Sri Lanka wants exports before steep currency appreciation: Treasury Secretary

Jan 07, 2013 (LBO) – Sri Lanka would like to see stronger exports, and less imports before an “un-necessarily” appreciation of the exchange rate, Treasury Secretary P B Jayasundera said. Sri Lanka’s rupee has depreciated ever since a money printing central bank capable to sterilizing foreign exchange sales and monetizing debt generally was built in 1951 a day before entering the failed Bretton Woods arrangement soft-dollar pegs.

The Bretton Woods eventually collapsed in 1971-73 after massive foreign reserve losses by the Federal Reserve creating fully fiat inflationary paper money.

“If you all don’t talk about the exchange rate, the rate will appreciate even more,” Jayasundera told reporters in Colombo.

“But we don’t want the exchange rate to appreciate un-necessarily until we promote exports and moderate imports.”

Sri Lanka’s rupee fell from around 110 to the US dollar to 134 in 2012 after it was floated in February 2012.

The rupee came under pressure due to bank loans taken to subsidize oil was then effectively accommodated by central bank credit injected to sterilize foreign exchange sales. Energy prices were also jacked up to reduce bank credit.

The rupee ended the year around 127.50 to the US dollar.

Jayasundera was questioned by reporters on his forecast last year the rupee will stabilize around 125 to the US dollar.

“It is moving in that direction. So allow it,” Jayasundera said. “I am not an astrologer, I am economist and neither am I a journalist. I am professional economist. Economic fundamentals will decide what the rate is.

“That fundamental being, exports must grow, imports must moderate and the rate will stabilize. I am only proud of the the action the government took has helped the exchange rate stabilize.”

“Country should be proud that imports moderated. The exchange rate has given benefits. Therefore it is stable.

“It did not go to 150. I mean you have to be happy about that. It did not go to 135. I am happy about that. On the other hand if it did go to 135, somebody can still pay the price.”