“We need to urgently redirect the economy towards strengthening local production, and reverse the direction of trade and financial liberalization. The Government is finally taking measures to restrict imports. The Government also seems to have realised, even at this late stage, that it is the flight of capital to Western financial centres that has hammered the rupee.”
The falling Sri Lankan Rupee is now at the centre of discussions about the economy. Is this problem due to the US Dollar strengthening along with increasing interest rates in the United States? Is it a consequence of flawed trade policies that have maintained much higher levels of imports relative to exports? Or is it an outcome of opening our economy to the inflow and flight of finance capital? These debates, politically charged and partisan as they are, provide an important opening to evaluate the economic trajectory of the country.
The rupee’s depreciation and related balance of payments problems – characterized by lacking foreign exchange to pay for imports and foreign loans – should not come as a surprise to anyone. Such crises have taken place repeatedly across the world, even in Sri Lanka, following liberalisation of trade and finance. The global proportions and the international consequences of such crises have been the subject of economic discussions for decades, particularly after the Asian Economic Crisis of 1997 and the Global Economic Crisis of 2008. Furthermore, developments in the international financial and goods markets, including the higher cost of capital with the trend of rising US interest rates and declining possibilities for exports with increasing protectionist moves by the US, have been known for years. Continue reading the Government must restrict imports and invest more in the local economy – AHILAN KADIRGAMAR