July 24, 2013 (LBO) Sri Lanka’s state owned enterprises are a threat to the country’s banks and authorities should device system to monitor credit and prevent a collapse of the banking system, a parliamentary report has said. If money is printed (central bank credit) for subsidies it triggers inflation and currency depreciation (like in 2011 and 2012) placing even more burdens on the public hurting the poorest of the poor most by pushing up food prices.
Managers of state enterprises often justify losses and mis-management claiming to be doing a “public service” as the general public is not fully aware of government finances and that they are indirectly financing such losses through the purchase of other goods and services.
But critics say many of Sri Lanka’s state enterprises operate with special privileges including monopolies and tax benefits in the same way as Mercantilist companies like the Dutch East India Company, the Dutch West Indian Company and British East India Company did.
By borrowing from banks for current spending, state enterprises also destroy capital formation and investment, frittering away in heedless consumption what could have been invested for the future.