Economy Forward

  Article's Background As we all are aware, Sri Lankan Constitution is for Democratic Socialist Republic of Sri Lanka. The term "Socialist" is comprehensively interpreted across the globe against "Capitalism" born on the free market philosophy of Adam Smith in 1776. Therefore, by Constitution, Sri Lankan economic policies should be pro socialist. In addition, the Constitution contains a number of socialist-based directive principles of state policy and fundamental duties that guide the state in enactment of laws and governance of Sri Lanka for the establishment of a just and free society. However, the state policy package pursued at present seems pro capitalist and tends to violate such directive principles.  Therefore, this article is to highlight the said violation and to propose Constitutional amendments to promote pro capitalist policies in Sri Lanka. Pro capitalist policy model pursued at present It is no secret that the IMF-based policy model is geared for...

  I had the opportunity to read a book titled " WHAT WENT WRONG WITH CAPITALISM " authored by Ruchir Sharma and released last week. The CNCB and Bloomberg interviews with the author are attached here because they convey the key message of the new book  (Click here for the CNBC interview) . (Click here for Bloomberg interview) . The purpose of this article is to highlight the main message of the book and its relevance to Sri Lanka with the crashed economy at present. Origin of Capitalism As we all aware, it descends from the philosophy of Adam Smith presented in his book "The Wealth of Nations" in 1776 on human behaviour over the production and economic wealth. His view is that the society's economic welfare from free markets operating on self-interest is more than that of the economy regulated by the government. The invisible hand (or regulation of the market by market itself) is the natural force behind free markets to maximize the society's economic welfar...

  Article's Background The economic slogan of the country's top policymakers nowadays is the divine-driven stabilization of the economy after the crash in 2022. The two of few leading figures they cite are the foreign currency reserve of the central bank (CB) and the exchange rate. The media is full of news praising that the CB has now rebuilt the foreign reserve from almost zero liquidity to US$ 5.4 bn while the rupee has appreciated to around Rs. 300 a US$ from its historic lowest of Rs. 370 in April 2022 as compared to pre-crash rate of Rs. 200  (see Chart below) . The favorable BOP behind the two figures is cited as a result of the prudent monetary policy. This is not strange as Economics is such that any good thing under the sun can be attributed to the monetary policy and central banks whilst all bad are passed to the governments and markets. There is no controversy even  among  the  laymen that the crash of the economy was the direct result of the bankrup...

  Article's Background According to a news article published in the CNBC financial web (Read article here)  on 22 May 2024 , the Board of Indian central bank (Reserve Bank of India - RBI) has approved a whopping Rs. 2.11 trillion of profit transfer to the government for the financial year ended 31 March 2024. However, Sri Lankan central bank board has approved a profit transfer to the government for the year 2023 as a loss of Rs. 314 bn. as against the reported financial loss of Rs. 114 bn. Therefore, this short article is to compare the profit transfers of the two central banks and underlying issues. RBI profit transfer to govt. -  Key points in the article   The profit transfer of the RBI to the government for the year 2023/24 is Rs. 2.11 tn as compared to Rs. 874.16 bn for the last year. The government had budgeted Rs. 1.02 tn of dividend income from RBI and other state owned banks and financial institutions. Analysts had expected a RBI profit transfer in the rang...

  Article's Background I felt shamed when I saw the attached video ( Watch video here ) on the meeting of the COPF, Parliament, on 22 May 2024, held for examination of the proposed public debt management law for Sri Lanka. At the beginning of the meeting, it was stated that  Work on this law had been in progress since 2016 although it was delayed due to various reasons and  The work has now recommenced as a condition of the IMF programme due to the current debt unsustainability situation. I felt shamed due to two facts. First, the proposed new debt law is now presented after 8 years of delay only after the bankruptcy of the government. This work seriously started in early 2016 as the danger of debt management by the central bank (CB) since 1950 was foreseen at that time. Second, some of professionals who disrupted the work on reform initiatives on debt management inclusive of consolidated public debt law in 2016 attended the COPF as brand new professionals. The monetary p...

Article's Background This article is based on views expressed by two globally leading business persons this week regarding operations of the  US central bank, Federal Reserve (Fed), which can be applied in general to central banking.   According to an article published in yahoo ! finance website on 17 May 2024, Elon Musk, the third richest businessman in the US, has compared the Fed's money printer to a game of monopoly (see article here)  (It was reported that the President of Sri Lanka also met him today in Indonesia). This view is based on generally limitless amount of money that the Fed can supply and, therefore, the Fed never goes bankrupt. He also has raised concerns over the US fiscal deficit which is expansionary in money.  According to an article published in Fortune website on 18 May 2024, Rick Rieder, Chief Investment Officer at Blackrock, has proposed (at a Bloomberg interview) that the Fed reverse the tight monetary policy course and cut interest rates...