Biting the hand that feeds us dollars

Given most of the current economic woes come from a lack of foreign currency, one would expect dollar revenue earners to be kept in good stead, at the very least brought into decision making. 

However, with large taxes now to be charged on exporters, the Central Bank and Government are out to topple the last leg holding up the table. The CBSL recently urged tea exporters to persuade buyers to repatriate export proceeds within one month instead of continuing to extend the customary six-month credit period, as a last-ditch effort on bridge financing for the coming months.

CBSL Governor Dr. Nandalal Weerasinghe addressed the attendees and urged them to take action to return back 100% of their export revenues to the nation within a month, citing the nation’s need for help “now more than ever” at the 128th Annual General Meeting of the Colombo Tea Traders Association last week. 

He made the case that it is unjust that exporters continue to give credit terms to purchasers of up to 180 days while everyone rejects any Letters of Credit facilities offered by regional banks to fund the nation’s imports.

He insisted on renegotiating the credit facilities provided to buyers of Ceylon Tea in light of the existing status of the nation. Dr. Weerasinghe also pointed out that until the IMF program is finalised – anticipated to take several months – the country does not have any finances lined up. 

While this was going on, Sri Lanka Tea Board Chairman Niraj De Mel urged tea exporters to De Mel urged tea exporters to do everything possible to help the nation at this critical time, suggesting also a renegotiation with their buyers, to reduce the length of their credit facilities from the customary 180 days to 90 days.

In comparison to $ 100 million at the beginning of this year, he observed that tea export revenues in subsequent months increased to approximately $ 110-120 million every month. He emphasised that since net exports of tea account for 95% of total exports, tea export revenue may considerably aid the nation in resolving any crisis. 

Added to the fast-tracked payments, according to Cabinet Co-Spokesman Minister Bandula Gunawardana, Sri Lanka is thinking about restricting rubber imports for export sectors in an effort to maintain high domestic rubber prices. 

When necessary, rubber can be imported by Sri Lankan export industries that have been licenced. For some tyre companies that require lower grade rubber, which is in short supply, this may work out, however the full effects are not yet known. Plantation and Industries Minister Ramesh Pathirana had also briefed the Cabinet that efforts were being made to limit rubber imports in order to maintain high domestic pricing.

Particularly in Sri Lanka, latex prices have fallen, lowering farmer incomes, he claimed. As demand for gloves increased during the Coronavirus crisis, so did the demand for latex of which liquid rubber sap is the essential ingredient. Malaysian and Thai rubber prices have also decreased recently along with the global price of rubber.

With US money printing too, the price of all commodities including rubber, rose sharply around the world. With US monetary policy now being tightened, the commodity bubble is now deflating. Due to a currency crash, Sri Lanka’s tea prices increased both in dollars and in rupees, but they are still holding steady. 

Comparing tea prices to other commodities, they tend to drop in dollar terms later on. However, if such interventionist policy continues the resulting exodus of exporters would leave us more dollars dry than we find ourselves.