Mandatory conversion of foreign earnings
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It was that time of the morning on a Thursday that I received a call. It was ‘human resource’ pundit HR Perera, popularly known as HR.“I say, lots of stuff to talk about. I’ll start with a CEB announcement of power cuts. That was followed by a notice saying there won’t be any more power cuts, but the next day there were power cuts. What is going on at this state agency?” he asked.
“There is an element of chaos in its operations. It seems we are dependent on the Norochcholai coal power plant. If something goes wrong there, our power suffers,” I said.
“Another matter of interest is the President’s decision to prorogue Parliament. I am told that generally this move is to forestall some development the governing party is not happy to discuss in Parliament. I wonder what it is,” he said.
“Well there is speculation that this may be due to the furore over the proposed Yugadanavi power agreement and also to remove the chairpersons of the Committee on Public Accounts and the Committee on Public Enterprises, both headed by government MPs who have been critical of some state agencies,” I replied.
We went on to discuss many other burning issues, concluding that the country was going through the worst crises since the 30-year separatist war ended in 2009.
As we ended our conversation, I walked into the kitchen to get my morning cup of tea and couldn’t help listening to what the trio was discussing this morning under the margosa tree. The discussion was engaging – it was on migrant workers – and turned out to be a good subject to write on.
“Mage yaluwek ge duwekta meda peradiga eya weda karana thena prashna athiwela thiyenawa. Eya kiyanawa padiya deela ne kiyala. Eya ehe thanapathi karyalayata danwala thiyenawa. Thama, eh ratawala ape kattiyata prashana thiyenawa [The daughter of a friend of mine has had some issues in the Middle East (West Asia) at her place of work. She says she has not been paid and has appealed to the Sri Lankan mission there. These problems faced by workers still exist],” said Kussi Amma Sera.
“Thava prashnayak thama, sankramika kamkaruwo den kalpana karanawa lankawata salli evanne kohomada kiyala – aniyam marga walinda nethnam vidimath marga walinda. Aniyam marga walin rupiyal 230-240 ganna puluwan eka dolarayakata. Eth vidimath marga walin evvoth eita godak adui, banku walata kiyala thibbata me maase dolarayata rupiyal 213 denna kiyala (Another problem is that migrant workers are in a dilemma as to whether to send their remittances through informal channels or formal channels. They get Rs. 230-240 per dollar through informal channels and much less through formal channels although banks have been instructed to this month pay Rs. 213 per dollar),” noted Mabel Rasthiyadu.
“Vidimath marga walin lankawata dollar ho wenath salli evvoth, eva aniwarya-yenma rupiyal walata harawa ganna oney (If you send money through formal channels, you are forced to convert your dollars or foreign currency to rupees),” added Serapina.
The last point has become a bone of contention and figured in a writ petition filed in the Court of Appeal by the Bar Association of Sri Lanka (BASL) President Saliya Peiris and Deputy President Anura Maddegoda.
The BASL is challenging the Central Bank (CB) decision mandating the conversion to rupees of foreign currency received through bank accounts.
The petition said that on October 28, the CB Governor issued an Extraordinary Gazette Notification titled ‘Repatriation of Export Proceeds into Sri Lanka Rules No. 5 of 2021’ which makes it compulsory to convert foreign currency received in the country through bank accounts into rupees.
“It is unlawful to order the foreign currency to be converted into rupees without the consent of the members of our association. It is also against Article 140 of the Constitution. This is also against the principle of natural justice,” the petition said.
The BASL said their members receive fees from their clients in foreign currency, both inside and outside Sri Lanka and so far, there has been no need to convert this foreign currency into rupees.
The petition has been listed for hearing next month and will have a huge bearing on remittances of migrant workers, exporters’ earnings and also the CB’s plans to build its foreign exchange reserves.
If the court holds with the BASL plea to stop the CB from forcible conversion of foreign currency earnings, the ruling would not only apply to earnings by BASL member-lawyers but also migrant worker remittances and earnings by exporters. On the other hand, if the court rules in favour of the CB, the banking regulator’s plans to garner foreign exchange through such mandatory conversions will continue and keep the foreign reserves under control.
Most analysts believe the current measures on converting export proceeds and remittances, are counter-productive. While the CB is acting tough against licensed foreign exchange dealers who sell foreign exchange at a much higher rate than banks, this hasn’t deterred the underground market exchange in US currency which is similar to what has happened in crisis-hit Venezuela where there is a thriving black market for dollars.
The plethora of rules governing foreign exchange earnings are disincentives to export companies and the many changes effected by the CB are not good to sustain businesses. Already, as reported by the Business Times, some companies are considering shifting abroad.
The country’s foreign reserves are just around US$1.5 billion at present though CB Governor Ajith Nivard Cabraal is confident that with various inflows expected, this figure would be around $3 billion by end 2021 (in two weeks’ time).
Sri Lanka has to settle a $500 million loan in January, while total repayments for 2022 are $6.5 billion.
The CB has been ‘twisting and turning’ in its decisions on remittances and exporter earnings. This month, it decreed that all remittance inflows will be entitled to an extra Rs. 10 per dollar, making it Rs. 213 per dollar (official rate of Rs. 203 + Rs. 10).
Earlier, on February 18, 2021, the CB ordered exporters to convert 25 per cent of the proceeds to rupees. On March 17, the CB suspended a directive which asked banks to convert 10 per cent of inward worker remittances to rupees. Then the CB suspended a rule to banks to convert a large percentage of export proceeds. On May 28, the CB directed banks to sell 10 per cent of the remittances to the CB. Then on May 28, a directive was issued on mandatory conversion of 25 per cent of export proceeds within 30 days of receipt.
It was time to end my column when Kussi Amma Sera walked into the room with my second cup of tea. “Sankramika kamkaruwo genada liyanne (Writing about migrant workers),” she asked.
I nodded in reply, looking forward to next month’s debate over the mandatory conversion of foreign exchange earnings.
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