it will be satisfactory

Development Strategies and International Trade Minister Malik Samarawickrama, in an interview with the Daily Mirror, speaks about the rupee depreciation and the current status of the Government. He also responds to allegations of a powerful Minister trying to seek bribe. 

The Excerpts:

What I would say is that it is not an economic crisis. We have fundamentals. Currency value depreciation is not confined to Sri Lanka only. All the emerging countries have been affected. In India, it has depreciated by 12-13%. It has happened in Indonesia and the Philippines by eight to nine per cent. Our depreciation is also in that range. Even developed countries like Australia and Turkey have been affected. Turkey’s depreciation is 40%. It is a global issue. Most of the funds from these countries have gone back to the United States. That is the main reason.  

On the other hand, this is also an opportunity for Sri Lankan businessmen and industrialists to take advantage. Now the rupee value is 168/169.This is the correct value for the rupee. Particularly the previous Government defended the rupee and not given it the real value. As a result, our exports have suffered. With the current value of the rupee, our exports will be competitive in the world market. There is a good opportunity to increase our exports. It is important that we become more competitive. We have to increase our productivity.  

QThe Government wanted to free up the exchange control. Also, it wanted to liberalize the economy more and more to the world. What do you think of these policies in retrospect?

Those policies are correct. You cannot have a protectionist policy. No country has developed by having such a policy. The former communist regimes such as Vietnam, Cambodia and even China have opened up now. They are now saying that the countries must liberalize. They have liberalized their trade policies. That is why they are reaping the benefits. Vietnam has not been that affected by the currency crisis. They have a huge export volume. It amounts to US$ 240 billion.  

The Finance Ministry has taken some short tere measures. We have to ensure that at least for a period of time, we must refrain from importing luxury goods

QHow do you look at liberalization in a context of the local currency depreciating?

The rupee has got the real value now. Earlier, it was easy for people to import. People imported goods. Now the value is high. Therefore, there is an opportunity for people to produce locally. It is better to produce goods here. If it was worth the US $ 100 at that time, it would be Rs.14,000 locally. Now, it is Rs.17,000 locally. Economic decisions have to be taken on the long-term interests of the country, but not on how to win elections next time.  

QDoes it mean that further depreciation of rupee would be beneficial in that sense?

I am not saying that. It has a limit. Now, at least, the local industries can come up.  

QWhat is the most advisable currency exchange rate in your view?

The current rate is the right value. It will be good if it stabilizes around 170/180.

QWhat is the government’s policy on the development of local industries?

We have to go through with the reforms even to improve the efficiency of the local industries. That trade facilitation is absolutely important. We must also encourage people to bring raw materials. Every local industry must gear itself to export. Ours is a small market. With protectionist measures, we will not be competitive. Then, even our consumers have to buy our goods at higher prices.  

In the new export strategy, we have identified new products. Our production base has been very low. It is a traditional base. We have identified electronics and electrical items, automobile spare parts, wellness tourism, boat building, IT-related services, rubber based products etc. 

 
QWhat are the measures being taken to overcome the crisis?

I think the Finance Ministry has taken some short term measures. We have to ensure that, at least for a period of time, we must refrain from importing luxury goods.  

QWould there be further restrictions?

I do not think. Most of the funds have been spent on importing gold, vehicles and other luxury items. By restricting the imports on these, it is not going to affect the poorer section of society. This will obviously affect the middle class for a while.  

QOtherwise, are you contemplating some measures such as the currency swap agreements with respective countries?

I think the Central Bank is doing something. It is going to issue Panda Bonds. CB Governor Dr. Indrajith Coomaraswamy indicated how he is going to raise US $ 1 billion or so. The reserves have dropped to US $ 7.5 billion. The governor said it would increase to US $ 8.3 billion by the end of this year with money coming in.  

QThe previous Government has signed a currency swap agreement with China to transact in Renminbi instead of US currency. What is your view?

We are also encouraging it. There is no issue.  

QHow are you planning to proceed with the reform policy of the Government under the current circumstances?

Fiscal policy reforms have been done. Monetary policy reforms have been done. Therefore, we say fundamentals are in place. We are going through the trade policy reforms. There is no alternative but to go through these reforms. We look at some labour reforms as well. We have to reform the labour laws.  

QWhy do you say so?

Our labour laws are archaic.  

QWhat are the kinds of reforms which are intended to be done?

We have to give some sort of flexibility for people to be employed and discontinued. There should be a less costly exit mechanism. Suppose that you have 1000 persons employed and the industry is having some issues! If you reduce it by another 200 people, the industry can survive and do even better. But, it costs too much to remove these 200 people. Those are issues we have to look at. Also, we have to look at the working hours, particularly for females. It should be brought on par with the males. Some laws prevent females from working at night. We have to look at all that. That is, particularly in the IT related services. We have to take examples from some of our neighbouring countries such as Thailand, Malaysia and even Vietnam.  

In Vietnam, there are 7000 Japanese firms over there. They have established factories over there. I think there are similar amounts of companies from South Korea as well. They have opened up their economy.  

In India, it has depreciated by 12-13%. It has happened in Indonesia and the Philippines by 8-9%. Our depreciation is also in that range. Even developed countries like Australia and Turkey have been affected

QDo you see Vietnam as a role model country for Sri Lanka?

I think Thailand and Vietnam should be role model countries.  

QIn Sri Lanka, there is a dearth of workers in some sectors. How are you going to address it?

There is a dearth in construction and other industries. We have to address it in the industrial, plantation and construction sectors.  

QHow are you going to address it?

We have to look at giving work permit for a limited period. Unless this problem is addressed, these companies cannot grow. In fact, they cannot even sustain there. Most of them are working under capacity. Even the plantation sector is having issues now. They find it difficult to bring workers. They have to look at automation. Yet, there is a limit to what you can do through automation in the plantation sector.  

QAre you looking at labour markets elsewhere in the neighbourhood for it?

We have to look whether we can have people from Myanmar and Nepal. We have to see whether we can bring them. These are the things the responsible governments have to look at. You cannot ignore them for political reasons.  

QFor all that to happen, political stability is needed. It is said that there are two centres of power in the government. We value your comments on this...

There are no two centres. We are working very closely. Of course, there are differences in policies between the UNP and the SLFP. We are trying to work as far as possible.  

QHow difficult would it be to reconcile these differences?

We have to come to some middle ground and go ahead, but not at the expense of reforms.  

QHow about your experience during the last three years?

The biggest problem is the mindset. You have to change the mindset of the politicians, of bureaucrats and of people. We have to realize that we cannot go ahead with the way we have done before. If you look at these neighbouring countries, they were so far behind us. Right now, they are so far ahead of us in every aspect. It is really frightening.  

QWhat do you think of stability of the government?

I think we are a very stable government. There is no issue.  

QSome people say it is fragile. What do you feel?

It is generally a fake news from the media; particularly the social media.  

QAnyway, how it had affected the investor confidence?

Investors are looking at reforms. They are looking at Sri Lanka now. We have neglected the investors, particularly from the west for a long period of time. We have to restart the whole process.  

QHow feasible is it to attract investors from the west?

There are still some investors looking at investing in countries like ours. Some of them have invested in all these countries - Vietnam and Thailand. At the same time, we also feel that we should look at India, China, South Korea, Japan and so on.  

QRecently, there were reports that a powerful minister and a State Minister tried to solicit a bribe from an investor. The reports said that this investor complained to the President. Doesn’t it erode investor confidence?

They were all bogus, false allegations surface from time to time. If anybody has done that, he should be removed from the Cabinet. There are various allegations made by people who are frustrated. They cannot get their jobs done through various deals. The Government is not encouraging it. We do not want deal makers.  

QWhat do you think of this bribe-seeking allegation involving an electric rail project?

That is totally untrue. I have not even met or spoken to them neither seen the colour of them. I got a report from the Board of Investment (BoI). I just want to know what was going on. They will have a press conference and expose.  

According to them, Some Sri Lankans residing in Italy have formed a company in Sri Lanka in 2012. They have come up with a proposal that they can produce electric rail coaches. 

The value of exports they have given was US $ 5 billion. It is 40% of the total exports of the country. They have requested for 4000 acres of land. Of course, they have not given a business plan. Nor, have they given who their buyers were. On top of this, they said they wanted to import 2000 vehicles and four helicopters. They want to open a bank. They want to have a hospital and to have a hotel. From that itself, you can see whether this is a valid proposal or not.  

Investors are looking at reforms. They are looking at Sri Lanka now. We have neglected the investors, particularly from the west for a long period of time. We have to restart the whole process

QAlso, there is another allegation that the Central Bank has frozen the account of a Minister. What is your response?

If that is the case, you must expose who the person is. We do not encourage people to do these kinds of things. If the Central Bank has found something, it must be exposed.  

QWhat is the current status of the Free Trade Agreement (FTA) with Singapore?

It is proceeding. There is no issue on it. There is a committee appointed by the President. If the committee points out that any clause is harmful to the country, certainly we can discuss it with Singapore.

QWhat do you think of this committee appointed by the President to review it?

Let them come out with their report! We are open to their suggestions. If there is anything harmful, we can renegotiate it. There is a revision provision for it.  

QHow far have your progress regarding the Economic and Technology Cooperation Agreement (ETCA) with India?

We are having the 11th round of talks. Good progress has been made. Within the first quarter of next year, we will be able to complete negotiations. Then, we have to discuss with the Cabinet and proceed.