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Asian Tribune is published by World Institute For Asian Studies|Powered by WIAS Vol. 12 No. 2673

Vague Correlation: rising oil price and the sharp fall of Sri Lankan rupee

Hemantha Abeywardena writes from London…

Whatever we hear from those who in power, the business community in Sri Lanka is rattled to the core on many fronts: rising taxes, the fall of the rupee, endless strikes, frequent agitations, uncertainty about political unity and global factors beyond our control just amplify the burden.

In these circumstances, it’s a severe disappointment to note that those who advocate exponential salary hikes are ignoring the humble fact that such an increase on the scale they love to have and the catalysts for FDI – Foreign Direct Investment - are the two sides of the same coin.

Although, the increase in oil price is relative to what it had been at the same time last year, it’s nowhere near the highest we saw a few years ago, setting its sights firmly on $200 mark, a barrel. Then, for inexplicable reasons, the price of oil plummeted, turning the whole industry upside down, while sending the oil-dependent Middle Eastern economies on a downward spiral, with a haemorrhage of job losses across the world.

Despite the hike in price, partially inflated by the decrease in production, the countries in question are not out of the woods yet. They are already under pressure to bring the price down. For instance, President Trump fired his second salvo on Saturday, perhaps at Saudi Arabia, for not doing just that, implying that the latter wants security from the US, while letting oil price go through the roof.

The fall in oil price dealt a significant blow to the Asian countries two years ago, including Sri Lanka, which relies on the remittances sent by the workforce abroad. The fall in employees, in turn, affects the local exporters, who earn revenue by sending food items, fruits and vegetables to non-indigenous market, in direct proportion to the number remains in the Middle East.

If the decision makers failed to spot what was in the offing in these circumstances, simply because their forecasts, based on charts and models, said otherwise, it is highly likely that no contingency plan whatsoever would have been put in place for a rainy day.

If a country is forced to fall back on its reserves to prop up a falling currency, not necessarily as the last resort, it fairly indicates the lack of preparation on the part of the bureaucrats and desertion of the courage on the part of politicians. Time has come to call a spade, a spade – without delay.

Our debt mountain stares at the whole population from afar and its intensity shows no sign of abating. Struggling companies cannot afford to provide the state coffers with what they used to do. Yet, we hear about grandiose projects, ranging from building more international airports to embarking on Herculean missions such as cleaning the Indian Ocean.

We clearly have a problem of getting our priorities right; the simple question remains: who on earth are going to fund them at a critical time like this?

In the early 90s, when Britain was on the verge of going into one of the worst recessions in living memory, Margaret Thatcher, the then prime minister, informed the public what was about to come; she appealed to the top hierarchy of major companies not to award themselves huge salary hikes amidst the onset of a severe crisis.

Mrs Thatcher did not take her faithful on a voyage of complacency – until the iceberg struck, of course: on the contrary, she was frank enough to admit what was to come and prepared the public to accept the worst.

When the recession hit Britain, it was pretty brutal: people lost houses; housing market collapsed; the job losses in every single sector were unimaginable due to unforeseen chain reactions.

In this context, the statement by Mr Mangala Samaraweera, the finance minister, that the rupee will fall further is a good development; he, quite correctly, admitted that the reversal of the slide of the currency at this stage is beyond him.

Although, Mr Samaraweera , a politician, did not pinpoint a single factor behind the issue, the alarmingly-evolving political situation does not help alleviate the crisis. On top of that the catalogue of daily strikes, agitations, impromptu protests and of course, the dangerous combination of corruption and endemic lethargy in many layers of the system makes the matters worse.

If the impending trade war between China and the US gets any worse, every single country that borrowed money from China will feel the pinch in many different ways. We will not be immune from that aspect of the current crisis either. If it permeates into the realm of existing, regional political rivalries, things can only get ugly.

All in all, there is no room for compliancy; nor is there any room for delusional manoeuvres, while pointing to the pie in the sky in order to appease the gullible.

- Asian Tribune -

Vague Correlation: rising oil price and the sharp fall of Sri Lankan rupee
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