Import of surplus goods from India, China and Japan through long term supplier credit (up to one year) is an ideal opportunity to beat high inflation in the country, a top banker said. "These three nations are seeing their exports markets crash. Especially China and Japan have a severe trade surplus with the US. The US now cannot afford to buy anymore from these countries because it is in recession. They (China and Japan) are flooded with goods they cannot export,” Rienzie Wijetilleke, Chairman Hatton National Bank told The Sunday Times FT.
He explained that steel, cement and machinery stand prominent in the surplus goods. "This is an ideal opportunity for us to get them down on supplier credit that is long term such as one year,” he pointed out. (On normal circumstances, supplier credit is for three months). He said that such a move will generate more business and employment, which in turn will help curtail inflation. "This is a better way than artificially stopping the rupee from depreciating, which has been going on for sometime,” he said.
Mr. Wijetilleke noted that instead of allowing exporters earn dollars by exporting, the government is borrowing dollars at 'exorbitant' rates to keep the rupee propped up. "They are borrowing at commercial rates. We as banks are compelled to commit long term deposit rates to match high treasury bill (TB) rates for the next year. We are unable to reduce our interest rates, because we need to keep up with the TB rates. This is a vicious cycle.”
He said HNB, along with its counterparts need to thin their margins. "There are no good borrowers who will start businesses, build houses, etc. We are unable to lend money now."
Mr. Wijetilleke also said that 20% devaluation of the rupee is a 'must'.
"It is the barest necessity to keep this economy afloat and also the most effective long term solution to this crisis. What the government is now doing is applying short term, politically beneficial solutions to real, long term problems," he added. "The economy is controlled by people who pretend to be ignorant. All seems to be fine, because people are rejoicing in the successes of war, not realizing the worst will come any moment." Mr. Wijetilleke added that Sri Lanka has always recovered from such crisis, through prudent planning and wise and responsible action by those in authority. "With such moves we can separate the men (capable officials) from boys (incapable officials)", he said.
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