Friday 25th August, 2023

Sri Lankans, who have faced numerous economic problems over the years, do not need the help of economists to understand how the current crisis came about and what should be done to sort it out; it has basically stemmed from politically-motivated tax cuts, the resultant sharp drop in state revenue, which necessitated excessive money printing, the rapid decline in foreign currency reserves, and failure on the government’s failure to adopt remedial measures at the first sign of trouble. The Covid-19 pandemic, the Ukraine war, etc., only exacerbated the crisis.

The government is in overdrive to solve the rupee crisis; it has already introduced iniquitous taxes, jacked up tariffs unconscionably and drastically curtailed state expenditure. It is also all out to sell public assets, including profitable ones, at fire-sale prices to raise funds. It has however stopped short of cracking down on numerous frauds that plague the Customs, the Excise Department, etc. Its performance is even more abysmal where the prevention of foreign exchange rackets is concerned.

Shoring up the country’s foreign exchange reserves is half the battle in breaking the back of the current economic crisis. Various views have been expressed about the genesis of the forex crisis, its development and how to resolve it. But in understanding this issue, we rely on Occam’s razor, or the principle according to which an explanation of a thing or event is made with the fewest possible assumptions, rather than complex theories. All issues pertaining to foreign exchange rackets, in our book, boil down to three things—laws sans strong teeth, lax control and political interference. When the Exchange Control Act of 1953 was deep-sixed in 2017, everybody knew the country would face a forex crisis.

Minister of Justice Dr. Wijeyadasa Rajapakshe has admitted in Parliament that the abolition of the Exchange Control Act of 1953 was a mistake that has deprived the country of a great deal of forex. He told Parliament, on Wednesday, that the introduction of the Foreign Exchange Act of 2017 had benefited unscrupulous exporters, who did not repatriate their export earnings properly. SJB MP and former Minister Champika Ranawaka pointed out that importers also carried out sordid operations such as mispricing to bypass foreign exchange laws.

Now that it has become evident that the current Foreign Exchange Act is beneficial to forex racketeers and caused a drastic decrease in the repatriation of export proceeds, the Exchange Control Act of 1953 must be restored without further delay.

Moral suasion does not help influence or change the behaviour of those who are engaged in various rackets and repatriate only a fraction of export proceeds. Importers also employ unlawful methods such as transfer pricing manipulations and using Undial and Hawala schemes for fund transfers. The country has been the loser.

All exporters and importers should not be tarred with the same brush; there are law-abiding businesspersons among them, but the need for the government to adopt stern measures to curtail the outflow of forex through illegal channels and to boost the foreign exchange inflow cannot be overstated.

Minister Rajapakshe preens himself on the passage of the Anti-Corruption Bill, which, he hopes, will help effectively tackle the twin evils of bribery and corruption. It is the fervent hope of everyone that the new laws will serve as an effective antidote to bribery and corruption. Will Dr. Rajapakshe seriously consider initiating the process of restoring the Exchange Control Act of 1953 preferably with extra provision for even tougher regulations and severer punishment for transgressions? He can rest assured that a Bill seeking to achieve that end will be passed unanimously; no one will dare oppose it for fear of incurring public opprobrium. Even the corrupt backed the Anti-corruption Bill, didn’t they?