Dec 14, 2008 (LBO) – State-run Sri Lanka Tea Board has spent over 200 million rupees to buy tea, using printed money from the Central Bank, in a Zimbabwe-style inflationary quasi-fiscal move, the latest information reveals. Tea Board chairman Lalith Hettiarachchi said last week that it had bought almost a million kilograms of tea worth 232 million rupees with a credit facility provided by state-run Bank of Ceylon via central bank ‘re-finance’.
Central Bank re-finance is simply printed money, and Sri Lanka had relied on such dangerously de-stabilizing forces to finance rural development programs in the 1980s.
The 1980s saw the worst inflation in the country’s history, until April 2008, when consumer inflation in Colombo hit 29.9 percent. The weights of the index were then changed.
In the 1990s under then central bank governor A S Jayawardene, direct central bank financing of real economic activities was halted and inflation was brought down to single digits.
However such tactics are still widely used in hyper-inflationary countries like Zimbabwe to ‘promote’ economic activities.
Zimbabwe’s hyper-inflation and currency collapse has been blamed on massive money printing to