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Sri Lanka: IMF’s new Jamaica?

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by Our Economic Affairs Correspondent

“The IMF’s emphasis on fiscal austerity has proven to be misguided and has resulted in economic stagnation, high levels of unemployment, and increased poverty in many countries.” – Noam Chomsky

Sri Lanka is eagerly anticipating change. Sri Lankans are tired of being robbed by many parties, be the local or foreign. Recently, politicians who were on the run have been now secured their safe houses, while innocent people are being targeted with usual measures. This has been attributed to the International Monetary Fund (IMF), a well-known international financial institution that relies on the support of others. Even those in rural areas who previously showed little interest in the IMF are now discussing its role in the country.

However, the IMF is not a charity, and it is not expected to resolve Sri Lanka’s crisis. Instead, it will provide guidance similar to an accountant overseeing the accounts of a struggling company. Unfortunately, neither the IMF nor the power-hungry politicians in Sri Lanka seem to genuinely care about the country’s crisis. We must thank Gotabaya Rajapaksa for unmasking, knowingly or unknowingly, the issues that Sri Lanka faces, and for forcing Sri Lankans to acknowledge the country’s state. If the IMF is honest in its efforts, it should explain why their interventions failed the last 16 times Sri Lanka sought assistance. Could Sri Lanka become the next Jamaica, with the IMF taking control? We must take a closer look.

No doubt, the International Monetary Fund (IMF) has been a key player in the global economy since its creation in 1944. The IMF provides loans and technical assistance to countries facing economic challenges, with the goal of promoting economic stability and growth. However, there are many examples of IMF policies and loan conditions that have had negative consequences for the countries they were intended to help. One of these examples is Jamaica, where IMF policies have been blamed for exacerbating economic inequality and hindering long-term development.

Jamaica is a small island nation in the Caribbean, with a population of just under three million people. Like many other countries in the region, Jamaica has faced significant economic challenges over the years, including high levels of debt, inflation, and unemployment. The country has received multiple loans from the IMF over the past few decades, with the most recent loan approved in 2016. However, many Jamaicans feel that IMF policies have only made their economic situation worse.

One of the key criticisms of IMF policies in Jamaica is the focus on austerity measures, which often require the country to reduce public spending and increase taxes. These measures have been particularly harmful to the poorest sections of the population, who are most vulnerable to economic shocks. In Jamaica, the government has implemented a series of austerity measures over the years, including cutting social spending and increasing taxes on essential goods such as electricity and fuel. These measures have contributed to an increase in poverty and social inequality, as well as undermining the country’s long-term development prospects.

Another criticism of IMF policies in Jamaica is the focus on privatization and liberalization. These policies have led to the sale of state-owned assets, such as utilities and transportation, to private investors. While these policies may lead to short-term gains, they can have negative consequences in the long run. For example, privatization can lead to higher prices for essential services, as private companies seek to maximize their profits. This can further exacerbate the economic challenges faced by the poorest sections of the population, who may not be able to afford these higher prices.

In addition to these specific policies, some critics argue that the overall approach of the IMF is too focused on short-term fixes and not enough on long-term development. IMF loans often come with rigorous conditions that require the borrowing country to implement specific policies or undertake specific reforms, but these conditions may not address the underlying structural issues that have contributed to the country’s economic challenges. This focus on short-term fixes can make it difficult for countries like Jamaica to build a sustainable and resilient economy that benefits all its citizens.

Well, Jamaica is not alone. There are several other examples of countries where IMF policies have been criticized for their negative impact on the economy and society.

If the IMF fails in Sri Lanka, it will be just a case study for them, but it is the fate of more than 22 million people. Who will take note of this seriously when those in power are playing modern-day Nero?

One such example is Argentina, which has a long history of economic instability and has been a frequent borrower from the IMF. In 2018, Argentina received a $57 billion loan from the IMF, the largest loan in the organization’s history. However, the loan came with strict conditions, including austerity measures and cuts to social spending. Critics argued that these policies exacerbated economic inequality and contributed to a deepening recession in the country. Consequently, according to Xinhua, “Argentina recorded 98.8 percent year-on-year inflation in January, after starting the year with a monthly price increase of 6 percent, the National Institute of Statistics and Censuses (INDEC) reported Tuesday, 14 February 2023.”

Another example is Greece, which received multiple loans from the IMF and other international lenders during the debt crisis that began in 2009. These loans came with conditions that required the Greek government to implement austerity measures and structural reforms. However, these policies were deeply unpopular with the Greek people and contributed to social unrest and political instability in the country. Many argue that the IMF’s focus on austerity measures delayed Greece’s economic recovery and hindered its long-term development.

A third example is Zambia, which has received multiple loans from the IMF over the past few decades. Critics argue that the conditions attached to these loans, which often require the government to reduce public spending and increase taxes, have contributed to social inequality and undermined the country’s long-term development prospects. For example, the IMF’s requirement for Zambia to reduce public spending on healthcare led to a decrease in the availability of essential medicines and equipment, making it harder for people to access healthcare services.

These examples illustrate the complex and often controversial role that the IMF plays in the global economy. While the organization’s loans and technical assistance can be helpful in promoting economic stability and growth, there are concerns about the impact of its policies on the poorest sections of society and on long-term development prospects. As such, it is important for the IMF to take a more comprehensive and long-term approach to its lending policies, one that prioritizes sustainable and inclusive development over short-term fixes.

True, it is difficult to predict whether Sri Lanka will become another Jamaica, Greece, or Argentina, but there are certainly concerns about the impact of IMF policies on the country’s long-term economic and social development. Sri Lanka has received loans from the IMF 16 times in the past and is currently negotiating its 17th bailout, with the aim of addressing the country’s ongoing economic challenges, including high levels of debt, inflation, and unemployment.

To avoid the negative consequences of IMF policies seen in other countries, Sri Lanka could consider adopting some of the recommendations put forward by top economists and experts in the field of development economics. One key recommendation is to focus on sustainable and inclusive economic development, rather than short-term fixes and austerity measures. This could involve investing in infrastructure, education, and other long-term development initiatives, with a focus on creating jobs and promoting economic growth in a way that benefits all citizens.

Another recommendation is to address the underlying structural issues that have contributed to the country’s economic challenges, such as corruption, inefficiency, and poor governance. This could involve implementing reforms to improve the business environment, increase transparency, and reduce bureaucracy, which could help to attract investment and create a more vibrant and dynamic economy.

In addition, Sri Lanka could explore alternative sources of funding and technical assistance, such as regional development banks or partnerships with other countries. These alternatives may offer more flexibility and a more nuanced approach to development challenges, which could better address the specific needs and priorities of the country.

Overall, Sri Lanka has a challenging road ahead as it seeks to address its economic challenges and promote sustainable development. To avoid the negative consequences of IMF policies seen in other countries, it will be important for Sri Lanka to take a comprehensive and long-term approach to economic development, one that prioritizes the needs and interests of all its citizens.

Sri Lanka, a beautiful island nation in South Asia, has been facing severe economic challenges for decades. Despite multiple interventions by the International Monetary Fund (IMF), the country’s economic crisis has not been resolved. In fact, Sri Lanka is currently seeking its 17th loan from the IMF, but there are doubts about the effectiveness of this latest effort to address the country’s economic woes. Why Sri Lanka has not been able to solve its economic crisis, and why the ongoing 17th IMF loan may lead to social turmoil without producing a lasting solution?

Sri Lanka’s economic challenges can be traced back to the country’s long-standing civil war, which lasted for nearly 30 years and ended in 2009. The conflict caused significant economic damage, and the country’s post-war economic recovery was slow. Moreover, the country’s high levels of public spending, corruption, and lack of investment in key sectors such as infrastructure have contributed to a sustained economic crisis. These challenges have been compounded by the COVID-19 pandemic, which has further weakened the country’s economy.

The IMF has been a key partner of Sri Lanka in its efforts to address its economic challenges. The IMF has provided loans to Sri Lanka for 16 times in the past. However, despite these efforts, the country’s economic situation has not improved significantly. There are several reasons why the IMF’s interventions have not been successful in addressing Sri Lanka’s economic crisis.

First, the IMF’s loan programs often require the borrowing country to implement strict austerity measures, such as reducing public spending and increasing taxes. These measures can have a significant impact on the poorest sections of the population, who are often the most vulnerable to economic shocks. In Sri Lanka, the government has been reluctant to implement these measures, fearing the political backlash that could result from public protests and unrest.

Second, the IMF’s loan programs are typically focused on addressing short-term economic challenges, such as balancing the budget or reducing inflation. These measures may not address the underlying structural issues that have contributed to Sri Lanka’s economic crisis, such as corruption, weak institutions, and lack of investment in key sectors. Without addressing these structural issues, any short-term gains achieved through IMF programs are unlikely to be sustainable.

Third, the IMF’s loans often come with conditions that require the borrowing country to undertake significant economic reforms, such as liberalizing the economy or privatizing state-owned enterprises. These reforms can be politically challenging and may not be implemented effectively if there is insufficient political will or capacity to do so.

Given these challenges, the ongoing 17th loan from the IMF may not produce a lasting solution to Sri Lanka’s economic crisis. The loan program is expected to include conditions that require the government to undertake significant economic reforms, including reducing public spending and increasing taxes. These measures are likely to be politically unpopular, and the government may face significant public protests and unrest if it attempts to implement them.

Sri Lanka’s economic crisis is a complex and multifaceted challenge that requires a long-term, sustainable solution. While the IMF has been a key partner in Sri Lanka’s efforts to address its economic challenges, the organization’s loan programs may not be sufficient to address the country’s underlying structural issues. Without addressing these underlying issues, any short-term gains achieved through IMF programs are unlikely to be sustainable.  

Sri Lanka needs a comprehensive, long-term strategy that addresses its underlying economic and social challenges, including corruption, weak institutions, and lack of investment in key sectors. The government must prioritize addressing these structural issues and work towards building a more resilient and sustainable economy that benefits all Sri Lankans.

While the IMF can be a valuable partner in this effort, the government must take a leadership role in driving the necessary reforms and ensuring that they are implemented effectively. Without a sustained and comprehensive effort to address its economic challenges, Sri Lanka’s economic crisis is likely to persist, causing further harm to its people and undermining its long-term stability and development. Consequently, no wonder if Sri Lanka becomes the IMF’s new Jamaica.  

Nothing better than take the sage words of a well-known economist, Joseph Stiglitz, “the IMF has a history of imposing harsh economic policies on developing countries, which often lead to social and economic turmoil, and are designed to favour the interests of wealthy creditor nations and international corporations over those of debtor countries.” If the IMF fails in Sri Lanka, it will be just a case study for them, but it is the fate of more than 22 million people. Who will take note of this seriously when those in power are playing modern-day Nero? Real Nero never did that, but in our time Neros, certainly will. 

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Sri Lanka: Governor disregards trade mis-invoicing

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Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe has disregarded and trivialised the extent of illicit financial flows through trade mis-invoicing in instigating Sri Lanka’s ongoing foreign exchange and fiscal crisis. This was fully apparent at the Parliamentary Committee on Public Finance meeting on January 23rd in response to revelations made by us as a collective of Sri Lanka’s prominent trade unions, mass organisations, professionals and economists.

In response to questions raised by Parliamentarians on our statement at the Committee meeting, the CBSL Governor responded,

“Obviously people who do under-invoicing or over-invoicing happens basically to evade taxes. If you have taxation, you declare low value and pay low taxes and then they keep money. probably they keep it out or bring it here. That’s their business. We don’t know.”

The Governor of the country’s Central Bank continued to rationalise or mis-rationalise his admitted ignorance by speaking in a language which is alien to economists, saying, 

“Other thing is, I don’t believe this number. Reason is if exporters are doing business here, they can’t keep that amount of money abroad.”

After hearing this, we as citizens are concerned whether the operations of the CBSL are in fact moving forward on the erroneous personal beliefs of the CBSL Governorat this time of deep economic crisis. Since the CBSL Governor ‘does not know’, we as trade unions, civil society organisations, economists and concerned professionals find the need to enlighten him, CBSL Officials and all concerned citizens the extent and dynamics of trade mis-invoicing in accelerating Sri Lanka’s economic collapse. In the following account we will critically address the misleading remarks of CBSL Governor on capital outflows through trade mis-invoicing.

International Recognition that Trade Mis-invoicingis Not a Myth

The CBSL Governor dismissed the findings of Global Financial Integrity (GFI) report published in December 2021 which pointed out that an estimated US$ 40 billion was transferred out of the economy between 2009-2018 through fraudulent invoicing by corporates operating in the import-export sector. This figure significantly exceeds Sri Lanka’s foreign debt of US$ 36 billion in default since April 2022. The impact of capital outflow of this magnitude on the ongoing economic collapse is self-explanatory. Nevertheless, the CBSL Governor is of the view that corporates would not have sufficient funds to operate within the economy if such a large sum of capital is held outside the country. Consequently, he falsely concludes that the GFI estimates are extreme exaggerations. This amounts to a complete misunderstanding of illicit outflows globally. If not, it indicates that the CBSL’s Governor and officials are colluding with business interests and the political establishment to trivialise and dismiss what appears to be the largest financial crime in Sri Lankan history.

These outflows are surpluses from both legal and illegal operations and therefore are not reutilised in domestic operations and in the interest of expanding industries locally. Economists such as Professor Arun Kumar at Jawaharlal Nehru University, New Delhi, have pointed out that the illegal outflow of capital is used to acquire property abroad or in conspicuous luxury consumption. In other words, illicit financial outflows enable the extravagant enrichment of individuals at the expense of entire countries in the third world.

However illicit financial flows are a common occurrence in countries which have poor financial controls. For instance, theUN referring to the GFI report published in 2014 recognised that illicit financial flows from the African continent through trade mis-invoicing from 1970 to 2009 is a staggering four times the aggregate foreign debt of the region.Furthermore, the UN Conference on Trade and Development (UNCTAD) in September 2020 revealed that an estimated US$ 88.6 billion leaves the African continent as illicit capital flight yearly and the aggregate outflows between 2000-2015 (US$ 836 billion) is far greater than total foreign borrowings of the continent (US$ 770 billion).

The ground-breaking findings of GFI and their collective work with the UN, the World Bank and the IMF advocated including illicit financial flows in the UN’s Sustainable Development Goals in 2015 under goal 16.4 to which Sri Lanka is also a signatory. As early as September 2018, Mr. Juan Pablo Bohoslavsky, the UN’s Independent Expert on Foreign Debt and Human Rights for 2014-2020 stated following his visit to Sri Lanka that “no study or official estimation of illicit outflows or inflows has been conducted to date in Sri Lanka”. In his report, he urged the Government “to conduct these studies in order to further curb illicit financial flows in line with the Sustainable Development Goals.”

Further, the Asian Development Bank (ADB) in 2003 emphasized that “inaccurate pricing (“misinvoicing”) of imports or exports [is used] to hide the transfer of funds. When such transactions are extensive, the impact on a country’s entire external sector can be substantial” (ADB,Manual on Countering Money Laundering, 2003). In 2017, the ADB further estimated that trade mis-invoicing accounts for a staggering 83% of all illicit capital outflows from developing countries. The recent statement endorsed by 182 globally renowned economists, academics and activists demanding cancellation of Sri Lanka’s foreign debt also highlighted that capital outflows during the past 15 years is estimated to be greater than Sri Lanka’s total outstanding foreign debt.

There is thus a vast body of research conducted by institutions such as the ADB, IMF, World Bank, OHCHR, UNCTAD and international economists on what happens to national economic development when rampant corruption is allowed through illicit financial flows. It is therefore hugely concerning that our CBSL Governor ‘does not believe’ and does not seem to be aware of the impact illicit financial flows through trade mis-invoicing have hadon the Sri Lankan debt crisis. Ultimately, it is a tragedy that Sri Lanka’s foremost authority on economic affairs is completely oblivious to chronic issues engulfing the developing world and the root causes of the fiscal crises we face. Alternatively, if this is not ignorance or misunderstanding, then it points to deliberate collusion by the CBSL’s Governor and his officials with business interests and the political establishment to trivialise and dismiss what are massive financial crimes.

Government Enabling of Illicit Capital Flows

We are well aware that the Sri Lankan Government ‘legally’ permitted companies to park income outside the country for years and that this economic hara-kiri was only addressed in October 2021 through a regulation under the Monetary Law Act. It is our interest as citizens to know the full impact of this disastrous blunder. We demand that the CBSL publicise the amount of residual income that the export sector failed to repatriate between the period October 2021 to date, thereby aggravating the economic crisis. We further request institutions such as the CBSL to be responsible and reflect on the implications of the ‘legality’ of enabling local companies to take capital on a developing economy like ours’ in the long run. We are glad to note that the CBSL Governor is aware of other developing countries such as India and Malaysia which have placed restrictions on financial flows as part of a policy framework to accelerate their development with the capital produced in their own countries.

CBSL Governor passing the buck to Customs

In a separate press conference on January 26th,Dr. Nandalal Weerasinghestated it is the responsibility of the public to inform the Financial Investigative Unit (FIU) of CBSL and Customs Department if they have conclusive evidence of firms involved in fraudulent trade invoicing.It is only then he claimed that the FIU of CBSL and Customs Department can take appropriate legal measures against the perpetrators. He further stated it is the responsibility of Customs Department to address mis-invoicing and not of the CBSL. These assertions indicate the reluctance of CBSL to recognise and investigate illicit outflows. It is shocking to hear from the Governor that it is the general public who should provide information or advise CBSL on highly technical matters like illicit capital transfers when the CBSL employs the greatest number of Ph.D.holders under one institution in Sri Lanka. Furthermore, it is clearly stated throughout the Monetary Law Act, No. 58 of 1949 that the CBSL bears the responsibility and authority to address issues threatening the economic stability and economic wellbeing of the general public. Hence,the CBSL cannot simply abdicate responsibility by passing the mantle to Customs Department and the general public.

Export profits are only a fraction of capital transfers through trade mis-invoicing

During the Parliamentary Committee on Public Finance meeting,the CBSL Governor further claimed that capital flight through trade mis-invoicing is tantamount to shifting profits to an overseas destination for tax avoidance. However, this is a gross understatement of the gravity of the issue. We have shown in our earlier statements that the over-invoicing of imports transfers out foreign exchange received as foreign borrowing and even workers’ remittances. This compounds the foreign debt crisis, leads to chronic shortages of foreign exchange to finance essential imports and a collapse of living conditions. A study based on 39 African countries illustrates that between 1970 and 2010 approximately 63% to 73% of foreign borrowing exited Africa within a five-year window as a result of capital flight through trade mis-invoicing. Further, the IMF in its publications over the years shows that the loss of foreign reserves of Central Banks is accelerated by capital flight through trade mis-invoicing while decreasing tax revenue.It diminishes governments’ debt-servicing capacity and worsens the incidence of balance of payments crises. Capital outflows are a diversion of domestic savings out of the economy and deplete domestic resources, compelling governments to absorb more and more foreign debt to finance domestic investments, and exacerbating debt unsustainability. Needless to say that these observations are clearly applicable to the course of Sri Lankan economy over the past three decades as we have emphasised repeatedly in earlier statements.

“IMF Budget” for the People, Non-IMF Concessions for Corrupt Businessmen

The government is imposing an ‘IMF budget’ on Sri Lanka, making life unbearable to ordinary Sri Lankans, particularly working and poor people. We hope that the CBSL Governor is able to see the ground from the tall towers he occupies and observe how people are not eating any longer because they can’t afford food; have restricted even essential travel for medical and educational purposes; live in the dark because electricity has become a luxury; and have children not going to school because of hunger and costs. His ‘belief’ is costing the lives of millions in Sri Lanka. Hence, we as trade unions, civil society organisations, economists and concerned professionals ask the obvious question – Why has the Government failed to move an inch on the observations and recommendations of institutions such as the IMF on illicit financial outflows? Why is the Government burying its head in sand while their friends, the business elite, loot money out of this country and deny our country of much-needed foreign exchange?

The CBSL should therefore immediately implement a coordinated mechanism integrating itself with commercial banks and the Customs Department to investigate the issue and repatriate illicitly transferred, funds starting from most recent transactions. Instead of speculating on the credibility of GFI and the extent of trade mis-invoicing which are already recognised by international organisations like the UN, World Bank, IMF and ADB, the CBSL should collaborate with GFI and UNCTAD to further clarify the findings on Sri Lanka that emerged from 2021GFI report. In the absence of no such an initiative being even proposed by the CBSL Governor, we can only conclude thatthe CBSL is complying with the criminal corporate-political corruption that has driven the economy to the ground and ordinary Sri Lankans into destitution.

Swasthika Arulingam, President, Commercial and Industrial Workers’ Union, United Federation of Labour

Signed on behalf of: Centre for Community Empowerment,Ceylon Bank Employees’ Union,Ceylon Federation of Labour,Ceylon Teachers’ Union,Dabindu Union,Engineers’ Services Professional Association,Federation of Media Workers’ Trade Union, Institute for People Engagement and Networking, Mass Movement for Social Justice, Movement for the Defence of Democratic Rights,Movement for Land and Agricultural Reform,Movement for Plantation Peoples’ Land Rights, National Collaboration Development Foundation,National Trade Protection Council, North South Solidarity Group, Professionals’ Centre for People,Protect Union, Satahan Media,Rural Development Foundation, Social Institute for Development of Plantation Sector,Sri Lanka All Telecommunication Employees’ Union,Stand Up Workers’ Union,Suriya Shakthi FoundationNuwaraEliya,Textiles Garments and Clothing Workers’ Union,United Fishermen’s and Fish Workers’ Congress,Upcountry Civil Society Collective, UvaShakthi Foundation,Young Lawyers’ Association

SugathKulathunga–Former Senior Advisor at International Trade Centre (WTO/UNCTAD), Former Director General of Sri Lanka Export Development Board and Former Additional Secretary to Ministry of Trade, Prof. (Dr.) M. P.S. Magamage – Former Chairman of National Livestock Development Board,Dr. KalpaRajapaksha – Senior Lecturer in Economics,AmaliWedagedara – Political Economist and PhD Student, DhanushaPathirana– Economist

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Adani’s Calling Off Public Offer: A Big Setback for India’s Green Hydrogen Projects

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All those who are keen that India should successfully set up massive green hydrogen projects to overcome the impending energy crisis are greatly disappointed that Adani group has decided not to go ahead with the fully subscribed  Rs.20,000 crore   Follow On Public Offer.

Using this public offer of Rs.20,000 crore,  Adani group earlier announced that it would spend a substantial amount to set up green hydrogen projects,  which are unlikely to happen now.

Need for green hydrogen energy project

India presently imports around  80% of it’s crude oil requirement amounting to around 250 million tonne per annum,. India is also importing around 50% of India’s requirement of natural gas, which amounts to around 35 billion cubic metres per annum.

Import requirement of crude oil and natural gas is likely to increase at 6 to 7% per annum in the coming years, as domestic production of crude oil and natural gas is likely to remain stagnant in the coming years.

Amongst many plans being implemented by the government of India to reduce the use of fossil fuel and avoid global warming, the promotion of green energy projects in a big way is one of the very important strategies.

The government of India has allotted Rs.35,000 crore for green energy projects in the 2023-24 annual budget.

The government of India is targeting to generate five million tonnes of green hydrogen annually from the year 2030, which is the industry’s total amount of (non-green) hydrogen consumed today.

This shift to green hydrogen would avoid  30  to 40 million tonnes of carbon dioxide emissions per annum and avert import of more than ₹60,000 crore worth of natural gas and crude oil.

Adani group’s proposed plans:

Adani group’s business spans coal trading, mining, FMCG (Adani Wilmar), seaport, solar power manufacturing, airports, roads, data centres, green hydrogen and so on. 

If the proposed public offer would have been accepted by Adani group, about ₹10,800 crores would have been used to fund the capital needs of green hydrogen projects, airports and expressways. 

Green hydrogen project proposal of Adani group covers the green hydrogen ecosystem from scratch.

While a few other green hydrogen projects are in the preliminary stage in India, the green hydrogen project proposal of Adani group is one of the largest.

A big setback for India’s project investment plans:

Private sector investments in projects like what Adani group has announced have to happen in a big way if India is to attain the target of 5 trillion dollar economy in the coming years.

Obviously, to attain this target, many massive projects require huge investment, for which large public issues of several thousand crores of rupees are required. 

If such public issues were to be throttled and sabotaged by vicious and motivated campaigns by some so-called research groups, then,  it would result in big setbacks for India’s future development programmes.

When an industrial group achieves spectacular growth, it is seen that those who cannot match the performance of the fast-growing group view such performance with surprise and disbelief. 

There have been cases and instances, where competitors from India or abroad would try to indirectly launch campaigns against the fast-growing group and support negative campaigns.

There have also been cases where motivated environmental groups have scuttled projects by carrying out hate campaigns and stating unproven environmental violations against particular companies. The immediate example is the closure of Sterlite Copper unit in Tamil Nadu

There have been many instances to show such motivated campaigns across the world for whatever reasons.

These conditions cause setback to India’s plans to achieve big leap forward.

Adani group   – A victim of motivated campaign  in this case:

A vicious campaign   against Adani group   was carried out by a US-based investment research firm known as  Hindenburg Research, stating several  vague  allegations, some unproven violations 

Due to the massive publicity given to such campaigns in Indian media before proper investigation, the gullible investors became panicky.  In such circumstance, the share of Adani group have seen massive losses.

In such extraordinary circumstances, Adani group felt that going ahead with the fully subscribed issue will not be correct,  since the interest of the investors have to be protected.

The net result of the situation is that  India has lost massive investment opportunities in green hydrogen projects.

Further, the motivated American research team and the detractors against India, wherever they may be,   seem to be highly pleased and satisfied.

The entire Adani episode is a case of negative forces winning ,  which is a very unfortunate situation for a growing and developing country like India.

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Flight MH 17 and The Little Dutch Girl – A Personal Reflection

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You are an open wound

And we are standing

In a pool of your blood

Rupi Kaur

25th of January 2023 was significant from a judicial standpoint, but it was a grim reminder of how many lives were stolen in the most violent and egregious way.

The Destruction

One of the worst atrocities in the annals of civil aviation was perpetrated when Flight MH 17 was destroyed over Eastern Ukraine by a ground-based missile. Was Russia to blame? Or was it Ukraine? Or even the airline for flying over dangerous territory?  The aircraft operating the flight was shot down in eastern Ukraine about 60km from the Russian border on 17 July 2014, allegedly by pro-Russia separatists.  All the 298 passengers – 193 of whom were Dutch – are believed to have died, and some of the remains of those who perished were never recovered. It is now revealed that death was not instantaneous.

Everyone seemingly responsible for the heinous act started deflecting blame, and a little girl (and all others on board) on the flight was forgotten, except for her  devastated father who grieved the unbearable loss of his only child. 

From then on, everything became clinical and adjudicatory.

Seven and a half years later, The European Court of Human Rights ruled on 25th January 2023 – on a purely procedural and technical issue –  that complaints against Russia from Ukraine and the Netherlands should go to trial, but it was not about what the little Dutch girl lost. Who would care anymore, anyway?

The European Court of Human rights, in a press release said: “Among other things, the Court found that areas in eastern Ukraine in separatist hands were, from May 11, 2014 and up to at least January 26, 2022, under the jurisdiction of the Russian Federation” , referring to “the presence in eastern Ukraine of Russian military personnel from April 2014 and the large-scale deployment of Russian troops from August 2014 at the latest.”

The Little Dutch Girl

One day in mid July 2014 a young girl –  full of hope for her future and bubbling with the energy of youth – boarded a Malaysian Airlines Boeing 777, in Amsterdam.  She had everything in life to be thankful for  – a university education,  romance and courting, a good life  with a warm home and a family – all  in front of her.  The best was yet to come.  It was time for new life to start with the freshness of hope and all the happiness that her young  heart could take.  Her  penalty for being born was not even in the distant horizon.

Her destination was Kuala Lumpur, and she was looking forward to a lighthearted romp on a fun flight and a glorious holiday with her family who were travelling with her.  

Yet she did not make it.

Every day, people die of accidents caused by their own negligence, or diseases beyond their control. People also die of intentional killing by others. Somewhat rarely, people suffer death through random acts of violence – like the little Dutch girl. For her there was no second chance.  There was no going back to the perfumed meadow of Summer. It was as though an alien sky swallowed her that clear day and the future became an illusion.

There are no answers no good, no evil only a million promises not kept that day when it raised its ugly head.  We can only fill the craters with ashes; level the furrows plant grass, trees, flowers lay white gravel path some rustic benches – a public park and hush the cries of orphaned parents.

But there was no one when darkness fell that night and all the lights went out.  She should have had someone that she could find.  She should not have been alone to weep.

My Reflections

Today, that little girl would have been in her early twenties. What would she be doing? Perhaps reminiscing over her first and only love at university? The first time she saw him and looked down and walked away? How memories of him protecting both under a tiny umbrella when they walked alone in the rain flood her mind? How she forgot to tell him what was on her mind? How she hurt for having forgotten to tell him what was on her mind? How excited she felt when she scored high grades and ran up to tell him? The look on dad’s face when she told him of her grades.

Maybe she would be holding her first born lovingly and tenderly, while her baby peered at her radiant like a pearl in an oyster that had a little door. She would have been overwhelmed with joy as though her whole world had been invigorated by the touch of a butterfly and the splash of a drop of dew. She could have had many days walking through tender meadows of sunshine and warmth amidst the laughter and joy of simple pleasures.

We Failed Her

We did not keep our promises to a little girl who depended on us for her safety We did not have stringent regulations, and Standards to stop that flight.  We knew the area was dangerous,  infested with unscrupulous elements holding  ground-based missiles. Yet we did nothing to prevent the ominous and grave risk that was posed to the flight. We did not have a system of sharing and disseminating threat information in a timely manner. We did not know to whom this information should have been relayed.  We don’t seem to have known what risk avoidance was – that it involved a risk assessment technique that entails eliminating hazards, activities and exposures that place valuable assets at risk.  In the case of civil aviation within the context of conflict zones this would mean eliminating hazards by avoiding the airspace over that zone entirely.  Unlike risk management, which is calculated to control dangers and risks, risk avoidance totally bypasses a risk.  The information to States on threats posed to their civil aviation over conflict zones would therefore had  to be disseminated through policy and procedure, training and education and technology implementations.

We did not do that.

Sorry little girl. May the doors of heaven open at the sound of your footsteps May a bright angel watch over and follow you  through your  inevitable journey. May we meet again on the horizon of eternity when our ship finally sails beyond every limit of our sight.

Above all, may we never walk away from you.

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India: Adani Unveils ‘Everything’ to Rebut Hindenburg allegations

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Richest Indian Gautam Adani’s group on Sunday likened the damning allegations made by short seller Hindenburg Research to a “calculated attack” on India, its institutions and growth story, saying the allegations are “nothing but a lie”.

In a 413-page response, Adani Group said the report was driven by “an ulterior motive” to “create a false market” to allow the US firm to make financial gains.

“This is not merely an unwarranted attack on any specific company but a calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth story and ambition of India,” it said.

Stating that the allegations in Hindenburg Research’s January 24 report are “nothing but a lie”, it said the document is “a malicious combination of selective misinformation and concealed facts relating to baseless and discredited allegations to drive an ulterior motive”.

“This is rife with conflict of interest and intended only to create a false market in securities to enable Hindenburg, an admitted short seller, to book massive financial gain through wrongful means at the cost of countless investors,” it said.

It went on to question the credibility and ethics of Hindenburg, and said the mala fide intention underlying the report were apparent given its timing when Adani Enterprises Limited is undertaking one of the largest ever further public offering of equity shares in India.

“Hindenburg has not published this report for any altruistic reasons but purely out of selfish motives and in flagrant breach of applicable securities and foreign exchange laws,” it said. “The report is neither ‘independent’ nor ‘objective’ nor ‘well researched’.”

Activist short seller Hindenburg Research, the firm which caught global attention with takedowns of electric-vehicle makers Nikola and Lordstown Motors, alleged in a report on Wednesday that its two-year investigation found the Adani Group “engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades”.

The report by the tiny New York firm that specialises in short selling has led to Adani group losing more than USD 50 billion in market value in just two trading sessions and Adani himself losing in excess of USD 20 billion, or about one-fifth of his total fortune.

Hindenburg called out the conglomerate’s “substantial debt”, which includes pledging shares for loans; that Adani’s brother Vinod “manages a vast labyrinth of offshore shell entities” that move billions into group companies without required disclosure; and that its auditor “hardly seems capable of complex audit work”.

Of the 88 questions raised by Hindenburg, 65 of them relate to matters that have been duly disclosed by Adani portfolio companies, Adani Group said. “Of the balance 23 questions, 18 relate to public shareholders and third parties (and not the Adani portfolio companies), while the balance 5 are baseless allegations based on imaginary fact patterns.”

It listed questions from the report and dismissed them as “false suggestions based on malicious misrepresentation of governance practices” or “manipulated narrative around unrelated third party entities” or “biased and unsubstantiated rhetoric”.

“We reaffirm that we are in compliance with all applicable laws and regulations. We are committed to the highest levels of governance to protect the interests of all our stakeholders,” it said. “The Adani Portfolio also has very strong internal controls and audit controls. All the listed companies of Adani Portfolio have a robust governance framework.”

The focus of the Adani portfolio and the Adani verticals is to contribute to nation building and take India to the world, it said.

“We will exercise our rights to pursue remedies to safeguard our stakeholders before all appropriate authorities and we reserve our rights to respond further to any of the allegations or contents of the Hindenburg report or to supplement this statement,” it added. 

Sources: PTI/ Agencies

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Sri Lanka and IMF: Delusional Partners

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Here we go again. The International Monetary Fund (IMF) is in command of Sri Lanka’s economy, barking orders and making demands in an effort to restore macroeconomic stability. The pattern is a familiar one. Back in April 2022, Sri Lanka’s currency collapsed, having depreciated by 44 percent against the U.S. dollar since President Gotabaya Rajapaksa took office in 2019, and, according to our measure, inflation reached a stunning 74.5 percent per year. Sri Lanka even suspended payments on its external debt. Then the IMF fire brigade arrived.

On September 1, 2022, the IMF reached a staff-level agreement to support Sri Lanka’s economy with a 48-month lending arrangement of roughly $2.9 billion. Now, the IMF is withholding the cash until Sri Lanka raises corporate-income and value-added taxes, cuts government spending, and reaches a debt-restructuring agreement with two of its largest creditors, China and India. The IMF is confident that these measures, among others, will stabilize Sri Lanka’s economy.

There’s just one little problem. This is Sri Lanka’s 17th IMF program. In fact, Sri Lanka has been on IMF life support nearly continuously since 1965. None of the previous IMF programs have permanently stabilized Sri Lanka’s economy. Why should the 17th? As the famous, often-misattributed, quote goes: “Insanity is doing the same thing over and over again and expecting different results.” By this standard, both Sri Lanka and the IMF crossed the threshold of insanity long, long ago.

There’s little empirical evidence to suggest that Sri Lanka’s shiny new IMF program will be any more successful than the past ones. A recent working paper by researchers at the Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise analyzed the effect of IMF loan programs, in the three years following the adoption of a program, on macroeconomic indicators from 2000 to 2010. The authors found that IMF lending arrangements resulted, on average, in a 5.8 percent increase in the unemployment rate, while control-group countries — countries that faced similar economic circumstances but did not implement IMF programs — experienced an average 7 percent decline in unemployment.

Other indicators tell a similar story. Countries with IMF programs fared worse than control-group countries in terms of real GDP growth, real export-value growth, and in the reduction of government debt. This research suggests that many countries would have been better off without any IMF assistance at all.

Sri Lanka’s economy is still in bad shape. Since Gotabaya Rajapaksa was elected in November 2019, the Sri Lankan rupee has shed 52 percent of its value against the U.S. dollar. Using purchasing power parity, one of us (Hanke) accurately measures inflation in Sri Lanka at a roaring 106 percent per year as of January 12. Since May 2022, foreign reserves have officially hovered around $1.8 billion, but a reported $1.4 billion of those reserves are locked away in a swap with the People’s Bank of China. So, if Sri Lanka’s economy needs stabilizing and a positive confidence shock, and another IMF program is not the answer, what is?

It’s time for Sri Lanka to mothball its central bank and replace it with a currency board. A currency board issues notes and coins convertible on demand into a foreign anchor currency at a fixed rate of exchange. It is required to hold anchor-currency reserves equal to 100 percent of its monetary liabilities.

A currency board, unlike the Central Bank of Sri Lanka, has no discretionary monetary powers and cannot issue credit. It therefore imposes a hard budget constraint on the fiscal authorities. Its sole function is to exchange the domestic currency it issues for an anchor currency at a fixed rate.

Currency boards require no preconditions and can be installed rapidly. They have existed in some 70 countries. None have failed, including the one that one of us (Hanke), designed and installed in Bulgaria in 1997. It immediately smashed a hyperinflation, caused interest rates to plunge, forced the fiscal authorities to balance the budget, and, with its positive confidence shock, spurred economic growth.

Today, thanks to its currency board, Bulgaria has the second-lowest debt-to-GDP ratio of any country in the European Union. Even the IMF heaped praise on currency boards a year after the installation of Bulgaria’s. A 1998 IMF publication noted that “currency boards in many countries have achieved impressive economic results, both in achieving lower inflation than other exchange rate regimes and in stabilizing expectations after prolonged hyperinflation.”

As it turns out, Sri Lanka (formerly Ceylon) had a currency board from 1884 to 1950. In 1884, the largest financial institution in Ceylon, the Oriental Bank Corporation, experienced an acute liquidity shortage due to bad loans to coffee plantations and subsequently failed. This sparked a run on two other banks, the Chartered Mercantile Bank and the Bank of Madras. With the crisis escalating, the colonial government quickly established a currency board, issuing fully backed, convertible-on-demand government notes — paper money. With that, the crisis was history.

It’s time for Sri Lanka to do the one and only thing that will permanently remove it from the IMF’s intensive-care ward. It should revert to a currency-board system, like the one it had for 66 years.

Courtesy: National Review. Click here to read the original version of this article

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A Vicious and Motivated Campaign to Malign Adani Group

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When an industrial group achieves spectacular growth, it is seen that those who cannot match the performance of the fast-growing group view such performance with surprise and disbelief.  In such circumstances, the armchair critics and the research and investigative organisations would try to   “invent and discover” some reasons for the rapid growth of the industrial group and in the process, the research organization would get media attention and come to the limelight.  There have also been cases and instances, where the competitors would try to indirectly launch campaigns against the fast-growing group and support negative campaigns so that the interest of the competitors would be protected.  There have also been cases where motivated environmental groups have scuttled projects by carrying out hate campaigns and stating unproven environmental violations against particular companies.

There have been many instances to show such motivated campaigns across the world for whatever reasons.

Two instances can be readily pointed out:

One is the Koodankulam nuclear project in Tamil Nadu in India, where a very vicious campaign was made against the project by so-called environmentalists and vested interests, which delayed the project by more than ten years. Now, the Koodankulam nuclear power project is operating quite well after commissioning, which clearly highlights the fact that all the allegations made against the Koodankulam nuclear power project were false and motivated.

Another immediate example is the Sterlite Copper project in Tuticorin region in Tamil Nadu, which is a large copper complex, which has been forced to be closed down by violent agitators, alleging   environmental violation. Sterlite Copper management denied all the allegations but the state government decided to close the unit permanently, fearing agitators.   The so-called environmentalists said that the Sterlite Copper was causing cancer in the local region and emitting noxious fumes, which was not true. Now, that the Sterlite Copper plant remain closed for around three years, it is clearly seen that there is no change for better in the atmospheric, soil or health conditions in Tuticorin region. This obviously proves that Sterlite Copper was sinned against rather than sinning.

Allegations against Adani group:

The present case of Adani group being accused of financial malpractices etc. by a US based research organization clearly falls on the same pattern as described above.

Many vague allegations have been made against Adani group such as family members occupying crucial posts, some unproven violations and preliminary notices issued against the group by government agencies which were suitably answered, artificially boosting share value in the market and so on.

Multiple activities in vital sector:

Adani group is involved in several field of activities including renewable energy, coal mines, seaport (Adani port), power transmission, telecommunication, airport management etc.  All these are well-planned profitable ventures if one can manage the business competently.

Adani group is a significant contributor to the industrial, infrastructure and economic growth of India and it is promoting technology and industrial growth, employment generation and conferring so many other benefits on the country as a whole.

The fact is that all these projects are managed with a reasonable level of competence by the Adani Group. The proof of the pudding is in the eating.

Not a loan defaulter:

While Adani group has taken large loan to finance the projects from financial institutions, there is nothing wrong in this, as these are legitimate methods to start and run any business activity. As the debt is serviced properly as per the terms of the agreement with financial institutions by Adani Group, this clearly show that the business is managed well.

Some sworn critics say that Adani group is debt-ridden. This is not true.  As a matter of fact, the total debt of Adani group is much less than several other groups as indicated below

A few companies with high debt ( In Rs. ‘000 crores )

While financial institutions and other agencies have extended loans or the public who have bought equity, there are no complaints from them. This obviously means that they are satisfied with the overall performance of Adani Group and all is well.

There are many ways of raising finances for operating business and so long as they are done as per the law, there should be no complaints.

 The allegation that Adani group has artificially boosted the share value in the market is totally baseless, as the market evaluates and reacts to the ground realities relating to the company and participates in the financial scheme of things promoted by the company, as per their judgement.

Is it motivated allegation?

One thing that cannot but be noted is that such allegations have been made by the US based research company against Adani group at a time when the group is launching FPO (follow on public offering).  Obviously, one may suspect that the US organization has the intention of sabotaging the efforts of Adani group.

The financing institutions around the world will certainly scrutinize the FPO launched by Adani group carefully and properly and would not be influenced by the findings of some armchair critics, who call themselves as researchers.

Gullible public being misled:

The fact is that when such vague allegations are made and somehow get adequate publicity in the media, gullible people get confused and become suspicious even without understanding the actual facts.

For example, it is ridiculous to see media reports that Adani group’s public offer price is around Rs.3112/- while the face value of the share is Re.1 /-  The absurdity of the view can be explained as follows.

“Suppose an organization was founded by the promoters with the face value of the share Re.1/- and when the company would develop and progress very well, then the market share value of this Re.1 /- face value could be much higher.  In some cases, it could be even as high as INR 2000 /- and more per share.  In such circumstances, when the public offering is done with a share price of around INR 3112/- , it  should not be interpreted as that Re.1 face value is being priced as INR 3112 /-

Let not Adani group waste time:

Adani group has said that it was considering legal action against the U S based research company and the research company has replied that it would face legal action.

The fact is that the armchair critical team in USA has really nothing much to lose by legal action and they would get huge publicity due to the protracted legal proceedings that may promote their business contacts. 

 Whereas Adani group, which has many projects which are under operation oi implementation and have many more future projects in view,  would find it difficult to divert its attention and time to fight a legal case in court.

 Adani group should ignore such detractors and save its valuable time and energy to move on with the process of contributing to the industrial and economic growth of the country.

Views expressed are the author’s own

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India’s Adani: Beginning of the End?

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Shares of India’s Adani Enterprises (ADEL.NS) sank 20% on Friday as a scathing report by a U.S. short seller triggered a rout in the conglomerate’s listed firms, casting doubts on how investors will respond to the company’s record $2.45 billion secondary offer.

Seven listed companies of the Adani conglomerate – controlled by one of the world’s richest men Gautam Adani – have lost a combined $48 billion in market capitalisation since Wednesday, with U.S. bonds of Adani firms also falling after Hindenburg Research flagged concerns in a Jan. 24 report about debt levels and the use of tax havens.

The rout took shares of Adani Enterprises, the group’s flagship company, well below the offer price of its secondary sale, which had initially been offered at a discount.

The Adani Group is concerned about the fall in share prices but continues to be in wait and see mode as the share sale continues until Jan. 31, said two people with direct knowledge of the discussions.

India’s capital markets regulator is studying the Hindenburg report and may use it to aid its own ongoing probe into offshore fund holdings of Adani Group, two other sources said. Spokepersons for the regulator and Adani had no immediate comment.

Adani Group has dismissed the Hindenburg report as baseless and said it is considering whether to take legal action against the New York-based firm. It did not immediately respond to a request for comment on the regulator’s move.

With a net worth of $97.6 billion, billionaire Gautam Adani is now the world’s seventh richest man, according to Forbes, slipping from the third position he held before the Hindenburg report.

Adani met the county’s power minister R.K. Singh on Friday in New Delhi, according to a source familiar with the matter. The agenda of the meeting was not immediately known.

The billionaire hails from the western state of Gujarat, the home state of Prime Minister Narendra Modi. India’s main opposition Congress party has often accused Adani and other billionaires of getting favourable policy treatment from Modi’s federal administration, allegations the billionaire denies.

The stunning market selloff has cast a shadow over Adani Enterprises’ secondary share sale that started on Friday. The anchor portion of the sale saw participation from investors including the Abu Dhabi Investment Authority on Wednesday.

“The sell-off is seriously extreme … it has clearly dented the overall investor sentiment in the market,” said Saurabh Jain, assistant vice-president of research at SMC Global Securities.

Market worries extended to Indian banks with exposure to Adani Group’s debt. The Nifty Bank index (.NSEBANK) fell over 3%, while the broader 50-share Nifty index (.NSEI) was down 1.5%.

CLSA estimates that Indian banks were exposed to about 40% of the 2 trillion rupees ($24.53 billion) of Adani Group debt in the fiscal year to March 2022.

Source: The Reuters. Click here to read the complete report

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Sri Lanka: Central Bank to Maintain Same Policy Interest Rates

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The Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 24 January 2023, decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank at their current levels of 14.50 per cent and 15.50 per cent, respectively. The Board, having noted the recent and expected developments and projections on the domestic and global macroeconomic fronts, was of the view that the maintenance of the prevailing tight monetary policy stance is imperative to ensure that monetary conditions remain sufficiently tight to rein in inflationary pressures. Such tight monetary conditions, together with the tight fiscal policy, are expected to adjust inflation expectations downward, enabling the Central Bank to bring inflation rates towards the desired levels by end 2023, thereby restoring economic and price stability over the medium term.

Inflation continued to decline as envisaged in recent months and is projected to follow a faster disinflation path 

Year-on-year headline and core inflation, based on both the Colombo Consumer Price Index (CCPI) and the National Consumer Price Index (NCPI), continued to decelerate in December 2022 for the third consecutive month, as expected. The downward adjustment in inflation rates is expected to continue through 2023, supported by subdued aggregate demand resulting from tight monetary and fiscal policies, expected improvements in domestic supply conditions, and the passthrough of easing global commodity prices to domestic prices, along with the favourable statistical base effect.

Domestic economic activity is expected to recover towards the latter part of 2023, compared to the large contraction in 2022 

As per the GDP estimates published by the Department of Census and Statistics (DCS), the real economy is estimated to have contracted by 7.1 per cent in the nine months ending September 2022, on a year-on-year basis. With tighter monetary and fiscal policies in place, along with disruptions to domestic supply conditions, real activity in the final quarter of 2022 is also expected to have remained subdued. The economy is expected to make a gradual recovery during the year supported by the expected improvements in domestic supply conditions, underpinned by the timely implementation of corrective policy measures. Meanwhile, the anticipated improvements in foreign exchange flows and the resultant enhancement in business and investor sentiment are expected to reinforce the expected recovery in the period ahead.

Excessive market interest rates have begun to adjust downward and are expected to ease further in the period ahead 

Early signs of a gradual easing of excessive market interest rates have been observed recently in response to the administrative measures adopted by the Central Bank, along with the improvements in domestic money market liquidity and overall sentiments in the domestic markets. Recent measures adopted by the Central Bank to reduce the overreliance of licensed commercial banks on the standing facilities of the Central Bank and the concurrent conduct of open market operations helped improve liquidity in the domestic money market. This prompted activity in the interbank money market. Improved liquidity conditions, along with improved investor sentiment on the anticipation of “financing assurances” from official creditors, led to a notable moderation in the yields on government securities recently, reflecting the easing of the high risk premia attached to government securities. Meanwhile, the market deposit rates have also shown a notable moderation, benefiting from improved liquidity conditions. These developments are expected to pave the way for an easing of excessive market interest rates in the period ahead. Nevertheless, outstanding credit extended to the private sector by commercial banks continued to contract in response to the tight monetary conditions and the moderation in economic activity. Monetary expansion also moderated from peak levels, albeit at a slower pace.

The external sector remains resilient despite heightened challenges, and the outlook remains positive with the expected improvements in relation to “financing assurances” from creditors 

The merchandise trade deficit is estimated to have contracted significantly in 2022, compared to recent years, owing to an improvement in export earnings and a substantial compression of  import expenditure on account of policy measures taken to curtail non urgent imports and foreign exchange liquidity constraints. The gradual improvement in workers’ remittances, together with the revitalisation of tourism, helped improve the external current account balance in recent months while easing excessive pressures in the domestic foreign exchange market. As a result, the exchange rate has remained relatively stable, and recorded a marginal appreciation against the US dollar, thus far in 2023. Gross official reserves were estimated at US dollars 1.9 billion as of end 2022, including the swap facility from the People’s Bank of China, equivalent to around US dollars 1.4 billion. The envisaged finalisation of the IMF-EFF arrangement in the period ahead and the resultant developments that follow, along with the improvements in the external current account, are expected to enhance the external sector outlook.

Policy interest rates are maintained at current levels 

In consideration of the current and expected developments, both domestic and global, as indicated above, the Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 24 January 2023, decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank at their current levels of 14.50 per cent and 15.50 per cent, respectively. The Board was of the view that the current monetary policy stance is appropriate to ensure that underlying monetary conditions in the economy remain sufficiently contained to drive inflation along the envisaged disinflation path. While some downward adjustment in market interest rates has been observed lately, the Monetary Board is of the view that there is sufficient space for excessive market interest rates, including lending interest rates to Small and Medium Sized Enterprises (SMEs), to adjust downwards considering the recent improvements in domestic money market conditions and sentiments along with the moderation in the yields on government securities. However, the Board was also of the view that the anticipated further decline in the yields on government securities due to the narrowing of risk premia is unlikely to result in a significant improvement in underlying monetary conditions. The Central Bank will continue to closely monitor monetary conditions in the period ahead and will remain prepared to take swift and proactive measures, as appropriate.

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Air Taxis and Vertiports – A Growing Trend In 2023

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If transportation technology was moving along as fast as microprocessor technology, then the day after tomorrow I would be able to get in a taxi cab and be in Tokyo in 30 seconds ~ W. Daniel Hillis

Known as flying cars by some, air taxis (or flying taxis)   are technically known as EVTOL (electric, vertical take off and landing) aircraft.  In other words, they are drones propelled by multirotor  equipment and are usually designed to carry less than a dozen passengers (there are two seater air taxis in the design phase in China and Germany)..  Air taxis are calculated to ease traffic congestion on the roads making it easy for commuters to get from one place to another without being bogged down in traffic. A good example where air taxis could be beneficial is in the context of a rush to the airport to catch a flight or a dash to the railway station to make it to a train which is few and far between during the day.   Air taxis take off and land vertically, obviating the need for runways needed by conventional aircraft, and land in vertiports – described as “half airports, half subway stations”.

EVTOLs other uses are in search and rescue operations, transporting organs for transplant, as well as delivery and tourism. It is estimated that in the coming decades there could be  hundreds or even thousands of EVTOLs in countries such as the United Kingdom and the United States .

The Economist’s annual journal The World Ahead 2023 says: “air travel turns profitable as international arrivals  soar by 30%. But they stay below pre-pandemic levels”. At present only up to one third of air travel pre 2019 can be seen, but the demand for travel is growing. The International Air Transport Association’s (IATA)  – the trade association of airlines – has forecast that there will be a return to pre pandemic levels for global airlines by around end-2023, calling it “about the right timeframe”. The use of air taxis would largely be domestic, particularly in large countries such as the United States, Canada, China and India which have large domestic markets.  The exponential increase in international air travel would in turn mean that air taxis would be a popular and efficient mode of transport in the context of domestic connections.

The Economist goes on to say: “This will be a crucial year for the aviation pioneers developing electric vertical take off and landing (EVTOL) aircraft …several firms are hoping to obtain the necessary certification in 2023 to commence commercial production, paving the way for the fast passenger services”.

Prior to starting to manufacture these aircraft, manufacturers and regulators would have to agree on safety standards and the latter would have to issue a license for the aircraft before passengers can be carried.  BBC Science Focus reports: “Many developers believe their vehicles will be safety certified and cleared for take off by 2025, if not sooner. Boeing, Airbus and Hyundai are some of the familiar names building air taxis. Another is Joby, which bought Uber Elevate, the ride-sharing giant’s foray into eVTOLs, in December 2020. Meanwhile, British firm Vertical claims to have the highest number of conditional pre-orders with the likes of Virgin Atlantic and American Airlines among the investors lining up for its VA-X4 vehicle”. The Report goes on to say that sprawling and congested cities such as  Los Angeles i São Paulo, Osaka and Singapore are some of the cities preparing for the advent of advanced air mobility offered by air taxis. In Europe the continent’s first vertiport  is being built in France in time for the 2024 Paris Olympics,  with the United Kingdom following close. 

Regulations on air taxis in most countries are yet to attain fruition. However, air taxis could arguably be considered analogous to any aircraft big or small, and therefore regulators could well be influenced by current international regulations applying to the manufacture of commercial aircraft. Annex 8 to The Chicago Convention which addresses issues of airworthiness of aircraft provides that the State of manufacture is required to ensure that each aircraft, including parts manufactured by sub-contractors, conforms to the approved design, and that the State taking responsibility for the production of parts manufactured under the design approval has to ensure that the parts conform to the approved design.

The Annex begins with an obligatory provision on the State of design of an aircraft by saying that it is required to transmit to every Contracting State which has advised the State of Design that it has entered the aircraft on its register, and to any other Contracting State upon request, any generally applicable information which it has found necessary for the continuing airworthiness of the aircraft, including its engines and propellers when applicable, and for the safe operation of the aircraft, and notification of the suspension or revocation of a Type Certificate. For its part, the State of Registry has to ensure that, when it first enters on its register an aircraft of a particular type for which it is not the State of Design and issues or validates a Certificate of Airworthiness it is required to advise the State of Design that it has entered such an aircraft on its register.

The State of Design has to ensure that, where the State of Manufacture of an aircraft is other than the State of Design, there is an agreement acceptable to both States to ensure that the manufacturing organization cooperates with the organization responsible for the type design in assessing information received on experience with operating the aircraft. The State of Manufacture of an aircraft is obligated to ensure that, where it is not the State of Design, there is an agreement acceptable to both States to ensure that the manufacturing organization cooperates with the organization responsible for the type design in assessing information received on experience with operating the aircraft.

There is also a requirement (not specifically aimed at manufacturers) that compliance with the Standards prescribed as above is required to be established by flight. Chapter 4 of the Annex stipulates that the functioning of all moving parts essential to the safe operation of the aeroplane is required to be demonstrated by suitable tests in order to ensure that they will function correctly under all operating conditions for such parts.  Initially air taxis will have crew piloting the aircraft. Annex 8  contains a requirement that the aircraft be provided with approved instruments and equipment necessary for the safe operation of the aeroplane in the anticipated operating conditions. These include the instruments and equipment necessary to enable the crew to operate the aeroplane within its operating limitations.  The underlying principle is that the aircraft is required to have such stability in relation to its flight characteristics, performance, structural strength, and most probable operating conditions (e.g. aeroplane configurations and speed ranges) so as to ensure that demands made on the pilot’s powers of concentration are not excessive when the stage of the flight at which these demands occur and their duration are taken into account.

Certification of airworthiness of an air taxi is a serious business and internal regulations of a country must consider analogous standards already established by member States of the International Civil Aviation Organization.

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