“The government is hiding information from the public,” opposition United National Party legislator Harsha de Silva told reporters.
“When we warned about the wrong policies, when we said ‘See what is happening, take corrective measures’, but they were ignored.”
Make Believe
De Silva said the authorities had painted a rosy picture of the economy and suppressed other analysis including International Monetary Fund annual consultation report for several years.
“IMF reports had not been suppressed from 2007,” he said. “We urge the government to immediately release them. Sri Lanka is in a minority of countries that suppress this information.”
Sri Lanka was much more transparent earlier along with other countries like Pakistan. Sri Lanka has also not released staff reports that accompany each IMF review unlike other countries.
De Silva said when questions are asked in parliament, ministers delays replying asking for time and answers are “postponed again and again.”
An annual report about the Employees Provident Fund, a retirement fund of non-state workers, whose state management has become increasingly controversial, has not yet been released, he said.
He said some of the corrective measures taken including raising interest rates were necessary, but if early action was taken, much of the pain could have been avoided.
De Silva had earlier warned against manipulation of data, especially the inflation index which mislead economic managers to believe that inflation is low when in fact it is much higher than shown in the index.
Sri Lanka’s inflation index does not conform to the COICOPP standard and is missing a key segment.
Rate Manipulation
The United States also got into trouble with the ‘Great Recession’ after the Federal Reserve printed money claiming that inflation shown by a manipulated ‘core inflation index’ which ignored oil and food was the real inflation.
In a so-called market economy, the interest rate is the most important price signal, but a central bank can manipulate that price leading to terrible economic consequences for the people.
The Great Depression was also triggered by money printing by the Federal Reserve, which created the so called ‘roaring 20s’ economic bubble.
Manipulating data makes rulers and policymakers live in a make believe world, until the truth is revealed in a massive economic shock.
De Silva had said that key state economic managers had launched ad hominem attacks on himself when he pointed out where policies were going wrong.
Sri Lanka has run into repeated balance of payments crisis from shortly after a central bank was created in 1950 abolishing a hard pegged currency arrangement that had kept the economy stable under British rule.
Sri Lanka ran into a yet another balance of payments crisis from mid 2011, resulting in the currency collapsing from 109 to around 131 against the US dollar after the state manipulated energy prices and the Central Bank engaged in sterilized sales of foreign currency.
The state took large volumes of credit to manipulate energy prices and printed money to offset monetary tightening effects of central bank dollars sales, a practice which results in currency pegs collapsing.
Brick Wall
De Silva said Sri Lanka had to run to the IMF repeatedly after following wrong policies.
“Don’t try to deceive markets, or the people,” de Silva said. The government cannot win.”
After saying the IMF was not needed, and its money was too expensive and deviating from its advice authorities were running to the lender again, he said.
De Silva said some of the economic policies of the administration was fundamentally flawed and it only followed IMF advice when things went wrong and then reverted to bad policies a little later.
“Whatever the IMF tells it will do now, then it will renege and go back to its own policies and hit a brick wall,” de Silva warned.
Central Banks all over the world gets countries into trouble by printing money to keep interest rates artificially low amid deficit spending, creating economic bubbles or in the case of soft pegged exchange rates, balance of payments crises.
Analyst say even before the ink was dry on the IMF press release, the Central Bank has again started to suppress Treasury bill rates, a key practice which has pushed the country in to balance of payments crisis for more than half a century.
Other data also showed that in the first few days of April around 200 million dollars or more of foreign reserves have been lost again.
The IMF gave half of its remaining 800 million US dollar tranche from a 2.5 billion dollar bailout loan before a clean float of the currency fully took hold.
Once a central bank stops defending a currency, interest rates automatically starts to ease.
The central bank has said it expects to halt all foreign currency sales only by May.
LBO