Central Bank says:

No devaluation No IMF bailout

*Foreign exchange reserves higher than in 2004

*US $ 500 million from Sri Lankan Diaspora

*Devaluation no panacea

*Government firm on economic policy

Highly placed Central Bank sources told the Daily News yesterday that there is no need to devalue the Rupee or seek an IMF bailout package as speculated in certain media.

These media reports are completely untrue, they said adding that “there is no need of devaluation and there is not even the remotest intent to devalue the Sri Lankan Rupee.”

Sri Lanka’s foreign exchange reserves though declining at the moment are higher than what it was in 2004 and hence there is no need to panic and no risk to the economy, they assured. The Central Bank has adopted many strategies to improve the country’s foreign exchange reserves and several measures are being implemented at present.

As a remedial measure the Central Bank is currently engaged in seeking some soft arrangements with several foreign central banks and Governments. The negotiations have reached an advanced stage, the Daily News learns.

A campaign will also be launched among the Sri Lankan Diaspora to sell Treasury Bonds and Treasury Bills.

It is expected to raise US $ 500 million from this campaign to be conducted in the following regions: Middle East (Dubai, Abu Dhabi, Kuwait, Jordan, Lebanon, Qatar, Bahrain, Saudi Arabia and Oman), Europe (Italy, France, Switzerland, Germany, The Netherlands and UK), North America (USA and Canada), and Asia (South Korea, Malaysia, Singapore, Japan, India and Bangladesh). In addition, the program will cover Australia and New Zealand.

Treasury Bonds and Treasury Bills have an attractive high interest rate as well as a Government guarantee. Therefore, they are a safe investment.

Central Bank sources also confirmed that there is no need to seek any bailout package from the IMF and the Government has no intention of applying to the IMF for relief.

Contrary to what is speculated in the media Japan has not reduced its quota of aid to Sri Lanka and the arrangements already agreed upon continue unchanged, the Central Bank confirmed.

A leading Sri Lankan Economist when contacted by the Daily News said that the depletion in exchange reserves and impact on the global financial crisis on the manufacturing export sector could be countered with measures other than devaluation or depreciation of the Sri Lankan Rupee.

“Devaluation is no panacea. It could lead to speculation about further devaluation and create instability,” he said. He questioned as to how one could say that the Sri Lankan Rupee should be devalued by 20 per cent. Is it over-valued to that extent, he asked.

Reducing interest rate and Repo rate as well as tax concessions to the export sector are some of the alternative measures available to the Central Bank, he pointed out. Actually the interest rate has been already lowered. Contrary to opinions expressed by certain quarters the Government must not relax the monetary policy, he added.

Former President Federation of Chamber of Commerce and Industry, Nawaz Rajabdeen said that with the war coming to an end and peace within sight there would be many investors who would like to invest in Sri Lanka.

“These investments would further increase Central Bank reserves,” he said.

“Sri Lanka’s Independence Day is the right time to launch Treasury Bills and the bond market to the intentional market and I am confident that the country can raise $ 500 million,” he said.

Director Economies Government Peace Secretariat, Rohantha Atukorale said that Sri Lanka is in a good position to raise finances through the international bond and financial security market. “This will further boost Sri Lanka reserves,” he said. Sri Lanka can and must manage its economy on its own.

“The country has its own goals and objectives which are now being met,” he said. “What is important is for Sri Lanka is to continue its growth path. If we do not have to go for support from institutions like the IMF is better as it would be conditional loans.

The private sector must bring credibility to the financial system so that the Diaspora would invest in Central Bank financial instruments,” he said. He also said that the Government should also try to cut down on waste and unproductive investments.